CROWN BOOKS CORP, 10-K, 1996-04-30

CROWN BOOKS CORP
10-K, 1996-04-30
MISCELLANEOUS SHOPPING GOODS STORES

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

(Mark One)
(X)Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required) for the fiscal year ended February 3, 1996
----------------------

() Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) for the transition period from
___________ to __________

Commission file number 0-11457
-----------

CROWN BOOKS CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
Delaware 52-1227415
- ------------------------------------ -------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

3300 75th Avenue, Landover, Maryland 20785
- ------------------------------------ -------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>

Registrant's telephone number, including area code (301) 731-1200
----------------------------

Securities registered pursuant to Section 12(b) of the Act: NONE
--------------
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, Par Value $.01 per share
- --------------------------------------------------------------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )

At April 30, 1996, the registrant had 5,388,973 shares of Common Stock
outstanding and the aggregate market value of such shares held by
non-affiliates of the registrant was approximately $20,678,000.

DOCUMENTS INCORPORATED BY REFERENCE

1996 Information Statement.................. Part III Items 10-13

The exhibit index begins at page 73 of this Form 10-K.

1
<PAGE> 2

Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I
------
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Part II
-------

Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . 32

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . 66

Part III
--------

Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . 66

Part IV
-------

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>

2
<PAGE> 3
PART I

Forward-looking Statements

Statements in this report that are not historical in nature, including
references to beliefs, anticipations or expectations, are forward-looking.
Such statements are subject to a wide variety of risks and uncertainties that
could cause actual results to differ materially from those projected, including
the results of ongoing litigation affecting the Company (defined below), the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, the availability of capital to fund
operations and other risks described from time to time in the Company's filings
with the Securities and Exchange Commission. The Company undertakes no
obligation and does not intend to update, revise or otherwise publicly release
the result of any revisions to these forward-looking statements, which
revisions may be made to reflect any future events or circumstances, other than
through its regular quarterly and annual financial statements, and through the
accompanying discussion and analysis contained in the Company's Quarterly
Reports on Form 10-Q and Annual Report on Form 10-K, which will contain
disclosure concerning the Company's actual results of operations and financial
condition during the period covered by such reports.

Item 1. Business

Crown Books Corporation ("Crown Books") was incorporated in Delaware in
1981 and operates retail discount book stores. The term "Company" refers
collectively to Crown Books and its wholly-owned subsidiaries, including Crown
Books East Corporation ("Crown East"), Crown Books West Corporation ("Crown
West"), Super Crown Books Corporation ("Super Crown") and Crown DHC Corporation
("Crown DHC"). Dart Group Corporation ("Dart") owns 51.4% of Crown Books'
outstanding common stock, par value $.01 per share (the "Common Stock").

Operations

The Company is a retailer operating discount specialty stores. These
stores offer popular hardback and paperback books, newspapers, magazines, books
on tape, videos, computer software, reference materials and other items and
accessories.

The Company responds to the demand for books at prices below the
publishers' and manufacturers' suggested retail prices and provides quality
service to its customers. The Company sells hardbacks on The New York Times
best seller list at 40% below the publishers' suggested retail prices,
paperbacks on The New York Times best seller list at 25% below the publishers'
suggested retail prices, other new books at 10% to 25% below the publishers'
suggested retail prices, and magazines at 10% below the publishers' suggested
retail prices. All other merchandise is sold at a discount from the
manufacturers' suggested retail price. The Company sells publishers'
over-stock, reprints and former best sellers at significant discounts from the
publishers' original

3
<PAGE> 4
Item 1. Business (Continued)

suggested retail prices. In addition, the Company allows customers at all
stores to special order books not stocked in inventory at discount pricing.
Merchandise is generally purchased directly from a large number of publishers
and suppliers. The Company is not dependent on any single publisher or
supplier.

The Company advertises extensively, primarily through newspapers and
direct mail, stressing its discount pricing policy. The Company satisfies
regional and local consumer preferences by tailoring the selections and
quantities of books that it makes available in individual stores. The Company
also arranges for special appearances and book autograph sessions with
recognized authors to attract customers and to build and reinforce customer
awareness of its stores.

All major merchandising decisions concerning pricing, advertising and
promotional campaigns, as well as the initial ordering of inventory for each
store, are managed centrally at the Company's headquarters in Landover,
Maryland. Over 80% of the merchandise is shipped directly from publishers to
the stores. Best sellers and other books that are purchased in large
quantities are often shipped directly from the publishers to the Company's
regional warehouses for distribution to the stores. Inventories are monitored
both at stores and in the central office in Landover, Maryland, to determine
purchase requirements. In general, unsold books and magazines can be returned
to the publishers for credit.

Super Crown Books operates discount retail book superstores. The first
Super Crown Books store opened in 1990 and the Company has continued to expand
the Super Crown Books concept. The stores carry as many as 80,000 titles,
nearly eight times the number of titles as a "classic" Crown Books ("Classic
Crown Books") store. Super Crown Books stores also carry a wider selection of
non-book products and accessories.

Classic Crown Books stores range in size from approximately 2,000 to
3,000 square feet and Super Crown Books stores range in size from approximately
6,000 to 35,000 square feet. The Super Crown Books stores permit more
effective and economic utilization of space. The interior of the stores is
standardized, so that the stores can be assembled quickly. Most of the stores
are open seven days a week.

All Super Crown Books stores and all Classic Crown Books stores have
computerized point of sale and inventory management systems ("systems"). The
systems enable store personnel to scan bar coded merchandise resulting in less
time to process the sales transaction with more accurate pricing. The systems
are designed to provide detailed inventory information on an item basis to
store management.

In selecting specific store sites, the Company considers numerous
factors, including local demographics, desirability of available leasing
arrangements, proximity to existing Company operations and competitors, and
overall retail

4
<PAGE> 5
Item 1. Business (Continued)

activity. The Company clusters its stores in selected market areas to maximize
advertising, distribution and management resources. Within a selected market
area, the Company generally locates its stores in strip shopping centers and
urban street locations. Compared to large enclosed malls, the Company believes
that the strip shopping centers and urban street locations typically charge
less rent and provide greater consumer awareness and convenience.

The following table sets forth by metropolitan area the locations of the
Company's stores for each of the last five fiscal years:
<TABLE>
<CAPTION>
Number of Stores
at end of fiscal year
------------------------------------
Metropolitan Area: 1992 1993 1994 1995 1996
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Washington, D.C. ........... 61 59 60 47 43
Los Angeles, California .... 79 76 68 59 51
Chicago, Illinois .......... 43 43 43 37 32
San Francisco, California .. 30 30 31 24 20
San Diego, California ...... 20 20 17 12 9
Houston, Texas ............. 5 3 6 6 6
Seattle, Washington ........ 16 16 15 11 11
---- ---- ---- ---- ---
Total..................... 254 247 240 196 172
==== ==== ==== ==== ====
</TABLE>

The following tables set forth the number of stores of each of Classic
Crown Books and Super Crown Books that were opened, closed or remodeled during
each of the last five fiscal years, as well as the total number of such stores
as of the end of each fiscal year.

<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Super Crown Books stores:
- -------------------------
Opened during the year.... 9 13 37 12 16
Closed during the year.... - - 4 3 2

Classic Crown Books stores:
- ---------------------------
Opened during the year.... 4 - 5 2 -
Closed during the year.... 18 20 45 55 38
Remodeled during the year. 7 2 - - -

Total Stores Open at January 31
- -------------------------------
Super Crown Books stores.. 15 28 61 70 84
Classic Crown Books stores 239 219 179 126 88
</TABLE>

The Company believes that its superstore concept presents significant
growth opportunities and intends to open new Super Crown Books stores in
existing and possibly new markets. As of February 3, 1996, the Company had
entered into lease agreements to open 14 new stores. In addition, the Company
intends to continue its practice of reviewing the profitability trends and
prospects of existing stores and may close or relocate under-performing stores.

5
<PAGE> 6
Item 1. Business (Continued)

Restructuring Reserves

In fiscal years 1993 and 1994, the Company determined that a number of
the smaller Crown Books stores were not competitive in the changing market
environment evidenced by an industry movement to larger stores. Consequently,
the Company recorded restructuring charges totaling $12,800,000 during the two
years for the anticipated costs for closing, relocating, expanding and
converting existing stores to the Super Crown Books concept. The costs
primarily represent unrecoverable lease obligations (net of estimated sublease
income) and the book value of leasehold improvements from the estimated closing
date. The activity in the restructuring reserves during the last two years
follows:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Restructuring Reserve, beginning of year $ 10,515,000 $ 11,960,000
Less:
Costs charged against the reserve (1,439,000) (1,445,000)
Reversal of reserves (2,051,000) -
------------ ------------
Restructuring Reserve, end of year $ 7,025,000 $ 10,515,000
============ ============
</TABLE>

In fiscal 1996, the Company reversed a portion of the restructuring
reserve as a result of (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings, and (iii) management's decision not to close one store
that had been scheduled for closing.

The remaining restructuring reserve relates to 27 stores, of which 10
have been closed as of February 3, 1996, with lease obligations ranging from
three to 108 months. The lease obligation allocable to related party leases is
approximately $623,000. The restructuring reserve as of February 3, 1996 is
expected to be utilized as follows:

6
<PAGE> 7
Item 1. Business (Continued)

<TABLE>
<CAPTION>
Leasehold
Fiscal Lease Improvements
Year Obligations & Fixtures Total
- ------ ----------- ------------ -----------
<S> <C> <C> <C>
1997 $ 760,000 $ 76,000 $ 836,000
1998 1,425,000 704,000 2,129,000
1999 1,246,000 - 1,246,000
2000 891,000 - 891,000
2001 629,000 - 629,000
2002-2005 1,294,000 - 1,294,000
----------- ------------ -----------
Total $ 6,245,000 $ 780,000 $ 7,025,000
=========== ============ ===========
</TABLE>

Since the recorded restructuring reserve represents an estimate based
upon anticipated closing dates and the book value of the leasehold improvements
at the time the store is closed, the actual amount of costs associated to store
closing in the future may be different from the reserve.

Store Closing Reserve

The Company continually evaluates its store operations and the need to
close stores that do not perform satisfactorily. The Company recognizes store
closing costs when management determines to close a store. The costs primarily
represent unrecoverable lease obligations (net of estimated sublease income)
and the book value of leasehold improvements from the estimated closing date.
The activity in the closed store reserves during the last two years is as
follows:

<TABLE>
<CAPTION>
1996 1995
------------ -------------
<S> <C> <C>
Closed Store Reserve,
Beginning of year $ 20,241,000 $ 1,000,000
Add: Closed store
charges recorded - 19,768,000
Less: Charges against
the reserve (2,648,000) (527,000)
Reversal of reserves (6,743,000) -
------------ -------------
Closed Store Reserve,
end of year $ 10,850,000 $ 20,241,000
============ =============
</TABLE>

In fiscal 1996, the Company reversed a portion of the closed store
reserve as a result of (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings, and (iii) management's decision not to close one store
that had been scheduled for closing.

7
<PAGE> 8
Item 1. Business (Continued)

The remaining closed store reserve relates to 112 stores, of which 31
have been closed as of February 3, 1996, with lease obligations ranging from
one to 92 months. The lease obligation allocable to related party leases is
approximately $1,674,000. The closed store reserve as of February 3, 1996 is
expected to be utilized as follows:

<TABLE>
<CAPTION>
Leasehold
Fiscal Lease Improvements
Year Obligations & Fixtures Total
- ------ ----------- ------------ -----------
<S> <C> <C> <C>
1997 $ 2,111,000 $ 779,000 $ 2,890,000
1998 2,118,000 665,000 2,783,000
1999 2,235,000 463,000 2,698,000
2000 835,000 - 835,000
2001 710,000 - 710,000
2002-2005 934,000 - 934,000
----------- ------------ -----------
Total $ 8,943,000 $ 1,907,000 $10,850,000
=========== ============ ===========
</TABLE>

Since the recorded closed store reserve represents an estimate based
upon anticipated store closing dates and the book value of the leasehold
improvements at the time the store is closed, the actual amount of costs
associated to store closing is subject to change in the future and may be
different from the reserve. The Company will continue to evaluate the
performance and future viability of its remaining stores and may close
additional stores in the future.

Relationship with Dart

Dart provides the Company with certain general and administrative
functions. Dart also pays certain "common expenses" for it and its affiliates
and allocates such expenses on a judgmental basis. Dart charged the Company
approximately $1,669,000 for such services in the year ended February 3, 1996.
See Notes 4 and 6 to the Consolidated Financial Statements and Item 2.-
Properties.

Competition

The business in which the Company is engaged is highly competitive. The
Company competes with Borders Group, Inc., B. Dalton Booksellers, Bookstop,
Barnes & Noble, Walden Books and other chains and independent bookstores and
major national book clubs in all the Company's markets. In addition, the
Company competes with drug stores, supermarkets, department stores, computer
stores, airport vendors and others that make incidental sales of books and
magazines. Some of the Company's competitors offer larger selections than the
Company, and some of its competitors have greater resources than the Company.
Price competition occurs in all of the Company's markets.

8
<PAGE> 9
Item 1. Business (Continued)

Seasonality

Sales, net income and working capital for the fourth quarter have
historically been substantially higher than for any of the previous three
quarters (see Note 12 to the Consolidated Financial Statements). Inventory and
payables have historically been substantially higher at the end of the third
quarter than for any other quarter for the year. The fourth quarter results of
operations have historically been sufficient to satisfy the third quarter
accounts payable requirements.

Employees

On February 3, 1996, the Company employed approximately 1,300 full-time
and 1,500 part-time persons engaged in retail and administrative operations.
The Company considers its relations with employees to be good.

9
<PAGE> 10
Item 1. Business (Continued)

Executive Officers of the Registrant

The following table sets forth the names, ages and positions of the
executive officers of Crown Books. Executive officers are appointed to serve
until their successors are appointed.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
E. Steve Stevens 40 President and Chief Executive Officer
Marc Joseph 44 Senior Vice President and General
Merchandising Manager
Donald J. Pilch 37 Vice President and Chief Financial Officer
</TABLE>

E. Steve Stevens was appointed President and Chief Executive Officer in
December 1995. From October 1994 until December 1995, Mr. Stevens served as
Senior Executive Vice President and Chief Operating Officer of Crown Books.
From June 1994 until October 1994, he was Senior Vice President and General
Merchandise Manager of Crown Books. Prior to that, Mr. Stevens served in
several executive positions at Circuit City Stores, Inc., the West Bertona
Group, Inc. of Chevy Chase, Maryland and Portico Bed and Bath, Ltd. of New
York.

Marc Joseph joined Crown Books in November 1995 as Senior Vice President
and General Merchandising Manager. Prior to that, Mr. Joseph was Senior Vice
President of Marketing and Merchandising at Action Industries, Inc. and, prior
to such position, he served as General Merchandise Manager at Value Merchants,
Inc.

Donald J. Pilch joined Crown Books in November 1995 as Vice President
and Chief Financial Officer. Prior to joining Crown Books, Mr. Pilch was
Director of Financial Planning and Analysis for Marshalls, a division of
Melville Corporation.

There is no family relationship between any director and executive
officer of the Company.

10
<PAGE> 11
Item 1. Business (Continued)

Changes in Management

On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the
affairs of Dart with respect to matters that were the subject of dispute
between the Chairman of the Board and Chief Executive Officer of Dart, Herbert
H. Haft, and the then President and Chief Operating Officer of Dart, Ronald S.
Haft. Because Herbert H. Haft is Chairman of the Board and Ronald S. Haft was
an executive officer and director of Crown Books, on October 11, 1994, the
Board of Directors of Crown Books established an Executive Committee comprised
of the same outside directors, with authority parallel to that of Dart's
Executive Committee. The disputes between Herbert H. Haft and Ronald S. Haft
concerning issues involving Dart and Crown Books have been extensive.
Accordingly, the respective Executive Committees assumed a day-to-day
involvement in these disputed issues and other matters affecting Dart and Crown
Books, in particular matters relating to litigation to which Dart or Crown
Books is a party. While the Executive Committee remains involved in the
day-to-day affairs of Dart, its continuing role is dependent upon future
developments.

In connection with the RSH Settlement (defined below), Ronald S. Haft
resigned his positions as a director and officer of Dart and each of its
subsidiaries. The Standstill Order (defined below) contemplates that Ronald S.
Haft will continue as a director of Dart while the Standstill Order is in
effect. (Herbert H. Haft contends that Ronald S. Haft is no longer a
director.)

In December 1995, Crown Books promoted E. Steve Stevens from Senior
Executive Vice President and Chief Operating Officer to President and Chief
Executive Officer. Also in December 1995, Crown Books hired Marc Joseph as
Senior Vice President and General Merchandising Manager and Donald J. Pilch as
Vice President and Chief Financial Officer. Mr. Pilch replaced Robert A.
Marmon, who had been serving on an interim basis.

Settlement with Ronald S. Haft

On October 6, 1995, Dart and Ronald S. Haft entered into a settlement
of certain litigation and other related transactions (collectively, the "RSH
Settlement"). The RSH Settlement transactions are subject to legal challenge.
See Item 3 - Legal Proceedings. If sustained, the RSH Settlement transactions
were intended to have the effect, by their terms, of transferring majority
control of Dart's voting stock to one or more voting trustees under a Voting
Trust Agreement (the "Voting Trust Agreement"), by and among Ronald S. Haft,
Dart and Larry G. Schafran and Sidney B. Silverman, as initial Voting Trustees.
On December 28, 1995, the initial Voting Trustees resigned and appointed
Richard B. Stone as successor Voting Trustee.

11
<PAGE> 12
Item 1. Business (Continued)

Standstill Order

In connection with legal challenges to the RSH Settlement, on December
6, 1995, the Delaware Court of Chancery entered a Standstill Order (the
"Standstill Order"), which restricts certain actions by Dart. Without further
order of the court, Dart may not (i) change its Certificate of Incorporation or
Bylaws; (ii) change the current composition of Dart's Board of Directors
(Herbert H. Haft, Ronald S. Haft, Larry G. Schafran, Bonita A. Wilson and
Douglas M. Bregman) or any of its subsidiaries; (iii) change the current Haft
family officers of Dart or any of its subsidiaries; or (iv) issue any
additional securities of Dart or any of its subsidiaries (except employee stock
options issued in the ordinary course of business). In addition, without first
giving Herbert H. Haft and certain other litigants not less than seven days
written notice, Dart may not take any extraordinary actions, including but not
limited to actions that would result in (a) the liquidation of Dart or any of
its subsidiaries, (b) the sale of any major subsidiary of Dart or (c) the
disadvantage of any Class B stockholder of Dart through any debt transaction.
For purposes of the Standstill Order, the phrase "extraordinary actions" means
any transaction, contract or agreement, the value of which exceeds $3 million.
See Item 3 - Legal Proceedings.

12
<PAGE> 13
Item 2. Properties

The Company subleases from Dart 28,000 square feet of a warehouse and
office facility located in Landover, Maryland that it shares with Dart and Trak
Auto Corporation ("Trak Auto"). The sublease is for 30 years and six months,
provides for rental payments increasing approximately 15% every five years over
the term of the sublease and commenced in 1985. The current annual rental is
$288,000. The sublease also requires the payment of maintenance, utilities,
insurance and taxes allocable to the space subleased. Dart originally leased
the entire 271,000 square foot warehouse and office facility from a private
partnership in which Haft family members owned all of the partnership
interests. The Company's sublease is on the same terms as Dart's lease.

As part of the RSH Settlement, Ronald S. Haft agreed to transfer the
real estate and the partnership interests controlled by him in the warehouse
and office facility to Dart (or its affiliates) and to reduce the rent. These
transfers and rent reductions are subject to contingencies, including
bankruptcy court approval, mortgagee approval, challenges brought by Herbert H.
Haft concerning the extent of Ronald S. Haft's ownership interest in the
property and claims asserted by Robert M. Haft and Linda G. Haft regarding the
extent to which Ronald S. Haft controls the aforementioned partnerships.

The Company leases 23,300 square feet of office and warehouse space in
Addison, Illinois. The lease is for ten years with one five-year renewal
option and commenced January 1993. The annual rental is $143,000 for the first
five years and increases to $156,000 for the second five years. The lease
requires the Company to pay for maintenance, utilities, insurance and real
estate taxes.

The Company leases all of its retail stores. The total minimum annual
payments for the Company's retail store space (excluding closed stores) and
equipment aggregate approximately $101,133,000 to the lease expiration dates.
The lease expiration dates (without regard to renewal options) range from 1996
to 2010. Nine of these leases are with entities in which the Haft family has
substantially all the beneficial interest. Three of the leases are in shopping
centers owned by joint ventures in which Dart owns majority partnership
interests and Haft family members own the remaining partnership interests.

The 12 lease agreements involving Haft-owned entities provide for
various termination dates that range from 1996 to 2029 (including option
periods) and require payment of future minimum rentals aggregating $44,478,000
at February 3, 1996. These agreements also require payment of a percentage of
sales in excess of a stated minimum. In addition, four closed stores have
lease agreements with Haft-owned entities with various termination dates that
range from 1996 to 2005 and require future minimum rentals aggregating
$1,175,000 at February 3, 1996. Annual fees and rentals paid to Haft-owned
entities, open or closed, were $2,406,000 in the year ended February 3, 1996.

13
<PAGE> 14
Item 2. Properties (Continued)

The Executive Committees of Dart, Crown Books and Trak Auto have
undertaken a legal review of certain leasing arrangements and real estate
related transactions between Dart, the Company or Trak Auto, on the one hand,
and Haft-owned entities, on the other hand. The Executive Committees have not
yet determined whether any actions will be taken as a result of this legal
review.

14
<PAGE> 15
Item 3. Legal Proceedings

Robert M. Haft Employment Litigation

In August 1993, Robert M. Haft, a former president of Crown Books and
Dart, filed a lawsuit in the United States District Court for the District of
Delaware, Robert M. Haft v. Dart Group Corporation, et al. (D. Del. Civ. A. No.
93-384), naming as defendants Dart and two of its subsidiaries, Crown Books and
Trak Auto. The complaint, as amended, alleged breach of contract regarding
various employment, stock option, stock incentive and loan agreements and
sought declaratory judgment regarding a stock incentive agreement and a
possible right by Robert M. Haft to acquire an interest in Total Beverage, all
in connection with the termination of Robert M. Haft's employment in June 1993.
The complaint, as amended, sought unspecified damages, costs and attorneys'
fees.

On September 20, 1994, a jury found that Dart had breached its
employment contract with Robert M. Haft and awarded him damages against Dart
(equivalent to the compensation projected to be due over a ten-year period) in
the amount of $18,856,964. The jury also found that Crown Books had breached
an employment agreement with Robert Haft and awarded him damages (equivalent to
the compensation projected to be due over a ten-year period) against Crown
Books in the amount of $12,800,910.

The jury also found that Robert M. Haft did not voluntarily terminate
his employment within the meaning of his Incentive Stock Agreement ("ISA") with
Crown Books. Under the terms of the ISA, a voluntary termination by Robert M.
Haft of his employment would have allowed Crown Books to repurchase all or a
portion of 100,000 shares of stock issued to Robert Haft by Crown Books
pursuant to the ISA, subject to certain transfer restrictions, in return for a
non-interest bearing promissory note, discounted at an effective rate of 11%,
for $203,750, due January 2, 2004. The jury's finding would preclude Crown
Books from making such a repurchase.

Robert M. Haft asked the judge presiding over the case to award him
additional damages in the amount of approximately $2.4 million based on the
failure of Crown Books to deliver 100,000 shares of unrestricted common stock
of Crown Books, which he would have a right to receive under the ISA in the
event of his termination without cause by Crown Books, when he demanded them in
August 1993. Robert M. Haft also requested a declaratory judgment on his claim
against Dart, Crown Books and Trak Auto arising from certain stock options
granted to him by those corporations and his claim that he has a purchase
option for an interest in Total Beverage Corporation ("Total Beverage"), a
wholly-owned subsidiary of Dart.

On February 22, 1995, the federal district court in Robert M. Haft's
employment litigation made the following rulings against Dart, Crown Books and
Trak Auto:

15
<PAGE> 16
Item 3. Legal Proceedings (Continued)

(a) The court found that Robert M. Haft was entitled to damages in the
amount of $2,146,250, plus interest, based on the failure of Crown
Books to deliver 100,000 shares of unrestricted Crown Books Common
Stock when he demanded them in August of 1993;

(b) The court found that Robert M. Haft was entitled to exercise certain
employee stock options under the 1981 and 1992 Stock Option Plans of
Dart, the Crown Books Stock Option Plan adopted March 12, 1987, and
the Trak Auto Corporation Stock Option Plan adopted March 24, 1987.
As to options that had expired during the pendency of the case, the
court extended the time for exercise for a period equal to the period
from June 30, 1993 to the expiration date. As to options that had not
yet expired, the court extended the exercise date for a period equal
to the period from June 30, 1993 until final judgment was entered.
(Under the relevant plans, Robert M. Haft would be entitled to
exercise options for 50,000 of Class A Common Stock of Dart having
exercise prices of $71.50 - $104.50 per share, 80,000 shares of Crown
Books Common Stock having exercise prices of $21.45 - $23.93 per share
and 40,000 shares of Trak Auto Common Stock having exercise prices of
$6.60 - $13.75 per share.); and

(c) The court found that Robert M. Haft has the right to purchase for
$149,400 ten percent of Dart's interest in the entity that acquired
the assets of Total Beverage's Chantilly, Virginia store.

The court entered final judgment on all claims in this lawsuit on
March 23, 1995. On April 6, 1995, Dart and Crown Books filed with the court a
motion for a new trial and/or reduction of damages challenging the court's
breach of contract findings, damages awards and certain evidentiary rulings.
In October 1995, the court denied such motion. On October 16, 1995, Dart,
Crown Books and Trak Auto filed a notice of appeal with the U.S. Court of
Appeals for the Third Circuit.

The Company has reserved approximately $14.2 million (including
accrued interest of $1.4 million) for these judgments.

Derivative Litigation

In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn
Derivative Plaintiffs"), shareholders of Dart, filed a lawsuit in the Delaware
Court of Chancery for New Castle County naming as defendants Herbert H. Haft,
Ronald S. Haft, Douglas M. Bregman, Bonita A. Wilson, Combined Properties,
Inc. ("CPI"), Combined Properties Limited Partnership and Capital Resources
Limited Partnership. The suit is brought derivatively and names as nominal
defendants Dart, Trak Auto, Crown Books, Shoppers Food, Total Beverage and
Cabot-Morgan Real Estate Company.

16
<PAGE> 17
Item 3. Legal Proceedings (Continued)

The complaint, as amended on January 12, 1995, alleges waste, breach
of fiduciary duty, violation of securities laws and entrenchment in connection
with various lease agreements between the Combined Properties defendants and
Dart and its subsidiaries, the termination of Robert M. Haft, the compensation
paid to Ronald S. Haft and Herbert H. Haft, the employment agreement entered
into by Ronald S. Haft and Dart on August 1, 1993 (the "RSH Employment
Agreement"), the sale of 172,730 shares of Dart Class B Common Stock by Herbert
H. Haft to Ronald S. Haft, and the compensation paid to the Executive Committee.
Plaintiffs seek an accounting of unspecified damages incurred by Dart, voiding
of the options sold to Ronald S. Haft, appointment of a temporary custodian to
manage the affairs of Dart or to oversee its recapitalization or sale and costs
and attorneys' fees.

On April 27, 1995, the Kahn Derivative Plaintiffs and the Special
Litigation Committee of Dart's Board of Directors filed a Stipulation and Order
which, if entered by the court, would (i) dismiss claims against Douglas M.
Bregman and Bonita A. Wilson and (ii) realign Dart as a party plaintiff to the
amended complaint. The court has not yet acted upon this Stipulation.

In November 1993, Robert M. Haft filed another lawsuit in the Delaware
Court of Chancery for New Castle County. The lawsuit names as defendants
Herbert H. Haft, Ronald S. Haft, Douglas M. Bregman, and Bonita A. Wilson, and
also names Dart as a nominal defendant. The complaint derivatively alleges
interested director transactions, breach of fiduciary duty and waste in
connection with the RSH Employment Agreement. Robert M. Haft also brings
individual claims for breach of contract and dilution of voting rights in
connection with the sale of shares of Class B Common Stock by Herbert H. Haft
to Ronald S. Haft and the RSH Employment Agreement. The complaint seeks
rescission of the sale of such shares and the RSH Employment Agreement,
unspecified damages from the individual directors, and costs and attorneys'
fees.

In January 1994, a Special Litigation Committee consisting of two
outside, independent directors of Dart, Crown Books and Trak Auto was appointed
by the Board of Directors to assess, on behalf of Dart, whether to pursue,
settle or abandon the claims asserted in these two derivative lawsuits. (Since
the death of one member in December 1994, the Special Litigation Committee has
consisted of one director.) In September 1994, the Special Litigation
Committee moved for dismissal of certain claims in those derivative lawsuits
and for realignment of the parties to permit Dart to prosecute other claims in
those derivative lawsuits. This motion is still pending before the court.

17
<PAGE> 18
Item 3. Legal Proceedings (Continued)

against Ronald S. Haft and Combined Properties, Inc. will be dismissed on the
merits and with prejudice as against the shareholder plaintiffs and Dart and
its subsidiaries, if the RSH Settlement and dismissal of these claims are
approved by the Delaware Court of Chancery.

In September 1994, Jolien Lou, a purported shareholder of Crown Books,
filed a lawsuit in the Delaware Court of Chancery for New Castle County naming
as defendants Herbert H. Haft, Glenn E. Hemmerle, Ronald S. Haft, Douglas M.
Bregman, H. Ridgely Bullock, Larry G. Schafran and Bonita A. Wilson. The suit
is brought derivatively and names Crown Books as nominal defendant. The
complaint, as amended on February 24, 1995, alleges waste and breach of
fiduciary duty in connection with the termination of Robert M. Haft from his
position at Crown Books in 1993 and in connection with the management of Crown
Books. The amended complaint also alleges legal malpractice against a lawyer
advising Dart at that time. Plaintiff seeks unspecified damages incurred by
Crown Books, and costs and attorneys' fees. Ronald S. Haft and Glenn E.
Hemmerle have been dismissed without prejudice from this lawsuit. The amended
complaint does not name as a defendant H. Ridgely Bullock, who died subsequent
to the filing of the original complaint. Crown Books and other defendants have
filed a motion to dismiss this lawsuit.

Given that these derivative lawsuits are brought in the name of Dart
and its subsidiaries, recovery in them would inure to the benefit of Dart and
its subsidiaries if the claims are successfully litigated or settled.
Therefore, in the opinion of management, resolution of these actions will not
have a material adverse effect on the consolidated financial condition or
results or operations of the Company.

Herbert H. Haft Proxy Litigation

In connection with Herbert H. Haft's sale of 172,730 shares of Dart
Class B Common Stock to Ronald S. Haft on July 28, 1993 (the "Stock Sale
Agreement"), Ronald S. Haft purportedly granted Herbert H. Haft an irrevocable
proxy (the "Proxy") to vote these shares of stock "to the same extent and with
the same effect as Ronald S. Haft might or could do under any applicable laws
or regulations governing the rights and powers of shareholders of Dart," until
Herbert H. Haft's death or incapacitation. On June 30, 1995, Ronald S. Haft
sent a letter to Herbert H. Haft purportedly revoking this proxy.

18
<PAGE> 19
Item 3. Legal Proceedings (Continued)

requests that the court require Dart to refuse to recognize the validity of the
Proxy. On August 9, 1995, Herbert H. Haft filed an Answer and Counterclaim
denying liability and requesting rescission of the Stock Sale Agreement because
of Ronald S. Haft's alleged breach of contract and other grounds. On September
25, 1995, Dart filed its answer in this action. Both Ronald S. Haft and
Herbert H. Haft have moved for summary judgment in this lawsuit. On November
14, 1995, the court denied Ronald S. Haft's motion for summary judgment;
Herbert H. Haft's motion for summary judgment remains pending.

As part of the RSH Settlement, on October 6, 1995, Dart purchased from
Ronald S. Haft the 172,730 shares of Dart Class B Common Stock that were
subject to the Proxy.

Section 225 Action by Robert, Gloria and Linda Haft

On October 17, 1995, Robert M. Haft, Gloria G. Haft and Linda G. Haft
(collectively "RGL") filed a lawsuit captioned Gloria G. Haft, et al. v. Larry
G. Schafran, et al., Del. Ch., Civ. A. No. 14620 (the "Section 225 Action"), in
the Delaware Court of Chancery for New Castle County naming as defendants Dart
and all of its directors. RGL seek an order, under Section 225 of the Delaware
General Corporation Law, declaring that RGL validly removed all of Dart's
directors and replaced them with three individuals (John L. Mason, Ellen V.
Sigal and Michael Ryan), whom RGL purport to have elected. Such purported
election is premised on RGL's contention that RGL own a majority of Dart's
voting stock because, they argue, (i) the 172,730 Class B shares subject to
Herbert H. Haft's proxy have been purchased by Dart and may not be voted and
(ii) the shares of Dart Class B Common Stock placed in a voting trust (the
"Trust Shares") by Ronald S. Haft pursuant to the RSH Settlement also are not
entitled to vote because they have been unlawfully issued or they should be
deemed to be owned by Dart.

Dart's position is that this lawsuit is without merit and that the
purported action by RGL to reconstitute the Board of Directors is invalid. On
October 27, 1995, Dart filed a motion for summary judgment.

Challenge to RSH Settlement by Herbert H. Haft

19
<PAGE> 20
Item 3. Legal Proceedings (Continued)

continues to be valid; (iii) declaring that Herbert H. Haft retains voting
control of Dart or, at a minimum, 34.55% of Dart's voting power; (iv) declaring
that the Trust Shares may not be lawfully voted; and (v) declaring that
defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not duly elected
directors of Dart.

Dart's position is that this lawsuit, except for the declaration
sought that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are not
duly elected directors of Dart, is without merit. Herbert H. Haft disagrees
with Dart's position.

Standstill Order

In connection with the legal challenges to the RSH Settlement raised
by RGL and Herbert H. Haft, on December 6, 1995, the Delaware Court of Chancery
entered the Standstill Order, which restricts certain actions by Dart. Without
further order of the court, Dart may not (i) change its Certificate of
Incorporation or Bylaws; (ii) change the current composition of Dart's Board of
Directors (Herbert H. Haft, Ronald S. Haft, Larry G. Schafran, Bonita A. Wilson
and Douglas M. Bregman) or any of its subsidiaries; (iii) change the current
Haft family officers of Dart or any of its subsidiaries; or (iv) issue any
additional securities of Dart or any of its subsidiaries (except employee stock
options issued in the ordinary course of business). In addition, without first
giving Herbert H. Haft and the other parties to the Section 225 Action not less
than seven days written notice, Dart may not take any extraordinary actions,
including but not limited to actions that would result in (a) the liquidation
of Dart or any of its subsidiaries, (b) the sale of any major subsidiary of
Dart or (c) the disadvantage of any Class B stockholder of Dart through any
debt transaction. For purposes of the Standstill Order, the phrase
"extraordinary actions" means any transaction, contract or agreement, the value
of which exceeds $3 million.

Other

Dart is engaged in discussions with Haft family members to explore
opportunities to settle litigation pending between the parties. There can be
no assurance that any settlement will be reached or as to the terms or timing
of any settlement, if one occurs.

In the normal course of business, the Company is involved in various
claims and litigation. In the opinion of management, liabilities, if any, will
not have a material effect upon the consolidated financial condition and
results of operations of the Company.

The Company recorded expenses of approximately $1.1 million and $3.4
million during the years ended February 3, 1996 and January 31, 1995,
respectively, for legal expenses incurred during these years. These amounts
include estimated future expenses that likely will be necessary to resolve all
litigation discussed above in which the Company is a party.

20
<PAGE> 21
Item 4. Submission of Matters to a Vote of Security Holders

Inapplicable.

PART II

Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters

The Common Stock is quoted on the Nasdaq National Market ("Nasdaq")
under the symbol CRWN. The following table sets forth the range of the high
and low sale prices for the Common Stock, as reported by the Nasdaq, for the
quarters indicated.

<TABLE>
<CAPTION>
Quarter Ended High Low
------------- --------- --------
<S> <C> <C>
April 30, 1994 20 1/2 17
July 30 1994 18 1/2 16 3/4
October 29, 1994 17 3/4 14 1/2
January 28, 1995 17 1/2 11 1/2
April 29, 1995 15 3/4 12 1/4
July 29, 1995 16 10 1/2
October 28, 1995 13 9
February 3, 1996 14 8 15/16
</TABLE>

The Company has not paid dividends during the last two fiscal years
and does not expect to pay dividends in the foreseeable future.

There were approximately 280 record holders of the Common Stock as of
April 30, 1996.

21
<PAGE> 22
Item 6. Selected Financial Data

INCOME STATEMENT DATA: (in thousands, except per share and sales % data)

<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales $283,475 $305,606 $275,125 $240,682 $232,484
Interest and other income 2,936 2,289 3,073 3,015 4,047

Cost of sales, store
occupancy and
warehousing 231,837 248,012 221,895 188,487 180,437
Selling and administrative 50,993 62,208 46,911 38,395 35,646
Depreciation and amortization 5,415 5,176 3,986 2,418 2,180
Interest expense 1,279 965 323 391 470
Closed store reserve
(reversal) (6,743) 18,865 (631) 513 1,106
Restructuring charge
(reversal) (2,051) - 6,200 6,600 -

Income (loss) before
income taxes 5,681 (27,331) (486) 6,893 16,692
Net Income (Loss) 3,704 (19,380) (210) 4,281 10,349

Net Income (Loss) per share $ .69 $ (3.60) $ (.04) $ .82 $ 1.97

Weighted average common
share and common share
equivalents outstanding 5,399 5,389 5,402 5,214 5,245

Percentage increase (decrease)
in sales
Total stores (7.2)% 11.1% 14.3% 3.5% 5.5%
Comparative stores (3.3)% (2.5)% (0.6)% 2.6% 5.3%
</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA: (in thousands)

at end of Fiscal Year
-------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Current assets $150,574 $182,331 $180,210 $147,809 $149,432
Current liabilities 77,606 105,553 94,981 56,492 62,622
Working capital 72,968 76,778 85,229 91,317 86,810
Total assets 180,852 213,379 210,636 165,433 160,264
Long-term obligations 15,785 24,499 13,913 8,156 3,623
Stockholders' equity 87,461 83,327 101,742 100,785 94,019
</TABLE>

22
<PAGE> 23
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations

Control of Dart

Dart owns 51.4% of the outstanding common stock of Crown Books. Dart's
voting stock, the Class B Common Stock, has been beneficially owned by Haft
family members.

The termination of Robert M. Haft as President and Chief Operating
Officer of Dart and as Chief Executive Officer and President of Crown Books in
1993, the appointment of Ronald S. Haft as President and Chief Operating
Officer of Dart and the ensuing disagreements between Ronald S. Haft and
Herbert H. Haft in 1994 has resulted in significant disputes over which Haft
family members control Dart. As a result of these disputes, Dart has been
involved in significant litigation involving Haft family members. See Item 3 -
Legal Proceedings.

On September 7, 1994, the Board of Directors of Dart established an
Executive Committee comprised of Dart's outside directors to conduct the
affairs of Dart with respect to matters that were the subject of dispute
between the Chairman of the Board and Chief Executive Officer of Dart, Herbert
H. Haft, and the then President and Chief Operating Officer of Dart, Ronald S.
Haft. Because Herbert H. Haft is and Ronald S. Haft was an executive officer
and director of Crown Books, on October 11, 1994, the Board of Directors of
Crown Books established an Executive Committee comprised of the same outside
directors, with authority parallel to that of Dart's Executive Committee. The
disputes between Herbert Haft and Ronald Haft concerning issues involving Dart
and Crown Books have been extensive. Accordingly, the respective Executive
Committees assumed day-to-day involvement in these disputed issues and other
matters affecting Dart and Crown Books, in particular matters relating to
litigation to which Dart or Crown Books is a party. While the Executive
Committee remains involved in the day-to-day affairs of Dart, its continuing
role is dependent upon future developments.

In connection with the RSH Settlement, Ronald S. Haft resigned his
positions as a director and officer of Dart and each of its subsidiaries. The
Standstill Order contemplates that Ronald S. Haft will continue as a director
of Dart while the Standstill Order is in effect. (Herbert H. Haft contends
that Ronald S. Haft is no longer a director.)

On October 6, 1995, Dart and Ronald S. Haft entered into the RSH
Settlement, which is subject to legal challenge. See Item 3 - Legal
Proceedings. If sustained, the RSH Settlement transactions were intended to
have the effect, by their terms, of transferring majority control of Dart's
voting stock to one or more voting trustees under the Voting Trust Agreement.
On December 28, 1995, the initial Voting Trustees resigned and appointed
Richard B. Stone as successor Voting Trustee.

In connection with the legal challenges to the RSH Settlement, on
December 6, 1995, the Delaware Court of Chancery entered the Standstill Order,
which restricts certain actions by Dart. Without further order of the court,
Dart may

23
<PAGE> 24

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)

not (i) change its Certificate of Incorporation or Bylaws; (ii) change the
current composition of Dart's Board of Directors (Herbert H. Haft, Ronald S.
Haft, Larry G. Schafran, Bonita A. Wilson and Douglas M. Bregman) or any of its
subsidiaries; (iii) change the current Haft family officers of Dart or any of
its subsidiaries; or (iv) issue any additional securities of Dart or any of its
subsidiaries (except employee stock options issued in the ordinary course of
business). In addition, without first giving Herbert H. Haft and the other
parties to the Section 225 Action not less than seven days written notice, Dart
may not take any extraordinary actions, including but not limited to actions
that would result in (a) the liquidation of Dart or any of its subsidiaries,
(b) the sale of any major subsidiary of Dart or (c) the disadvantage of any
Class B stockholder of Dart through any debt transaction. For purposes of the
Standstill Order, the phrase "extraordinary actions" means any transaction,
contract or agreement, the value of which exceeds $3 million.

Management believes that litigation affecting the Company has had an
adverse impact on the Company's results of operations, financial position and
liquidity. During fiscal 1995, a jury awarded approximately $12.8 million
(plus interest) to Robert M. Haft in his lawsuit against the Company for breach
of employment contract (the "RMH Judgment"). If the Company loses its appeal
and is required to pay the RMH Judgment, the Company's liquidity would be
significantly reduced. In addition, management believes that the continued
uncertainty relating to the control of Dart and the surrounding litigation has
affected the Company's reputation among banks, vendors and landlords and made
the Company's efforts to recruit highly-qualified personnel more difficult.
The uncertainty surrounding control of Dart (and the associated effects of such
uncertainty) may continue until pending litigation is adjudicated or settled.

Dart is engaged in discussions with Haft family members to explore
opportunities to settle litigation pending between the parties. See Item 3 -
Legal Proceedings. There can be no assurance that any settlement will be
reached or as to the terms or timing of any settlement, if one occurs.

Outlook

Except for historical information, the statements in this Management's
Discussion and Analysis of Financial Condition and Results of Operations are
forward-looking. Actual results may differ materially due to a variety of
factors, including the results of ongoing litigation affecting the Company, the
Company's ability to open new stores and close other stores, the effect of
national and regional economic conditions, and the availability of capital to
fund operations. The Company undertakes no obligation and does not intend to
update, revise or otherwise publicly release the result of any revisions to
these forward-looking statements that may be made to reflect future events or
circumstances.

24
<PAGE> 25

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)

The Company believes that its superstore concept presents significant
growth opportunities and intends to open new Super Crown Books stores in
existing and possibly new markets. In the past, Super Crown Books stores have
generated higher sales at converted locations as well as higher gross margins
as a result of a change in product mix. The Company believes that as Super
Crown Books stores mature, operating expenses as a percentage of sales will
decrease.

The Company intends to continue its practice of reviewing the
profitability trends and prospects of existing stores and close or relocate
under-performing stores. The Company anticipates closing approximately 37
Classic Crown Books stores and two Super Crown Books stores during fiscal 1997.

Liquidity and Capital Resources

Cash, including short-term instruments, is the Company's primary source
of liquidity. Cash, including short-term instruments, increased by $1,131,000
to $30,765,000 at February 3, 1996 from $29,634,000 at January 28, 1995. The
increase in cash was primarily due to the disposition of marketable debt
securities (primarily United States Treasury Notes) which was largely offset by
operating losses, capital expenditures and closed store lease buyouts.

Operating activities used $22,945,000 of the Company's cash during the 53
weeks ended February 3, 1996 ("fiscal 1996") compared to $27,111,000 for the 52
weeks ended January 28, 1995 ("fiscal 1995"). During fiscal 1996, operating
results provided almost no cash to the Company and operating activities used
cash primarily for payments for merchandise inventory.

Investing activities provided $24,100,000 to the Company in fiscal 1996.
The disposition of marketable debt securities (primarily United States Treasury
Notes) was partially offset by capital expenditures for the opening of 16 new
Super Crown Books stores.

Financing activities used $24,000 of the Company's funds in fiscal 1996,
compared to $30,000 in fiscal 1995. Payments under capital lease obligations
has been the Company's sole financing activity the last two years.

In the past, the Company generally funded its requirements for working
capital and capital expenditures with net cash generated from operations and
existing cash resources. In fiscal 1997, the Company may need other sources of
liquidity. If Crown Books loses its appeal of RMH Judgment or reaches a
settlement with Robert M. Haft, the Company expects to use existing cash to pay
the RMH Judgment or settlement amount, as the case may be. In such an event,
the Company expects that it would either obtain third party debt financing or
reduce planned store openings.

25
<PAGE> 26

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)

The Company's primary capital requirements relate to new store openings,
remodelings and investments in management information systems. The Company
believes that the costs incurred in opening a new store generally approximate
$1.1 million, including purchases of inventory and the costs of store fixtures
and leasehold improvements. During fiscal 1997, the Company expects to open
approximately 30 Super Crown Books stores and that capital expenditures would
approximate $8.5 million. As of February 3, 1996, the Company had entered into
lease agreements to open 14 new Super Crown Books stores. In addition, the
Company expects to have cash expenditures related to stores that have been
closed or will be closed of approximately $4.0 million in fiscal 1997.

At February 3, 1996

Working capital decreased by $3,810,000 to $72,968,000 at February 3,
1996 compared to the same period one year ago. The decrease in working capital
was primarily due to capital expenditures.

At January 28, 1995

Working capital decreased by $8,451,000 to $76,778,000 at January 28,
1995. The decrease in working capital was primarily the result of accruals for
the current portion of the closed store reserve and the Robert M. Haft
employment litigation.

Results of Operations

Year Ended February 3, 1996 Compared to the Year Ended January 28, 1995

During fiscal 1996, the Company opened 16 Super Crown Books stores while
closing 38 Classic Crown Books stores and two Super Crown Books stores. These
Super Crown Books stores were closed as a result of opening larger stores in
the same area. At February 3, 1996, the Company had 172 stores, including 84
Super Crown Books stores.

Sales of $283,475,000 for fiscal 1996 decreased by $22,131,000 or 7.2%
compared to fiscal 1995. The decrease is primarily due to the net decrease in
the number of stores as a result of the Company's continuing transition to the
new superstore concept. Comparable sales (sales for stores open for fifteen
months) decreased 3.3% for fiscal 1996, however, comparable sales for the new
prototype superstore increased 11% during the 14 weeks ended February 3, 1996.
Sales for Super Crown Books stores represented 66.7% of total sales for fiscal
1996 compared to 54.7% of total sales for fiscal 1995. Super Crown Books sales
of $189,142,000 for fiscal 1996 increased 12.9% over the sales for fiscal 1995
and sales for comparable Super Crown Books stores decreased 1.8%. Sales for

26
<PAGE> 27

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)

comparable classic Crown Books stores decreased 5.7% during fiscal 1996.

Interest and other income increased by $647,000 during fiscal 1996 when
compared to fiscal 1995. The increase is primarily due to higher interest
rates on the Company's short-term investments.

Cost of sales, store occupancy and warehousing expenses as a percentage
of sales were 81.8% for fiscal 1996 compared to 81.2% for fiscal 1995. The
increases were primarily due to higher occupancy costs associated with the
Super Crown format and were partially offset by increased store margins.

Selling and administrative expenses as a percentage of sales were 18.0%
for fiscal 1996 compared to 20.4% for fiscal 1995. The decrease was primarily
due to the prior year accruals for Robert M. Haft's judgment and legal costs.
Excluding these accruals, selling and administrative expenses as a percentage
of sales were 16.2% for fiscal 1995. The increase in selling and
administrative expenses, excluding the accruals, was primarily due to increased
payroll and advertising costs and costs associated with Crown Books' Executive
Committee.

Depreciation expense increased $239,000 for fiscal 1996 compared to
fiscal 1995. The increase was primarily due to increased fixed assets for new
Super Crown Books stores, an upgrade in the point-of-sale register system and
additional computer hardware.

Interest expense increased by $314,000 primarily due to interest accrued
on the judgment against the Company in favor of Robert M. Haft.

The closed store reserve was reversed by $6,743,000 in fiscal 1996
compared to an increase (expense) in such reserve of $18,865,000 in fiscal
1995. In addition, the restructuring reserve was reversed by $2,051,000 in
fiscal 1996. The reversals in the store closing and restructuring reserves in
fiscal 1996 resulted from (i) stores that were closed under negotiated lease
settlements that were more favorable than expected, (ii) the postponement of
certain store closings and (iii) management's decision not to close two stores
that had been scheduled for closing.

The Company had net income of $3,704,000 in fiscal 1996 compared to a net
loss of $19,380,000 in fiscal 1995 as a result of the foregoing factors.

The Company has recorded income tax expense of $1,977,000 in fiscal 1996
as compared to tax benefit of $7,951,000 in fiscal 1995. In fiscal 1996, the
effective tax rate was 34.8% compared to (29.1)% in fiscal 1995 due primarily
to the $2,500,000 valuation recorded in the third quarter of fiscal 1995.

27
<PAGE> 28

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)

Year Ended January 28, 1995 Compared to the Year Ended January 29, 1994

During the year ended January 28, 1995, the Company opened 12 Super Crown
Books stores and two Classic Crown Books stores while closing 55 Classic Crown
Books stores and three Super Crown Books stores. These Super Crown Books
stores were closed as a result of opening larger stores in the same area. At
January 28, 1995, the Company had 196 stores including 70 Super Crown Books
stores.

Sales of $305,606,000 for the year ended January 28, 1995 increased by
$30,481,000 or 11.1% over the same period one year ago. Comparable sales
(sales for stores open for fifteen months) decreased 2.5% for the year ended
January 28, 1995. Sales for Super Crown Books stores represented 54.7% of
total sales for the year ended January 28, 1995 compared to 39.8% of total
sales for the year ended January 29, 1994. Super Crown sales of $167,200,000
for the year ended January 28, 1995 increased 52.5% over the prior year sales
and sales for comparable Super Crown Books stores increased 0.2%. Sales for
comparable classic Crown Books stores decreased 4.0% during the year ended
January 28, 1995.

Interest and other income decreased by $784,000 during the year ended
January 28, 1995 when compared to one year ago. The decrease was due to
decreased funds available for short-term investment resulting from the lower
cash balances discussed above.

Cost of sales, store occupancy and warehousing (excluding the closed
store reserve) as a percentage of sales was 81.1% for the year ended January
28, 1995 compared to 80.4% for the same period the prior year. The increase
was primarily due to increased occupancy costs for Super Crown Books stores and
was partially offset by an increase in store margins as a result of a positive
turn in the sales mix during the quarter ended January 28, 1995 and to an
increase in overall store margins as a result of controlling purchasing.

During the year ended January 28, 1995, the Company recorded a closed
store reserve of $18,963,000 for under-performing stores while last year the
Company's closed store reserve was reduced by $631,000 as a result of the
termination of three leases.

Selling and administrative expenses as a percentage of sales were 20.4%
for the year ended January 28, 1995 compared to 17.1% for the same period the
prior year. The increase was primarily due to the accruals for a $12.8 million
judgement against the Company in connection with Robert M. Haft's claim for
breach of his employment contract and related legal costs. (See Item 3. - Legal
Proceedings). Excluding these accruals, selling and administrative expenses as
a percentage of sales decreased to 16.2% for the year ended January 28, 1995,
primarily the result of reduced payroll costs.

28
<PAGE> 29

Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations, (Continued)

Depreciation expense increased $1,190,000 for the year ended January 28,
1995 compared to the same period one year ago. The increase was primarily due
to the increase in fixed assets as a result of the expansion of Super Crown
Books stores.

Interest expense increased by $642,000 primarily due to interest accrued
on the judgment against the Company in favor of Robert M. Haft.

The Company has recorded a tax benefit of $7,951,000 for the year ended
January 28, 1995 net of a deferred tax valuation allowance of $2,500,000 as
compared to tax benefit of $276,000 for the same period one year ago. The tax
benefit was the result of taxable temporary differences included in the
$27,331,000 financial reporting net operating loss. In management's opinion, a
valuation allowance of $2,500,000 is necessary for the uncertainty related to
the timing of the reversal of certain of the taxable temporary differences
during periods when the Company has taxable income.

Effects of Inflation

Inflation in the past several years has had no significant impact on the
Company's business. The Company's purchase cost and selling price for
merchandise are a percentage of the publishers' suggested retail prices. The
Company believes the impact of inflation is generally reflected in the
publishers' suggested retail prices. Therefore, the Company believes that it
will be able to recover most cost increases.

29
<PAGE> 30

Item 8. Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
Financial Statements Page No.
-------------------- --------
<S> <C>
Report of Independent Public Accountants 31

Consolidated Balance Sheets 32 - 33

Consolidated Statements of Income 34

Consolidated Statements of Stockholders' Equity 35 - 36

Consolidated Statements of Cash Flows 37 - 38

Notes to Consolidated Financial Statements 39 - 65
</TABLE>

30
<PAGE> 31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

TO CROWN BOOKS CORPORATION:

We have audited the accompanying consolidated balance sheets of Crown Books
Corporation (a Delaware corporation and a majority-owned subsidiary of Dart
Group Corporation) and subsidiaries as of February 3, 1996 and January 28,
1995, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three fiscal years in the period ended February
3, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 an 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 financial statements referred to above present fairly, in
all material respects, the financial position of Crown Books Corporation and
subsidiaries as of February 3, 1996 and January 28, 1995, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 3, 1996, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
April 26, 1996.

31
<PAGE> 32
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 5,691,000 $ 4,226,000
Short-term instruments 25,074,000 25,408,000
Marketable debt securities 4,215,000 35,106,000
Accounts receivable 3,941,000 3,832,000
Merchandise inventories 102,192,000 102,433,000
Prepaid income taxes 1,471,000 -
Deferred income tax benefit 7,349,000 10,957,000
Other current assets 641,000 369,000
------------ ------------
Total Current Assets 150,574,000 182,331,000
------------ ------------

Property and Equipment, at cost:
Furniture, fixtures and equipment 29,873,000 24,936,000
Leasehold improvements 16,561,000 18,063,000
Property under capital leases 1,187,000 1,406,000
------------ ------------
47,621,000 44,405,000
Accumulated Depreciation and
Amortization 23,859,000 21,401,000
------------ ------------
23,762,000 23,004,000
------------ ------------

Deferred Income Taxes 6,353,000 7,911,000
------------ ------------

Other Assets 163,000 133,000
------------ ------------

Total Assets $180,852,000 $213,379,000
============ ============
</TABLE>

See notes to consolidated financial statements.

32
<PAGE> 33
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 42,308,000 $ 55,695,000
Income taxes payable - 5,046,000
Accrued expenses -
Salary and benefits 3,658,000 5,798,000
Taxes other than income 2,299,000 3,981,000
Robert M. Haft judgement 14,233,000 13,342,000
Other 10,957,000 14,663,000
Current portion of reserve for
closed stores and restructuring 3,726,000 6,936,000
Due to affiliate 425,000 92,000
------------ ------------
Total Current Liabilities 77,606,000 105,553,000
------------ ------------

Obligations Under Capital Leases 1,636,000 1,582,000
------------ ------------
Reserve for Store Closings and
Restructuring 14,149,000 22,917,000
------------ ------------
Total Liabilities 93,391,000 130,052,000
------------ ------------

Stockholders' Equity:
Common stock, par value $.01 per
share; 20,000,000 shares
authorized, 5,612,611 shares
issued 56,000 56,000
Notes receivable, net of discount (115,000) (103,000)
Paid-in capital 43,809,000 43,809,000
Unrealized investment (losses) (6,000) (448,000)
Retained earnings 46,901,000 43,197,000
Treasury stock, 223,638 shares of
common stock, at cost (3,184,000) (3,184,000)
------------ ------------

Total Stockholders' Equity 87,461,000 83,327,000
------------ ------------

Total Liabilities and Stockholders'
Equity $180,852,000 $213,379,000
============ ============
</TABLE>

See notes to consolidated financial statements.

33
<PAGE> 34
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
Years Ended
----------------------------------------
February 3, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Sales $283,475,000 $305,606,000 $275,125,000
Interest and other income 2,936,000 2,289,000 3,073,000
------------ ------------ ------------
286,411,000 307,895,000 278,198,000
------------ ------------ ------------

Expenses:
Cost of sales, store
occupancy and warehousing 231,837,000 248,012,000 221,895,000
Selling and administrative 50,993,000 62,208,000 46,911,000
Depreciation and amortization 5,415,000 5,176,000 3,986,000
Interest expense 1,279,000 965,000 323,000
Closed store charge (reversal) (6,743,000) 18,865,000 (631,000)
Restructuring charge
(reversal) (2,051,000) - 6,200,000
------------ ------------ ------------
280,730,000 335,226,000 278,684,000
------------ ------------ ------------

Income (loss) before income
taxes 5,681,000 (27,331,000) (486,000)

Income taxes (benefit) 1,977,000 (7,951,000) (276,000)
------------ ------------ ------------

Net income (loss) $ 3,704,000 $(19,380,000) $ (210,000)
=========== ============ ============

Weighted average common
share and common share
equivalents outstanding 5,399,000 5,389,000 5,402,000
============ ============ ============

Per share data:

Net income (loss) $ .69 $ (3.60) $ (.04)
============ ============ ============
</TABLE>

See notes to consolidated financial statements.

34
<PAGE> 35
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
Years Ended
----------------------------------------
February 3, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Common Stock:
Balance, beginning of period $ 56,000 $ 56,000 $ 56,000
Stock options exercised - - -
------------ ------------ ------------
Balance, end of period $ 56,000 $ 56,000 $ 56,000
============ ============ ============

Note Receivable, Net of Discount:
Balance, beginning of period $ (103,000) $ (92,000) $ (790,000)
Proceeds from payment of
note receivable - - 710,000
Amortization of discount (12,000) (11,000) (12,000)
------------ ------------ ------------
Balance, end of period $ (115,000) $ (103,000) $ (92,000)
============ ============ ============

Deferred Compensation:
Balance, beginning of period $ - $ (1,424,000) $ (1,629,000)
Recognition/write-off of
compensation - 1,424,000 205,000
------------ ------------ ------------
Balance, end of period $ - $ - $ (1,424,000)
============ ============ ============

Paid-in Capital:
Balance, beginning of period $ 43,809,000 $ 43,809,000 $ 43,545,000
Stock options exercised - - 264,000
------------ ------------ ------------
Balance, end of period $ 43,809,000 $ 43,809,000 $ 43,809,000
============ ============ ============

Unrealized Investment
losses: $ (6,000) $ (448,000) $ -
============ ============ ============

Retained Earnings:
Balance, beginning of period $ 43,197,000 $ 62,577,000 $ 62,787,000
Net income (loss) 3,704,000 (19,380,000) (210,000)
------------ ------------ ------------
Balance, end of period $ 46,901,000 $ 43,197,000 $ 62,577,000
============ ============ ============
</TABLE>

35
<PAGE> 36
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY, (Continued)

<TABLE>
<CAPTION>
Years Ended
----------------------------------------
February 3, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Treasury Stock:
Balance, beginning and
end of period $ (3,184,000) $ (3,184,000) $ (3,184,000)
============ ============ ============

Common Stock Outstanding
Balance, beginning of period 5,388,973 5,388,973 5,373,970
Stock options exercised - - 15,003
------------ ------------ ------------
Balance, end of period 5,388,973 5,388,973 5,388,973
============ ============ ============
</TABLE>

See notes to consolidated financial statements.

36
<PAGE> 37
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Years Ended
----------------------------------------
February 3, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Operating
Activities:
Net income (loss) $ 3,704,000 $(19,380,000) $ (210,000)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation and amortization 5,415,000 5,176,000 3,986,000
Deferred compensation - 1,424,000 193,000
Provision for (reversal
of) closed stores
and restructuring charge (8,794,000) 18,865,000 5,569,000
Change in assets and
liabilities:
Accounts receivable 601,000 911,000 (1,505,000)
Merchandise inventories 241,000 (25,070,000) (17,405,000)
Prepaid income taxes (1,471,000) - -
Other current assets (272,000) 408,000 (480,000)
Other assets (30,000) 176,000 65,000
Accounts payable, trade (13,387,000) (14,996,000) 31,018,000
Accrued expenses (5,668,000) 16,627,000 8,551,000
Due to affiliate 315,000 46,000 32,000
Income taxes payable (5,046,000) 2,700,000 605,000
Deferred income taxes 4,873,000 (12,790,000) (2,721,000)
Reserve for closed stores
and restructuring (3,426,000) (1,208,000) (680,000)
------------ ------------ ------------
Net cash provided by
(used in) operating
activities $(22,945,000) $(27,111,000) $ 27,018,000
------------ ------------ ------------

Cash Flows from Investing
Activities:
Capital expenditures $ (6,816,000) $ (3,716,000) $(15,014,000)
Purchase of United States
Treasury Notes (2,200,000) (106,373,000) (68,707,000)
Disposition of United
States Treasury Notes 19,200,000 96,203,000 61,823,000
Purchase of corporate notes - (1,541,000) (5,141,000)
Sale of corporate notes 2,750,000 4,412,000 -
</TABLE>

37
<PAGE> 38
CROWN BOOKS CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
<TABLE>
<CAPTION>
Years Ended
----------------------------------------
February 3, January 28, January 29,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Purchase of United States
Agency Notes - (1,492,000) (999,000)
Sale of Unites States Agency
Notes - 195,000 -
Maturities of United States
Agency Notes 950,000 - 1,000,000
Disposition of reverse
repurchase agreements - (93,000) -
Purchase of municipal
securities - (6,124,000) (24,404,000)
Sales of municipal
securities 10,216,000 9,560,000 6,034,000
------------ ------------ ------------
Net cash provided by
(used in) investing
activities $ 24,100,000 $ (8,969,000) $(45,408,000)
------------ ------------ ------------

Cash Flows from Financing
Activities:
Principal payments under
capital lease obligations $ (24,000) $ (30,000) $ (30,000)
Proceeds from payment of
Note Receivable - - 710,000
Proceeds from exercise of
stock options - - 263,000
------------ ------------ ------------
Net cash provided by
(used in) financing
activities $ (24,000) $ (30,000) $ 943,000
------------ ------------ ------------

Net Increase (Decrease) in
Cash and Equivalents $ 1,131,000 $(36,110,000) $(17,447,000)
Cash and Equivalents Beginning
of Year 29,634,000 65,744,000 83,191,000
------------ ------------ ------------
Cash and Equivalents at End
Of Year $ 30,765,000 $ 29,634,000 $ 65,744,000
============ ============ ============
</TABLE>

<TABLE>
<S> <C>
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest $ 377,000 $ 316,000 $ 323,000
Income taxes 3,129,000 2,111,000 1,904,000
</TABLE>
See notes to consolidated financial statements.

38
<PAGE> 39
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying consolidated financial statements reflect the accounts
of Crown Books Corporation ("Crown Books") and its wholly-owned subsidiaries.
Crown Books and its wholly-owned subsidiaries are referred to collectively as
the "Company". All significant intercompany accounts and transactions have
been eliminated. The Company is engaged in the business of operating discount
specialty retail book stores in the United States. The stores offer books,
newspapers, magazines and related accessories.

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 as of
the date of the financial statements, and the reported amounts of revenues and
expenses during the reporting period. Accordingly, actual results could differ
from those estimates.

Risk Factors

In the past, the Company generally funded its requirements for working
capital and capital expenditures with net cash generated from operations and
existing cash resources. In fiscal 1997, the Company may need other sources of
liquidity. If Crown Books loses its appeal of RMH Judgment, the Company
expects to use existing cash to pay the RMH Judgment. In such an event, the
Company expects that it would either obtain third party debt financing or
reduce planned store openings.

39
<PAGE> 40
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Fiscal Year

The fiscal year ends on the Saturday closest to January 31. The year
ended February 3, 1996 includes 53 weeks and all other fiscal years presented
include 52 weeks.

Cash and Equivalents

The Company considers short-term instruments, consisting of United States
Treasury Bills, purchased with a maturity of less than one year to be cash
equivalents. The Company's United States Treasury Bills primarily consist of
instruments with a maturity of less than four months.

Short-term Instruments and Marketable Debt Securities

The Company's short-term instruments included United States Treasury
Bills and money market funds. Marketable debt securities included United
States Treasury Notes, corporate notes and municipal securities.

Management determines the appropriate classification of its investments
in debt securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company does not
have the intent or ability to hold to maturity are classified as available for
sale. Securities available for sale are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity. At February 3, 1996, market value was $6,000 less than
cost (adjusted for income taxes). At February 3, 1996, the Company had no
investments that qualified as trading or held to maturity.

The amortized cost of debt securities classified as available for sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization and interest are included in interest income. Realized gains
and losses are included in interest and other income. The cost of securities
sold is based on the specific identification method. The following table
(which excludes money market funds) presents the estimated fair value of debt
securities available for sale by contractual maturity at February 3, 1996:

<TABLE>
<S> <C>
Due in one year or less $ 3,270,000
Due after one year through three years 1,218,000
Due after three years 1,729,000
-------------
$ 6,217,000
=============
</TABLE>

40
<PAGE> 41
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Expected maturities will differ from contractual maturities because the
issuers of securities may have the right to prepay obligations without
prepayment penalties.

Fair Value of Financial Instruments

The fair values of current financial assets and liabilities are
approximately the reported carrying amounts.

Merchandise Inventories

The Company's inventories are priced at the lower of first-in, first-out
cost or market.

Property and Equipment and Depreciation

Property and equipment are recorded at cost. The Company depreciates
furniture, fixtures and equipment generally over a ten year period using the
straight-line method. Computer equipment is depreciated over a five year
period using the straight-line method. Computer software is charged to expense
in the year of acquisition. All stores and some equipment are leased.
Improvements to leased premises are amortized over a ten year period or over
the term of the lease, whichever is shorter. Assets financed (primarily
buildings) through asset based financing arrangements are depreciated over the
lives of the leases. Accumulated amortization for assets under capital lease
was $402,000 and $566,000, as of February 3, 1996 and January 28, 1995,
respectively.

Preopening Expenses

All costs of a noncapital nature incurred in opening a new store are
charged to expense as incurred.

Self Insurance Programs

The Company is self insured for certain levels of general liability,
workers compensation and employee medical coverage. Estimated costs of these
self insurance programs are accrued at the expected value of projected
settlements for known and anticipated claims.

41
<PAGE> 42
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Concentration of Credit Risk

Financial instruments that potentially subject the Company to credit risk
consist primarily of short-term instruments, marketable debt securities and
accounts receivable from vendors. The Company restricts investment of
temporary cash investments to United States Treasury Notes and corporate notes
and municipal securities with a high credit standing. Credit risk on accounts
receivable is minimized as a result of deducting such receivables from amounts
payable to the vendors.

Earnings Per Share

Earnings per share is computed using the weighted average number of
shares of common stock and common stock equivalents (certain stock options)
outstanding during the period. The difference between primary earnings per
common share and fully diluted earnings per common share is not significant for
the periods presented.

New Accounting Standards

The Company is required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 121, Accounting for Long Lived Assets and Long-Lived
Assets to be Disposed of and SFAS No. 123, Accounting for Stock Based
Compensation, no later than its fiscal year ending February 1, 1997. The
Company has determined that implementation of SFAS No. 121 will not have a
material impact on it's consolidated financial statements. The Company expects
to disclose the fair value of options granted in a footnote to its consolidated
financial statements, as permitted by SFAS No. 123.

Reclassifications

Certain reclassifications have been made to prior year statements to
conform to current year presentation.

42
<PAGE> 43
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

NOTE 2 - INCOME TAXES

The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. This standard requires, among other things,
recognition of future tax benefits, measured by enacted tax rates, attributable
to deductible temporary differences between financial statement and income tax
bases of assets and liabilities and for tax net operating losses carryforwards,
to the extent that realization of such benefits is more likely than not.

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $(2,715,000) $ 3,034,000 $ 1,507,000
State (474,000) 823,000 505,000
---------- ----------- -----------
(3,189,000) 3,857,000 2,012,000
Deferred:
Federal 4,191,000 (9,775,000) (1,951,000)
State 975,000 (2,033,000) (337,000)
----------- ----------- -----------
$ 1,977,000 $(7,951,000) $ (276,000)
=========== =========== ===========
</TABLE>

43
<PAGE> 44
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

The effective income tax rate is reconciled to the Federal statutory rate
as follows:

<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate 34% 34% 34%
Income taxes at Federal
statutory rate $ 1,932,000 $(9,293,000) $ (165,000)
Increase (decrease) in
taxes resulting from:
State income taxes,
net of Federal
income tax benefit 194,000 (800,000) 110,000
Tax exempt municipal
bond income (191,000) (386,000) (237,000)
Deferred tax valuation
allowance - 2,500,000 -
Other 42,000 28,000 16,000
----------- ----------- -----------
Income tax provision
(benefit) $ 1,977,000 $(7,951,000) $ (276,000)
=========== =========== ===========

Effective tax rate 34.8% (29.1%) (56.8%)
=========== =========== ===========
</TABLE>

44
<PAGE> 45
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

The tax effect of each type of temporary difference and carryforward that
gives rise to a significant portion of deferred tax assets is as follows:

<TABLE>
<CAPTION>
February 3, January 28,
Gross deferred Tax Assets: 1996 1995
----------- -----------
<S> <C> <C>
Capitalized leases treated as
operating leases for tax purposes $ 194,000 $ 173,000
Uniform capitalization of inventory 755,000 494,000
Reserves for closed stores and
restructuring 6,031,000 11,139,000
Straight line rent adjustments 459,000 277,000
Accrued legal expenses 734,000 1,021,000
Accelerated depreciation 1,113,000 540,000
Self insurance accrual 322,000 540,000
Litigation accruals 6,075,000 5,732,000
Unrealized investment losses 4,000 284,000
Capital loss carryforward 192,000 -
Expense accruals 218,000 1,160,000
Other 105,000 8,000
Valuation allowance (2,500,000) (2,500,000)
----------- -----------
Net deferred tax assets $13,702,000 $18,868,000
=========== ===========
</TABLE>

Realization of the net deferred tax assets is dependent upon the
reversal of taxable temporary differences during periods when the Company has
taxable income or carryback of current losses against taxable income generated
in the carryback period.

The Company has generated taxable income in the existing carryback period
available to carryback future deductions resulting from taxable temporary
differences of approximately $15,515,000. During fiscal 1996, the Company
generated a $7,276,000 tax net operating loss which will be fully utilized in
the carryback period. The Company has a $494,000 capital loss carryforward
that will expire in 2010. In addition, management believes that sufficient
taxable income will be generated in the future, based upon the Company's
historical ability to generate taxable earnings and the benefits to be derived
from the closing of unprofitable stores (see Note 3), to realize the remaining
net deferred tax asset. In management's opinion, the valuation allowance of
$2,500,000 is necessary for the uncertainty related to the timing of the

45
<PAGE> 46
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

reversal of certain of the taxable temporary differences. Management will
continue to evaluate the need for a valuation allowance.

NOTE 3 - RESTRUCTURING AND CLOSED STORE RESERVES

Restructuring Reserves

46
<PAGE> 47
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Store Closing Reserve

47
<PAGE> 48
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Since the recorded closed store reserve represents an estimate based upon
anticipated store closing dates and the book value of the leasehold
improvements at the time the store is closed, the actual amount of costs
associated to store closing is subject to change in the future and may be
different from the reserve. The Company will continue to evaluate the
performance and future viability of its remaining stores and may close
additional stores in the future.

NOTE 4 - TRANSACTIONS WITH AFFILIATES

Dart Group Corporation ("Dart") owns 51.4% of the Crown Books outstanding
common stock. Dart provides certain services relating to management, general
and administrative functions and charges the Company using methods and bases
described herein.

Some of the Company's general and administrative functions are obtained
directly from Dart. The Company has been charged an amount which, in

48
<PAGE> 49
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

management's opinion, is equal to costs incurred by Dart to provide these
functions. It is not practicable for the Company to estimate the cost it
would have incurred for these services if it had operated as an unaffiliated
entity.

In addition to the intercompany charges for general and administrative
services, Dart charges the Company, on a monthly basis, for actual expenses
which relate directly to the Company's operations. Substantially all such
charges were supported by invoices from unrelated parties designating the
Company as recipient of the related goods or services or were for matters
related to all of the affiliated companies and were allocated on a judgmental
basis by management. Amounts receivable from or payable to affiliate relate to
transactions made on behalf of the Company by Dart or on behalf of Dart by the
Company.

In the Company's opinion, the methods used for allocating costs described
above constitute a reasonable basis on which to allocate such costs.

The following table summarizes the intercompany transactions:

<TABLE>
<CAPTION>
Fiscal Years
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Due To Affiliate,
Beginning of Year $ 92,000 $ 46,000 $ 14,000
----------- ----------- -----------
Direct Expense Charges -
Rentals (Note 6) 275,000 261,000 314,000
Salaries 1,669,000 758,000 761,000
Legal, rentals and other 5,110,000 2,864,000 903,000
----------- ----------- -----------
7,054,000 3,883,000 1,978,000
----------- ----------- -----------

Payments (6,721,000) (3,837,000) (1,946,000)
----------- ----------- -----------

Due To Affiliate,
End of Year $ 425,000 $ 92,000 $ 46,000
=========== =========== ===========
</TABLE>

All transactions with Dart included above are made under current payment
terms that, in management's opinion, are comparable to those with unrelated
parties and are free of interest. The average balances of amounts due to
affiliate were $553,000, $380,000, and $162,000 for fiscal 1996, 1995 and 1994,
respectively.

49
<PAGE> 50
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

NOTE 5 - SETTLEMENT WITH RONALD S. HAFT

On October 6, 1995, Dart and Ronald S. Haft entered into a settlement of
certain litigation and other related transactions (collectively, the "RSH
Settlement"). The RSH Settlement transactions are subject to legal challenge.
See Note 8. If sustained, the RSH Settlement transactions were intended to
have the effect, by their terms, of transferring majority control of Dart's
voting stock to one or more voting trustees (the "Voting Trustees") under a
Voting Trust Agreement, by and among Ronald S. Haft, Dart and Larry G. Schafran
and Sidney B. Silverman, as initial Voting Trustees. On December 29, 1995, the
initial Voting Trustees resigned and appointed Richard B. Stone as successor
Voting Trustee.

As part of the RSH Settlement, Ronald S. Haft consented to the
termination of all of his outstanding stock options to purchase up to 10,000
shares of Crown Books common stock.

50
<PAGE> 51
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

NOTE 6 - COMMITMENTS

Lease Commitments

The Company leases stores, warehouses, leasehold improvements, fixtures
and equipment. Renewal options are available on the majority of leases. In
some instances, store leases require the payment of contingent rentals and
license fees based on sales in excess of specified minimums. Certain
properties are subleased with various expiration dates.

Following is a schedule by fiscal year of future minimum payments under
capital leases and noncancelable operating leases for warehouses and stores
(excluding sublease income) which have initial or remaining terms in excess of
one year at February 3, 1996. The imputed interest rate on capital leases is
20.5% in the aggregate.

<TABLE>
<CAPTION>
-- in thousands --
--------------------------------------
Fiscal Capital Leases Operating
Year (see Related Party Leases) Leases
----- -------------------------- ----------
<S> <C> <C>
1997 $ 288 $ 22,570
1998 304 20,136
1999 334 15,915
2000 334 11,282
2001 334 9,982
2002-2017 6,562 24,158
--------- -----------
Total 8,156 $ 104,043
===========
Less: Imputed interest 6,520
---------
Present value of net
minimum lease payments 1,636
Less: Current maturities -
---------
Long-term capital lease
obligations $ 1,636
=========
</TABLE>

The above table includes $2,580,000 for store operating leases where the
store has been closed and the lease obligation has been accrued in the
restructuring or store closing reserves. Minimum operating lease obligations
have not been reduced by total future minimum sublease rental of $880,000
receivable in the future under six leases.

Rent expense for operating leases are as follows:

51
<PAGE> 52
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

<TABLE>
<CAPTION>
Fiscal Year
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rentals $20,695,000 $21,401,000 $17,015,000
Contingent rentals 143,000 174,000 168,000
----------- ----------- -----------
$20,838,000 $21,575,000 $17,183,000
=========== =========== ===========
</TABLE>

Related Party Leases

Members of the Haft family beneficially own all the issued and
outstanding voting stock of Dart. Under the RSH Settlement, a majority of
Dart's voting stock is held in a voting trust for Ronald S. Haft as beneficial
owner. Of the Company's 172 stores as of February 3, 1996, nine are leased
from entities in which the Haft family members own substantially all the
beneficial interests. The Company leases three of the stores in shopping
centers in which Dart owns the majority of the partnership interests and
members of the Haft family hold the remaining beneficial interests. These 12
lease and sublease agreements with Dart and the Haft family provide for various
termination dates which, assuming renewal options are exercised, range from
1996 to 2029, and require the payment of future minimum rentals aggregating
$44,478,000 at February 3, 1996. These agreements also require payment of a
percentage of sales in excess of a stated minimum, and are included in the
lease commitments table above. In addition, four closed stores have lease
agreements with Haft-owned entities with various termination dates from 1996 to
2001 and require future minimum rentals aggregating $1,175,000 at February 3,
1996. Annual fees and rentals included in the consolidated statements of
income for leases and subleases involving the Haft family were $2,406,000,
$2,296,000, and $1,780,000 for 1996, 1995 and 1994, respectively.

The Company subleases from Dart 28,000 square feet of a warehouse and
office facility located in Landover, Maryland which it shares with Trak Auto
Corporation ("Trak Auto"), an affiliate of Dart. The sublease, which
commenced in 1985, is for 30 years and six months, and provides for rental
payments increasing approximately 15% every five years over the term of the
sublease. The annual rental is $288,000. The sublease agreement also requires
payment for maintenance, utilities, insurance and taxes allocable to the space
subleased. This sublease is classified as a capital lease and is the only
capital lease under the caption, Capital Lease - Building, on the lease
commitment table above. Dart originally leased the entire 271,000 square foot

52
<PAGE> 53
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

warehouse and office facility from a private partnership in which Haft family
members owned all of the partnership interests. The Company's sublease is on
the same terms as Dart's lease.

As part of the RSH Settlement, Ronald S. Haft agreed to transfer the real
estate and the partnership interests controlled by him in the warehouse and
office facility to Dart (or its subsidiaries) and to reduce the rent. These
transfers and rent reductions are subject to contingencies, including
bankruptcy court approval, mortgagee approval, challenges brought by Herbert H.
Haft concerning the extent of Ronald S. Haft's ownership interest in the
property, and claims asserted by Robert M. Haft and Linda G. Haft regarding
the extent to which Ronald S. Haft controls the aforementioned partnerships.

The Executive Committees of Dart, Crown Books and Trak Auto have
undertaken a legal review of certain leasing arrangements and real estate
related transactions between Dart, the Company or Trak Auto, on the one hand,
and Haft-owned entities, on the other hand. The Executive Committees have not
yet determined what actions may be taken as a result of this legal review.

Employment Arrangements

The Company has entered into employment agreements with the President and
Chief Executive Officer (the "CEO") of the Company and other key executives.
The CEO's agreement is for a two-year term through the Company's 1998 fiscal
year and the agreements with the other executive officers are for one-year
terms. The agreements are automatically extended two years and one year,
respectively, unless the individual is terminated with cause. The agreements
provide for compensation increases following review and performance appraisal
by the Board of Directors.

NOTE 7 - BOARD OF DIRECTORS

On January 4, 1994, the Board of Directors of Dart established a Special
Litigation Committee to assess, on behalf of the Company, whether to pursue,
settle or abandon, claims raised in the derivative lawsuits filed against the
Company. See Note 8 for a discussion of the derivative lawsuits.

53
<PAGE> 54
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

the then President and Chief Operating Officer of Dart, Ronald S. Haft.
Because Herbert H. Haft is and Ronald S. Haft was an executive officer and
director of Crown Books, on October 11, 1994, the Board of Directors of Crown
Books established an Executive Committee comprised of the same outside
directors, with authority parallel to that of Dart's Executive Committee. The
disputes between Herbert H. Haft and Ronald S. Haft concerning issues involving
Dart and Crown Books have been extensive. Accordingly, the respective Executive
Committees assumed day-to-day involvement in these disputed issues and other
matters affecting Dart and Crown Books, in particular matters relating to
litigation to which Dart or Crown Books is a party. While the Executive
Committee remains involved in the day-to-day affairs of Dart, its continuing
role is dependent upon future developments.

Members of the Executive Committee are compensated at a rate of $275
per hour plus reimbursement of expenses. Members of the Special Litigation
Committee of the Board of Directors, which was established on January 4, 1994,
have been compensated at a salary rate of $250 per hour plus reimbursement of
expenses. Compensation paid by Dart and its subsidiaries, including the
Company, to members of the respective Executive Committees for their services
on those committees totaled $1,263,000 and $666,000 in fiscal 1996 and 1995,
respectively ($421,000 and $166,000 paid by the Company in fiscal 1996 and
1995, respectively). The compensation paid by Dart and its subsidiaries,
including the Company, to members of the Special Litigation Committee for their
service on that committee in fiscal 1995 totaled $269,000 ($121,000 paid by the
Company), exclusive of expense reimbursement. There were no fees paid to the
Special Litigation Committee in fiscal 1996.

NOTE 8 - LITIGATION

Robert M. Haft Employment Litigation

54
<PAGE> 55
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Trak Auto. The complaint, as amended, alleged breach of contract regarding
various employment, stock option, stock incentive and loan agreements and
sought declaratory judgment regarding a stock incentive agreement and a
possible right by Robert M. Haft to acquire an interest in Total Beverage, all
in connection with the termination of Robert M. Haft's employment in June 1993.
The complaint, as amended, sought unspecified damages, costs and attorneys'
fees.

On February 22, 1995, the federal district court in Robert M. Haft's
employment litigation made the following rulings against Dart, Crown Books and
Trak Auto:

(a) The court found that Robert M. Haft was entitled to damages in the
amount of $2,146,250, plus interest, based on the failure of Crown
Books to

55
<PAGE> 56
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

deliver 100,000 shares of unrestricted Crown Books Common Stock when
he demanded them in August of 1993;

(c) The court found that Robert M. Haft has the right to purchase for
$149,400 ten percent of Dart's interest in the entity that acquired
the assets of Total Beverage's Chantilly, Virginia store.

The Company has reserved approximately $14.2 million (including
accrued interest of $1.4 million) for these judgments.

Derivative Litigation

56
<PAGE> 57
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Dart, Trak Auto, Crown Books, Shoppers Food, Total Beverage and Cabot-Morgan
Real Estate Company.

57
<PAGE> 58
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

dismissal of certain claims in those derivative lawsuits and for realignment of
the parties to permit Dart to prosecute other claims in those derivative
lawsuits. This motion is still pending before the court.

In connection with the RSH Settlement, on October 11, 1995, the
plaintiff shareholders, Ronald S. Haft, Combined Properties, Inc., Dart, Trak
Auto and Crown Books entered into a Stipulation and Agreement of Compromise,
Settlement and Release (the "Stipulation"). Pursuant to the Stipulation, the
claims against Ronald S. Haft and Combined Properties, Inc. will be dismissed
on the merits and with prejudice as against the shareholder plaintiffs and Dart
and its subsidiaries, if the RSH Settlement and dismissal of these claims are
approved by the Delaware Court of Chancery.

Herbert H. Haft Proxy Litigation

58
<PAGE> 59
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

"Proxy") to vote these shares of stock "to the same extent and with the same
effect as Ronald S. Haft might or could do under any applicable laws or
regulations governing the rights and powers of shareholders of Dart," until
Herbert H. Haft's death or incapacitation. On June 30, 1995, Ronald S. Haft
sent a letter to Herbert H. Haft purportedly revoking this proxy.

On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H.
Haft and, nominally, Dart in the Delaware Court of Chancery for New Castle
County for Herbert H. Haft's alleged breach of contract and breach of fiduciary
duties to Ronald S. Haft and to Dart in connection with the Proxy (Ronald S.
Haft v. Herbert H. Haft, et al., Civ. A. No. 14425). In this action, Ronald S.
Haft seeks a declaration that the Proxy is revocable or would be revocable
under certain conditions, as well as costs and attorneys' fees. Ronald S. Haft
also requests that the court require Dart to refuse to recognize the validity
of the Proxy. On August 9, 1995, Herbert H. Haft filed an Answer and
Counterclaim denying liability and requesting rescission of the Stock Sale
Agreement because of Ronald S. Haft's alleged breach of contract and other
grounds. On September 25, 1995, Dart filed its answer in this action. Both
Ronald S. Haft and Herbert H. Haft have moved for summary judgment in this
lawsuit. On November 14, 1995, the court denied Ronald S. Haft's motion for
summary judgment; Herbert H. Haft's motion for summary judgment remains
pending.

As part of the RSH Settlement, on October 6, 1995, Dart purchased from
Ronald S. Haft the 172,730 shares of Dart Class B Common Stock that were
subject to the Proxy.

Section 225 Action by Robert, Gloria and Linda Haft

59
<PAGE> 60
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

entitled to vote because they have been unlawfully issued or they should be
deemed to be owned by Dart.

Challenge to RSH Settlement by Herbert H. Haft

On November 6, 1995, Herbert H. Haft filed a lawsuit captioned Herbert
H. Haft v. Dart Group Corporation, et al., Del. Ch., Civ. A. No. 14685, in the
Delaware Court of Chancery for New Castle County naming as defendants Dart, all
of its directors except Herbert H. Haft, RGL, John L. Mason, Ellen V. Sigal and
Michael Ryan. Herbert H. Haft seeks a judgment (i) declaring the RSH
Settlement unlawful, hence null and void; (ii) declaring either that 172,730
shares of Dart Class B Common Stock belong to him, were wrongfully sold by
Ronald S. Haft to Dart, and that Herbert H. Haft is entitled to restitution of
such shares or, alternatively, that his purportedly irrevocable proxy on the
172,730 shares continues to be valid; (iii) declaring that Herbert H. Haft
retains voting control of Dart or, at a minimum, 34.55% of Dart's voting power;
(iv) declaring that the Trust Shares may not be lawfully voted; and (v)
declaring that defendants John L. Mason, Ellen V. Sigal and Michael Ryan are
not duly elected directors of Dart.

Standstill Order

In connection with the legal challenges to the RSH Settlement raised
by RGL and Herbert H. Haft, on December 6, 1995, the Delaware Court of Chancery
entered a Standstill Order (the "Standstill Order"), which restricts certain
actions by Dart. Without further order of the court, Dart may not (i) change
its Certificate of Incorporation or Bylaws; (ii) change the current composition
of Dart's Board of Directors (Herbert H. Haft, Ronald S. Haft, Larry G.
Schafran, Bonita A. Wilson and Douglas M. Bregman) or any of its subsidiaries;
(iii) change the current Haft family officers of Dart or any of its
subsidiaries; or (iv) issue any additional securities of Dart or any of its
subsidiaries (except employee stock options issued in the ordinary course of
business). In addition,

60
<PAGE> 61
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

without first giving Herbert H. Haft and the other parties to the Section 225
Action not less than seven days written notice, Dart may not take any
extraordinary actions, including but not limited to actions that would result
in (a) the liquidation of Dart or any of its subsidiaries, (b) the sale of any
major subsidiary of Dart or (c) the disadvantage of any Class B stockholder of
Dart through any debt transaction. For purposes of the Standstill Order, the
phrase "extraordinary actions" means any transaction, contract or agreement,
the value of which exceeds $3 million.

Other

The Company recorded expenses of approximately $1,100,000 and
$3,400,000 and $1,900,000 during the fiscal years 1996, 1995 and 1994,
respectively, for legal expenses incurred directly or allocated by Dart during
these years. These amounts include estimated accrued expenses of approximately
$1.8 million that likely will be necessary to resolve all litigation discussed
above in which the Company is a party.

NOTE 9 - INCENTIVE STOCK AGREEMENT

In fiscal 1990, the Company entered into an incentive stock agreement
(the "ISA") with Robert M. Haft, the former president of the Company. Under
the terms of the ISA, the Company issued 100,000 shares of Common Stock to
Robert M. Haft, subject to certain transfer restrictions, in return for a
non-interest bearing promissory note, discounted at an effective rate of 11%,
for $203,750, due January 2, 2004. Pursuant to the ISA, a voluntary
termination by Robert M. Haft of his employment would allow the Company to
repurchase all or a portion of the 100,000 shares of Common Stock; also, if the
Company terminated Robert M. Haft without cause, the ISA would require the
Company to issue 100,000 shares of unrestricted common stock to him.

The Company recognized deferred compensation to Robert M. Haft under
the ISA with a combination of amortization of the discount on the note ($11,000
annually) and straight-line recognition of the difference between the market
price of Crown Books common stock on the date of grant and the purchase price
for the shares subject to the ISA ($194,000 annually).

61
<PAGE> 62
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

When Robert M. Haft's employment with the Company terminated in June
1993, the Company maintained that he had voluntarily terminated his employment,
and therefore the Company had a right to repurchase these shares. In August
1993, Robert M. Haft filed a lawsuit against Dart, the Company and Trak Auto
that, among other claims, contested the right of the Company to repurchase the
shares, and alleged that the Company had terminated Robert M. Haft without
cause. The jury and the court in this litigation found in favor of Robert M.
Haft on these claims. On March 23, 1995, the court entered final judgement
that Robert M. Haft was entitled to damages in the amount of $2,146,250, plus
interest, for Robert M. Haft's claims with respect to the ISA. The Company has
filed a notice of appeal on this judgment. See Note 8 for further discussion
of this litigation.

As a result of this litigation, however, the Company took a charge
against earnings for the remaining unamortized deferred compensation totaling
$1,424,000 (before income taxes) associated with the ISA in the year ending
January 28, 1995.

NOTE 10 - EMPLOYEES' PROFIT SHARING AND RETIREMENT PLANS

The Company maintains a non-contributory profit-sharing plan for all
full-time employees with one year's continuous employment. Annual
contributions to the plan are based on a discretionary percentage of the
Company's consolidated net income as defined in the plan, as determined by the
Board of Directors. Contributions are allocated to individual employees based
on each employee's salary in relation to the total salaries of all eligible
employees. The Company's contribution was $240,000 and $95,000 for fiscal 1995
and 1994, respectively. The Company will not make a contribution for fiscal
1996.

In June 1995, the Company established a 401(k) retirement plan for all
employees projected to work 1,000 hours and 90 days continuous employment. The
Company is obligated to contribute an amount equal to 25% of the employees'
deferrals up to 6%. The Company's contribution was approximately $90,000 for
the year ended February 3, 1996.

NOTE 11 - STOCK OPTION PLANS

Crown Books Corporation 1993 Stock Option Plan

The Crown Books Corporation 1993 Stock Option Plan (the "1993 Option
Plan") was approved by the stockholders at the June 1993 annual meeting. The
1993

62
<PAGE> 63
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Option Plan is for officers, directors and key employees. The total number of
shares that may be issued under the 1993 Option Plan is 1,250,000. The 1993
Option Plan will terminate June 30, 2003. Based on options outstanding at
February 3, 1996 the maximum shares issuable under options exercisable over the
next five years are: 114,943 in 1997, 154,766 in 1998, 183,570 in 1999, 136,970
in 2000 and 93,910 in 2001.

Information concerning the 1993 Option Plan:

<TABLE>
<CAPTION>
Number of Option Price
Options per Share
--------- ------------
<S> <C> <C>
Outstanding at January 29, 1994 87,820 $ 23.00
Granted 10,000 17.00
Exercised - -
Expired (18,690) 23.00
--------- ------------
Outstanding at January 28, 1995 79,130 17.00-23.00
Granted 148,540 11.00-17.00
Exercised - -
Expired (44,100) 11.00-23.00
--------- ------------
Outstanding at February 3, 1996 183,570 $11.00-23.00
========= ============
</TABLE>

Options to purchase 61,254 shares were exercisable at February 3, 1996 and
1,066,430 options remained available for grant. The grant of employee stock
options by the Board of Directors (pending court approval) in December 1994 was
approved by the Delaware Court of Chancery in April 1995.

Crown Books Corporation Stock Option Plan

The Crown Books Corporation Stock Option Plan (the "Option Plan")
provided for option grants to officers, directors and key employees of the
Company and its parent and subsidiaries. Based on the options outstanding, as
of February 3, 1996, the maximum shares issuable under options exercisable over
the next four years are: 117,531 in 1997, 79,212 in 1998, 40,000 in 1999 and
20,000 in 2000. No new options could be granted after January 1, 1993.

63
<PAGE> 64
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

Information concerning the Option Plan:

<TABLE>
<CAPTION>
Number of Option Price
Options per Share
--------- --------------
<S> <C> <C>
Outstanding at January 29, 1994 262,229 $19.50 - 23.93
Exercised - -
Expired (117,482) 19.50 - 23.93
--------- --------------
Outstanding at January 28, 1995 144,747 19.50 - 23.93
Exercised - -
Expired (27,216) 19.50 - 21.45
--------- --------------
Outstanding at February 3, 1996 117,531 $20.00 - 23.93
========= ==============
</TABLE>

Options to purchase 117,531 shares were exercisable at February 3, 1996.

The Board of Directors of the Company has authorized certain officers
and directors of the Company to apply for loans from the Company to exercise
their vested stock options. Under the plan approved by the board, the loans
must bear interest at the prime rate, adjusted annually, must be secured by all
of the stock acquired by exercise of the options, must be repaid out of the
first proceeds of sale of the stock or at the end of three years, whichever is
earlier, and the borrower must demonstrate to the Company's chief financial
officer both that it would be difficult to dispose of the number of shares on
the open market and that he or she presents a reasonable credit risk to the
Company.

64
<PAGE> 65
CROWN BOOKS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended February 3, 1996, January 28, 1995

And January 29, 1994

NOTE 12 - INTERIM FINANCIAL DATA - (UNAUDITED)

Selected interim financial data for the years ended February 3, 1996
and January 28, 1995 are as follows:

<TABLE>
<CAPTION>
-- In Thousands, Except Per Share Data --
THREE MONTHS ENDED: FEBRUARY OCTOBER JULY APRIL
3, 1996 28, 1995 29, 1995 29, 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 98,314 $ 60,250 $ 63,873 $ 61,038
GROSS PROFIT (1) 20,786 9,816 9,990 11,046
NET INCOME (3) 4,508 (670) 250 (384)
NET INCOME (LOSS) PER
SHARE (2) $ .84 $ (.12) $ .05 $ (.07)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED: JANUARY OCTOBER JULY APRIL
28, 1995 29, 1994 30, 1994 30, 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES $ 99,411 $ 68,374 $ 72,179 $ 65,642
GROSS PROFIT (1) 22,324 11,241 12,318 11,711
NET INCOME (4) 4,604 (25,008) 609 415
NET INCOME (LOSS) PER
SHARE (2) $ .85 $ (4.64) $ .11 $ .08
</TABLE>

(1) After deduction of cost of sales, store occupancy and warehousing
expenses.
(2) The sum of these amounts may not equal the annual amount
because of the changes in the average number of shares outstanding
during the year.
(3) Including reversals of previously provided closed store reserves in
the 2nd, 3rd and 4th quarters.
(4) After deduction for 3rd quarter closed store reserve, Robert M. Haft
employment litigation accrual and accrual for related legal fees.

65
<PAGE> 66
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure

Inapplicable.

PART III

The following Items 10 through 13 are incorporated herein by reference to the
Company's definitive Information Statement to be filed with the Commission
pursuant to Regulation 14C.

Item 10. Directors and Executive Officers of the Registrant

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and
Management

Item 13. Certain Relationships and Related Transactions

66
<PAGE> 67
PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K

(A)

1. Financial Statements

See Item 8.

2. Schedules (Consolidated)

All schedules are omitted because the required
information is inapplicable or it is presented in the
consolidated financial statements or related notes.

3. Exhibits

3.1 Restated Certificate of Incorporation (incorporated
by reference to Crown Books' registration statement
on Form S-1, Reg. No. 2-83999).

3.2 By-laws, amended and restated as of September 14,
1993 (incorporated by reference to Exhibit 3(b) to
Crown Books' 1994 Form 10-K).

3.3 Certificate of Amendment of the Certificate of
Incorporation (incorporated by reference to Exhibit
3(c) to Crown Books' 1987 Form 10-K.

10.1 Crown Books Corporation Stock Option Plan, as amended
(incorporated by reference to Crown Books'
registration statement Form S-8, Reg. No. 33-43267).

10.2 Letter of Agreement dated May 24, 1983 between Crown
Corporation and Robert M. Haft (incorporated by
reference to Crown Books' registration statement on
Form S-1, Reg. No. 2-83999).

10.3 Lease Agreement dated May 26, 1981 between Combined
Properties Corporation and Crown Books Corporation
(826)(incorporated by reference to Crown Books'
registration statement on Form S-1, Reg. No.
2-83999).

10.4 Lease Agreement dated May 26, 1981 between Bradlick,
Inc. and Crown Books Corporation (828)(incorporated
by reference to Crown Books' registration statement
on Form S-1, Reg. No. 2-83999).

10.5 Lease Agreement dated November 16, 1981 between
Rolling Valley

67
<PAGE> 68
Plaza, Inc. and Crown Books Corporation
(830)(incorporated by reference to Crown Books'
registration statement on Form S-1, Reg. No.
2-83999).

10.6 Lease Agreement dated May 23, 1983 between Penn-Daw
Associates Limited Partnership and Crown Books
Corporation incorporated by reference to Crown Books'
registration statement on Form S-1, Reg. No.
2-83999). (834)

10.7 Sublease dated December 26, 1984 between Dart Group
Corporation and Crown Books Corporation (75th
Avenue)(incorporated by reference to Exhibit 10(tttt)
to Crown Books' 1986 Form 10-K).

10.8 Employment agreement with Mr. Robert M. Haft dated
February 28, 1987 (incorporated by reference to
Exhibit 10(xxxx) to Crown Books' 1987 Form 10-K).

10.9 Agreement of Amendment dated June 9, 1986 of Crown
Stockholder Agreement dated May 24, 1983
(incorporated by reference to Exhibit 10(yyyy) to
Crown Books' 1987 Form 10-K).

10.10 Indemnity Agreement by and between Dart Group
Corporation and Crown Books Corporation dated June 9,
1986 (incorporated by reference to Exhibit 10(zzzz)
to Crown Books' 1987 Form 10-K).

10.11 1988 Crown Books Corporation Deferred Compensation
Plan for Directors, effective January 1, 1988
(incorporated by reference to Exhibit 10(ccccc) to
Crown Books' 1988 Form 10-K).

10.12 10(ddddd) Incentive stock agreement with Mr. Robert
M. Haft and promissory note from Mr. Haft dated
September 5, 1989 (incorporated by reference to
Exhibit 10(ddddd) to Crown Books' 1990 Form 10-K).

10.13 Assignment and Assumption Agreement dated December
30, 1989, between Briggs Chaney Associates Limited
Partnership and CM/CP Briggs Chaney Plaza Joint
Venture, and lease agreement dated June 26, 1981
between Crown Books Corporation and Western
Development Corporation (incorporated by reference to
Exhibit 10(ggggg) to Crown Books' 1990 Form 10-K).
(837)

10.14 Lease agreement dated January 5, 1990 between
Combined Properties Limited Partnership and Crown
Books Corporation re: Turnpike Shopping Center
(incorporated by reference to Exhibit 10(iiiii) to
Crown Books' 1990 Form 10-K). (815)

10.15 Lease agreement dated January 5, 1990 between
Combined Properties Limited Partnership and Crown
Books Corporation re: the Plaza at Landmark
(incorporated by reference to Exhibit

68
<PAGE> 69
10(jjjjj) to Crown Books' 1990 Form 10-K). (165)

10.16 Lease agreement dated January 5, 1990 between
Combined Properties Limited Partnership and Crown
Books Corporation re: Manaport Plaza Shopping Center
(incorporated by reference to Exhibit 10(jjjjj) to
Crown Books' 1990 Form 10-K). (804)

10.17 Lease agreement dated October 31, 1990 between CP
Acquisitions Limited Partnership (a Haft controlled
entity) and Crown Books Corporation re: McLean
Shopping Center (incorporated by reference to Exhibit
10(kkkkk) to Crown Books' 1991 Form 10-K).

10.18 Lease agreement dated May 11, 1990 between CM/CP
Greenway Center Joint Venture (a Haft controlled
entity) and Crown Books Corporation re: Greenway
Center (incorporated by reference to Exhibit 10(llll)
to Crown Books' 1991 Form 10-K). (822)

10.19 Lease agreement dated March 20, 1991 between Charles
County Associates Limited Partnership (a Haft
controlled entity) and Crown Books Corporation re:
Charles County Plaza (incorporated by reference to
Exhibit 10(mmmm) to Crown Books' 1991 Form 10-K).
(833)

10.20 Lease agreement dated May 11, 1990 between Combined
Properties/Greenbriar Limited Partnership (a Haft
controlled entity) and Crown Books Corporation, the
First Amendment dated September 13, 1990 and the
Second Amendment dated March 14, 1991 re: Greenbriar
Town Center (incorporated by reference to Exhibit
10(nnnn) to Crown Books' 1991 Form 10-K). (104)

10.21 Sublease agreement dated February 12, 1991 between
Crown Books Corporation and Trak Corporation re:
McLean Shopping Center (incorporated by reference to
Exhibit 10(ppppp) to Crown Books' 1992 Form 10-K).
(Old 803)

10.22 Lease agreement dated May 8, 1991 between Combined
Properties Limited Partnership and Crown Books
Corporation re: Montgomery Village (incorporated by
reference to Exhibit 10(qqqqq) to Crown Books' 1992
Form 10-K). (827)

10.23 Sublease agreement dated February 19, 1992 between
Crown Books Corporation and Trak Corporation re:
Vienna (incorporated by reference to Exhibit
10(rrrrr) tp Crown Books' 1992 Form 10-K). (855)

10.24 Third Amendment dated June 4, 1992 and Fourth
Amendment dated June 15, 1992 to the Lease Agreement
between Combined Properties Limited Partnership and
Crown Books Corporation re: Greenbriar Town Center
(incorporated by reference to Exhibit 10(sssss) to

69
<PAGE> 70
Crown Books' 1993 Form 10-K). (104)

10.25 Second Amendment of Lease dated August 19, 1993 and
Third Amendment of Lease dated August 30, 1993
between Combined Properties Limited Partnership and
Super Crown Books Corporation (incorporated by
reference to Exhibit 10 (wwwww) to Crown Books' 1994
Form 10-K). (165)

10.26 Lease agreement dated August 19, 1993 between Retail
Lease Acquisition Limited Partnership and Super Crown
Books Corporation (incorporated by reference to
Exhibit 10(xxxxx) to Crown Books' 1994 Form 10-K).
(132)

10.27 Crown Books Corporation 1993 Stock Option Plan
(incorporated by reference to Crown Books'
registration statement on Form S-8 Reg. No.
33-78378).

10.28 Employment Agreement dated January 25, 1995 between
Crown Books Corporation and E. Steve Stevens
(incorporated by reference to Exhibit 10.28 to Crown
Books' 1995 Form 10-K).

10.29 Standstill Agreement executed on behalf of Dart Group
Corporation and Ronald S. Haft and ordered on
September 14, 1994 by the Court in Ronald S. Haft v.
Dart Group Corporation, Del. Ch. 13736 (filed
September 12, 1994) (incorporated by reference to
Exhibit 99(b) to the Current Report of Crown Books
Corporation on Form 8-K of September 6, 1994 and
filed on September 14, 1994).

10.30 Standstill Order entered on December 6, 1995 by the
Delaware Chancery Court in Gloria G. Haft, et al. v.
Larry G. Schafran, et al. (Del. Ch. Civ. A. No.
14620) and Herbert H. Haft v. Dart Group Corporation,
et al. (Del. Ch. Civ. A. No. 14685) (incorporated by
reference to Exhibit 99.1 to the Quarterly Report of
Crown Books Corporation on Form 10-Q for the period
ended October 28, 1995).

10.31 Employment Agreement dated November 6, 1995 between
Crown Books Corporation and Donald J. Pilch.

10.32 Employment Agreement dated November 6, 1995 between
Crown Books Corporation and Marc Joseph.

11 Statement on Computation of Per Share Net Income.

21 Subsidiaries of Crown Books Corporation.

23 Consent of Independent Public Accountants.

70
<PAGE> 71
27 Schedules to the Financial Statements

(B) Reports on Form 8-K

During the fourth quarter of fiscal year ended February 3, 1996, the Company
filed one Current Report on Form 8-K.

1. On November 1, 1995, Crown Books filed a Current Report of
Form 8-K reporting under Item 1 (Change in Control of
Registrant) and Item 5 (Other Events) a lawsuit filed on
October 17, 1995 against Dart and its directors by Gloria G.
Haft, Robert M. Haft and Linda G. Haft.

71
<PAGE> 72
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

CROWN BOOKS CORPORATION

Date: April 30, 1996 By: E. Steve Stevens
-------------- -------------------------------------
E. Steve Stevens
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<S> <C>
Date: April 30, 1996 Herbert H. Haft
-------------- -----------------------------------
Herbert H. Haft
Chairman of the Board of Directors

Date: April 30, 1996 E. Steve Stevens
-------------- ------------------------------------
E. Steve Stevens
President and Chief Executive Officer

Date: April 30, 1996 Bonita A. Wilson
-------------- ------------------------------------
Bonita A. Wilson
Director

Date: April 30, 1996 Douglas M. Bregman
-------------- ------------------------------------
Douglas M. Bregman
Director

Date: April 30, 1996 Larry G. Schafran
-------------- ------------------------------------
Larry G. Schafran
Director

Date: April 30, 1996 Donald J. Pilch
-------------- ------------------------------------
Donald J. Pilch
Vice President and
Chief Financial Officer
</TABLE>

72
<PAGE> 73
CROWN BOOKS CORPORATION AND SUBSIDIARIES

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit
Number Exhibit
------- -------
<S> <C>
10.31 Employment Agreement dated November 6,
1995 between Crown Books Corporation
and Donald J. Pilch.

10.32 Employment Agreement dated November 6,
1995 between Crown Books Corporation
and Marc Joseph.

11 Statement on Computation of Per
Share Net Income.

21 Subsidiaries of Crown Books Corporation

23 Consent of Independent Public
Accountants

27 Financial Statement Schedules
</TABLE>

<PAGE> 1
EXHIBIT 10.31

EMPLOYMENT AGREEMENT

This Agreement dated as of November 6, 1995, by and between Donald J.
Pilch ("Employee"), and CROWN BOOKS CORPORATION, a Delaware corporation
("Employer").

W I T N E S S E T H:

WHEREAS, the parties hereto desire by this Agreement to provide for
the employment of Employee by Employer;

NOW THEREFORE, in consideration of the mutual covenants and agreements
contained in this Agreement, and other good and valuable consideration, the
receipt, sufficiency and adequacy of which the parties conclusively
acknowledge, the parties hereto, intending to be legally bound, agree as
follows:

1. EMPLOYMENT

(a) Duties. Employer hereby employs Employee, and
Employee accepts employment by Employer, as Vice President, Chief Financial
Officer during the Employment period (as defined in Section 2), with such
duties, responsibilities and authority as are commensurate with and appropriate
to such position and as are from time to time set forth in the bylaws of the
Employer and otherwise delegated to him or her by the Board of Directors of
the Employer ("the Board of Directors"), and shall report to the Chairman of
the Board, the President, and the Board of Directors. Employee agrees to
observe and comply with the rules and regulations of Employer as adopted by the
Board of Directors respecting the performance of his or her duties and to carry
out and follow the orders, policies and directions stated by Employer to him or
her from time to time, provided, however, that such regulations and directions
are consistent with the authority and responsibility of the position specified
above.

(b) Full Time Employment. During the Employment period
Employee shall devote all his or her time and attention to his services for
Employer and shall diligently perform his or her duties and responsibilities
under this Agreement. Employee acknowledges that the proper performance of his
or her duties and responsibilities may require the rendering of services not
only during normal business hours, but over and beyond those hours as well.

(c) Place of Employment and Travel. Employee's principal
place of employment shall be at the executive offices of Employer in Landover,
Maryland. If Employer's executive offices are moved from Landover, Maryland,
Employee's principal place of employment shall be changed to the location where
such executive offices are moved. Employee agrees to travel for the
performance of his or her duties under this Agreement as Employer may request
from time to time. If Employers executive offices are relocated a distance
greater than 100 miles from Landover, Maryland, Employee's relocation expenses
will be paid by

1
<PAGE> 2
Employer if Employee elects to relocate. At the Employee's option, if Employee
decides not to relocate, the relocation of the executive offices will be deemed
a termination without cause and the Employee will be eligible to receive
severance benefits as outlined in Section 7 (e) of this Agreement.

2. TERM

The term of Employee's employment under this Agreement (the
"Employment Period") shall commence on November 6, 1995 and end on November 6,
1996. However, Employer and Employee agree that the term of this agreement
automatically extends for an additional one (1) year at the end of each
Employment Period, unless Employee has been, or is being, terminated pursuant
to Section 7..

3. COMPENSATION

(a) Base Salary. Employee's annual base salary shall be
One Hundred Fifty Five Thousand Dollars ($155,000.00), subject to an annual
increase as recommended to the Board of Directors by the Compensation Committee
of the Board of Directors following review and performance appraisal of
Employee, and following approval by the Board of Directors. Employee's base
salary shall be paid in accordance with Employer's normal payroll procedure.

(b) Withholding Tax. All compensation shall be subject
to the customary withholding tax and other employment taxes as required with
respect to compensation paid by a corporation to an employee.

4. STOCK OPTIONS

(a) Stock Options. Employee shall be eligible for the
annual award of stock options pursuant to the stock option plans under which
the Employee is currently a participant, as determined by the Board(s) of
Directors of the company(s), pursuant to the individual company(s) stock option
plan(s).

(b) Exercise upon Certain Terminations of Employment. In
the event of the termination of Employee's employment hereunder for any reason
other than pursuant to Section 7 (d), Employee shall have the right to
exercise, on or before the effective date of the termination of this Agreement,
any option which has vested in Employee hereunder coincident with or prior to
the effective date of the termination of Employee's employment hereunder,
subject to the other terms and conditions of such option plan(s). In addition,
in the event of the termination of Employee's employment due to his or her
death, the personal representative of the Employee shall have the right to
exercise any such option within sixty (60) days of the date of Employee's
death.

5. EMPLOYEE BENEFITS

2
<PAGE> 3
During the Employment Period, Employer shall provide Employee
with the following benefits:

(a) Health Plan Coverage. Employer shall provide
Employee with health benefits, including major medical health insurance and
Long Term Disability (LTD), Accidental Death and Dismemberment (AD&D) and such
other benefits that are in effect at the time of this Agreement for the
Employee and his or her immediate family all in accordance with Employer's
"Executive Health Plan" as now in effect.

(b) Further Benefits. Employee shall, during the term of
this Agreement (and thereafter to the extent provided herein), be eligible to
participate in all applicable profit sharing and 401 (k) plans and insurance
benefits in effect for all salaried employees of the Employer, together with
any future improvements in such plans or benefits, subject to the eligibility
requirements of such plans. In addition, Employee shall be entitled during the
term of this Agreement, and thereafter to the extent provided for herein or in
any such plan, to receive such other and further benefits as shall be generally
made applicable to key executive employees of the Employer, and such additional
benefits, as may be granted from time-to-time by the Board of Directors, in
it's sole discretion.

(c) Vacation. Employee shall be entitled to paid
vacation leave of three (3) weeks in every year of employment, increased
pursuant to Employer's vacation plan. Any accrued vacation previously earned
prior to the date of this Agreement shall be permanently accrued as a benefit
to the Employee (grandfathered). Effective with this Agreement, all vacation
earned subsequent to the date of this Agreement shall be taken no later than by
the end of the following year or be forfeited, unless prior approval is granted
by the Compensation Committee of the Board of Directors.

(d) Business Expenses. Employer shall reimburse Employee
pursuant to Employer's policy of employee expense reimbursement of all items of
travel, entertainment and miscellaneous expenses reasonably incurred by
Employee on behalf of Employer and presented to Employer on the appropriate
voucher.

(e) Automobile Allowance: Employer shall pay to Employee
as an automobile allowance the sum of Six Hundred Fifty Dollars ($650.00) per
month.

6. PROPRIETARY DATA

(a) Trade Secrets and Other Confidential Information.
During the Employment Period and for three (3) years thereafter, Employee shall
keep confidential any data, documents, or financial or other information of a
trade secret or confidential nature relating to Employer's past, present or
future operations (the "Proprietary Data"), shall not disclose the Proprietary
Data to any third parties other than officers, employees or agents of Employer
on a "need to know" basis, shall take all necessary steps to ensure that such
officers, employees or agents keep such Proprietary Data confidential, and
shall

3
<PAGE> 4
use the Proprietary Data only in connection with rendering services to
Employer. Upon the end of the Employment Period, Employee shall promptly
return to Employer the originals and all copies of the Proprietary Data in the
possession of Employee, and shall not use any of the Proprietary Data for his
or her own benefit or for the benefit of any third parties. The covenants
contained in this Section 6 (a) shall not apply to Proprietary Data which is or
becomes a matter of general knowledge in the industry otherwise than by a
breach of the provisions of this Section 6 (a).

(b) Injunctive Relief. Employee acknowledges that the
covenants contained in Sections 6 (a) are necessary for the protection of the
legitimate business interests of Employer and are reasonable limitations of
activities, that the rights of Employer are of a specialized and unique
character, and that immediate and irreparable damage will result to Employer if
Employee fails to or refuses to perform or comply with such covenants.
Therefore, notwithstanding any election by Employer to claim damages from
Employee as a result of any such failure or refusal, Employer may, in addition
to any other remedies and damages available, seek an injunction in a court of
competent jurisdiction to restrain any such failure or refusal (and no bond or
other security shall be required in connection therewith). In that connection,
Employee represents and warrants that his or her expertise and capabilities are
such that performance or compliance with the covenants (and the enforcement
thereof by injunction or otherwise) will not prevent him or her from earning a
livelihood. If a court refuses to enforce the covenants set forth in Section 6
(a) because they are found to be unreasonable, Employee and Employer agree to
abide by any lesser restrictions (for instance, as to duration and geographic
area) that are found to be reasonable.

7. TERMINATION

(a) Definition of Compensation: For purposes of
termination, compensation at the time of termination shall be deemed to include
accrued sick and vacation and salary through the effective date of termination,
plus any and all benefits normally granted by Employer to Employees upon
termination.

(b) Death. The Employment Period shall forthwith
terminate upon the death of Employee, whereupon Employer shall not have any
further obligations or liability hereunder except to pay the Employee's estate
the unpaid portion, if any, of Employee's compensation accrued for the period
up to the date of Employee's death.

(c) Total Disability. In the event of the Total
Disability (as that term is hereafter defined) of Employee for a period of four
(4) consecutive calendar months, or for eighty percent (80%) or more of the
normal working days during a period of six (6) consecutive full calendar
months, Employer shall have the right to end the Employment Period by giving
Employee ten (10) days' written notice. Upon the expiration of such ten (10)
day period, the Employment Period shall end and Employer shall not have any
further obligations hereunder except to pay Employee the unpaid portion, if
any, of Employee's compensation accrued

4
<PAGE> 5
for the period up to the date of termination of Employee's employment. As used
in this Agreement, the term "Total Disability" shall mean a mental or physical
condition which, in the opinion of Employer and in the opinion of two
consulting physicians, renders Employee unable or incompetent to carry out his
obligations hereunder, provided, however that said disability must also be in
accordance with disability as defined in the Company's Long Term Disability
coverage.

(d) With Cause. Employer shall have the right to
terminate the employment of Employee at any time for cause (as hereinafter
defined) upon at least five (5) days' written notice setting forth the specific
details of the action or inaction of Employee which constitutes cause. For
purposes of the foregoing, "cause" shall mean (i) Employee's commission of any
act which shall be an offense involving moral turpitude under federal, state or
local law; (ii) Employee's conviction of a felony; (iii)Employee's material
breach of any of the terms of this Agreement; or (iv.) Employee's refusal to
follow lawful and reasonable directive(s) of the Board of Directors. Upon such
termination, Employer shall have no further obligations or liability hereunder
except to pay Employee the unpaid portion, if any, of Employee's compensation
accrued for the period up to the date of termination of Employee's employment.

(e) Dissatisfaction by Employer Without Cause. If
Employer is at any time and for any reason dissatisfied with Employee's
performance hereunder, Employer shall have the right to terminate the
employment of Employee upon at least thirty (30) days written notice to
Employee. If Employer shall terminate the employment of Employee pursuant to
this Section 7 (e), the Employment Period shall end at the expiration of the
notice period and Employer shall not have any further obligations or liability
hereunder except (i) to pay Employee the unpaid portion, if any, of Employee's
compensation accrued for the period up to the date of termination of Employee's
employment, together with an additional amount one (1) year of base salary as
severance in accordance with Employer's normal payroll schedule, to commence
immediately following the effective date of the termination of Employee's
employment hereunder; and (ii) to pay to Employee in a lump sum an amount equal
to the number of days of accrued and unused vacation and sick leave times the
Employee's base salary in effect on the date of termination. If new employment
for the Employee commences at any time within the first year of Employee's
termination, the Employer shall remain obligated to make severance payments in
accordance with this section 7 (e). In addition, for purposes of the Employer's
medical, disability, and life insurance programs, Employee shall be considered
and deemed eligible for one (1) year following such termination or until
Employee attains the age of 65 or until similar benefits are paid or extended
by a new employer, whichever first occurs, to be eligible to participate in
such programs of the Employer on the same basis as other officers or employees.
Lastly, Employee shall be entitled to utilize the services of a professional
out placement service, the reasonable cost of which shall be borne by Employer.

(f) Dissatisfaction by Employee. If Employee at any time
is for any reason dissatisfied with the terms and conditions of his or her
employment hereunder, Employee shall have the right to terminate his employment
upon at

5
<PAGE> 6
least thirty (30) days written notice to Employer. If Employee shall terminate
his employment pursuant to this Section 7 (f), the Employment Period shall end
at the expiration of the notice period and Employer shall have no further
obligations or liability hereunder except to pay to Employee the unpaid
portion, if any, of Employee's compensation accrued for the period up to the
date of termination.

8. MISCELLANEOUS

(a) Governing Law. This Agreement shall be governed by
the laws of the State of Delaware applicable to agreements made by and to be
performed by Delaware corporations.

(b) Amendment of Agreement. No amendment or variation of
the terms of this Agreement, with or without consideration, shall be valid
unless made in writing and signed by the Employee and a duly authorized
representative of the Employer (other than Employee).

(c) Waiver of Conditions. Any waiver agreed to between
Employer and Employee of any provision should not be construed as a general
waiver of the provision, or waiver of any other provision of this Agreement.

(d) Entire Agreement. This Agreement contains the entire
agreement between then parties and supersedes all prior oral and written
agreements, understandings, commitments, and practices between the parties,
whether or not fully performed by Employee before the date of this Agreement.

(e) Headings. The section headings of this Agreement are
for reference purposes only and are to be given no effect in the construction
or interpretation of this Agreement.

(f) Notice. All notices, requests and other
communications under this Agreement shall be in writing and shall be deemed
given when delivered personally or upon receipt when sent by an express mail
service, provided that in each case a copy is mailed by first-class, registered
mail, return receipt requested, addressed as follows (or as may otherwise have
been specified by the intended recipient by notice as herein provided)

If to Employee:

Mr. Donald J. Pilch
14 Royal Crest Drive, #9
North Andover, Massachusetts 01845

If to Employer:

Chief Executive Officer

<PAGE> 7
Crown Books Corporation
3300 75th Avenue
Landover, Maryland 20785

(g) Severability. If any provision of this Agreement is
held invalid or unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect. If any provision is held invalid
or unenforceable with respect to particular circumstances, it shall
nevertheless remain in full force and effect in all other circumstances.

(h) Merger or Consolidation. This Agreement shall not be
terminated by any merger, consolidation, transfer of any or all of the assets
of the Employer or voluntary or involuntary dissolution of the Employer. In
the event of a merger or consolidation or upon the transfer of assets, the
surviving or resulting corporation or the transferee of the Employer's assets
shall be bound by and shall have the benefit of the provisions of this
Agreement, and the Employer shall take all actions necessary to ensure that
such corporation or transferee is bound by the provisions of this Agreement.
This Agreement shall be binding upon the Employer notwithstanding any change in
the composition of the Board of Directors or change in ownership of the
Employer.

(i) No Covenants. Employee hereby represents and
warrants that he or she is not subject to or bound by any employment contract,
restrictive covenant or other agreement or any order or decree that prevents
him or her from entering into this Agreement or from performing his or her
responsibilities as contemplated by this Agreement.

(j) Attorney's Fees. If a dispute arises with respect to
the Employer's obligations or the Employee's rights under this Agreement, or if
any legal proceedings shall be brought to enforce or interpret any provisions
contained herein, or to recover damages for breach hereof, or in the event of
any other litigation involving this Agreement, Employee shall recover from the
Employer all reasonable attorney's fees and costs and disbursements incurred as
a result of such dispute. In addition, Employee shall recover from Employer all
reasonable attorney's fees and costs and disbursements incurred as a result of
legal proceeding, unless the Employee's pursuit of legal proceedings is deemed
frivolous or in bad faith as determined by the court in any such action.

(k) Assignment; Binding Effect. This Agreement shall be
binding upon, and shall inure to the benefit of, and be enforceable by , the
parties hereto and their respective successors and assigns, provided, that (i)
this Agreement is a personal service agreement and no right hereunder may be
assigned by Employee, except that it shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors or
administrators; and (ii) unless Employer shall have complied with Section 8 (h)
hereof, no right hereunder may be assigned or transferred by Employer by
operation of law or otherwise. Any purported assignment or transfer in
violation of this Section 8 (k) shall be null and void.

7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been signed by a duly
authorized officer of Employer and by Employee as of the date first
above-written.

CROWN BOOKS CORPORATION

BY: /s/ Steve Stevens
------------------------------------
Steve Stevens, Senior Vice President
Chief Operating Officer

BY: /s/ Donald J. Pilch
------------------------------------
Donald J. Pilch

<PAGE> 1
EXHIBIT 10.32

EMPLOYMENT AGREEMENT

This Agreement dated as of November 6, 1995, by and between Marc Joseph
("Employee"), and CROWN BOOKS CORPORATION, a Delaware corporation ("Employer").

W I T N E S S E T H:

WHEREAS, the parties hereto desire by this Agreement to provide for the
employment of Employee by Employer;

1. EMPLOYMENT

(a) Duties. Employer hereby employs Employee, and Employee
accepts employment by Employer, as Senior Vice President, General Merchandising
Manager, during the Employment period (as defined in Section 2), with such
duties, responsibilities and authority as are commensurate with and appropriate
to such position and as are from time to time set forth in the bylaws of the
Employer and otherwise delegated to him or her by the Board of Directors of
the Employer ("the Board of Directors"), and shall report to the Chairman of
the Board, the President, and the Board of Directors. Employee agrees to
observe and comply with the rules and regulations of Employer as adopted by the
Board of Directors respecting the performance of his or her duties and to carry
out and follow the orders, policies and directions stated by Employer to him or
her from time to time, provided, however, that such regulations and directions
are consistent with the authority and responsibility of the position specified
above.

(b) Full Time Employment. During the Employment period Employee
shall devote all his or her time and attention to his services for Employer and
shall diligently perform his or her duties and responsibilities under this
Agreement. Employee acknowledges that the proper performance of his or her
duties and responsibilities may require the rendering of services not only
during normal business hours, but over and beyond those hours as well.

(c) Place of Employment and Travel. Employee's principal place of
employment shall be at the executive offices of Employer in Landover, Maryland.
If Employer's executive offices are moved from Landover, Maryland, Employee's
principal place of employment shall be changed to the location where such
executive offices are moved. Employee agrees to travel for the performance of
his or her duties under this Agreement as Employer may request from time to
time. If Employers executive offices are relocated a distance greater than
100 miles from Landover, Maryland, Employee's relocation expenses will be paid
by Employer if Employee elects to relocate. At the Employee's option, if
Employee decides not to relocate, the relocation of the executive offices will
be deemed

1
<PAGE> 2
a termination without cause and the Employee will be eligible to receive
severance benefits as outlined in Section 7 (e) of this Agreement.

2. TERM

3. COMPENSATION

(a) Base Salary. Employee's annual base salary shall be One
Hundred Fifty Thousand Dollars ($150,000.00), subject to an annual increase as
recommended to the Board of Directors by the Compensation Committee of the
Board of Directors following review and performance appraisal of Employee, and
following approval by the Board of Directors. Employee's base salary shall be
paid in accordance with Employer's normal payroll procedure.

(b) Withholding Tax. All compensation shall be subject to the
customary withholding tax and other employment taxes as required with respect
to compensation paid by a corporation to an employee.

4. STOCK OPTIONS

(a) Stock Options. Employee shall be eligible for the annual
award of stock options pursuant to the stock option plans under which the
Employee is currently a participant, as determined by the Board(s) of Directors
of the company(s), pursuant to the individual company(s) stock option plan(s).

(b) Exercise upon Certain Terminations of Employment. In the
event of the termination of Employee's employment hereunder for any reason
other than pursuant to Section 7 (d), Employee shall have the right to
exercise, on or before the effective date of the termination of this Agreement,
any option which has vested in Employee hereunder coincident with or prior to
the effective date of the termination of Employee's employment hereunder,
subject to the other terms and conditions of such option plan(s). In addition,
in the event of the termination of Employee's employment due to his or her
death, the personal representative of the Employee shall have the right to
exercise any such option within sixty (60) days of the date of Employee's
death.

5. EMPLOYEE BENEFITS

2
<PAGE> 3
During the Employment Period, Employer shall provide Employee with the
following benefits:

(a) Health Plan Coverage. Employer shall provide Employee with
health benefits, including major medical health insurance and Long Term
Disability (LTD), Accidental Death and Dismemberment (AD&D) and such other
benefits that are in effect at the time of this Agreement for the Employee and
his or her immediate family all in accordance with Employer's "Executive Health
Plan" as now in effect.

(b) Further Benefits. Employee shall, during the term of this
Agreement (and thereafter to the extent provided herein), be eligible to
participate in all applicable profit sharing and 401 (k) plans and insurance
benefits in effect for all salaried employees of the Employer, together with
any future improvements in such plans or benefits, subject to the eligibility
requirements of such plans. In addition, Employee shall be entitled during the
term of this Agreement, and thereafter to the extent provided for herein or in
any such plan, to receive such other and further benefits as shall be generally
made applicable to key executive employees of the Employer, and such additional
benefits, as may be granted from time-to-time by the Board of Directors, in
it's sole discretion.

(c) Vacation. Employee shall be entitled to paid
vacation leave of two (2) weeks in every year of employment, increased pursuant
to Employer's vacation plan. Any accrued vacation previously earned prior to
the date of this Agreement shall be permanently accrued as a benefit to the
Employee (grandfathered). Effective with this Agreement, all vacation earned
subsequent to the date of this Agreement shall be taken no later than by the
end of the following year or be forfeited, unless prior approval is granted by
the Compensation Committee of the Board of Directors.

(e) Automobile Allowance: Employer shall pay to Employee as an
automobile allowance the sum of Six Hundred Fifty Dollars ($650.00) per month.

6. PROPRIETARY DATA

7. TERMINATION

(a) Definition of Compensation: For purposes of termination,
compensation at the time of termination shall be deemed to include accrued sick
and vacation and salary through the effective date of termination, plus any and
all benefits normally granted by Employer to Employees upon termination.

(e) Dissatisfaction by Employer Without Cause. If Employer is
at any time and for any reason dissatisfied with Employee's performance
hereunder, Employer shall have the right to terminate the employment of
Employee upon at least thirty (30) days written notice to Employee. If
Employer shall terminate the employment of Employee pursuant to this Section 7
(e), the Employment Period shall end at the expiration of the notice period and
Employer shall not have any further obligations or liability hereunder except
(i) to pay Employee the unpaid portion, if any, of Employee's compensation
accrued for the period up to the date of termination of Employee's employment,
together with an additional amount one (1) year of base salary as severance in
accordance with Employer's normal payroll schedule, to commence immediately
following the effective date of the termination of Employee's employment
hereunder; and (ii) to pay to Employee in a lump sum an amount equal to the
number of days of accrued and unused vacation and sick leave times the
Employee's base salary in effect on the date of termination. If new employment
for the Employee commences at any time within the first year of Employee's
termination, the Employer shall remain obligated to make severance payments in
accordance with this section 7 (e). In addition, for purposes of the Employer's
medical, disability, and life insurance programs, Employee shall be considered
and deemed eligible for one (1) year following such termination or until
Employee attains the age of 65 or until similar benefits are paid or extended
by a new employer, whichever first occurs, to be eligible to participate in
such programs of the Employer on the same basis as other officers or employees.
Lastly, Employee shall be entitled to utilize the services of a professional
out placement service, the reasonable cost of which shall be borne by Employer.

(f). Dissatisfaction by Employee. If Employee at any time is
for any reason dissatisfied with the terms and conditions of his or her
employment hereunder, Employee shall have the right to terminate his employment
upon at

8. MISCELLANEOUS

(a) Governing Law. This Agreement shall be governed by
the laws of the State of Delaware applicable to agreements made by and to be
performed by Delaware corporations.

(e) Headings. The section headings of this Agreement are
for reference purposes only and are to be given no effect in the construction
or interpretation of this Agreement.

If to Employee:

Marc Joseph
2409 Delo Drive
Gibsonia, Pennsylvania 15044

If to Employer:

Chief Executive Officer
Crown Books Corporation

6
<PAGE> 7
3300 75th Avenue
Landover, Maryland 20785

7
<PAGE> 8
IN WITNESS WHEREOF, this Agreement has been signed by a duly
authorized officer of Employer and by Employee as of the date first
above-written

CROWN BOOKS CORPORATION

<TABLE>
<S> <C>
/s/ Steve Stevens November 6, 1995
- ------------------------------------ -------------------
Steve Stevens, Senior Vice President Date
Chief Operating Officer

/s/ Terry Sharp November 6, 1995
- ------------------------------------ --------------------
Terry Sharp, Vice President Date
Human Resources

EMPLOYEE

/s/ Marc Joseph November 6, 1995
- ------------------------------------ ---------------------
Marc Joseph Date
</TABLE>

<PAGE> 1
Exhibit 11

COMPUTATION OF EARNINGS PER SHARE

<TABLE>
<CAPTION>
Fiscal Years
---------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Weighted average common
shares outstanding
during the year 5,389,000 5,389,000 5,385,000

Effect of dilutive stock
options, net of shares
assumed repurchased
at average market price 10,000 - 17,000
------------ ------------ -----------

Weighted average common
shares and common share
equivalents 5,399,000 5,389,000 5,402,000
============ ============ ===========

Net Income (Loss) $ 3,704,000 $(19,380,000) $ (210,000)
============ ============ ===========

Earnings (Loss) per share $ .69 $ (3.60) $ (.04)
============ ============= ===========
</TABLE>

The difference between primary earnings (loss) per share and fully diluted
earnings (loss) per share is not significant for the periods presented.

<PAGE> 1
Exhibit 21

SUBSIDIARIES OF CROWN BOOKS CORPORATION

<TABLE>
<CAPTION>
State of Incorporation
----------------------
<S> <C>
Crown Books West Corporation (100%) Delaware
Crown Books East Corporation (100%) Delaware
Crown Books National Corporation (100%) Delaware
Crown DHC Corporation (100%) Delaware
Super Crown Books Corporation (100%) Delaware
</TABLE>

<PAGE> 1

Exhibit 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation of
our reports, included in this Form 10-K, into Crown Books Corporation's
previously filed Forms S-8 (File Number 33-43267 and 33-78378).

ARTHUR ANDERSEN LLP

Washington, D.C.
April 26, 1996.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 30,765
<SECURITIES> 4,215
<RECEIVABLES> 3,941
<ALLOWANCES> 0
<INVENTORY> 102,192
<CURRENT-ASSETS> 150,574
<PP&E> 47,621
<DEPRECIATION> 23,859
<TOTAL-ASSETS> 180,852
<CURRENT-LIABILITIES> 77,606
<BONDS> 1,636
0
0
<COMMON> 56
<OTHER-SE> 87,405
<TOTAL-LIABILITY-AND-EQUITY> 180,852
<SALES> 283,475
<TOTAL-REVENUES> 286,411
<CGS> 231,837
<TOTAL-COSTS> 231,837
<OTHER-EXPENSES> 47,614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,279
<INCOME-PRETAX> 5,681
<INCOME-TAX> 1,977
<INCOME-CONTINUING> 3,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,704
<EPS-PRIMARY> .69
<EPS-DILUTED> .69

</TABLE>