CROWN BOOKS CORP, 10-K, 1997-05-02

CROWN BOOKS CORP
10-K, 1997-05-02
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 (No Fee Required) for the fiscal year ended February 1, 1997
------------------

() 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)

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)

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 May 1,1997, the registrant had 5,288,974 shares of Common Stock outstanding
and the aggregate market value of such shares held by non-affiliates of the
registrant was approximately $29,926,000.

DOCUMENTS INCORPORATED BY REFERENCE

1997 Proxy Statement for annual stockholders' meeting to be held June 27,
1997.....................................................Part III Items 10-13

The exhibit index begins at page 71 of this Form 10-K.

1
<PAGE> 2
Table of Contents

<TABLE>
<CAPTION>
PART I
------
Page
----

<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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 . . . . . . . . . . . . . . . . . . . . . 31

Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . 65

PART III
--------

Item 10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 65

PART IV
-------

Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</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.

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 Books West Corporation, Super Crown Books
Corporation ("Super Crown"), Crown Books National Corporation and Crown DHC
Corporation. Dart Group Corporation ("Dart") owns 52.3% 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, reference materials and other items and accessories.

The Company responds to the demand for books at value 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. The Company sells publishers' over-stock, reprints
and former best sellers at significant discounts from the publishers' original
suggested retail prices. In addition, the Company allows customers at all
stores to special order books not stocked in inventory. 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 stressing its

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

value 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 autographing 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. Approximately 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 6,000
square feet and Super Crown Books stores range in size from approximately 6,000
to 35,000 square feet. The new prototype superstore is targeted to occupy
15,000 square feet. It is based on an ongoing assessment of what contributes
to the Company's customers' shopping experience. This includes a new floor
layout with convenient adjacencies; upgraded fixtures, signage and lighting;
and expanded non-book merchandise such as book accessories, CDs and computer
software. The Super Crown Books stores permit more effective and economic
utilization of space. The interior of the Company's 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
activity. The Company generally clusters its stores in selected market areas

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

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: 1993 1994 1995 1996 1997
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Washington, D.C. 59 60 47 43 40
Los Angeles, California 76 68 59 51 47
Chicago, Illinois 43 43 37 32 36
San Francisco, California 30 31 24 20 20
San Diego, California 20 17 12 9 5
Houston, Texas 3 6 6 6 8
Seattle, Washington 16 15 11 11 12
---- ---- ---- --- ----
Total 247 240 196 172 168
==== ==== ==== ==== ====
</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>
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Super Crown Books stores:
- -------------------------
(including new prototype)
Opened during the year 13 37 12 16 27
Closed during the year - 4 3 2 2
Classic Crown Books stores:
- ---------------------------
Opened during the year - 5 2 - -
Closed during the year 20 45 55 38 29
Remodeled during the year 2 - - - -
Total Stores Open at end of year:
- ---------------------------------
New prototype superstore - - 9 25 54
Prior Format Super Crown
Books stores 28 61 61 59 55
Classic Crown Books stores 219 179 126 88 59
</TABLE>

The Company believes that its superstore concept presents growth opportunities
and intends to open new Super Crown Books stores in existing and new markets.
As of February 1, 1997, the Company had entered into lease agreements to open
nine 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 Classic Crown Books stores were not competitive in an industry moving
to larger stores. Consequently, the Company recorded restructuring charges
totaling $12,800,000 during these two years for the anticipated costs for
closing, relocating, expanding and converting existing stores to the Super
Crown Books concept. These costs primarily represent unrecoverable lease
obligations (net of estimated sublease income) and the book value of leasehold
improvements at the estimated closing date. The activity in the restructuring
reserves during the last two years was as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
---------- ----------
<S> <C> <C>
Restructuring Reserve, beginning of year $ 7,025 $ 10,515
Less: Payments and charges (1,653) (1,439)
Reversal of reserves (3,865) (2,051)
-------- --------
Restructuring Reserve, end of year $ 1,507 $ 7,025
======== ========
</TABLE>

In fiscal 1997 and 1996, the Company reversed a portion of the restructuring
reserve as a result of (i) management's decision not to close certain stores
that had been scheduled for closing, (ii) stores that were closed under
negotiated lease settlements that were more favorable than expected, and (iii)
the postponement of certain store closings.

The remaining restructuring reserve relates to 14 stores, of which four have
been closed as of February 1, 1997, with lease obligations ranging from one to
96 months. The lease obligation allocable to related party leases is
approximately $474,000. The restructuring reserve is expected to be utilized
as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
Lease Leasehold
Fiscal Obligations Improvements
Year (Cash Outflows) & Fixtures Total
-------- --------------- ------------ -----------
<S> <C> <C> <C>
1998 $ 532 $ 164 $ 696
1999 269 6 275
2000 215 19 234
2001 66 - 66
2002 59 - 59
2003-2005 177 - 177
--------- --------- ---------
Total $ 1,318 $ 189 $ 1,507
========= ========= =========
</TABLE>

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

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

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 decides to close a store. The costs primarily
represent unrecoverable lease obligations (net of estimated sublease income)
and the book value of leasehold improvements at the estimated closing date.
The activity in the closed store reserve during the last two fiscal years is as
follows:

<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
---------- ---------
<S> <C> <C>
Closed Store Reserve, Beginning of Year $ 10,850 $ 20,241
Less: Payments and charges (1,764) (2,648)
Reversal of reserves (1,052) (6,743)
-------- --------
Closed Store Reserve, end of year $ 8,034 $ 10,850
======== ========
</TABLE>

In fiscal 1997 and 1996, the Company reversed a portion of the closed store
reserve as a result of (i) management's decision not to close certain stores
that had been scheduled for closing, (ii) stores that were closed under
negotiated lease settlements that were more favorable than expected, and (iii)
the postponement of certain store closings.

The remaining closed store reserve relates to 69 stores, of which 13 have been
closed as of February 1, 1997, with lease obligations ranging from one to 54
months. The lease obligation allocable to related party leases is
approximately $1,555,000. The closed store reserve is expected to be utilized
as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
Lease Leasehold
Fiscal Obligations Improvements
Year (Cash Outflows) & Fixtures Total
-------- --------------- ------------ ----------
<S> <C> <C> <C>
1998 $ 1,960 $ 642 $ 2,602
1999 2,040 198 2,238
2000 1,437 141 1,578
2001 805 - 805
2002 383 49 432
2003-2005 284 95 379
--------- -------- --------
Total $ 6,909 $ 1,125 $ 8,034
========= ======== ========
</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 costs are subject to
change 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. The Company has not recorded reserves for any such
future possible store closings.

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

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 $1,846,000 for such services in the year ended February 1, 1997.
See Notes 4 and 7 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., Barnes & Noble, Books-a-Million,
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 and more amenities (e.g.,
coffee bars) than the Company, and some of its competitors have greater
resources than the Company. Price competition occurs in all of the Company's
markets.

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
13 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 1, 1997, the Company employed approximately 1,490 full-time and
1,880 part-time persons engaged in retail and administrative operations. The
Company considers its relationship with its employees to be good.

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 41 President and Chief Executive Officer
Keith W. Hammer 39 Senior Vice President and Chief
Information Officer
Anne Hancock 43 Vice President, Real Estate
</TABLE>

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

<TABLE>
<S> <C> <C>
Donald J. Pilch 38 Vice President and Chief Financial Officer
John R. Sutton 42 Vice President, Merchandising
</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.

Keith W. Hammer was appointed Senior Vice President and Chief Information
Officer of Dart and Crown Books in April 1997. Mr. Hammer served as Vice
President and Chief Information Officer to Crown Books since his appointment in
January 1996. Mr. Hammer joined Crown Books in December 1994 as Assistant Vice
President, Information Systems. Prior to that, Mr. Hammer was Director of
Corporate Systems at Circuit City Stores, Inc.

Anne Hancock joined Crown Books in November 1996 as Vice President of Real
Estate. Prior to joining Crown Books, Ms. Hancock was National Director of
Real Estate at Blockbuster Music and Viacom Retail Group from October 1995
until September 1996, Senior Real Estate Counsel for Blockbuster Entertainment
Corp. from July 1995 to October 1995 and was Associate General Counsel at
Discovery Zone, Inc. from December 1991 until July 1995.

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.

John R. Sutton was appointed Vice President of Merchandising in September 1996.
Prior to that, Mr. Sutton served in various positions at Crown Books since
joining Crown Books in February 1978.

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

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 challenges.
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,

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

1995, the initial Voting Trustees resigned and appointed Richard B. Stone as
successor Voting Trustee.

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.

10
<PAGE> 11
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
$303,000. 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 $135,087,000 to the lease expiration dates. The lease
expiration dates (without regard to renewal options) range from 1997 to 2010.
Ten of these leases are with entities in which the Haft family has
substantially all the beneficial interest.

The seven lease agreements involving Haft-owned entities provide for various
termination dates that range from 1997 to 2029 (including option periods) and
require payment of future minimum rentals aggregating $39,121,000 at February
1, 1997. These agreements also require payment of a percentage of sales in
excess of a stated minimum. In addition, three closed stores have lease
agreements with Haft-owned entities with various termination dates that range
from 1997 to 2002 and require future minimum rentals aggregating $789,000 at
February 1, 1997. Annual fees and rentals paid to Haft-owned entities, open or
closed, were $1,985,000 in the year ended February 1, 1997.

11
<PAGE> 12

Item 2. Properties (Continued)

owned entities, on the other hand. On December 17, 1996, Dart, Crown Books and
Trak Auto filed a lawsuit against Herbert H. Haft (Chairman of each such
company) claiming breach of fiduciary duty, fraud and waste arising from a
series of lease transactions with certain partnerships owned beneficially by
members of the Haft family. See Item 3- Legal Proceedings - Lawsuit Against
Herbert H. Haft Concerning Haft-Owned Real Estate.

12
<PAGE> 13
Item 3. Legal Proceedings

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 Warehouse Corp. ("Shoppers Food"),
a wholly-owned subsidiary of Dart, and other affiliated companies.

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 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 a 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

13
<PAGE> 14
Item 3. Legal Proceedings (Continued)

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. Thereafter, the Special Litigation Committee amended its
motion and advised the court that it had instituted certain lawsuits concerning
Dart related party real estate transactions, and was considering asserting
additional claims, certain of which have since been asserted in (see the
Lawsuit Against Herbert H. Haft Concerning Haft-Owned Real Estate, described
below). The amended 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 CPI 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 of
operations of the Company.

Herbert H. Haft Proxy Litigation

In connection with Herbert H. Haft's sale of 172,730 shares of 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")

14
<PAGE> 15
Item 3. Legal Proceedings (Continued)

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 Class B Common Stock that were subject to the
Proxy and placed the shares in treasury.

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 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.

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

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 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.

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.

On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment in which he asserted two arguments based upon Section 160(c) of the
Delaware General Corporation Law. Section 160(c) provides that the shares of
capital stock "belonging to" a corporation are not entitled to vote. Herbert
H. Haft maintained that (i) notwithstanding Section 160(c), the 172,730 Class B
shares that Dart purchased in the RSH Settlement on October 6, 1995 do not
"belong to" Dart and are still subject to the Proxy, and (ii) Section 160(c)
does not permit the Trust Shares to be voted because those shares "belong to"
Dart, not Ronald S. Haft. Dart opposed this motion for partial summary
judgment and, on March 14, 1997, the Delaware Chancery Court denied Herbert H.
Haft's motion in its entirety. A trial date has not yet been scheduled.

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

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

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.

Lawsuit Against Herbert H. Haft Concerning Haft-Owned Real Estate

On December 17, 1996, Dart, Crown Books and Trak Auto filed a lawsuit captioned
Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No. 96-26474, in the
Circuit Court for Prince George's County, Maryland, seeking damages from
Herbert H. Haft for breach of fiduciary duty, fraud and waste arising from a
series of lease transactions (other than the Pennsy Warehouse Leases) between
Dart and certain partnerships owned beneficially by members of the Haft family.
The complaint alleges that Herbert H. Haft exploited the dominance and control
he enjoyed as an officer, director and controlling stockholder of Dart to
enrich himself and other members of the Haft family unlawfully and unfairly at
the expense of the public stockholders of Dart, Crown Books and Trak Auto. In
particular, the complaint charges that Herbert H. Haft (i) caused Trak Auto to
surrender favorable retail store leases and subleases in Haft-owned shopping
centers in exchange for new leases less favorable to Trak Auto; (ii) required
Crown Books to relinquish its favorable lease in the McLean Chain Bridge Road
Shopping Center and to enter into a new lease with a Haft family partnership
for a new location in the same shopping center at a rent rate equal to 450
percent of the prior lease; (iii) caused Dart, Crown Brooks and Trak Auto to
enter into exorbitant long-term leases for warehouse and distribution
facilities that were purchased and developed by Haft family partnerships for
the purpose of leasing those facilities to these companies as captive tenants;
(iv) induced Dart and Trak Auto to lease retroactively from a Haft family
partnership a 2.66 acre wooded lot for which the companies had no use; and (v)
caused Trak Auto to purchase certain used warehouse equipment from a Haft
family partnership for more than 700 percent of the price contemplated by the
original equipment lease.

Lawsuit Against Herbert H. Haft in Washington, D.C.

On December 17, 1996, Dart, Crown Books and Trak Auto also filed a lawsuit
captioned Dart Group Corporation, et al. v. Herbert H. Haft, Civ. A. No.
96-CV-2788 (D.D.C.) in the U.S. District Court for the District of Columbia
naming Herbert H. Haft as defendant. In this action, Dart, Crown Books and
Trak Auto have advanced claims for breach of fiduciary duty, civil conspiracy
and tortious interference with contracts. The companies allege that Herbert H.
Haft wrongfully imposed Robert M. Haft's excessively generous employment
contracts upon Dart and Crown Books, later breached those contracts for
personal reasons and then, due in large part to a personal conflict of
interest, mishandled the defense to Robert M. Haft's wrongful termination
lawsuit. Dart, Crown Books and

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

Trak Auto seek to recover the approximately $38 million paid to Robert M. Haft
in satisfaction of the judgment in his wrongful termination suit, approximately
$5 million in attorneys' fees incurred by the companies in defense of that
litigation, and punitive damages.

Possible Settlements

On April 21, 1997, Dart reached a conditional settlement agreement in principle
with Herbert H. Haft. If the settlement contemplated by the conditional
agreement in principle is implemented, Herbert H. Haft would retire from his
positions as Chairman of Dart, Shoppers Food, Trak Auto and Crown Books.
Herbert H. Haft also would relinquish his claim to voting control of Dart.

Under the settlement contemplated by the conditional agreement in principle,
Herbert H. Haft would sell to Dart, Trak Auto and Crown Books all of his shares
of stock and stock options in these companies. The settlement also would
terminate Herbert H. Haft's employment agreement with Dart and resolve all
outstanding litigation and disputes between Dart and Herbert H. Haft. Herbert
H. Haft would also assign certain real estate interests to Dart.

Herbert H. Haft would receive approximately $30 million from Dart if the
settlement is implemented. Herbert H. Haft would also receive an additional
$11.6 million from escrowed funds previously paid by Dart to Ronald S. Haft as
part of the RSH Settlement (plus $700,000 interest on those funds). The
conditional agreement in principle also contemplates that Dart would make a $10
million loan to a partnership owned by Herbert H. Haft and Ronald S. Haft,
which loan would be secured by such partnership's interests in three shopping
centers located in suburban Washington, D.C. and would be personally guaranteed
by Ronald S. Haft.

Implementation of the conditional agreement in principle is subject to the
negotiation of a definitive settlement agreement satisfactory to Dart and
Dart's receipt of satisfactory advice from its investment bankers. The
conditional agreement in principle states that it will terminate if a
definitive settlement agreement is not entered into by May 9, 1997.

The conditional agreement in principle is also conditioned on Dart's entering
into a supplemental settlement with Ronald S. Haft and a comprehensive
settlement with RGL. Negotiations with respect to these related settlements
are currently underway. Current settlement discussions contemplate that Dart,
Trak Auto and Crown Books would collectively pay approximately $50 million in
exchange for all of RGL's equity interests in these companies and certain real
estate interests. There can be no assurance that such settlements will be
reached or as to the terms or timing of any settlement, if one occurs.

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

terminating certain putative derivative actions pending with respect to Dart
and Crown Books in the Delaware Court of Chancery, and approving the RSH
Settlement and the supplemental settlement between Dart and Ronald S. Haft, and
(ii) final and non-appealable action by the U.S. Bankruptcy Court approving the
effectiveness of Chapter 11 plans of reorganization for certain real estate
entities owned by Haft family members.

There can be no assurance that a definitive settlement agreement between Dart
and Herbert H. Haft will be entered into and that the transactions contemplated
by the conditional agreement in principle will be implemented.

Any settlement with RGL (including any financing of such settlement), would
require further order of the Delaware Court of Chancery under the Standstill
Order and could be opposed by Herbert H. Haft if Dart does not settle with him.

A closing of any settlement with RGL would be subject to available financing
and the proposed settlement with Herbert H. Haft would be subject to the
receipt of advice by Dart from its financial advisor that adequate financing
would be available at closing. Dart and its subsidiaries do not presently have
cash available to pay the approximately $90 million (including the loan of $10
million) contemplated by the possible settlements but are considering various
options to finance them. See Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources.

Other

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 adverse effect upon the consolidated financial condition and results
of operations of the Company.

The Company recorded legal expenses of approximately $0.8 million, $1.1 million
and $3.4 million during the years ended February 1, 1997, February 3, 1996 and
January 28, 1995, respectively.

19
<PAGE> 20

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

Inapplicable.

20
<PAGE> 21

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 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
May 4, 1996 11 7 7/8
July 3, 1996 16 8 1/2
October 2, 1996 13 1/2 9 1/2
February 1, 1997 12 1/2 8 3/4
</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 260 record holders of the Common Stock as of April 30,
1997.

21
<PAGE> 22
Item 3. Legal Proceedings (Continued)

Item 6. Selected Financial Data

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

<TABLE>
<CAPTION>
Fiscal Year
-------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales $287,737 $283,475 $305,606 $275,125 $240,682
Interest and Other
Income 1,007 2,936 2,289 3,073 3,015

Cost of sales, store
occupancy and
warehousing 233,847 231,837 248,012 221,895 188,487
Selling and
Administrative 54,430 50,993 62,208 46,911 38,395
Depreciation and
amortization 5,707 5,415 5,176 3,986 2,418
Interest expense 1,115 1,279 965 323 391
Closed store
reserve (reversal) (1,052) (6,743) 18,865 (631) 513
Restructuring
Charge (reversal) (3,865) (2,051) - 6,200 6,600
Income (loss) before
income taxes (1,438) 5,681 (27,331) (486) 6,893

Net Income (loss) (860) 3,704 (19,380) (210) 4,281

Net Income (loss)
Per share $ (.16) $ .69 $ (3.60) $ (.04) $ .82

Weighted average common
share and common share
equivalents outstanding 5,344 5,399 5,389 5,402 5,214

Percentage increase
(decrease) in sales
Total stores 1.5% (7.2)% 11.1% 14.3% 3.5%
Comparative stores (2.1)% (3.3)% (2.5)% (0.6)% 2.6%
</TABLE>

BALANCE SHEET DATA:
<TABLE>
<CAPTION>
(dollars in thousands)
at end of Fiscal Year
------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Current assets $141,583 $150,574 $182,331 $180,210 $147,809
Current liabilities 84,515 77,606 105,553 94,981 56,492
Working capital 57,068 72,968 76,778 85,229 91,317
Total assets 176,897 180,852 213,379 210,636 165,433
Long-term obligations 7,927 15,785 24,499 13,913 8,156
Stockholders' equity 84,455 87,461 83,327 101,742 100,785
</TABLE>

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

Control of Dart

Dart owns 52.3% 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 disputes 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
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.

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 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

23
<PAGE> 24

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

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 1997, the Company paid Robert M. Haft approximately
$16,895,000 (including accrued interest of $1,407,000) for satisfaction of the
RMH Judgment. 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. On April 21,
1997, Dart reached a conditional settlement agreement in principle with Herbert
H. Haft. See Item 3 - Legal Proceedings - Possible Settlements. There can be
no assurance that any definitive 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 (or settlement of
litigation), the Company's ability to effectively compete in the retail book
store industry, 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.

The Company believes that its superstore concept presents growth opportunities
and intends to open new Super Crown Books stores in existing and new markets.
Realizing these opportunities is dependent upon the successful performance of
the superstores. 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

24
<PAGE> 25

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

change in product mix. The Company believes that as Super Crown Books stores
mature and as the number of stores and total sales increases, 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 may close or relocate under-
performing stores. The Company closed 29 Classic Crown Books stores and two
Super Crown Books stores during fiscal 1997. The Company anticipates closing
approximately 29 Classic Crown Books stores and, 12 non-prototype Super Crown
Books stores and relocating one prototype Super Crown Books store during fiscal
1998.

The retail book market is highly competitive. The Company and the two largest
book chains continue to open additional new stores each year in the Company's
markets, thereby continuing to increase the overall level of competition.
Management believes that the markets in which it operates will remain highly
competitive in the foreseeable future and, as a result, the Company will be
challenged to significantly improve operating results in fiscal 1998.

Liquidity and Capital Resources

Cash and short-term instruments have historically been the Company's primary
source of liquidity. During the 52 weeks ended February 1, 1997 ("fiscal
1997"), the Company began borrowing under a new revolving credit facility. All
such borrowings were repaid at February 1, 1997. Cash, including short-term
instruments, decreased by $12,711,000 to $16,051,000 at February 1, 1997 from
$28,762,000 at February 3, 1996 primarily due to the $16.9 million payment to
Robert M. Haft (the "RMH Judgment"), funding operating losses and capital
expenditures.

Operating activities used $8,936,000 of the Company's cash resources during
fiscal 1997, compared to $22,945,000 for the 53 weeks ended February 3, 1996
("fiscal 1996"). The cash was used primarily for purchases of merchandise
inventory, the payment of the RMH Judgment and funding operating losses.

The Company used $1,629,000 for investing activities during fiscal 1997.
Capital expenditures of $7,800,000 during fiscal 1997 were partially offset by
the proceeds from the dispositions of municipal securities and United States
Treasury Bills.

Financing activities used $2,146,000 of the Company's funds during fiscal 1997,
for a portion of the RMH Judgment that constituted the purchase of shares of
common stock, which shares have been recorded as treasury shares (see Note 10
to the Consolidated Financial Statements). The Company began borrowing under
its new revolving credit facility during fiscal 1997. The maximum borrowings
outstanding at any one time was $15,621,000 and there was no outstanding
balance at February 1, 1997.

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 and
investments in management information systems. The Company believes that the
resources required for a new store generally approximates $800,000, including
inventory purchases, net of accounts payable, and the costs of store fixtures
and leasehold improvements, net of landlord contributions. During fiscal 1998,
the Company expects to open approximately 40 Super Crown Books stores (but may
open fewer stores) requiring cash expenditures of approximately $32.0
million. The Company has entered into lease agreements to open nine new Super
Crown Books stores in fiscal 1998. The Company expects to have cash
expenditures related to stores that have been closed or will be closed of
approximately $2.5 million in fiscal 1998.

The Company anticipates funding its requirements for working capital and
capital expenditures in fiscal 1998 with cash generated from improving its
inventory turnover, its operations and borrowings under its existing revolving
credit facility. The Company had $25.0 million available for borrowing under
its revolving credit facility at February 1, 1997 (see Note 5 to the
Consolidated Financial Statements). There can be no assurance that the Company
will have adequate resources to meet its cash flow requirements for projected
store openings if it does not improve its inventory turnover.

In connection with its expansion plans, the Company anticipates increasing
its borrowing under its revolving credit facility, subject to limitations
contained in the loan agreement. To increase the limit from $25.0 million
to $35.0 million, the Company is required to maintain a minimum
tangible net worth of $73.0 million as of the fiscal year end preceding the
election and for each fiscal year end thereafter, and to maintain a minimum
tangible net worth of $70.0 million as of the election date and thereafter, in
addition to other covenants. To increase the limit from $35.0 million to $50.0
million, the Company is required to maintain a minimum tangible net worth of
$75.0 million as of the fiscal year end preceding the election and for each
fiscal year end thereafter, in addition to other covenants. As of February 1,
1997 the Company's tangible net worth was $84.5 million. There can be no
assurance that the Company's tangible net worth will meet the requirements to
increase its revolving credit facility availability above the current $25.0
million limit. There also can be no assurance that if the limit is increased
above $25.0 million, that the Company will maintain the required minimum
tangible net worth and that it would be able to pay down the revolving credit
facility as required.

Funding of Possible Settlements

Dart has reached a conditional settlement agreement in principle with Herbert
H. Haft and is currently negotiating a possible settlement with RGL as well as
a possible supplemental settlement agreement with Ronald S. Haft. See Item 3 -
Legal Proceedings - Possible Settlements. The aggregate payments estimated to
be paid by Dart and its subsidiaries in connection with these possible
settlements is approximately $90 million (including a loan of $10 million),
part of which would be deferred. It is anticipated that Dart would pay
substantially

26
<PAGE> 27

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

all of this amount, though a portion (yet to be determined) could be allocated
to Trak Auto and Crown Books. Allocation of any actual settlement obligations
among the companies would be in proportion to reflect relative benefits each
company receives, as determined by their boards of directors after consultation
with outside advisors.

Dart and its subsidiaries do not presently have cash available to pay the
approximately $90 million contemplated by the possible settlements, but are
considering various options to finance them, if they occur. Dart may sell all
or part of Shoppers Food or, if it is not sold, use Shoppers Food's existing
cash and proceeds from new debt financing by Shoppers Food. However, there can
be no assurance that Dart would obtain any such financing or as to the terms of
any financing, if it is obtained. Trak Auto and Crown Books anticipate that
they would pay their portion of the settlement obligations from borrowings
under their respective credit facilities.

At February 1, 1997

Working capital decreased by $15,900,000 to $57,068,000 at February 1, 1997
compared to the same period one year ago. The decrease in working capital was
primarily due to capital expenditures, operating losses and the acquisition of
treasury stock as a result of the satisfaction of the RMH Judgment.

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.

Results of Operations

Year Ended February 1, 1997 Compared to the Year Ended February 3, 1996

During fiscal 1997, the Company opened 27 Super Crown Books stores while
closing 29 Classic Crown Books stores and two Super Crown Books stores. At
February 1, 1997, the Company had 168 stores, including 109 Super Crown Books
stores.

Sales of $287,737,000 for fiscal 1997 (52 weeks) increased by $4,262,000 or
1.5% compared to fiscal 1996(53 weeks). The increase was primarily due to the
27 new Super Crown Books stores opened during the year and the maturity of
Super Crown Books stores opened in fiscal 1996. Comparable sales (sales for
stores open for 13 months) decreased 2.1% for fiscal 1997. However, comparable
sales for the new prototype superstore increased 5.1% during fiscal 1997.
Sales for Super Crown Books stores represented 78.4% of total sales for fiscal
1997 compared to 66.7% of total sales for fiscal 1996. Super Crown Books sales
of $225,543,000 for fiscal 1997 increased 19.2% over sales for fiscal 1996.
Sales for

27
<PAGE> 28

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

comparable Super Crown Books stores, however, decreased 1.9% in fiscal 1997.
Sales for comparable classic Crown Books stores decreased 2.7% during fiscal
1997.

Interest and other income decreased by $1,929,000 during fiscal 1997 when
compared to fiscal 1996. The decrease was due to reduced interest income as a
result of decreased funds available for short-term investments.

Cost of sales, store occupancy and warehousing expenses as a percentage of
sales were 81.2% for fiscal 1997 compared to 81.8% for fiscal 1996. The
decrease was primarily due to increased gross margins as a result of taking
advantage of vendor discounts, an improvement in the sales mix and a change in
the sales discount policy and were partially offset by increased store
occupancy costs.

Selling and administrative expenses as a percentage of sales were 18.9% for
fiscal 1997 compared to 18.0% for fiscal 1996. The increase was primarily due
to increased store and administrative payroll costs.

Depreciation expense increased $292,000 for fiscal 1997 compared to fiscal
1996. The increase was primarily due to an increase in fixed assets as a result
of new Super Crown Books stores.

Interest expense decreased by $164,000 due to reduced interest expense for the
RMH Judgement as a result of its payment in August 1996. The decrease was
partially offset by interest on borrowings under the revolving credit facility.

During fiscal 1997, the Company reversed approximately $3,865,000 of its
restructuring reserve and approximately $1,052,000 of its closed store reserve.
The reversals resulted from (i) management's decision not to close certain
stores, (ii) stores that were closed under negotiated lease settlements that
were more favorable than expected and(iii) the postponement of certain store
closing dates. The remaining closed store and restructuring reserves relate to
83 stores with lease obligations primarily through the next three fiscal years.

The Company had a net loss of $860,000 in fiscal 1997 compared to net income of
$3,704,000 in fiscal 1996 as a result of the foregoing factors.

The Company has recorded a tax benefit of $578,000 in fiscal 1997 as compared
to income tax expense of $1,977,000 in fiscal 1996. In fiscal 1997, the
effective tax rate was 40.2% compared to 34.8% in fiscal 1996 due primarily to
state income tax benefits associated with the Company's net operating losses.

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

28
<PAGE> 29

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

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 15 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
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 Book store format and were partially offset by increased gross
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

29
<PAGE> 30

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

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.

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.

30
<PAGE> 31
Item 8. Financial Statements and Supplementary Data

<TABLE>
<CAPTION>
Financial Statements Page
- -------------------- ----
<S> <C>
Report of Independent Public Accountants 32

Consolidated Balance Sheets 33

Consolidated Statements of Operations 35

Consolidated Statements of Stockholders' Equity 36

Consolidated Statements of Cash Flows 37

Notes to Consolidated Financial Statements 39
</TABLE>

31
<PAGE> 32

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 1, 1997 and February 3,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
February 1, 1997. 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 1, 1997 and February 3, 1996, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended February 1, 1997, in conformity with generally accepted accounting
principles.

As discussed in Note 1 to the consolidated financial statements, in fiscal 1997
the Company changed its method of accounting for cash equivalents.

ARTHUR ANDERSEN LLP

Washington, D.C.
April 25, 1997.

32
<PAGE> 33
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
February 1, February 3,
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and equivalents $ 3,377 $ 5,691
Short-term instruments 12,674 23,071
Marketable debt securities - 6,218
Accounts receivable 7,962 3,941
Income taxes refundable 3,802 -
Merchandise inventories 110,036 102,192
Prepaid income taxes - 1,471
Deferred income tax benefit 830 7,349
Other current assets 2,902 641
-------- --------
Total Current Assets 141,583 150,574
-------- --------

Property and Equipment, at cost:
Furniture, fixtures and equipment 36,033 29,873
Leasehold improvements 16,122 16,561
Property under capital leases 1,187 1,187
-------- --------
53,342 47,621
Accumulated Depreciation and
Amortization 27,963 23,859
-------- --------
25,379 23,762
-------- --------

Deferred Income Taxes 8,404 6,353
-------- --------

Other Assets 1,531 163
-------- --------

Total Assets $176,897 $180,852
======== ========

</TABLE>

See notes to consolidated financial statements.

33
<PAGE> 34
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)

<TABLE>
<CAPTION>
February 1, February 3,
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Accounts payable, trade $ 54,787 $ 42,308
Accrued expenses -
Salaries and benefits 3,290 3,658
Taxes other than income 4,011 2,299
Robert M. Haft judgement - 14,233
Other 18,916 10,957
Current portion of reserve for
closed stores and restructuring 3,298 3,726
Due to affiliate 213 425
-------- --------
Total Current Liabilities 84,515 77,606
-------- --------

Obligations Under Capital Leases 1,684 1,636
-------- --------
Reserve for Store Closings and
Restructuring 6,243 14,149
-------- --------
Total Liabilities 92,442 93,391
-------- --------

Commitments and Contingencies

Stockholders' Equity:
Common stock, par value $.01 per share;
20,000,000 shares authorized, 5,612,611
shares issued 56 56
Notes receivable, net of discount - (115)
Paid-in capital 43,809 43,809
Unrealized investment losses - (6)
Retained earnings 46,041 46,901
Treasury stock, 323,638 and
223,638 shares of common
stock, at cost, respectively (5,451) (3,184)
-------- --------

Total Stockholders' Equity 84,455 87,461
-------- --------

Total Liabilities and Stockholders'
Equity $176,897 $180,852
======== ========

</TABLE>

See notes to consolidated financial statements.

34
<PAGE> 35

CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
Years Ended
---------------------------------------
February 1, February 3, January 28,
1997 1996 1995
------------ ------------ ------------
(52 weeks) (53 weeks) (52 weeks)
<S> <C> <C> <C>
Sales $287,737 $283,475 $305,606
Interest and other income 1,007 2,936 2,289
-------- -------- --------
288,744 286,411 307,895
-------- -------- --------

Expenses:
Cost of sales, store
occupancy and warehousing 233,847 231,837 248,012
Selling and administrative 54,430 50,993 62,208
Depreciation and amortization 5,707 5,415 5,176
Interest expense 1,115 1,279 965
Closed store charge (reversal) (1,052) (6,743) 18,865
Restructuring charge (reversal) (3,865) (2,051) -
-------- -------- --------
290,182 280,730 335,226
-------- -------- --------

Income(loss)before income taxes (1,438) 5,681 (27,331)

Income taxes (benefit) (578) 1,977 (7,951)
-------- -------- --------

Net income (loss) $ (860) $ 3,704 $(19,380)
======== ======== ========

Weighted average common share and
common share equivalents outstanding 5,344 5,399 5,389
======== ======== ========

Per share data:

Net income (loss) $ (.16) $ .69 $ (3.60)
======== ======== ========

</TABLE>

See notes to consolidated financial statements.

35
<PAGE> 36
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)

<TABLE>
<CAPTION>
Years Ended
--------------------------------------
February 1, February 3, January 28,
1997 1996 1995
------------ ------------ -----------
(52 weeks) (53 weeks) (52 weeks)
<S> <C> <C> <C>
Common Stock:
Balance, beginning and end of period $ 56 $ 56 $ 56
======== ======== ========

Note Receivable, Net of Discount:
Balance, beginning of period $ (115) $ (103) $ (92)
Acquisition of treasury shares 115 - -
Amortization of discount - (12) (11)
-------- -------- --------
Balance, end of period $ - $ (115) $ (103)
======== ======== ========

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

Paid-in Capital:
Balance, beginning and end of period $ 43,809 $ 43,809 $ 43,809
======== ======== ========

Unrealized Investment Losses: $ - $ (6) $ (448)
======== ======== ========

Retained Earnings:
Balance, beginning of period $ 46,901 $ 43,197 $ 62,577
Net income (loss) (860) 3,704 (19,380)
-------- -------- --------
Balance, end of period $ 46,041 $ 46,901 $ 43,197
======== ======== ========

Treasury Stock:
Balance, beginning of period $ (3,184) $ (3,184) $ (3,184)
Acquisition of treasury shares (2,267) - -
-------- -------- --------
Balance, end of period $ (5,451) $ (3,184) $ (3,184)
======== ======== ========

Shares of Common Stock Outstanding:
Balance, beginning of period 5,389 5,389 5,389
Acquisition of treasury shares (100) - -
-------- -------- --------
Balance, end of period 5,289 5,389 5,389
======== ======== ========

</TABLE>

See notes to consolidated financial statements.

36
<PAGE> 37
CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)

<TABLE>
<CAPTION>
Years Ended
--------------------------------------
February 1, February 3, January 28,
1997 1996 1995
------------ ------------ ------------
(52 weeks) (53 weeks) (52 weeks)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ (860) $ 3,704 $(19,380)
Adjustments to reconcile net income
(loss) to net cash used in
operating activities:
Depreciation and amortization 5,707 5,415 5,176
Deferred compensation - - 1,424
Provision for (reversal
of) closed stores
and restructuring charge (4,917) (8,794) 18,865
Changes in assets and liabilities:
Accounts receivable (4,021) 601 911
Merchandise inventories (7,844) 241 (25,070)
Prepaid and refundable income taxes (2,331) (1,471) -
Other current assets (2,261) (272) 408
Other assets (1,444) (30) 176
Accounts payable, trade 12,479 (13,387) (14,996)
Accrued expenses 9,861 (5,668) 16,627
Payment to Robert M. Haft (14,749) - -
Due to affiliate (212) 315 46
Income taxes payable - (5,046) 2,700
Deferred income taxes 4,521 4,873 (12,790)
Reserve for closed stores
and restructuring (2,865) (3,426) (1,208)
-------- -------- --------
Net cash used in
operating activities $ (8,936) $(22,945) $(27,111)
-------- -------- --------

Cash Flows from Investing Activities:
Capital expenditures $ (7,800) $ (6,816) $ (3,716)
Purchases of United States Treasury
Bills - (51,497) (26,381)
Dispositions of United States
Treasury Bills 2,009 49,494 55,872
Maturities of United States Treasury
Bills - - 9,897
Purchases of United States
Treasury Notes - (2,200) (106,373)
Dispositions of United
States Treasury Notes - 19,200 96,203
Purchases of corporate notes - - (1,541)
Sales of corporate notes - 2,750 4,412

</TABLE>

37
<PAGE> 38

CROWN BOOKS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (Continued)
(dollars in thousands)

<TABLE>
<CAPTION>
Years Ended
--------------------------------------
February 1, February 3, January 28,
1997 1996 1995
------------ ------------ ------------
(52 weeks) (53 weeks) (52 weeks)
<S> <C> <C> <C>
Cash Flows from Investing Activities
(continued):
Purchases of United States
Agency Notes - - (1,492)
Sales of Unites States Agency Notes - - 195
Maturities of United States
Agency Notes - 950 -
Dispositions of reverse repurchase
agreements - - (93)
Purchases of municipal securities - - (6,124)
Maturities of municipal securities 550 - -
Sales of municipal securities 3,612 10,216 9,560
-------- -------- --------
Net cash provided by(used in)
investing activities $ (1,629) $ 22,097 $ 30,419
-------- -------- --------

Cash Flows from Financing Activities:
Principal payments under
capital lease obligations $ - $ (24) $ (30)
Payment to Robert M. Haft for
treasury shares (2,146) - -
-------- -------- --------
Net cash used in financing
activities $ (2,146) $ (24) $ (30)
-------- -------- --------

Net Increase (Decrease) in
Cash and Equivalents $(12,711) $ (872) $ 3,278
Cash and Equivalents at Beginning
of Year (Note 1) 28,762 29,634 26,356
-------- -------- --------
Cash and Equivalents at End
of Year (Note 1) $ 16,051 $ 28,762 $ 29,634
======== ======== ========

Supplemental Disclosures of Cash Flow Information:
Cash paid (refunded) during the year for:
Interest $ 2,016 $ 377 $ 316
Income taxes (2,755) 3,129 2,111

Supplemental Disclosure of Non Cash Activities:
Write-off book value of fixed assets
to restructuring and closed store
reserves $ 522 $ 661 $ 764
</TABLE>

See notes to consolidated financial statements.

38
<PAGE> 39
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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

Management believes that litigation affecting the Company has had an adverse
impact on the Company's results of operations, financial position and
liquidity. Management believes that the continued uncertainty relating to the
control of Dart Group Corporation ("Dart"), the Company's majority shareholder,
and the surrounding litigation has affected the Company's reputation among
banks, vendors and landlords. The uncertainty surrounding control of Dart (and
the associated effects of such uncertainty) may continue until pending
litigation is adjudicated or settled.

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. However, the Company's cash and short-term investments
(including marketable debt securities) decreased by approximately $18.9 million
in fiscal 1997, resulting primarily from the $16.9 million payment of
satisfaction of a judgement awarded to Robert M. Haft (the "RMH Judgement") and
expenditures for store closings and the opening of new superstores.

39
<PAGE> 40
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

The Company's primary capital requirements relate to new store openings
and investments in management information systems. The Company believes that
the costs required for opening a new store generally approximate $800,000,
including inventory purchases, net of accounts payable, and the costs of store
fixtures and leasehold improvements, net of landlord contributions. During
fiscal 1998, the Company expects to open approximately 40 Super Crown Book
stores (but may open fewer stores) requiring expenditures of approximately
$32.0 million. As of February 1, 1997, the Company had entered into lease
agreements to open nine new Super Crown Book stores. In addition, in fiscal
1998, Crown Books expects to have cash expenditures for stores that have been
closed or will be closed of approximately $2.5 million.

In management's opinion, existing cash and investment resources of $16.1
million, improving inventory turnover and the revolving credit facility (see
Note 5) are adequate to fund cash flow requirements for fiscal 1998.

Fiscal Year

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

Cash and Equivalents

Effective in fiscal 1997, and applied retroactively to all years presented
herein, the Company changed its accounting policy to include only investments
with a maturity of three months or less as cash equivalents. The impact of
this change was to reclassify amounts previously presented in the accompanying
consolidated balance sheets and statements of cash flows.

Short-term Instruments and Marketable Debt Securities

The Company's short-term instruments include United States Treasury Bills with
a maturity of three months or less and money market funds. Marketable debt
securities include United States Treasury Bills with a maturity greater than
three months, 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

40
<PAGE> 41
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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 1, 1997, 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.

Expected maturities may 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. Effective February 2, 1997, the Company
will change its accounting policy from expensing purchased computer software
costs in the year of acquisition to capitalizing and depreciating these costs
over the estimated useful life not to exceed five years. This change will be
made as management has determined that these costs benefit future periods. 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

41
<PAGE> 42
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

under capital lease was $441,000 and $402,000, as of February 1, 1997 and
February 3, 1996, respectively.

Preopening Expenses

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

Advertising Expenses

The Company records the costs of advertising as expense as the costs are
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.

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 Bills and 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 related 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 effect of common stock equivalents were not considered
in fiscal 1997 and 1995 as they were antidilutive. The difference between
primary earnings per common share and fully diluted earnings per common share
was not significant for the periods presented.

New Accounting Standards

The Company adopted Statement of Financial Accounting Standards ("SFAS") No.

42
<PAGE> 43
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

121, Accounting for Long Lived Assets and Long-Lived Assets to be Disposed Of
and SFAS No. 123, Accounting for Stock Based Compensation, in the fiscal year
ending February 1, 1997. The adoption of SFAS No. 121 did not have a material
impact on the consolidated financial statements. The Company has disclosed the
fair value of options granted, as permitted by SFAS No. 123, (see Note 12).

In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
Earnings Per Share. SFAS 128 replaces the presentation of primary earnings per
share, previously presented by the Company, with basic earnings per share and
requires a reconciliation of the numerator and denominator of basic earnings
per share to fully diluted earnings per share. Fully diluted earnings per
share is computed similarly to the previous requirements. The Company will be
required to adopt SFAS No. 128 in the fourth quarter of fiscal 1998 and restate
all previously presented earnings per share data. The presentation of the
Company's basic earnings per share under SFAS No. 128 is not materially
different than the amounts presented herein as primary earnings per share.

Reclassifications

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

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 loss carry forwards,
to the extent that realization of such benefits is more likely than not.

The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Year
------------------------------------
Current: 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal $ (4,026) $ (2,715) $ 3,034
State (1,020) (474) 823
-------- -------- --------
(5,046) (3,189) 3,857
Deferred:
Federal 3,433 4,191 (9,775)
State 1,035 975 (2,033)
-------- -------- --------
$ (578) $ 1,977 $ (7,951)
======== ======== ========
</TABLE>

43
<PAGE> 44
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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

<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Year
------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 34.0%
Income taxes at Federal
statutory rate $ (489) $ 1,932 $ (9,293)
Increase(decrease)in taxes
resulting from:
State income taxes, net of
Federal income tax benefit (76) 194 (800)
Tax exempt municipal bond income (38) (191) (386)
Deferred tax valuation allowance - - 2,500
Other 25 42 28
-------- -------- -------
Income tax provision (benefit) $ (578) $ 1,977 $ (7,951)
======== ======== ========
Effective tax rate 40.2% 34.8% 29.1%
======== ======== ========
</TABLE>

The tax effect of each type of temporary difference and carry forward that
generates a significant portion of deferred tax assets is as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
February 1, February 3,
Gross deferred Tax Assets: 1997 1996
---------- ----------
<S> <C> <C>
Capitalized leases treated as
operating leases for tax purposes $ 212 $ 194
Uniform capitalization of inventory 866 755
Reserves for closed stores and restructuring 3,098 6,031
Straight line rent adjustments 719 459
Accrued legal expenses 222 734
Accelerated depreciation 1,759 1,113
Self-insurance accrual 252 322
Robert M. Haft judgment - 6,075
Unrealized investment losses 4 4
Capital loss carryforward 204 192
Expense accruals 173 218
Other 184 105
Net operating loss carryforward 3,641 -
Alternative minimum tax credit carryforward 400 -
Valuation allowance (2,500) (2,500)
-------- --------
Net deferred tax assets $ 9,234 $ 13,702
======== ========
</TABLE>

44
<PAGE> 45
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

During fiscal 1997, the Company generated a $24.0 million net operating loss,
of which approximately $15.0 million can be carried back to fiscal 1994 and
fiscal 1995. As a result, the Company has generated a net operating loss
carryforward of approximately $9.0 million which will expire in 2012. In
addition, the Company has generated an alternative minimum tax credit of
approximately $0.4 million, which can be used to offset future regular tax
liabilities. The Company has recorded these items as deferred tax assets,
which will be realized through future pretax earnings. During fiscal 1996, the
Company generated a $7.2 million tax net operating loss which was fully
utilized in the carryback period. The Company has a $0.5 million capital loss
carryforward that will expire in 2011.

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.

Management believes that it is more likely than not that sufficient
taxable income will be generated in the future, based upon the Company's
ability to generate taxable earnings to realize the remaining net deferred tax
asset. In management's opinion, a valuation allowance of $2.5 million is
necessary for the uncertainty related to the timing of the 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

45
<PAGE> 46
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
---------- ----------
<S> <C> <C>
Restructuring Reserve, beginning of year $ 7,025 $ 10,515
Less: Payments and charges (1,653) (1,439)
Reversal of reserves (3,865) (2,051)
-------- --------
Restructuring Reserve, end of year $ 1,507 $ 7,025
======== ========
</TABLE>

Store Closing Reserve

46
<PAGE> 47
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

the closed store reserves during the last two fiscal years is as follows:

<TABLE>
<CAPTION>
(dollars in thousands)
1997 1996
----------- ----------
<S> <C> <C>
Closed Store Reserve, beginning of Year $ 10,850 $ 20,241
Less: Payments and charges (1,764) (2,648)
Reversal of reserves (1,052) (6,743)
-------- --------
Closed Store Reserve, end of year $ 8,034 $ 10,850
======== ========
</TABLE>

<TABLE>
<CAPTION>
(dollars in thousands)
Lease Leasehold
Fiscal Obligations Improvements
Year (Cash Outflows) & Fixtures Total
-------- --------------- ------------ ----------
<S> <C> <C> <C>
1998 $ 1,960 $ 642 $ 2,602
1999 2,040 198 2,238
2000 1,437 141 1,578
2001 805 - 805
2002 383 49 432
2003-2005 284 95 379
--------- -------- --------
Total $ 6,909 $ 1,125 $ 8,034
========= ======== ========
</TABLE>

47
<PAGE> 48
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

NOTE 4 - TRANSACTIONS WITH AFFILIATES

Dart Group Corporation ("Dart") owns 52.3% of the Crown Books outstanding
common stock. Dart provides certain services relating to management, general
and administrative functions and charges the Company using the 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
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 Dart's 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>
(dollars in thousands)
Fiscal Years
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Due To Affiliate,
Beginning of Year $ 425 $ 92 $ 46
--------- --------- ---------
Direct Expense Charges -
Rentals (Note 7) 294 275 261
Salaries 1,846 1,669 758
Legal, rentals and other 5,683 5,110 2,864
--------- --------- ---------
7,823 7,054 3,883
--------- --------- ---------

Payments (8,035) (6,721) (3,837)
--------- --------- ---------

Due To Affiliate, End of Year $ 213 $ 425 $ 92
========= ========= =========
</TABLE>

48
<PAGE> 49
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

All transactions with Dart included above are made free of interest and under
current payment terms that, in management's opinion, are comparable to those
with unrelated parties. The average balances of amounts due to affiliate were
$188,000, $553,000, and $380,000 for fiscal 1997, 1996 and 1995, respectively.

NOTE 5 - CREDIT AGREEMENT

On September 12, 1996, the Company entered into a revolving credit facility
with a finance company to borrow up to $50 million. The Company intends to use
proceeds from draw-downs under the credit facility for working capital and
other corporate purposes. The agreement has an original term of three years.
Borrowings under the credit facility include revolving loans and letters of
credit which bear interest at a rate equal to the prime rate (as defined in the
credit agreement) and LIBOR loans which bear interest at LIBOR plus 2.25%.
Interest on prime rate borrowings is payable monthly. Interest and principal
on LIBOR loans is payable between one and six months from the borrowing date.
LIBOR loans are subject to a prepayment penalty and may be continued for
subsequent one to six month periods. LIBOR loans may be converted to prime
rate loans and vice versa. The agreement includes a facility fee of .25% on
the unused principal balance, as defined. No single advance may be outstanding
for more than 36 months.

Borrowings under the credit facility are secured by the Company's inventory,
accounts receivable and proceeds from the sale of such assets of the Company.
The credit facility also contains certain restrictive covenants, including a
limitation on the incurrence of additional indebtedness and places a $13.1
million limitation on payments to settle disputes with Haft family members.
There are additional covenants related to tangible net worth. Loans under the
credit facility are subject to limitations based upon eligible inventory
levels, as defined in the agreement. The Company may terminate the credit
facility upon 60-days prior written notice to the lender and the lender may
terminate it as of September 12, 1999 or on any anniversary date thereafter
upon 60-days prior written notice to the Company. During fiscal 1997 the
Company began borrowing under the credit facility. The maximum borrowings
outstanding at any one time during fiscal 1997 were $15,621,000 and there was
no outstanding balance as of February 1, 1997. The Company had $25.0 million
available for borrowing at February 1, 1997. In connection with its expansion
plans, the Company anticipates increasing its borrowing under its revolving
credit facility, subject to certain limitations contained in the loan
agreement. To increase the limit from $25.0 million to $35.0 million, the
Company is required to maintain a minimum tangible net worth of $73.0 million
as of the fiscal year end preceding the election and for each fiscal year end
thereafter, and to maintain a minimum tangible net worth of

49
<PAGE> 50
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

$70.0 million as of the election date and thereafter, in addition to other
covenants. To increase the limit from $35.0 million to $50.0 million, the
Company is required to maintain a minimum tangible net worth of $75.0 million
as of the fiscal year end preceding the election and for each fiscal year end
thereafter, in addition to other covenants. The average borrowings (calculated
from the inception of the agreement) and weighted average interest rate for
fiscal 1997 were $4,263,000 and 8.25%.

NOTE 6 - 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 challenges.
See Note 9. 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.

NOTE 7 - 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 1, 1997. The imputed interest rate on capital leases is 20.5% in the
aggregate.

50
<PAGE> 51
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Capital Leases Operating
Year (see Related Party Leases) Leases
------ -------------------------- ----------
<S> <C> <C>
1998 $ 304 26,330
1999 334 22,129
2000 334 17,731
2001 334 16,404
2002 334 13,153
2003-2010 6,228 39,340
-------- --------
Total 7,868 $135,087
========
Less: Imputed interest 6,184
--------
Present value of net minimum
lease payments 1,684
Less: Current maturities -
--------
Long-term capital lease
obligations $ 1,684
========
</TABLE>

The above table includes $2,150,000 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 rentals of $899,000 receivable in the
future under six leases.

Rent expense for operating leases is as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
Fiscal Year
-----------------------------------
1997 1996 1995
---------- ---------- ---------
<S> <C> <C> <C>
Minimum rentals $ 23,640 $ 20,695 $ 21,401
Contingent rentals 32 143 174
--------- --------- ---------
$ 23,672 $ 20,838 $ 21,575
========= ========= =========
</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 168 stores as of February 1, 1997, seven are leased from entities in
which the Haft family members own substantially all the beneficial interests.
These seven lease agreements with the Haft family provide for various
termination dates which, assuming renewal options are exercised, range from
1997 to 2029, and require the payment of future minimum rentals aggregating

51
<PAGE> 52
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

$39,121,000 at February 1, 1997. 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, three closed stores have lease
agreements with Haft-owned entities with various termination dates from 1997 to
2002 and require future minimum rentals aggregating $789,000 at February 1,
1997. Annual fees and rentals included in the consolidated statements of
operations for leases involving the Haft family were $1,985,000, $2,406,000,
and $2,296,000 for 1997, 1996 and 1995, 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 $303,000. 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, on the lease commitment table
above. 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 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. On December 17, 1996, Dart, Crown Books and
Trak Auto filed a lawsuit against Herbert H. Haft (Chairman of each such
company) claiming breach of fiduciary duty, fraud and waste in connection with
certain of these lease transactions with certain partnerships owned
beneficially by members of the Haft family.

52
<PAGE> 53
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

Employment Arrangements

The Company has entered into employment agreements with several key employees.
The employment agreements are for one-year and two-year terms. The agreements
are automatically extended for one to two years unless the individual is
terminated with cause. The agreements provide for compensation increases
following review and performance appraisal by the Compensation Committee of the
Board of Directors.

NOTE 8 - BOARD OF DIRECTORS

In January 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 9 for a discussion of the derivative lawsuits.

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 $1,299,000 and $1,263,000 in fiscal 1997 and 1996,
respectively ($423,000 and $421,000 paid by the Company in fiscal 1997 and
1996, respectively). The compensation paid by Dart and its subsidiaries,
including the Company, to members of the Special Litigation Committee for their
service

53
<PAGE> 54
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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 1997 and 1996.

NOTE 9 - LITIGATION

Robert M. Haft Litigation

On August 21, 1996, the Company paid approximately $16,895,000 (including
interest of $1,407,000) for the RMH Judgment. The Company accrued
approximately $13,342,000 of the RMH Judgment in fiscal 1995 and accrued
interest monthly at rates set forth in the RMH Judgment. Approximately
$2,146,000 (plus interest) of the RMH Judgment was paid to Robert M. Haft for
100,000 shares of common stock of Crown Books. The Company recorded the
purchase of the shares as treasury stock. The Company has filed a lawsuit
against Herbert H. Haft to recover these amounts.

Derivative Litigation

In September 1993, Alan R. Kahn and the Tudor Trust (the "Kahn Derivative
Plaintiffs"), shareholders of Dart, filed a lawsuit 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, and other affiliated
companies.

In November 1993, Robert M. Haft filed a lawsuit naming 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

54
<PAGE> 55
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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 September 1994, the Special Litigation Committee moved for dismissal of
certain claims in these derivative lawsuits and for realignment of the parties
to permit Dart to prosecute other claims in those derivative lawsuits.
Thereafter, the Special Litigation Committee amended its motion and advised the
court that it had instituted certain lawsuits concerning Dart related party
real estate transactions, and was considering asserting additional claims,
certain of which have since been asserted in subsequent litigation against
Herbert H. Haft. The amended motion is still pending before the court.

In connection with the RSH Settlement, the plaintiff shareholders, Ronald S.
Haft, CPI, 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 CPI 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 court.

In September 1994, Jolien Lou, a purported shareholder of Crown Books, filed a
lawsuit 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.

55
<PAGE> 56
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

Herbert H. Haft Proxy Litigation

Herbert H. Haft sold 172,730 shares of Dart Class B Common Stock to Ronald S.
Haft on July 28, 1993 (the "Stock Sale Agreement") and Ronald S. Haft
purportedly granted Herbert H. Haft an irrevocable proxy (the "Proxy") to vote
these shares of stock. On June 30, 1995, Ronald S. Haft purportedly revoked
the Proxy.

On July 18, 1995, Ronald S. Haft filed a lawsuit against Herbert H. Haft and,
nominally, Dart 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. 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, Dart purchased from Ronald S. Haft the 172,730
shares of Class B Common Stock that were subject to the Proxy and placed the
shares in treasury.

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 (the "Section 225 Action") 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

56
<PAGE> 57
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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 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.

Challenge to RSH Settlement by Herbert H. Haft

On November 6, 1995, Herbert H. Haft filed a lawsuit 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 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.

On December 5, 1996, Herbert H. Haft filed a motion for partial summary
judgment. Dart opposed this motion for partial summary judgment and, on March
14, 1997, the court denied Herbert H. Haft's motion in its entirety. A trial
date has not yet been scheduled.

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. Without further order of the court, Dart may not (i) change

57
<PAGE> 58
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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, the Standstill Order restricts certain significant
corporate actions by Dart without first giving Herbert H. Haft and the other
parties to the Section 225 Action not less than seven days written notice.

Possible Settlements

On April 21, 1997, Dart reached a conditional settlement conditional agreement
in principle with Herbert H. Haft. If the settlement contemplated by the
agreement in principle is implemented, Herbert H. Haft would retire from his
positions as Chairman of Dart, Shoppers Food, Trak Auto and Crown Books.
Herbert H. Haft also would relinquish his claim to voting control of Dart.

Herbert H. Haft would receive approximately $30 million from Dart if the
settlement is implemented. Herbert H. Haft would also receive an additional
$11.6 million from escrowed funds previously paid by Dart to Ronald S. Haft as
part of the RSH Settlement (plus $700,000 interest on those funds). The
conditional agreement in principle also contemplates that Dart would make a
$10 million loan to a partnership owned by Herbert H. Haft and Ronald S. Haft,
which loan would be secured by such partnership's interests in three shopping
centers located in suburban Washington, D.C. and would be personally guaranteed
by Ronald S. Haft.

The conditional agreement in principle is also conditioned on Dart's entering
into a supplemental settlement with Ronald S. Haft and a comprehensive
settlement with

58
<PAGE> 59
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

RGL. Negotiations with respect to these related settlements are currently
underway. Current settlement discussions contemplate that Dart, Trak Auto and
Crown Books would collectively pay approximately $50 million in exchange for
all of RGL's equity interests in these companies and certain real estate
interests. There can be no assurance that such settlements will be reached or
as to the terms or timing of any settlement, if one occurs.

Closing of the transactions contemplated by the conditional agreement in
principle also is subject to (i) final and non-appealable action by the
Delaware Court of Chancery or the Delaware Supreme Court approving all of the
terms of the settlement, terminating certain putative derivative actions
pending with respect to Dart and Crown Books in the Delaware Court of Chancery,
and approving the RSH Settlement and the supplemental settlement between Dart
and Ronald S. Haft, and (ii) final and non-appealable action by the U.S.
Bankruptcy Court approving the effectiveness of Chapter 11 plans of
reorganization for certain real estate entities owned by Haft family members.

Any settlement with RGL (including any financing of such settlement) would
require further order of the Delaware Court of Chancery under the Standstill
Order and could be opposed by Herbert H. Haft if Dart does not settle with him.

Other

59
<PAGE> 60
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

The Company recorded legal expenses of approximately $0.8 million, $1.1 million
and $3.4 million during the years ended February 1, 1997, February 3, 1996 and
January 28, 1995, respectively.

NOTE 10 - 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).

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 $2,146,000, plus
interest, for Robert M. Haft's claims with respect to the ISA.

As a result of this litigation 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. In
addition, the Company paid Robert M. Haft approximately $2,146,000 (plus
interest) for the 100,000 shares during the year ended February 1, 1997. The
Company recorded the purchase of the shares as treasury stock.

60
<PAGE> 61
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

NOTE 11 - EMPLOYEES' BENEFIT 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. The
Company's contribution was $240,000 for fiscal 1995. The Company did not make
a contribution for fiscal 1997 and 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 $120,000 and
$90,000 for fiscal 1997 and 1996, respectively.

In March 1996, the Company established a nonqualified deferred compensation
plan for certain officers and key employees of the Company. The Company
contributes an amount equal to 25% of the employees deferral in the
nonqualified deferred compensation plan and the 401(k) plan together up to 6%.
The contribution was $2,000 in fiscal 1997.

NOTE 12 - STOCK OPTION PLANS

The Company has two stock option plans and accounts for the plans under APB
Opinion No. 25, under which no compensation cost has been recognized. Had
compensation cost for the plans been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
following pro forma amounts:

<TABLE>
<CAPTION>
(dollars in thousands, except per share date)
Fiscal Year
1997 1996
---------- ----------
<S> <C> <C>
Net Income (Loss):
As Reported $ (860) $ 3,704
Pro Forma (1,073) 3,639
Net Income (Loss) per share:
As Reported $ (.16) $ .69
Pro Forma (.20) .67
</TABLE>

The effect of applying SFAS No. 123 in the pro forma disclosure are not
indicative of future amounts. SFAS No. 123 does not apply to awards prior to
1995.

61
<PAGE> 62
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

Crown Books Corporation 1993 Stock Option Plan

The Company may grant options for up to 1,250,000 shares under the Crown Books
Corporation 1993 Stock Option Plan (the "1993 Option Plan"). The 1993 Option
Plan is for officers, directors and key employees and will terminate June 30,
2003. The option exercise price equals the market price on the date of grant.
Options vest fully after three years and expire after five years.

Information concerning the 1993 Option Plan:
<TABLE>
<CAPTION>
Weighted Average
Number Exercise Price per Share
of Options per Share Exercise Price
------------ -------------- ----------------
<S> <C> <C> <C>
Outstanding at
January 29, 1994 87,820 $ 23.00 $23.00
Granted 10,000 17.00 17.00
Exercised - - -
Forfeited (18,690) 23.00 23.00
-------- ------------- ------
Outstanding at
January 28, 1995 79,130 17.00-23.00 22.24
Granted 148,540 11.00-17.00 12.80
Exercised - - -
Forfeited (44,100) 11.00-23.00 18.70
-------- ------------- ------
Outstanding at
February 3, 1996 183,570 11.00-23.00 15.45
Granted 184,225 10.50-12.375 11.43
Exercised - - -
Forfeited (18,225) 11.00-23.00 14.65
-------- ------------- ------
Outstanding at
February 1, 1997 349,570 $10.50-23.00 $13.56
======== ============= ======
</TABLE>

Options to purchase 111,873 shares were exercisable at February 1, 1997 and
900,430 options remained available for grant. At February 1, 1997, 81,660 of
the options outstanding have exercise prices between $23 and $17 per share,
with a weighted average exercise prices of $20.20 per share, a weighted average
contractual life of 2.0 years and 71,478 such options are exercisable. The
remaining 267,910 options outstanding have exercise prices between $10.50 and
$12.375 per share, with a weighted average exercise price of $11.54 per share,
a weighted average contractual life of 3.7 years and 40,395 such options are
exercisable.

The weighted average fair value of options granted was $8.14 and $7.24 for
options granted during fiscal 1997 and 1996 respectively. The fair value of

62
<PAGE> 63
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

each option grant is estimated on the date of the grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in fiscal 1997 and 1996, respectively: risk free rates of approximately
6.0%; no expected dividends; expected lives of 5.0 years; and expected
volatility of 75.0%.

The grant of 44,580 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. No new options could be granted after January 1,
1993.

Information concerning the Option Plan:

<TABLE>
<CAPTION>
Number Option Price Weighted Average
of Options per Share Exercise Price
---------- ------------- ----------------
<S> <C> <C> <C>
Outstanding at
January 29, 1994 262,229 $19.50-23.93 $ 21.16
Exercised - - -
Forfeited (93,419) 19.25-22.55 19.73
Expired (24,063) 21.75-23.93 22.88
------- ------------ --------
Outstanding at
January 28, 1995 144,747 19.50-23.93 21.79
Exercised - - -
Forfeited (7,458) 19.50-20.50 20.22
Expired (19,758) 19.50-21.45 20.49
------- ------------ --------
Outstanding at
February 3, 1996 117,531 20.00-23.93 22.11
Exercised - - -
Forfeited (2,904) 20.00-20.50 20.24
Expired (16,933) 20.50-22.55 21.71
------- ------------ --------
Outstanding at
February 1, 1997 97,694 $20.00-23.93 $ 22.24
======= ============ ========
</TABLE>

Options to purchase 97,694 shares were exercisable at February 1, 1997 and the
weighted average contractual life of the options outstanding was 2.0 years.

The Board of Directors of the Company has authorized certain officers and

63
<PAGE> 64
CROWN BOOKS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued

Fiscal Years Ended February 1, 1997, February 3, 1996
And January 28, 1995

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, be secured by all of the
stock acquired by exercise of the options, 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.

NOTE 13 - INTERIM FINANCIAL DATA - (UNAUDITED)

Selected interim financial data for the years ended February 1, 1997 and
February 3, 1996 are as follows:

<TABLE>
<CAPTION>
(in thousands, except per share data)
THREE MONTHS ENDED: FEBRUARY 1, NOVEMBER 2, JULY 3, MAY 4,
1997 1996 1996 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 95,431 $ 63,281 $ 66,533 $ 62,492
GROSS PROFIT (1) 19,939 10,672 11,892 11,387
NET INCOME (LOSS) (3) 2,357 110 (1,536) (1,791)
NET INCOME (LOSS) PER
SHARE (2) $ .45 $ .02 (.28) $ (.33)
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED: FEBRUARY 3, OCTOBER 28, JULY 29, APRIL 29,
1996 1995 1995 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 (LOSS) (3) 4,508 (670) 250 (384)
NET INCOME (LOSS) PER
SHARE (2) $ .84 $ (.12) $ .05 $ (.07)
</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.

64
<PAGE> 65
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 Proxy Statement to be filed with the Commission pursuant
to Regulation 14A.

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

65
<PAGE> 66
PART IV
<TABLE>
<S> <C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K
--------

(a)(1) Financial Statements

See Item 8.

(a)(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.

(a)(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 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).

10.3 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).

10.4 Lease Agreement dated November 16, 1981 between Rolling Valley Plaza,
Inc. and Crown Books Corporation (830)(incorporated by reference to
Crown Books' registration statement on Form S-1, Reg. No. 2-83999).

10.5 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)
</TABLE>

66
<PAGE> 67
<TABLE>
<S> <C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K (Continued)
--------------------

10.6 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).

10.7 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).

10.8 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).

10.9 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)

10.10 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 10(jjjjj) to Crown
Books' 1990 Form 10-K). (165)

10.11 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)

10.12 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).

10.13 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)

10.14 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)

10.15 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)
</TABLE>

67
<PAGE> 68
<TABLE>
<S> <C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K (Continued)
--------------------

10.16 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)

10.17 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)

10.18 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)

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

10.20 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).

10.21 Employment Agreement dated November 6, 1995 between Crown Books
Corporation and Donald J. Pilch (incorporated by reference to Exhibit
10.31 to Crown Books' 1996 Form 10-K).

10.22 Financing Agreement, dated as of September 12, 1996 between Crown
Books Corporation and The CIT Group/Business Credit, Inc.(incorporated
by reference to Exhibit 10.1 to Crown Books' Form 10-Q filed September
16, 1996).

10.23 Employment Agreement dated as of February 1, 1996 between Crown Books
Corporation and Keith W. Hammer.

10.24 Employment Agreement dated as of October 21, 1996 between Crown Books
Corporation and Anne Hancock.

10.25 Employment Agreement dated February 1, 1997 between Crown Books
Corporation and E. Steve Stevens.

11 Statement on Computation of Per Share Net Income.

</TABLE>

68
<PAGE> 69
<TABLE>
<S> <C>
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K (Continued)
--------------------

21 Subsidiaries of Crown Books Corporation.

23 Consent of Independent Public Accountants.

27 Schedules to the Financial Statements

(b) Reports on Form 8-K
</TABLE>

During the fourth quarter of fiscal year ended February 1, 1997,
the Company filed no reports on Form 8-K.

69
<PAGE> 70
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: May 1, 1997 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.

Date: May 1, 1997 Herbert H. Haft
----------- ------------------------------------
Herbert H. Haft
Chairman of the Board of Directors

Date: May 1, 1997 E. Steve Stevens
----------- ------------------------------------
E. Steve Stevens
President and Chief
Executive Officer

Date: May 1, 1997 Bonita A. Wilson
----------- ------------------------------------
Bonita A. Wilson
Director

Date: May 1, 1997 Douglas M. Bregman
----------- ------------------------------------
Douglas M. Bregman
Director

Date: May 1, 1997 Larry G. Schafran
----------- ------------------------------------
Larry G. Schafran
Director

Date: May 1, 1997 Donald J. Pilch
----------- ------------------------------------
Donald J. Pilch
Vice President and
Chief Financial Officer

70
<PAGE> 71

CROWN BOOKS CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX

Exhibit Page

10.23 Employment Agreement dated as of February 1, 1996
between Crown Books Corporation and Keith W. Hammer.

10.24 Employment Agreement dated as of October 21, 1996
between Crown Books Corporation and Anne Hancock.

10.25 Employment Agreement dated February 1, 1997
between Crown Books Corporation and E. Steve Stevens.

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

<PAGE> 1
EXHIBIT 10.23

February 1, 1996

EMPLOYMENT AGREEMENT

This Agreement dated as of February 1, 1996, by and between Keith Hammer
("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 Information 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
Employer if Employee elects to relocate. At the

<PAGE> 2

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 February 1, 1996 and end on February 1,
1997. 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
Twenty Four Thousand Five Hundred Dollars ($124,500.00), 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) Annual Bonus. A bonus of 30% of base salary. Any payments made
will be based on the components of your bonus program. This bonus payment is
subject to approval by the Board of Directors. Receipt of this bonus is subject
to your active employment at Crown Books at the time of bonus payments.

(c) 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

<PAGE> 3

option within the later of (i) thirty (30) days of notice of such right by
Employer to Employee's personal representative or (ii) sixty (60) days of the
date of Employee's death.

5. EMPLOYEE BENEFITS

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. 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

<PAGE> 4

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 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

<PAGE> 5

portion, if any, of Employee's compensation accrued 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 and, therefore, Employee
shall be eligible for such 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 made in compliance with
Section 1(a) hereof. 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). Employer shall offer health insurance continuation under COBRA. 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.

<PAGE> 6

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. Keith Hammer
795 Spring Bloom Drive
Millersville, Maryland 21108

If to Employer:
Chief Executive Officer
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

<PAGE> 7

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
any legal proceeding filed by Employee, 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.

<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:

/s/ STEVE STEVENS February 1, 1996
- ------------------------ ------------------------
Steve Stevens, President Date

EMPLOYEE:

/s/ KEITH HAMMER February 1, 1996
- ------------------------ ------------------------
Keith Hammer Date

<PAGE> 1
EXHIBIT 10.24

October 21, 1996

EMPLOYMENT AGREEMENT

This Agreement dated as of October 21, 1996 by and between Anne Hancock
("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 Vice President, Real Estate 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 Executive Committee of the Board, the
Board of Directors, or other Senior Executive as directed by the Board.
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.

<PAGE> 2

2. TERM

The term of Employee's employment under this Agreement (the
"Employment Period") shall commence on October 28, 1996 and end on October 28,
1997. If the Employer decides not to renew this Agreement, notice will be
delivered in writing at least 30 days prior to the end of the term of this
Agreement. If such notice is not delivered then the Agreement will continue for
an additional one (1) year after which it will automatically expire, unless it
is renewed.

3. COMPENSATION

(a) Base Salary. Employee's annual base salary shall be One Hundred
Thirty Thousand Dollars ($130,000.00), 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) Bonus. A bonus of 30% of base salary. Any payments made will be
based on the components of your bonus program. This bonus payment is subject to
approval by the Board of Directors. Receipt of this bonus is subject to your
active employment at Crown Books Corporation at the time of bonus payments.
This bonus is not payable if Employee has been, or is being terminated pursuant
to Section 7. The bonus program including the amount of bonus may be changed or
deleted by the Board of Directors.

(c) 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

<PAGE> 3

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 the later of (i) thirty
(30) days notice of such right by Employer to Employee's personal
representative or (ii) sixty (60) days of the date of Employee's death.

5. EMPLOYEE BENEFITS

During the Employment Period, Employer shall provide Employee with
the following benefits:

(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

<PAGE> 4

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 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).

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.

<PAGE> 5

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 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 and, therefore, Employee shall be eligible for such Long Term
Disability coverage.

(d) With Cause. Employer shall have the right to immediately
terminate the employment of Employee at any time for just cause. For purposes
of the foregoing, "just cause" shall include, but not be limited to: (i)
Employee's commission of any act which constitutes an offense involving moral
turpitude under federal, state or local law; (ii) Employee's material breach of
any of the terms of this Agreement; (iii) Employee's refusal to follow lawful
and reasonable directive(s) of the Board of Directors made in compliance with
Section 1(a) hereof; or (iv) Documented performance problems. 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. Employer shall have
the right to terminate the employment of Employee without cause 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
lump sum amount of one (1) year of base salary as severance (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 (defined as employment for another
company, or self- employment) for the Employee commences at any time during the
severance period and the base salary is the same or more than that paid by the
Employer then Employee shall return the balance (the difference between the
date of new employment and the end of the severance period) of the severance
monies to the Employer. If the base salary is less than that paid by the
Employer then the Employer shall reduce the severance payments to the equal
difference between the new base salary and that paid by the Employer. Employee
must notify Employer immediately upon starting new employment. Employer shall
offer health insurance continuation under COBRA. 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.

<PAGE> 6

Employee shall terminate his or her 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. If Employee gives thirty (30) days
written notice due solely to Employer's decision not to renew this Agreement as
set forth in Section 2, or Employee's dissatisfaction with the terms of a new
Agreement, then the Employee will be eligible for the severance terms outlined
in Section 7(e). Such written notice must be given no later than the 30th day
after the termination or expiration of the Agreement outlined in Section 2. If
Employee does not give written notice to the Employer within said thirty (30)
day period then Employee understands and acknowledges that he or she will not
be eligible to receive the severance and other benefits outlined in Section
7(e) and agrees that if he or she continues to be employed, his or her
employment will be at-will and for no definite or determinable period and may
be terminated at any time, with or without notice, at the option of the
Employee or the Company.

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.

<PAGE> 7

If to Employee:

Anne Hancock
3344 N.W. 53rd Circle
Boca Raton, Florida 33496

If to Employer:

Chief Executive Officer
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.

<PAGE> 8

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.

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

/s/ STEVE STEVENS October 21, 1996
- ------------------------ ------------------------
Steve Stevens Date
President and Chief Executive Officer

/s/ ANNE LEVINTON October 21, 1996
- ------------------------ ------------------------
Anne Levinton Date
Assistant Vice President
Human Resources

EMPLOYEE

/s/ ANNE HANCOCK October 21, 1996
- ------------------------ ------------------------
Anne Hancock Date

<PAGE> 1
EXHIBIT 10.25

February 1, 1997

EMPLOYMENT AGREEMENT

This Agreement dated as of February 1, 1997 by and between Steve Stevens
("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 President and Chief Executive 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 by the Board of Directors of the Employer ("the Board of
Directors"), and shall report to the Executive Committee of the Board, the
Board of Directors, or other Senior Executive as directed by the Board.
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.

<PAGE> 2

2. TERM

The term of Employee's employment under this Agreement (the
"Employment Period") shall commence on February 1, 1997 and end on February 1,
1999. If the Employer decides not to renew this Agreement, notice will be
delivered in writing at least 30 days prior to the end of the term of this
Agreement. If such notice is not delivered then the Agreement will continue for
an additional one (1) year after which it will automatically expire, unless it
is renewed.

3. COMPENSATION

(a) Base Salary. Employee's annual base salary shall be Two Hundred
Ninety One Thousand Five Hundred Dollars ($291,500.00), 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) Bonus. A bonus of 50% of base salary. Any payments made will be
based on the components of your bonus program. This bonus payment is subject to
approval by the Board of Directors. Receipt of this bonus is subject to your
active employment at Crown Books Corporation at the time of bonus payments.
This bonus is not payable if Employee has been, or is being terminated pursuant
to Section 7.

(c) 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

<PAGE> 3

his or her death, the personal representative of the Employee shall have the
right to exercise any such option within the later of (i) thirty (30) days
notice of such right by Employer to Employee's personal representative or (ii)
sixty (60) days of the date of Employee's death.

5. EMPLOYEE BENEFITS

During the Employment Period, Employer shall provide Employee with
the following benefits:

(e) Automobile Allowance: Employer shall pay to Employee as an
automobile allowance the sum of Eight Hundred Fifty Dollars ($850.00) per
month.

6. PROPRIETARY DATA

<PAGE> 4

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 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).

7. TERMINATION

<PAGE> 5

and Employer shall not have any further obligations 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. 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 and, therefore, Employee shall be eligible for such Long Term
Disability coverage.

(d) With Cause. Employer shall have the right to immediately
terminate the employment of Employee at any time for just cause. For purposes
of the foregoing, "just cause" shall include, but not be limited to: (i)
Employee's commission of any act which constitutes an offense involving moral
turpitude under federal, state or local law; (ii) Employee's material breach of
any of the terms of this Agreement; (iii) Employee's refusal to follow lawful
and reasonable directive(s) of the Board of Directors made in compliance with
Section 1(a) hereof; (iv) documented performance problems; or (v) violation of
any part of the Crown Books Statement of Business Ethics, copy of which is
incorporated with this Agreement. 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. Employer shall have
the right to terminate the employment of Employee without cause 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 of 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 the 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 (defined as employment for
another company, or self-employment) for the Employee commences at any time
during the severance period and the base salary is the same or more than that
paid by the Employer, then Employer shall cease payments under this section. If
the base salary paid by the new employment is less than the base salary paid by
the Employer then the Employer will continue to pay the difference between the
new base salary and that paid by the Employer for the balance of the one (1)
year severance. Employee must notify Employer immediately in writing upon
starting new employment. If Employee does not notify Employer immediately upon
starting new employment, then Employee agrees that should Employer need to hire
legal counsel to retrieve monies that should not have been paid, that Employee
will be responsible for the Employer's reasonable legal costs. Employer shall
offer health insurance continuation under COBRA. The cost of which will be paid
by the Company until (i) thirty (30) days after the date the Employee starts

<PAGE> 6

new employment or (ii) the severance period ends. Employee may continue COBRA
at their own expense for the balance of the COBRA period. The COBRA cost paid
by the Employer will be added to the Employee's income and taxed. Lastly,
Employee shall be entitled to utilize the services of a professional out
placement service, the reasonable cost of which shall be determined and 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 or her employment
upon at least thirty (30) days written notice to Employer. If Employee shall
terminate his or her 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. If Employee gives thirty (30) days written notice due
solely to Employer's decision not to renew this Agreement as set forth in
Section 2, or Employee's dissatisfaction with the terms of a new Agreement,
then the Employee will be eligible for the severance terms outlined in Section
7(e). Such written notice by the Employee must be given no later than the 30th
day after the termination or expiration of the Agreement outlined in Section 2.
If Employee does not give written notice to the Employer within said thirty
(30) day period then Employee understands and acknowledges that he or she will
not be eligible to receive the severance and other benefits outlined in Section
7(e) and agrees that if he or she continues to be employed, his or her
employment will be at-will and for no definite or determinable period and may
be terminated at any time, with or without notice, at the option of the
Employee or the Company.

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.

<PAGE> 7

(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:

Steve Stevens
3220 Breckenridge Way
Riva, Maryland 21140

If to Employer:

Director and Chairman of the Executive Committee
Dart Group Corporation
3300 75th Avenue
Landover, Maryland 20785

Vice President, Human Resources
Dart Group Corporation
3300 75th Avenue
Landover, Maryland 20785

<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

/s/ LARRY G. SCHAFRAN February 1, 1997
- ---------------------------- -------------------------
Larry G. Schafran Date
Director and Chairman of the
Executive Committee

/s/ MARK A. FLINT February 1, 1997
- --------------------------- -------------------------
Mark A. Flint Date
Senior Vice President, CFO

<PAGE> 9

EMPLOYEE

/s/ STEVE STEVENS February 1, 1997
- ------------------------ ------------------------
Steve Stevens Date

<PAGE> 1

Exhibit 11

COMPUTATION OF EARNINGS PER SHARE
(dollars in thousands, except per share dollars)

<TABLE>
<CAPTION>
Fiscal Years
--------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Weighted average common shares
outstanding during the year 5,344 5,389 5,389

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

Weighted average common shares and
common share equivalents 5,344 5,399 5,389
======== ======== ========

Net Income (Loss) $ (860) $ 3,704 $(19,380)
======== ======== ========

Earnings (Loss) per share $ (.16) $ .69 $ (3.60)
======== ======== ========

</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> <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 report, 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 30, 1997.

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> FEB-01-1997
<CASH> 16,051
<SECURITIES> 0
<RECEIVABLES> 7,962
<ALLOWANCES> 0
<INVENTORY> 110,036
<CURRENT-ASSETS> 141,583
<PP&E> 53,342
<DEPRECIATION> 27,963
<TOTAL-ASSETS> 176,897
<CURRENT-LIABILITIES> 84,515
<BONDS> 1,684
0
0
<COMMON> 56
<OTHER-SE> 84,399
<TOTAL-LIABILITY-AND-EQUITY> 176,897
<SALES> 287,737
<TOTAL-REVENUES> 288,744
<CGS> 233,847
<TOTAL-COSTS> 233,847
<OTHER-EXPENSES> 55,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,115
<INCOME-PRETAX> (1,438)
<INCOME-TAX> (578)
<INCOME-CONTINUING> (860)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (860)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)

</TABLE>