REX STORES CORP, 424B4, 1999-09-30

REX STORES CORP
424B4, 1999-09-30
RADIO, TV & CONSUMER ELECTRONICS STORES

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<PAGE>
PROSPECTUS

2,400,000 SHARES

[LOGO]

REX STORES CORPORATION
COMMON STOCK
$32.00 PER SHARE

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

REX Stores Corporation is selling 1,500,000 shares of its common stock and
the selling stockholders named in this prospectus are selling 900,000 shares.
REX will not receive any proceeds from the sale of the shares by the selling
stockholders. The underwriters named in this prospectus have the option to
purchase up to 360,000 additional shares of common stock from REX and the
selling stockholders, on a pro rata basis, to cover over-allotments.

Our common stock is listed on the New York Stock Exchange under the symbol
'RSC'. The last reported sale price of the common stock on the New York Stock
Exchange on September 29, 1999 was $32.8125 per share.

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE 'RISK FACTORS' BEGINNING
ON PAGE 7.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

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

<TABLE>
<CAPTION>
PER
SHARE TOTAL
------ ------------
<S> <C> <C>
Public Offering Price....................................... $32.00 $ 76,800,000
Underwriting Discount....................................... $ 1.98 $ 4,761,600
Proceeds to REX (before expenses)........................... $30.02 $ 45,024,000
Proceeds to the Selling Stockholders (before expenses)...... $30.02 $ 27,014,400
</TABLE>

The underwriters are offering the shares subject to various conditions. The
underwriters expect to deliver the shares to purchasers on or about October 5,
1999.

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

SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
GERARD KLAUER MATTISON & CO., INC.
ING BARINGS
MORGAN KEEGAN & COMPANY, INC.

September 29, 1999

<PAGE>
INSIDE FRONT COVER

Photograph of store exterior showing entrance and parking lot.

GATEFOLD

Photograph of store interior showing salesperson demonstrating camcorder.

Photograph of store interior showing customers viewing appliances.

Photograph of store interior showing televisions.

Photograph of store interior showing customers viewing big screen
televisions.

Photograph of store interior showing digital satellite systems.

[REX LOGO]

<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
DIFFERENT INFORMATION. WE ARE NOT MAKING AN OFFER OF THESE SECURITIES IN ANY
STATE WHERE THE OFFER IS NOT PERMITTED. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF THIS PROSPECTUS.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Use of Proceeds............................................. 12
Capitalization.............................................. 13
Selected Consolidated Financial Data........................ 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 15
Business.................................................... 23
Management.................................................. 32
Principal and Selling Stockholders.......................... 34
Description of Capital Stock................................ 36
Underwriting................................................ 37
Legal Matters............................................... 38
Experts..................................................... 38
Where You Can Find More Information......................... 39
Index to Consolidated Financial Statements.................. F-1
</TABLE>

FORWARD-LOOKING STATEMENTS

This prospectus and the documents incorporated by reference in this
prospectus contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. We use words such as 'may,' 'believe,' 'estimate,' 'plan,' 'expect,'
'intend,' 'anticipate' and similar expressions to identify forward-looking
statements. These forward-looking statements involve risks and uncertainties.
Factors that could cause our actual results to differ materially from those in
the forward-looking statements are described in the 'Risk Factors,'
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and 'Business' sections and elsewhere in this prospectus.

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus.
You should read the entire prospectus carefully, including the 'Risk Factors'
section and the consolidated financial statements and notes to those statements.

Please also note that, except as otherwise indicated:

in this prospectus, 'REX,' 'we,' 'our' and 'us' refer to REX Stores
Corporation and its subsidiaries;

all information in this prospectus assumes no exercise of the
underwriters' over-allotment option; and

all references in this prospectus to a particular fiscal year are to REX's
fiscal year ended January 31. For example, 'fiscal 1999' means the period
from February 1, 1998 to January 31, 1999.

OUR COMPANY

We are a leading specialty retailer in the consumer electronics/appliance
industry, serving over 200 small to medium-sized towns and communities. By
offering a broad selection of brand name products at guaranteed lowest prices,
we believe we have become a leading consumer electronics/appliance retailer in
our markets. Based on our 20 year operating history, we believe that these small
to medium-sized markets with populations ranging from 20,000 to 300,000 present
an opportunity to profitably operate and expand our store base. For our fiscal
year ended January 31, 1999, we reported sales, income from operations and net
income of $416.7 million, $20.2 million and $11.2 million, respectively. For the
first six months of fiscal 2000, we reported increases in sales, income from
operations, net income and comparable store sales of 14.6%, 43.3%, 138.1% and
13.1%, respectively, over the prior year's comparable period.

We operate 227 stores in 35 states under the trade name 'REX.' Currently,
149 of our stores are located in free-standing buildings, with the balance
situated in strip shopping centers and regional malls. Our stores have, on
average, approximately 7,600 square feet of selling space and approximately
3,300 square feet of storage. We design our stores to provide cost and space
efficiencies and an inviting and pleasant shopping environment for our
customers. All of our store employees, including our store managers, sell
products, unload trucks, stock merchandise and process sales, which helps
minimize employee count and overhead within each store. Most stores are staffed
with between three and six employees. Virtually all of our existing stores are
profitable on a store operating basis. In addition, a substantial majority of
our new stores are profitable on a store operating basis upon completion of
their first holiday selling season.

We carry a broad selection of brand name products within selected major
product categories, including big screen and standard-sized televisions, video
and audio equipment, camcorders and major household appliances. In particular,
we emphasize our television and video products, which together represented 53%
of our fiscal 1999 sales. We believe this emphasis positions us to benefit from
growing consumer demand for digital video products including DVD players,
digital camcorders and high definition television. We do not carry and do not
plan to carry computers, computer software or pre-recorded music. We sell
approximately 1,000 products produced by approximately 50 manufacturers, and
frequently purchase large quantities of products on an opportunistic basis at
favorable prices. We believe this buying strategy makes us a unique and
attractive customer for manufacturers seeking to sell canceled orders or excess
inventory and has enabled us to develop strong relationships with vendors. We
support our merchandising strategy with extensive newspaper advertising in each
of our local markets. In addition, we maintain a knowledgeable sales force
trained to sell all of our products with a strong emphasis on customer service.

<PAGE>
OUR INDUSTRY

Growth in the consumer electronics market has been driven by the
introduction of new products and technological advancements. Industry growth
accelerated during 1998, resulting from the introduction of products that
incorporate digital technology, including Digital Versatile Disc (DVD) players
and digital camcorders, both of which reached significant volume levels in 1998.
These are the most significant new product introductions since VCRs and CD
players. The most anticipated new products are digital and high definition
television sets and related converter boxes. In some cases, sales of new
products in smaller markets lag behind sales in larger metropolitan markets. For
example, DVD player sales in small markets were limited until DVD rentals became
readily available in those markets. Thus, we are only now beginning to benefit
from the introduction and demand for these products.

Digital products offer significant advantages over their analog
counterparts that include increased clarity and quality of video and audio,
durability of recordings and compatibility with computers. Due to these
advantages, we expect the digital revolution in the consumer electronics
industry to drive growth in the coming years as consumers replace their existing
analog based consumer electronics products with digital products.

OUR BUSINESS STRATEGY

Our objective is to be the leading consumer electronics/appliance retailer
in each of our markets. The key elements of our business strategy include:

FOCUSING ON SMALL MARKETS. We traditionally have concentrated our stores in
markets with populations of 20,000 to 300,000. We are currently focusing most of
our new store openings in markets with populations under 85,000. We have a
history of operating profitably in these markets, and we believe they are
underserved by our competitors.

MAINTAINING GUARANTEED LOWEST PRICES. We guarantee the lowest price on our
products through a policy of refunding 125% of the difference between our price
and a competitor's price on the same item.

OFFERING A BROAD SELECTION OF BRAND NAME PRODUCTS. We offer a broad
selection of brand name products within key product categories. We carry most
major brands of consumer electronics and appliances, having recently added Sony
and Maytag products.

CAPITALIZING ON OUR OPPORTUNISTIC BUYING. We frequently purchase large
quantities of products directly from manufacturers on an opportunistic basis at
favorable prices. We believe this buying strategy makes us a unique and
attractive customer for manufacturers seeking to sell canceled orders or excess
inventory and enables us to develop strong relationships and extended trade
credit support with vendors.

STRIVING TO BE THE LOW COST OPERATOR IN OUR MARKETS. Our current prototype
store is 12,000 square feet and provides us with cost and space efficiencies.
Our market selection criteria and operating philosophy allow us to minimize both
occupancy and labor costs.

LEVERAGING OUR STRONG OPERATIONAL CONTROLS. Our information systems and
point-of-sale computer systems, which are installed in every store, allow
management to monitor our merchandising programs, sales, employee productivity
and in-store inventory levels on a daily basis. We believe our current
information systems and distribution infrastructure can support 100 to 150 new
stores without significant additional capital expenditures.

OUR GROWTH STRATEGY

The key elements of our growth strategy include:

EXPANDING OUR STORE BASE. We have identified between 500 and 600 potential
markets that meet our site selection criteria. We plan to open 10 to 15 stores
in fiscal 2000. We plan to

<PAGE>
accelerate our store expansion program by opening approximately 30 to 35 new
stores in fiscal 2001 and approximately 35 to 40 new stores in fiscal 2002.

INCREASING OUR SAME STORE SALES. We plan to increase our same store sales
by:

implementing new merchandising initiatives, including the recent
introduction of Sony and Maytag products;

offering new products and product categories including DVD players,
digital camcorders, high definition television and cellular telephones and
subscriptions; and

increasing usage of local television and radio advertising to supplement
our newspaper advertising.

EXPANDING OUR E-COMMERCE INITIATIVE. We plan to profitably expand our
online retailing initiatives which include selling selected merchandise through
third-party auction sites, including Amazon.com Auctions, eBay and Yahoo! and on
our own Internet Web site at www.rexstores.com.

RISK FACTORS

We operate in a highly competitive industry. Our business strategy and
growth strategy are subject to risks which are described under 'Risk Factors.'
The following are among the risks which may adversely affect our future
financial performance:

significant competition from other retailers who have greater financial
resources;

inability to fully execute our new store expansion or profitably operate
new stores;

a decline in economic conditions; and

lack of new products or consumer acceptance of new products.

OUR COMPANY INFORMATION

Our principal offices are located at 2875 Needmore Road, Dayton, Ohio
45414. Our telephone number is (937) 276-3931.

THE OFFERING

<TABLE>
<S> <C>
Common stock offered by REX............................. 1,500,000 shares
Common stock offered by the selling stockholders........ 900,000 shares
---------
Total.............................................. 2,400,000 shares
---------
---------
Common stock to be outstanding after the offering....... 9,182,882 shares

Use of proceeds......................................... We intend to use the net proceeds from
this offering to repay a portion of
our long-term mortgage debt, to fund
new store expansion and for other
general corporate purposes.
Dividend policy......................................... We have not paid cash dividends in
prior years and we do not anticipate
paying any cash dividends in the
foreseeable future.
NYSE symbol............................................. RSC
</TABLE>

The number of shares of common stock to be outstanding excludes 2,677,017
shares issuable upon exercise of options outstanding as of September 29, 1999
with a weighted average exercise price of $12.62 per share, after deducting
3,855 shares to be sold in this offering which will be issued upon exercise of
options by a selling stockholder.

<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

The following table contains our summary consolidated financial data which
you should read together with our consolidated financial statements and related
notes, 'Management's Discussion and Analysis of Financial Condition and Results
of Operations' and other information included in or incorporated by reference in
this prospectus. The 'As Adjusted' numbers in the table below reflect:

the sale of the 1,500,000 shares of common stock offered by us at the
public offering price of $32.00 per share;

the receipt and use of the net proceeds as described under 'Use of
Proceeds;' and

the issuance of 3,855 shares of common stock upon exercise of stock
options by a selling stockholder.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................. $382,775 $442,217 $427,378 $411,005 $416,673 $180,410 $206,795
Cost of merchandise
sold.................... 286,073 327,636 317,767 297,757 302,894 130,384 149,483
-------- -------- -------- -------- -------- -------- --------
Gross profit.............. 96,702 114,581 109,611 113,248 113,779 50,026 57,312
Selling, general and
administrative
expenses................ 74,216 85,981 91,905 94,055 93,578 43,034 47,294
-------- -------- -------- -------- -------- -------- --------
Income from operations.... 22,486 28,600 17,706 19,193 20,201 6,992 10,018
Net income................ 12,596 14,573 7,362 7,412 11,195 2,598 6,185
Basic net income per
share................... $ 1.48 $ 1.62 $ 0.82 $ 0.94 $ 1.51 $ 0.34 $ 0.83
Diluted net income per
share................... $ 1.40 $ 1.56 $ 0.80 $ 0.91 $ 1.43 $ 0.32 $ 0.76
Weighted average number of
common shares
outstanding............. 8,528 8,970 8,948 7,919 7,427 7,670 7,480
Weighted average number of
common and common
equivalent shares
outstanding............. 9,014 9,365 9,219 8,178 7,833 8,034 8,122
SELECTED OPERATING DATA:
Number of stores open at
beginning of period..... 132 165 199 222 222 222 228
Stores opened............. 33 34 35 8 12 2 1
Stores closed............. 0 0 12 8 6 4 3
Number of stores open at
end of period........... 165 199 222 222 228 220 226
Comparable store sales.... 5.5% (5.4)% (17.5)% (10.5)% (0.1)% (0.2)% 13.1%
Capital expenditures...... $ 28,101 $ 23,080 $ 23,448 $ 8,015 $ 12,736 $ 4,175 $ 5,869
</TABLE>

<TABLE>
<CAPTION>
AS OF JULY 31, 1999
------------------------
ACTUAL AS ADJUSTED
------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 82,854 $100,487
Total assets................................................ 284,608 300,468
Long-term debt.............................................. 58,708 32,374
Shareholders' equity........................................ 116,517 160,482
</TABLE>

<PAGE>
RISK FACTORS

You should carefully consider the risk factors described below as well as
the other information in this prospectus before making an investment in our
common stock.

WE FACE SIGNIFICANT COMPETITION FROM OTHER RETAILERS MANY OF WHOM HAVE GREATER
FINANCIAL RESOURCES THAN US.

We face significant competition from a diverse group of retailers. Our
competitors include national and regional large format merchandisers and
superstores such as Best Buy Co., Inc. and Circuit City Stores, Inc., other
specialty electronics retailers including RadioShack, the retail operating
format of Tandy Corporation, department and discount stores such as Sears,
Roebuck and Co., Wal-Mart Stores, Inc. and Montgomery Ward Holding Corp.,
furniture stores, warehouse clubs and home improvement retailers. In addition,
we compete with small chains and specialty single-store operators in some
markets, as well as Sears' dealer-operated units. We also face additional
competition from Internet and store-based retailers who sell consumer
electronics and home appliance products online. Some of our competitors have
greater financial resources than us, which may increase their ability to
purchase inventory at a lower cost, better withstand economic downturns or
engage in aggressive price competition.

We expect competition within the consumer electronics/appliance retailing
industry to increase. National merchandisers are expanding their geographic
markets and entering markets traditionally served by us. In the event that
competitors enter markets we serve, we may experience pricing pressures, reduced
gross margins and declines in same store sales.

WE MAY BE UNABLE TO FULLY EXECUTE OUR NEW STORE EXPANSION PLAN AND CANNOT ASSURE
YOU THAT OUR NEWLY OPENED STORES WILL BE PROFITABLE.

Our success depends, in part, on our ability to open and operate new stores
profitably. Several factors could affect achievement of our planned store
expansion or could adversely impact new store sales and profitability. These
factors include:

identifying new geographic markets in which we can successfully compete;

identifying and acquiring or leasing suitable new store sites at an
acceptable cost;

obtaining governmental and other third-party consents, permits and
licenses needed to operate new stores;

securing favorable economic terms for newspaper, television and radio
advertising;

hiring, promoting and training qualified personnel, including new store
managers;

integrating new stores into our existing operations;

adapting our existing information systems and distribution infrastructure
to our growing number of stores; and

having adequate financial resources available to us.

Although we believe that we have the management, operational and
information systems, distribution infrastructure and other resources required to
implement our store expansion goals, we may not be able to execute our new store
expansion within the expected time frame, if at all. To meet our store expansion
goals over the next three years, we may need to expend significant effort and
additional managerial and financial resources to ensure the continuing adequacy
of our financial controls, operating procedures, information systems, product
purchasing and distribution systems and employee training programs.

<PAGE>
A DECLINE IN ECONOMIC CONDITIONS COULD LEAD TO REDUCED CONSUMER DEMAND FOR THE
PRODUCTS WE SELL.

Demand for consumer electronics and home appliance products is dependent
upon various economic factors outside of our control. These factors include:

general economic conditions;

consumer confidence;

consumer spending patterns and preferences; and

new housing starts.

A slowdown in the national or regional economies or an uncertain economic
outlook could adversely affect discretionary consumer spending habits and
negatively impact our sales and operating results.

IF NEW PRODUCTS ARE NOT INTRODUCED OR CONSUMERS DO NOT ACCEPT NEW PRODUCTS OUR
SALES MAY DECLINE.

We rely upon the periodic introduction of new products to help stimulate
consumer demand. The lack of new products could reduce consumer interest and
lower our sales.

In addition, many products which incorporate the newest technologies, such
as DVD players and high definition television, are subject to technological and
pricing limitations and may not achieve widespread or rapid consumer acceptance
in the markets we serve. If these new products do not meet with widespread or
rapid market acceptance, our results of operations may be impaired.

Furthermore, the introduction or expected introduction of new products may
depress sales of existing products and technologies.

IF WE DO NOT ADEQUATELY ANTICIPATE AND RESPOND TO CHANGING CONSUMER DEMAND AND
PREFERENCES OUR RESULTS OF OPERATIONS MAY BE IMPAIRED.

Our success depends, in part, on our ability to anticipate and respond in a
timely manner to changing consumer demand and preferences regarding consumer
electronics and home appliances. Our failure to adequately anticipate and
respond to these changes could have a material adverse effect on our business,
results of operations and financial condition either from lost sales or lower
margins due to the need to mark down excess inventory.

OUR OPPORTUNISTIC PRODUCT BUYING STRATEGY COULD NEGATIVELY IMPACT OUR SALES AND
GROSS MARGINS.

We frequently purchase large quantities of merchandise on an opportunistic
or when-available basis at favorable prices. Our inability to find suitable
opportunistic product buying opportunities could negatively impact our sales and
gross margins.

Products purchased on an opportunistic basis generally are held in
inventory longer than our other products. This can result in increased inventory
levels and lower inventory turnover, which increase our working capital
requirements and inventory carrying costs. Increased inventory levels and lower
turnover rates also increase the risk of inventory mark-downs.

THE LOSS OF TAX CREDITS RESULTING FROM OUR INVESTMENT IN SYNTHETIC FUEL LIMITED
PARTNERSHIPS COULD SIGNIFICANTLY INCREASE OUR EFFECTIVE TAX RATE AND REDUCE OUR
NET INCOME.

Our net income for fiscal 1999 and the first six months of fiscal 2000 was
positively impacted by our equity investment in two limited partnerships which
produce solid synthetic fuels from four facilities. As a result of our share of
the federal income tax credits earned by the partnerships under Section 29 of
the Internal Revenue Code, our effective tax rate for fiscal 1999 and the first
six months of fiscal 2000 was reduced to 26.3% and 25.0%, respectively, versus
39.5% for the

<PAGE>
comparable periods in the prior year. Loss of these tax credits could
significantly increase our effective tax rate and reduce our net income.

The limited partnerships earn tax credits based upon the tonnage and
content of solid synthetic fuel sold to unrelated parties. As production and
sales levels change, so will the amount of tax credits available to us. This
could result in fluctuations in our effective tax rate and net income.

THE LOSS OF THE SERVICES OF OUR CHIEF EXECUTIVE OFFICER, OUR PRESIDENT OR OUR
OTHER KEY EMPLOYEES COULD JEOPARDIZE OUR ABILITY TO MAINTAIN OUR COMPETITIVE
POSITION.

We believe that our success depends on the continued service of our key
executive management personnel. Loss of the services of Stuart Rose, our
Chairman and Chief Executive Officer, Lawrence Tomchin, our President and Chief
Operating Officer, or other key employees could jeopardize our ability to
maintain our competitive position in the industry. We have entered into
employment agreements with Mr. Rose and Mr. Tomchin which run through
December 31, 2002, but we do not have employment agreements with any other
members of our executive management team.

FLUCTUATIONS IN OUR COMPARABLE STORE SALES MAY CAUSE THE PRICE OF OUR COMMON
STOCK TO FLUCTUATE SUBSTANTIALLY.

A number of factors have historically affected and will continue to affect
our comparable store sales, including the following:

competition;

national and regional economic conditions;

consumer trends;

new product introductions;

weather conditions which can impact store traffic as well as sales of
seasonal products such as air conditioners;

changes in our product mix;

duration of the holiday selling season; and

timing of promotional events.

Comparable store sales are often followed closely by the investment
community and significant fluctuations in these results could cause the price of
our common stock to fluctuate substantially.

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SEASONALITY.

Our business is seasonal. Our net sales and net income historically have
been highest in our fourth fiscal quarter, which includes the Christmas selling
season. The fourth quarter accounted for approximately 35% of our net sales, 50%
of our income from operations and over 65% of our net income in fiscal 1998 and
1999. Our annual financial results would be adversely impacted if our sales were
to fall substantially below what we normally expect during this period.

WE DEPEND ON OUR SUPPLIERS FOR PRODUCTS AND OUR BUSINESS COULD BE ADVERSELY
AFFECTED IF WE DO NOT MAINTAIN RELATIONSHIPS WITH OUR KEY VENDORS.

Our success depends to a significant degree upon our suppliers of consumer
electronics and home appliance products. We do not have any long-term supply
agreements or exclusive arrangements with vendors. We typically order
merchandise by issuing individual purchase orders to vendors. We rely
significantly on a few suppliers. Our six largest suppliers accounted for
approximately 55% of our purchases during fiscal 1999. The loss of any of these
key vendors, our failure to establish and maintain relationships with our
vendors, or any prolonged disruptions in product supply, could have a material
adverse impact on our business.

<PAGE>
WE MAY INCUR HIGHER COSTS OR DECREASED SALES AND GROSS MARGINS BECAUSE WE
PURCHASE IMPORTED PRODUCTS.

A significant portion of our inventory is manufactured outside the United
States. Changes in trade regulations, currency fluctuations or other factors may
increase the cost of items manufactured outside the United States or create
shortages of those items. We purchase all of our products in U.S. dollars.
Significant reductions in the cost of such items in U.S. dollars may cause a
significant reduction in retail price levels of those products, which could
adversely effect our sales and gross margins.

OUR MANAGEMENT, INCLUDING OUR PRINCIPAL SHAREHOLDER, OWNS A SIGNIFICANT PORTION
OF OUR COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
AFFAIRS.

After this offering, Stuart Rose, our Chairman and Chief Executive Officer,
will own approximately 10.6% of our outstanding common stock and will hold
options to acquire an additional 1,317,513 shares. In addition, our directors
and executive officers as a group will own approximately 13.4% of our common
stock after this offering and will hold options to acquire an additional
2,023,505 shares. As a result of this share ownership, our management, and in
particular Mr. Rose, will be able to exert significant influence on corporate
action requiring shareholder approval, including the election of directors. This
share ownership could delay or prevent a change in control. It could also
prevent our shareholders from realizing a premium over the market price for
their common stock or effecting a change in management.

WE DO NOT ANTICIPATE PAYING CASH DIVIDENDS ON OUR COMMON STOCK IN THE
FORESEEABLE FUTURE.

We have not paid cash dividends on our common stock in prior years. We
currently intend to retain all of our earnings for use in our business and do
not anticipate paying any cash dividends in the foreseeable future. Our
revolving credit agreement limits and potentially prohibits the payment of
dividends. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources' for a description of
the revolving credit agreement.

SIGNIFICANT PROBLEMS RELATING TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS.

Certain software and hardware systems are time sensitive. Older
time-sensitive systems often use a two digit dating convention ('00' rather than
'2000') that could result in system failure and disruption of operations as the
year 2000 approaches. This is referred to as the Year 2000 issue. The Year 2000
issue will impact us, our suppliers, customers and other third parties that
transact business with us.

In the event that our Year 2000 remediation efforts and those of third
parties fail, we could experience the following:

we could experience significant volumes of product returns due to
widespread product failures;

we could lose communications links with some stores;

some stores could close due to loss of electric power;

store security systems may not operate; and

individual stores may be unable to process transactions or engage in
normal business activity.

Any large-scale national or regional failure, if not quickly remedied,
could have a material adverse effect on our business, results of operations and
financial condition.

We have contacted our significant suppliers to determine the Year 2000
functionality of their products and minimize any disruptions to our business.
However, we cannot assure you that our vendors will be Year 2000 compliant. Any
significant disruption in our supply of goods could have a material adverse
effect on our business, results of operations and financial condition.

<PAGE>
We believe our vendors are responsible for the Year 2000 functionality of
the products they supply to us for resale. However, if we are required to handle
product returns or repairs with respect to those failures on a large-scale
basis, it could have a material adverse effect on our business, results of
operations and financial condition.

THE SUBSTANTIAL NUMBER OF SHARES THAT ARE ELIGIBLE FOR PUBLIC SALE AFTER THIS
OFFERING MAY ADVERSELY AFFECT OUR STOCK PRICE.

After this offering, there will be 9,182,882 shares of our common stock
outstanding. Of these outstanding shares, all 2,400,000 shares sold in this
offering and 5,677,871 shares currently outstanding will be freely tradable
without restriction or registration under the Securities Act. The remaining
1,105,011 shares are currently eligible for public sale under Rule 144 of the
Securities Act.

As of September 29, 1999, 2,680,872 shares of common stock were issuable
pursuant to options granted under our stock option plans. Of these option
shares, 1,360,010 shares are currently exercisable. All shares issuable under
our stock option plans have been registered under the Securities Act.

Sales of substantial amounts of common stock in the public market,
including shares issued upon the exercise of stock options, or the perception
that such sales could occur, could adversely impact the market price for our
common stock.

The selling stockholders have agreed not to sell any shares for 270 days
after the date of this prospectus, without the prior written consent of Salomon
Smith Barney Inc. on behalf of the underwriters. We have agreed to a 90 day
lock-up period.

OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THIS OFFERING AND YOU COULD
LOSE A SIGNIFICANT PART OF YOUR INVESTMENT AS A RESULT.

The trading price of our common stock has been volatile and is likely to
continue to be volatile. Our stock price could be subject to wide fluctuations
in response to a variety of factors. The stock market has experienced
significant price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of particular companies. The
trading prices of many companies' stock, including our stock, are at or near
historical highs. These trading prices may not be sustained. Broad market
factors may have a material adverse effect on our stock price, regardless of our
actual operating performance. Investors may not be able to resell their REX
common stock at or above the public offering price due to the possible
volatility of our common stock after this offering.

<PAGE>
USE OF PROCEEDS

The net proceeds from the sale of the 1,500,000 shares of common stock
offered by us will be approximately $44.8 million, after deducting the
underwriting discount and estimated offering expenses payable by us. If the
underwriters exercise their over-allotment option in full, the net proceeds to
us will be approximately $51.6 million. We will not receive any of the net
proceeds from the sale of common stock by the selling stockholders, but we will
receive $40,000 from the exercise of options by a selling stockholder.

We currently intend to use approximately $28.5 million of the net proceeds
to repay a portion of our long-term mortgage debt, which includes approximately
$0.7 million of associated prepayment penalties. This mortgage debt bears
interest rates ranging from 8.6% to 10.0%, with maturities from May 1, 2001 to
February 1, 2012, and was incurred to purchase existing store locations. We may
change the amount of mortgage debt that we repay based on prevailing interest
rates at the time of the offering. The balance of the net proceeds will be used
to fund new store expansion and for other general corporate purposes, including
seasonal working capital and reducing outstanding borrowings under our revolving
credit agreement. The revolving credit agreement bears interest at prime or
LIBOR plus 1.875% and expires on July 31, 2000.

Pending such uses, other than the repayment of mortgage debt, we intend to
invest the net proceeds in short-term, investment grade, interest-bearing
securities.

<PAGE>
CAPITALIZATION

The following table sets forth the unaudited capitalization of REX at
July 31, 1999 on an actual basis, and as adjusted to give effect to the sale of
1,500,000 shares of common stock offered by us at the public offering price of
$32.00 per share, and after:

deducting the underwriting discount and estimated offering expenses
payable by us;

applying the net proceeds as described under 'Use of Proceeds;' and

recognizing an $880,000 net of tax extraordinary loss, consisting
primarily of the write-off of deferred loan acquisition costs and
prepayment penalties, associated with the repayment of long-term mortgage
debt.

<TABLE>
<CAPTION>
AS OF JULY 31, 1999
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt, including current portion of long-term
debt...................................................... $ 3,203 $ 1,723
-------- --------
-------- --------
Long-term debt, less current maturities..................... $ 58,708 $ 32,374
Shareholders' equity:
Common stock, $.01 par value; 45,000,000 shares
authorized; 7,650,477 shares issued and outstanding;
9,154,332 shares as adjusted.......................... 99 114
Paid-in capital........................................ 57,226 102,056
Retained earnings...................................... 81,555 80,675
Treasury stock, 2,284,269 shares....................... (22,363) (22,363)
-------- --------
Total shareholders' equity........................ 116,517 160,482
-------- --------
Total capitalization......................... $178,428 $194,579
-------- --------
-------- --------
</TABLE>

<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected historical financial and operating
data for the periods indicated. The Income Statement Data and Balance Sheet Data
for and as of each of the fiscal years ended January 31, 1995, 1996, 1997, 1998
and 1999 have been derived from our consolidated financial statements audited by
Arthur Andersen LLP, independent public accountants. The Selected Operating Data
for and as of the periods indicated were derived or computed from our business
and accounting records. The Income Statement Data and Balance Sheet Data for and
as of the six months ended July 31, 1998 and 1999 have been derived from our
unaudited consolidated financial statements. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and include, in the opinion of management, all
adjustments necessary for a fair presentation of the information presented. The
information below should be read together with 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' and our consolidated
financial statements and related notes contained elsewhere in this prospectus.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
---------------------------------------------------- ----------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND SELECTED OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......................................... $382,775 $442,217 $427,378 $411,005 $416,673 $180,410 $206,795
Cost of merchandise sold.......................... 286,073 327,636 317,767 297,757 302,894 130,384 149,483
-------- -------- -------- -------- -------- -------- --------
Gross profit...................................... 96,702 114,581 109,611 113,248 113,779 50,026 57,312
Selling, general and administrative expenses...... 74,216 85,981 91,905 94,055 93,578 43,034 47,294
-------- -------- -------- -------- -------- -------- --------
Income from operations............................ 22,486 28,600 17,706 19,193 20,201 6,992 10,018
Investment income................................. 229 182 85 202 347 223 190
Interest expense.................................. (1,899) (4,707) (5,624) (7,143) (6,448) (2,918) (2,756)
Gain on sale of real estate....................... -- -- -- -- 2,410 -- --
Income (equity in losses) from limited
partnerships.................................... -- -- -- -- (1,312) -- 796
-------- -------- -------- -------- -------- -------- --------
Income before provision for income taxes.......... 20,816 24,075 12,167 12,252 15,198 4,297 8,248
Provision for income taxes........................ 8,220 9,502 4,805 4,840 4,003 1,699 2,063
-------- -------- -------- -------- -------- -------- --------
Net income........................................ $ 12,596 $ 14,573 $ 7,362 $ 7,412 $ 11,195 $ 2,598 $ 6,185
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Basic net income per share........................ $ 1.48 $ 1.62 $ 0.82 $ 0.94 $ 1.51 $ 0.34 $ 0.83
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Diluted net income per share...................... $ 1.40 $ 1.56 $ 0.80 $ 0.91 $ 1.43 $ 0.32 $ 0.76
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
Weighted average number of common shares
outstanding..................................... 8,528 8,970 8,948 7,919 7,427 7,670 7,480
Weighted average number of common and common
equivalent shares outstanding................... 9,014 9,365 9,219 8,178 7,833 8,034 8,122

SELECTED OPERATING DATA:
Number of stores open at beginning of period...... 132 165 199 222 222 222 228
Stores opened..................................... 33 34 35 8 12 2 1
Stores closed..................................... 0 0 12 8 6 4 3
Number of stores open at end of period............ 165 199 222 222 228 220 226
Comparable store sales............................ 5.5% (5.4)% (17.5)% (10.5)% (0.1)% (0.2)% 13.1%
Capital expenditures.............................. $ 28,101 $ 23,080 $ 23,448 $ 8,015 $ 12,736 $ 4,175 $ 5,869
</TABLE>

<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF JULY 31,
---------------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $ 78,697 $ 80,016 $ 80,151 $ 77,250 $ 77,360 $ 72,422 $ 82,854
Total assets................................... 192,616 234,599 248,034 260,530 268,282 269,882 284,608
Long-term debt................................. 25,595 32,590 51,102 52,661 55,478 53,093 58,708
Shareholders' equity........................... 89,394 102,346 102,720 105,782 110,210 102,553 116,517
</TABLE>

<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

We are a leading specialty retailer in the consumer electronics/appliance
industry. Since acquiring our first four stores in 1980, we have expanded into a
national chain operating 227 stores in 35 states under the 'REX' trade name. By
offering a broad selection of brand name products at guaranteed lowest prices,
we believe we have become a leading consumer electronics/appliance retailer in
our markets. Based on our 20 year operating history, we believe that these small
to medium-sized markets with populations ranging from 20,000 to 300,000 present
an opportunity to profitably operate and expand our store base.

Our comparable store sales declined 17.5%, 10.5% and 0.1% in fiscal 1997,
1998 and 1999, respectively. Negative comparable store sales in fiscal 1997 and
1998 were primarily driven by increased competitor openings in our markets with
populations over 150,000, a lack of new product introductions within the
industry and our decision to discontinue selling personal computers in fiscal
1998. Comparable store sales increased 11.9% and 14.2% for the first two
quarters of fiscal 2000, respectively. The increases in comparable store sales
that have occurred in fiscal 2000 have been primarily driven by increased air
conditioner sales resulting from warm weather conditions, particularly in the
second quarter, and the increased usage of local television and radio
advertising in selected markets. We consider a store to be comparable after it
has been open six full fiscal quarters. Comparable store sales comparisons do
not include sales of extended service contracts.

During fiscal 1997, 1998 and 1999, we opened 35, 8 and 12 stores, and
closed 12, 8 and 6 stores, respectively. During fiscal 2000 we plan to open 10
to 15 stores. We are accelerating our planned store openings for fiscal 2001 and
2002, with 30 to 35 new store openings planned in fiscal 2001 and 35 to 40 in
fiscal 2002. In March 1998, we opened a third distribution center in Cheyenne,
Wyoming, that will allow us to further expand in the western part of the United
States. Future store openings are expected to occur in our existing geographical
markets and selected new states. We are currently focusing most of our new store
openings in markets with populations under 85,000, which generally are
underserved by our competitors.

EXTENDED SERVICE CONTRACTS

Our extended service contract revenues, net of sales commissions, are
deferred and amortized on a straight-line basis over the life of the contracts
after the expiration of applicable manufacturers' warranty periods. Terms of
coverage, including the manufacturers' warranty periods, are usually for periods
of 12 to 60 months. Extended service contract revenues represented 2.9%, 3.5%
and 3.7% of net sales for fiscal 1997, 1998 and 1999, respectively. Service
contract costs are charged to operations as incurred. Gross profit realized from
extended service contract revenues was $9.6 million, $11.0 million and $10.3
million in fiscal 1997, 1998 and 1999, respectively.

INVESTMENT IN LIMITED PARTNERSHIPS

In fiscal 1999, we invested $3.2 million in two limited partnerships which
own four facilities producing synthetic fuel from coal fines. The partnerships
earn federal income tax credits under Section 29 of the Internal Revenue Code
based on the tonnage and content of solid synthetic fuel sold to unrelated
parties. Our share of the credits generated may be used to reduce our federal
income tax liability down to the alternative minimum tax (AMT) rate. Unused
Section 29 credits convert to AMT credits and may be carried forward. Under
current law, credits under Section 29 are available for qualified fuels sold
before January 1, 2008.

We initially held a 30% interest in one partnership and an 18.75% interest
in the other. Effective February 1, 1999, we sold a portion of our interest in
one partnership, reducing our ownership percentage from 30% to 17%. We will
receive cash payments from the sale on a quarterly basis through 2007. These
payments are contingent upon and equal to 75% of the federal income tax credits
attributable to the 13% interest sold.

<PAGE>
We are a limited partner in each partnership. We have no managerial
responsibility or liability for future working capital contributions, although
our interest in each partnership could be diluted if we choose not to pay our
share of necessary capital improvements to the partnerships' facilities. We
account for our ownership interest in the partnerships under the equity method.

The limited partnerships have applied to the IRS for private letter rulings
that the synthetic fuel produced by their facilities and sold to unrelated
parties qualifies for the tax credits under Section 29 of the Internal Revenue
Code. The IRS recently ruled favorably on the request of the partnership which
owns one of the four facilities. The ruling request with respect to the
partnership owning the other three facilities was made more recently and is
still pending. The facts of the pending request are substantially identical to
the facts in the ruling favorably issued. Accordingly, we anticipate that a
favorable ruling will be issued with respect to the other three facilities,
although we cannot be certain the IRS will issue a favorable ruling.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to net sales:

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED ENDED
JANUARY 31, JULY 31,
--------------------------- ----------------
1997 1998 1999 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold.................. 74.4 72.4 72.7 72.3 72.3
----- ----- ----- ----- -----
Gross profit......................... 25.6 27.6 27.3 27.7 27.7
Selling, general and administrative
expenses................................ 21.5 22.9 22.4 23.8 22.9
----- ----- ----- ----- -----
Income from operations............... 4.1 4.7 4.9 3.9 4.8
Interest, net............................. (1.3) (1.7) (1.5) (1.5) (1.2)
Gain on sale of real estate............... -- -- 0.6 -- --
Income (equity in losses) from limited
partnerships............................ -- -- (0.3) -- 0.4
----- ----- ----- ----- -----
Income before provision for income
taxes.............................. 2.8 3.0 3.7 2.4 4.0
Provision for income taxes................ 1.1 1.2 1.0 1.0 1.0
----- ----- ----- ----- -----
Net income........................... 1.7% 1.8% 2.7% 1.4% 3.0%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>

COMPARISON OF SIX MONTHS ENDED JULY 31, 1999 AND 1998

NET SALES. Net sales for the first half of fiscal 2000 were $206.8 million
compared to $180.4 million for the first half of fiscal 1999, representing an
increase of $26.4 million or 14.6%. This increase is primarily the result of an
increase of 13.1% in comparable store sales for the first half of fiscal 2000.
As of July 31, 1999, we had 226 stores compared to 220 stores one year earlier.
There was one store opened and three closed in the first half of fiscal 2000. In
the prior year's first half there were two stores opened and four closed.

Comparable store sales increased by 13.1% in the first half of fiscal 2000.
All major product categories made positive contributions to comparable store
sales. The appliance category impacted comparable store sales by 7.2%, led by
strong air conditioner sales. This strong performance was due to warm weather
throughout our markets in the second quarter, particularly in the Midwest and
Northeast. Televisions impacted comparable store sales by 3.0%, primarily due to
the strength of the big screen TV product lines. In addition, the audio and
video categories impacted comparable store sales by 1.9% and 1.0%, respectively.

GROSS PROFIT. Gross profit in the first half of fiscal 2000 was $57.3
million, or 27.7% of net sales, a 14.6% increase from $50.0 million, or 27.7% of
net sales, for the first half of fiscal 1999.

<PAGE>
Gross profit as a percent of sales for the first half of fiscal 2000 was
positively impacted by higher margins generated by air conditioner sales and
improved margins in the television, video and other appliance categories
primarily due to better merchandise buying opportunities. For the first six
months of fiscal 2000, gross profit realized from sales of extended service
contracts was $5.4 million compared to $5.6 million for the first six months of
fiscal 1999. Sales of extended service contracts generally have a higher gross
profit margin in comparison to other product categories and the decline in the
amount recognized, as well as its percentage of total gross profit, served to
offset the improvements as a percent of sales in other product categories on a
year to date basis in fiscal 2000.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the first half of fiscal 2000 were $47.3 million, or
22.9% of net sales, a 9.9% increase from $43.0 million, or 23.8% of net sales,
for the first half of fiscal 1999. The increase in expenses for the first half
of fiscal 2000 is primarily the result of increased incentive commissions and
other selling costs associated with the increased sales levels. The reduction in
selling, general and administrative expenses as a percent of net sales is
primarily the result of the leveraging of store operating costs, such as
advertising and occupancy expenses, on an increase in comparable store sales of
13.1% for the first half of fiscal 2000.

INCOME FROM OPERATIONS. Income from operations was $10.0 million, or 4.8%
of net sales, for the first half of fiscal 2000, a 43.3% increase from the $7.0
million, or 3.9% of net sales, for the first half of fiscal 1999. The increase
was primarily due to increased comparable store sales and the leveraging of
store operating costs, such as advertising and occupancy expenses.

INTEREST EXPENSE. Interest expense for the first half of fiscal 2000
decreased to $2.8 million, or 1.3% of net sales, from $2.9 million, or 1.5% of
net sales, for the first half of fiscal 1999. The decrease in interest expense
was a result of lower borrowings under the line of credit for the first half of
fiscal 2000.

INCOME FROM LIMITED PARTNERSHIPS. Results of the first half of fiscal 2000
also reflect the impact of our equity investment in two synthetic fuel limited
partnerships. We reported income from the limited partnerships of $796,000 for
the first half of fiscal 2000, which consisted of $1,853,000 of income generated
by the sale of a portion of the interest in one of the partnerships, partially
offset by a charge of $1,057,000 to reflect our equity share of the
partnerships' losses.

INCOME TAXES. Our effective tax rate was reduced to 25.0% for the first
half of fiscal 2000 from 39.5% for the first half of fiscal 1999 as a result of
our share of federal income tax credits earned by the limited partnerships.

NET INCOME. As a result of the foregoing, net income for the first half of
fiscal 2000 was $6.2 million, a 138.1% increase from $2.6 million for the first
half of fiscal 1999.

COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1999 AND 1998

NET SALES. Net sales in fiscal 1999 were $416.7 million, a 1.4% increase
from the $411.0 million achieved in fiscal 1998. This increase was caused by the
addition of 12 stores opened in fiscal 1999 and the first full year of sales for
eight stores opened in the previous fiscal year. During fiscal 1999, we opened
12 stores and closed six, while during fiscal 1998 we opened eight stores and
closed eight. We had 228 and 222 stores open at January 31, 1999 and 1998,
respectively.

Comparable store sales declined by 0.1% in fiscal 1999. Comparable store
sales were positively impacted by approximately 1.4% and 1.3% by the audio and
appliance categories, respectively, as well as approximately 1.0% by ready to
assemble (RTA) furniture. The increase in sales of appliances and RTA furniture
was a result of expanded offerings in both categories.

Comparable store sales were negatively impacted by approximately 0.1% and
2.7% by the television and video products categories, respectively, and by
approximately 1.0% by our decision to discontinue selling personal computers
during fiscal 1998. Television and video products were negatively impacted by a
continued decline in average selling prices. There was also a general softness
in demand for video products due to the pending transition to digital products.
There will

<PAGE>
not be a continuing effect in fiscal 2000 on comparable store sales from
personal computers as we sold a limited number of personal computers in fiscal
1999.

GROSS PROFIT. Gross profit was $113.8 million in fiscal 1999, or 27.3% of
net sales, versus $113.2 million, or 27.6% of net sales, recorded the prior
year. The reduced gross profit margin was primarily the result of the changes in
merchandise sales mix discussed above and the continued decline in the average
selling prices of television and video products.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1999 were $93.6 million, or 22.4% of net
sales, a 0.5% decline from $94.1 million, or 22.9% of net sales, in fiscal 1998.
The decrease in expenses was primarily due to lower advertising expenditures in
certain markets of approximately $2.3 million, partially offset by an increase
in compensation expense of approximately $1.2 million resulting from increased
total sales and profits.

INCOME FROM OPERATIONS. Income from operations was $20.2 million, or 4.9%
of net sales, in fiscal 1999, a 5.2% increase from $19.2 million, or 4.7% of net
sales, for fiscal 1998. The increase was primarily due to increased total sales
and controls over advertising expenditures.

INTEREST EXPENSE. Interest expense decreased to $6.4 million in fiscal 1999
from $7.1 million in fiscal 1998. The decrease in interest expense was primarily
attributable to lower borrowings under the line of credit. Average outstanding
borrowings under the line of credit were approximately $15.8 million in fiscal
1999 versus approximately $22.2 million in fiscal 1998.

GAIN ON SALE OF REAL ESTATE. During fiscal 1999, we sold two shopping
centers in which we had previously operated retail stores. We recorded a gain of
approximately $2.4 million from the sale of this real estate.

LOSSES FROM LIMITED PARTNERSHIPS. Results for the fiscal year ended January
31, 1999 also reflect the impact of our investment in the two synthetic fuel
limited partnerships. We recorded a pre-tax charge of approximately $1.3 million
to record our share of the partnerships' operating losses, lowering our total
investment in the partnerships to $1.8 million.

INCOME TAXES. Our effective tax rate was reduced to 26.3% in fiscal 1999
from 39.5% in fiscal 1998 as a result of our share of federal tax credits earned
by the limited partnerships.

NET INCOME. As a result of the foregoing, net income was $11.2 and $7.4
million for fiscal 1999 and 1998, respectively.

COMPARISON OF FISCAL YEARS ENDED JANUARY 31, 1998 AND 1997

NET SALES. Net sales in fiscal 1998 were $411.0 million, a 3.8% decrease
from the $427.4 million achieved in fiscal 1997. This decrease was caused by a
decline of 10.5% in comparable store sales, partially offset by the first full
year of sales for 35 stores opened in the previous fiscal year. During fiscal
1998, we opened eight stores and closed eight, while during fiscal 1997 we
opened 35 stores and closed 12. We had 222 stores open at both January 31, 1998
and 1997.

Comparable store sales declined by 10.5% in fiscal 1998. Comparable store
sales were negatively impacted by a general weakness in the video, audio and
television categories, partly due to the approaching transition to digital
technology, a decline in average selling prices and increased competition.
Comparable store sales were also negatively impacted by our decision to
discontinue selling personal computers. The decision to discontinue selling
personal computers continued to negatively impact comparable store sales in
fiscal 1999.

GROSS PROFIT. Gross profit was $113.2 million in fiscal 1998, or 27.6% of
net sales, versus $109.6 million, or 25.6% of net sales, recorded in the prior
year. The improved gross profit margin was primarily the result of lower
merchandise cost on certain products due to opportunistic purchasing and the
recognition of a higher amount of extended service contract revenues, which
generally have a higher gross profit margin.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for fiscal 1998 were $94.1 million, or 22.9% of net
sales, a 2.4% increase over the $91.9 million, or 21.5% of net sales, in fiscal
1997. The increase in expenses was primarily due to an increase in

<PAGE>
incentive commissions for sales personnel of approximately $2.6 million.
Incentive commissions rates were increased in fiscal 1998. Selling, general and
administrative expenses as a percent of net sales also increased due to the
decline in comparable store sales.

INCOME FROM OPERATIONS. Income from operations was $19.2 million, or 4.7%
of net sales, in fiscal 1998, an 8.5% increase from the $17.7 million, or 4.1%
of net sales, for fiscal 1997. The increase was primarily due to the improved
gross profit margin.

INTEREST EXPENSE. Interest expense increased to $7.1 million in fiscal 1998
from $5.6 million in fiscal 1997. The increase in interest expense was primarily
attributable to additional mortgage debt outstanding for the full fiscal year on
stores opened in fiscal 1997. Average outstanding mortgage debt was
approximately $55.1 million in fiscal 1998 compared to $40.8 million in fiscal
1997.

INCOME TAXES. Our effective tax rate was 39.5% for fiscal 1998 and 1997.

NET INCOME. As a result of the foregoing, net income was $7.4 million in
fiscal 1998 and 1997.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of financing have been cash flow provided by
operations, supplemented by mortgages on owned properties. We also use
borrowings under our revolving line of credit to fund our seasonal working
capital needs.

OPERATING ACTIVITIES. Net cash used in operating activities was
$0.6 million for the first six months of fiscal 2000, compared to $13.4 million
for the first six months of fiscal 1999. For the first six months of fiscal
2000, operating cash flow was provided by net income of $6.2 million adjusted
for the net impact of non-cash items of $2.1 million, which consist of deferred
income, depreciation and amortization and our equity interest in the losses of
the synthetic fuel limited partnerships. Cash was also provided by an increase
in accounts payable of $4.2 million, primarily due to an increase in inventory
and extended payment terms from certain vendors, and an increase in other
liabilities of $3.6 million, primarily due to the timing of payment for wages
and taxes. The primary use of cash was an increase in inventory of $17.4 million
primarily due to the seasonal timing of inventory purchases.

Net cash provided by operating activities was $10.2 million for fiscal
1999. For fiscal 1999, operating cash flow was provided by net income of $11.2
million adjusted for the net impact of non-cash items of $1.0 million, which
primarily consisted of depreciation, the gain on sale of real estate and our
equity interest in the losses of the synthetic fuel limited partnerships. Cash
was also provided by an increase in accounts payable of $2.8 million, primarily
due to extended payment terms and the timing of payments to vendors. Cash was
used by an increase in inventory of $5.5 million generally due to the timing of
purchases.

INVESTING ACTIVITIES. Capital expenditures in the first six months of
fiscal 2000 totaled $5.9 million and primarily relate to the acquisition of
store sites and other construction expenditures associated with planned fiscal
2000 new store openings and the purchase of a previously leased store.

Capital expenditures in fiscal 1999 totaled $12.7 million. Expenditures
included approximately $7.9 million to open 12 stores, approximately $2.1
million to relocate two stores and approximately $2.1 million to purchase three
previously leased stores. In fiscal 1999, we also invested $3.2 million in the
synthetic fuel limited partnerships.

We plan to open 10 to 15 stores in fiscal 2000. Total capital expenditures
for fiscal 2000 are expected to be approximately $14.0 million. We plan to open
30 to 35 new stores in fiscal 2001, with anticipated capital expenditures of
$25.0 to $30.0 million.

FINANCING ACTIVITIES. Cash provided by financing activities totaled $3.4
million for the first six months of fiscal 2000. We received proceeds of $3.3
million from the exercise of stock options by employees. During the first six
months of fiscal 2000, we also purchased 209,000 shares of our common stock for
$3.2 million. During fiscal 1999, we purchased 632,000 shares of our common
stock for $7.5 million. We are currently authorized by our board of directors to
purchase an additional 255,700 shares of common stock. All shares purchased will
be held in treasury for possible future use.

<PAGE>
We have a revolving credit agreement with seven banks through July 31,
2000, with interest at prime or LIBOR plus 1.875%. Amounts available for
borrowing are equal to the lesser of (1) $100 million for the months of January
through June and $150 million for the months of July through December or (2) the
sum of specified percentages of eligible accounts receivable and eligible
inventories, as defined. Amounts available for borrowing are reduced by any
letter of credit commitments outstanding. Borrowings on the revolving credit
agreement are secured by a lien on substantially all of our assets, including
the capital stock of our subsidiaries.

At July 31, 1999, no borrowings were outstanding on the revolving credit
agreement. A total of approximately $94.9 million was available at July 31,
1999. Borrowing levels vary during the course of a year based on our seasonal
working capital needs. The maximum direct borrowings outstanding during fiscal
1999 were approximately $41.9 million, immediately prior to the Christmas
selling season due to the build-up of seasonal inventory requirements. The
weighted average interest rate was 9.6%, including commitment fees, for fiscal
1999. The revolving credit agreement contains restrictive covenants which
require us to maintain specified levels of consolidated tangible net worth and
limit capital expenditures and the incurrence of additional indebtedness. The
revolving credit agreement also places restrictions on common stock repurchases
and the payment of dividends.

At July 31, 1999, we had approximately $61.9 million of mortgage debt
outstanding, including $5.3 million obtained in the first half of fiscal 2000
and $7.0 million obtained in fiscal 1999 from mortgaging 16 properties at a
weighted average interest rate of 8.6%, with maturities from 2000 to 2014.

We currently intend to use approximately $28.5 million of the net proceeds
from this offering to repay a portion of our long-term mortgage debt, which
includes approximately $0.7 million of associated prepayment penalties. This
mortgage debt bears interest rates ranging from 8.6% to 10.0%, with maturities
from May 1, 2001 to February 1, 2012. In connection with the repayment of this
debt, we expect to incur an extraordinary loss of approximately $880,000 in our
third quarter ending October 31, 1999. The extraordinary loss will consist
primarily of the write-off of the associated deferred loan acquisition costs and
prepayment penalties, net of income tax benefits of approximately $290,000. We
may change the amount of mortgage debt that we repay based on prevailing
interest rates at the time of the offering.

WORKING CAPITAL. At July 31, 1999, working capital was $82.9 million
compared to $77.4 million at January 31, 1999. The ratio of current assets to
current liabilities was 1.9 to 1 at July 31, 1999 and at January 31, 1999.

We believe the net proceeds from this offering, existing working capital,
cash generated from operations and funds available under our revolving line of
credit will be sufficient to fund our operations and planned expansion through
fiscal 2001.

SEASONALITY AND QUARTERLY FLUCTUATIONS

Our business is seasonal. As is the case with many other retailers, our net
sales and net income are greatest in our fourth fiscal quarter, which includes
the Christmas selling season. The fourth fiscal quarter accounted for 35.2% and
34.5% of net sales, 50.4% and 49.8% of income from operations, and 65.7% and
70.3% of net income in fiscal 1998 and 1999, respectively. Year-to-year
comparisons of quarterly results of operations and comparable store sales can be
affected by a variety of factors, including the duration of the holiday selling
season, weather conditions and the timing of new store openings.

The following table provides certain unaudited financial information for
REX for each of the quarters shown.

<PAGE>

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
------------------------------------------------------------------------------------
APRIL 30 JULY 31 OCTOBER 31 JANUARY 31
---------------- ----------------- ---------------- -----------------
% OF % OF % OF % OF
$000S ANNUAL $000S ANNUAL $000S ANNUAL $000S ANNUAL
----- ------ ----- ------ ----- ------ ----- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FISCAL 1998
Net sales........ $88,265 21.5% $ 89,899 21.9% $87,967 21.4% $144,874 35.2%
Income from
operations..... 2,822 14.7 4,188 21.8 2,519 13.1 9,664 50.4
Net income....... 797 10.8 1,359 18.3 383 5.2 4,873 65.7

FISCAL 1999
Net sales........ $87,964 21.1% $ 92,446 22.2% $92,634 22.2% $143,629 34.5%
Income from
operations..... 2,766 13.7 4,226 20.9 3,156 15.6 10,053 49.8
Net income....... 1,019 9.1 1,579 14.1 732 6.5 7,865 70.3

FISCAL 2000
Net sales........ $99,056 -- $107,739 -- -- -- -- --
Income from
operations..... 3,658 -- 6,360 -- -- -- -- --
Net income....... 2,087 -- 4,098 -- -- -- -- --
</TABLE>

IMPACT OF INFLATION

The impact of inflation has not been material to our results of operations
for the past three fiscal years.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, 'Accounting for
Derivative Instruments and Hedging Activities,' which requires companies to
recognize all derivative contracts at their fair values, as either assets or
liabilities on the balance sheet. Changes in the fair value of derivatives are
recorded in current earnings or other comprehensive income. In June 1999, the
FASB issued Statement No. 137, which amended SFAS No. 133 to defer the effective
date of adoption to fiscal quarters beginning after June 15, 2000. We do not
expect the adoption of SFAS No. 133 to have a material impact on the
consolidated financial statements because we do not currently hold any
derivative instruments. We do not intend to adopt SFAS No. 133 prior to its
effective date.

YEAR 2000

The statements in this section include 'Year 2000 readiness disclosure'
within the meaning of the Year 2000 Information and Readiness Disclosure Act.

We have a staff of internal resources to address Year 2000 issues. This
team believes that it has identified substantially all hardware and software
systems within REX which may be susceptible to Year 2000 issues. Projects have
been established to address all significant Year 2000 issues. The Year 2000 team
reports regularly to senior management on the progress of significant Year 2000
projects.

Most Year 2000 activities are to test hardware and software systems,
including infrastructure systems such as telephones and store security systems.
We determined that we needed to modify some of our software. We believe all
hardware systems are Year 2000 compliant. We believe we have completed
reprogramming and testing all of our critical systems impacted by Year 2000

<PAGE>
issues. We are currently working with outside vendors on the compliance status
of telephones and store security systems.

We have initiated communications with our significant suppliers and other
third parties that transact business with us to identify and minimize
disruptions to our operations and to assist in resolving Year 2000 issues.
Information provided by our 15 largest suppliers states that they believe their
products are Year 2000 compliant. Most of the companies operating our store
security systems believe their systems are either Year 2000 compliant or are not
date dependent. However, there can be no certainty that the impacted systems and
products of other parties on which we rely will be Year 2000 compliant.

We generally believe that our suppliers are responsible for the Year 2000
functionality of the products they supply to us for resale. However, should
product failures occur, we may be required to address the administrative aspects
of those failures, such as handling product returns or repairs.

The estimated costs for resolving Year 2000 issues are approximately
$175,000. Most of these costs are internal labor related to reprogramming
existing software. Estimates of Year 2000 costs are based on numerous
assumptions and actual costs could be greater than estimates. Specific factors
that might cause such differences include, but are not limited to, the
continuing availability of personnel trained in this area and the ability to
timely identify and correct all relevant software and hardware systems.

While we believe we are diligently addressing the Year 2000 issues to
ensure Year 2000 readiness, there can be no absolute assurance that the
objective will be achieved either internally or as it relates to third parties.
At this time, we believe the most reasonably likely worst case scenario is that:

we could experience significant volumes of product returns due to
widespread product failures;

we could lose communications links with some stores;

some stores could close due to loss of electric power;

store security systems may not operate; and

individual stores may be unable to process transactions or engage in
normal business activity.

Our contingency plans include conducting store operations on a manual
basis, working to assess and correct system errors and possibly changing
suppliers.

<PAGE>
BUSINESS

We are a leading specialty retailer in the consumer electronics/appliance
industry, serving over 200 small to medium-sized towns and communities. Since
1980, when our first four stores were acquired, we have expanded into a national
chain operating 227 stores in 35 states under the 'REX' trade name. Our stores
average approximately 10,900 square feet and offer a broad selection of brand
name products within selected major product categories, including big screen and
standard-sized televisions, video and audio equipment, camcorders and major
household appliances.

INDUSTRY OVERVIEW

The consumer electronics/appliance industry, defined to include
televisions, video and audio equipment, camcorders and home appliances, is large
and highly fragmented. The industry consists of large, national chains selling a
broad range of goods, small specialty single-store operators, consumer
electronics departments of selected department and discount stores and home
improvement centers.

CONTINUED PENETRATION OF DVD

The Consumer Electronics Manufacturing Association reports that the number
of DVD players in U.S. homes as of the end of 1998 was approximately 1.4 million
units, and now estimates that approximately 3.5 million units will be installed
by year-end 1999. This far exceeds the sales penetration achieved by VCRs when
they were first introduced.

INCREASED ACCEPTANCE AND AFFORDABILITY OF DIGITAL CAMCORDERS

Camcorders represent another category in which there has been strong,
accelerating demand for the digital alternative. The advantages of digital
camcorders compared to analog versions include dramatically higher resolution,
clearer sound and increased recording time per tape. In addition, digital
camcorders can be hooked up to a computer allowing for editing of home videos or
still images and, unlike analog recordings, copies made from digital copies
experience no deterioration in sound or picture quality. While digital
camcorders represent less than 10% of the U.S. market, we believe this will grow
as the units become more affordable.

EMERGENCE OF DIGITAL AND HIGH DEFINITION TELEVISION (HDTV)

The Federal Communications Commission has set a target of 2006 for all
commercial television stations to transition from broadcasting analog signals to
digital signals. Digital television allows broadcasters to send much more
information over the same bandwith used for traditional analog television. As a
result, digital signals allow stations to broadcast sharper pictures and higher

<PAGE>
quality sound, referred to as high definition television (HDTV), or to use the
digital transmission for sending up to four programs in standard definition
simultaneously, referred to as multicasting. Most stations plan to use digital
signals for some combination of multicasting and HDTV broadcasting. According to
the FCC's schedule, all commercial stations will be required to broadcast
digital signals by 2002. Most stations plan to broadcast digital and analog
simultaneously until 2006. In order to receive digital transmissions, consumers
will need either a digital-ready television or a set-top box converter capable
of converting the digital broadcast for viewing on an analog set.

PROLIFERATION OF HOME SATELLITE SYSTEMS

Home satellite systems offered by Hughes DirecTV and Echostar are now in
approximately 9.4 million homes, according to industry publication TWICE. We
expect increased penetration of these home satellite systems in the U.S. We also
expect the demand for these home satellite systems to be particularly strong in
our markets, which tend to be underserved by cable.

NEW APPLIANCE INNOVATIONS

The home appliance market is large and concentrated among a few major
suppliers including Whirlpool, General Electric and Maytag. Demand is driven by
a variety of factors including consumer confidence, household formations and new
product introductions. Product design and innovation is rapidly becoming a key
driver of growth in this sector. Products either recently introduced or
scheduled to be offered include high speed ovens, custom refrigerators,
appliances with stainless steel exteriors, a personal garment dry cleaning
appliance and energy-efficient appliances. Since we carry products of the three
largest manufacturers, we expect to benefit from the introduction of these new
products.

BUSINESS STRATEGY

Our objective is to be the leading consumer electronics/appliance retailer
in each of our markets. The key elements of our business strategy include:

FOCUSING ON SMALL MARKETS

We traditionally have concentrated our stores in markets with populations
of 20,000 to 300,000. We are currently focusing most of our new store openings
in markets with populations under 85,000, which generally are underserved by our
competitors. We believe that our low-overhead store format and our ability to
operate in free-standing as well as strip shopping centers and regional mall
locations makes us well suited to these small markets.

MAINTAINING GUARANTEED LOWEST PRICES

We actively monitor prices at competing stores and adjust our prices as
necessary to meet or beat the competition. We guarantee the lowest price on our
products through a policy of refunding 125% of the difference between our price
and a competitor's price on the same item.

OFFERING A BROAD SELECTION OF BRAND NAME PRODUCTS

We offer a broad selection of brand name products within key product
categories. We carry most major brands of consumer electronics and appliances,
having recently added Sony and Maytag products. We offer merchandise in each of
our product categories at a range of price points and generally maintain
sufficient product stock for immediate delivery to customers.

CAPITALIZING ON OUR OPPORTUNISTIC BUYING

We frequently purchase large quantities of products directly from
manufacturers on an opportunistic basis at favorable prices. We believe this
buying strategy makes us a unique and

<PAGE>
attractive customer for manufacturers seeking to sell canceled orders and excess
inventory and enables us to develop strong relationships and extended trade
credit support with vendors.

STRIVING TO BE THE LOW COST OPERATOR IN OUR MARKETS

Our current prototype store is approximately 12,000 square feet and
provides us with cost and space efficiencies. Our market selection criteria and
operating philosophy allow us to minimize both occupancy and labor costs. All of
our store employees, including our store managers, sell products, unload trucks,
stock merchandise and process sales, which helps minimize employee count and
overhead within each store. Most stores are staffed with between three and six
employees.

LEVERAGING OUR STRONG OPERATIONAL CONTROLS

Our information systems and point-of-sale computer systems, which are
installed in every store, allow management to monitor our merchandising
programs, sales, employee productivity and in-store inventory levels on a daily
basis. Our operational controls provide us with cost efficiencies which reduce
overhead while allowing us to maintain high levels of in-stock merchandise. Our
three distribution centers, strategically located in Dayton, Ohio, Pensacola,
Florida and Cheyenne, Wyoming, reduce inventory requirements at individual
stores and facilitate centralized inventory and accounting controls. We believe
our current information systems and distribution infrastructure can support 100
to 150 new stores without significant additional capital expenditures.

GROWTH STRATEGY

The key elements of our growth strategy include:

EXPANDING OUR STORE BASE

We have identified between 500 and 600 potential markets that meet our site
selection criteria. We plan to open 10 to 15 stores in fiscal 2000. We plan to
accelerate our store expansion program by opening approximately 30 to 35 new
stores in fiscal 2001 and approximately 35 to 40 new stores in fiscal 2002.
Since February 1, 1999, we have opened two new stores, have completed the
purchase of 13 new store locations, have entered into agreements to purchase six
new store locations, have leased one new store site, and have under
consideration approximately 40 additional sites. We open the majority of our
stores in our third and fourth fiscal quarters in time for the holiday selling
season, and a substantial majority of our new stores are profitable on a store
operating basis upon completion of their first holiday selling season.

INCREASING OUR SAME STORE SALES

We plan to increase our same store sales by:

implementing new merchandising initiatives, including the recent
introduction of Sony and Maytag products;

offering new products and product categories including DVD players,
digital camcorders, high definition television and cellular telephones and
subscriptions; and

increasing usage of local television and radio advertising to supplement
our newspaper advertising.

EXPANDING OUR E-COMMERCE INITIATIVE

We plan to profitably expand our online retailing initiatives which include
selling selected merchandise through third-party auction sites, including
Amazon.com Auctions, eBay and Yahoo! and on our own Internet Web site at
www.rexstores.com. By utilizing third-party auction sites, we are able to
capitalize on their infrastructure, brand awareness and customer traffic. We
plan to

<PAGE>
seek other third-party auction sites. We also plan to expand our online product
offerings, explore increased e-commerce advertising and improve the
functionality of our Web site.

STORE OPERATIONS

STORES. We locate our stores in the general vicinity of major retail
shopping districts and design our stores to generate their own traffic.
Currently, 149 stores are located in free-standing buildings, with the balance
situated in strip shopping centers and regional malls. Stores located in malls
have exterior access and signage rights.

Our stores are designed with minimal interior fixtures to provide an open
feeling and a view of all product categories upon entering the store. The stores
are generally equipped with neon signage above each product category to further
direct the customer to particular products. We believe the interior layout of
our stores provides an inviting and pleasant shopping environment for the
customer.

Our existing stores average approximately 10,900 square feet, including
approximately 7,600 square feet of selling space and approximately 3,300 square
feet of storage. New stores are planned to be approximately 12,000 square feet.
Stores are open seven days and six nights per week, except for certain holidays.
Hours of operation are 10:00 a.m. to 9:00 p.m. Monday through Saturday and
12:00 p.m. to 6:00 p.m., or 1:00 p.m. to 5:00 p.m. in some states, on Sunday.

Our operations are divided into regional districts, containing from two to
12 stores whose managers report to a district manager. Our 38 district managers
report to one of four regional vice presidents. Each store is staffed with a
full-time manager and one or two assistant managers, commissioned sales
personnel and, in higher-traffic stores, seasonal support personnel. Store
managers are paid on a commission basis and have the opportunity to earn bonuses
based upon their store's sales and gross margins. Sales personnel work on a
commission basis.

We evaluate the performance of our stores on a continuous basis and, based
on an assessment of overall profitability, future cash flows and other factors
we deem relevant, will close any store which is not adequately contributing to
our profitability. We closed 12, 8 and 6 stores during fiscal 1997, 1998 and
1999, respectively, and have closed three stores in fiscal 2000. In fiscal 1999,
we opened 12 new stores: three stores each in Idaho and New York, two stores in
Pennsylvania and one store each in Alabama, Florida, Ohio and South Carolina. In
fiscal 2000, we have opened one new store each in Montana and South Carolina.

<PAGE>
STORE LOCATIONS. The following table shows the states in which we operated
stores and the number of stores in each state as of September 29, 1999:

<TABLE>
<CAPTION>
STATE NUMBER OF STORES
- ----- ----------------
<S> <C>
Alabama..................... 12
Arkansas.................... 1
Colorado.................... 3
Florida..................... 26
Georgia..................... 7
Idaho....................... 5
Illinois.................... 10
Indiana..................... 3
Iowa........................ 12
Kansas...................... 2
Kentucky.................... 3
Louisiana................... 6
Maryland.................... 2
Massachusetts............... 2
Michigan.................... 3
Minnesota................... 1
Mississippi................. 11
Missouri.................... 3
</TABLE>

<TABLE>
<CAPTION>
STATE NUMBER OF STORES
- ----- ----------------
<S> <C>
Montana..................... 3
Nebraska.................... 3
New York.................... 20
North Carolina.............. 5
North Dakota................ 3
Ohio........................ 17
Oklahoma.................... 2
Pennsylvania................ 18
South Carolina.............. 11
South Dakota................ 3
Tennessee................... 6
Texas....................... 10
Virginia.................... 1
Washington.................. 2
West Virginia............... 5
Wisconsin................... 4
Wyoming..................... 2
</TABLE>

SITE SELECTION. We select locations for future stores based on our
evaluation of individual site economics and market conditions. When deciding
whether to enter a new market or open another store in an existing market, we
evaluate a number of criteria, including:

sales volume potential;

competition within the market area, including size, strength and
merchandising philosophy of former, existing and potential competitors;

cost of advertising;

newspaper circulation; and

size and growth pattern of the population.

In choosing specific sites, we apply standardized site selection criteria
taking into account numerous factors, including:

local demographics;

real estate occupancy expense based upon ownership and/or leasing;

traffic patterns; and

overall retail activity.

Stores typically are located on high traffic arteries, adjacent to or in
major shopping malls, with adequate parking to support high sales volume.

We either lease or purchase new store sites depending upon opportunities
available to us and relative costs. Of the 20 new stores opened in fiscal 1999
and 1998, ten were leased sites and ten were purchased sites.

STORE ECONOMICS. For leased stores, we anticipate per store capital
expenditures of $75,000 to $250,000. This amount may increase to the extent we
are responsible for the remodeling or renovation of the new leased site. We
anticipate expenditures of approximately $800,000 to $1,200,000 when we purchase
real estate, which include the cost of the land purchased, building construction
and fixtures. The purchase amount varies depending upon the size and location of
the store. Historically, we have obtained long-term mortgage financing of
approximately 75% of the land and building cost of opening owned stores.
Mortgage financing is generally obtained after a

<PAGE>
store is opened, either on a site by site or multiple store basis. The extent to
which we seek mortgage financing for owned stores is dependent upon mortgage
rates, terms and availability.

The inventory requirements for new stores are estimated at $350,000 to
$500,000 per store depending upon the season and store size. Approximately
one-third of this inventory is financed through trade credit.

A substantial majority of our new stores are profitable on a store
operating basis upon completion of their first holiday selling season. Virtually
all of our existing stores are profitable on a store operating basis.

PERSONNEL. We train our employees to explain and demonstrate to customers
the use and operation of our merchandise and to develop good sales practices.
Our in-house training program for new employees combines on-the-job training
with use of a detailed company-developed manual entitled 'The REX Way.' Sales
personnel attend in-house training sessions conducted by experienced salespeople
or manufacturers' representatives and receive sales, product and other
information in meetings with managers. Management and sales personnel are
compensated on a commission basis.

We also have a manager-in-training program that consists of on-the-job
training of the assistant manager at the store. Our policy is to staff store
management positions with personnel promoted from within REX and to staff new
store management positions with existing managers or assistant managers.

SERVICES. Virtually all of the products we sell carry manufacturers'
warranties. Except for our least expensive items, we offer extended service
contracts to customers, usually for an additional charge, which typically
provide one to five years of extended warranty coverage. We offer maintenance
and repair services for most of the products we sell. These services are
generally subcontracted to independent repair firms.

Our return policy provides that any merchandise may be returned for
exchange or refund within seven days of purchase if accompanied by original
packaging material and verification of sale.

We accept MasterCard, Visa and Discover. We estimate that, during fiscal
1999, approximately 31% of our total sales were made on these credit cards, and
approximately 11% were made on installment credit contracts arranged through
banks or independent finance companies which bear the credit risk of these
contracts. We work with local consumer finance companies in each of our markets
in implementing these credit arrangements and are able to offer competitive
credit packages, generally including 12 months of interest-free financing.

MERCHANDISING

PRODUCTS. We offer a broad selection of brand name consumer electronics and
home appliance products at a range of price points. We emphasize depth of
product selection within selected key product categories, with the greatest
depth in televisions, big screen TVs, VCRs, camcorders and audio equipment. We
sell approximately 1,000 products produced by approximately 50 manufacturers.
Our product categories include:

<TABLE>
<CAPTION>
TELEVISIONS VIDEO AUDIO APPLIANCES OTHER
- ----------- ----- ----- ---------- -----
<S> <C> <C> <C> <C>
TVs VCRs Stereo Systems Air Conditioners Extended Service
Big Screen TVs Camcorders Receivers Microwave Ovens Contracts
TV/VCR Digital Satellite Systems Compact Disc Players Washers Ready to Assemble
Combos DVD Players Tape Decks Dryers Furniture
Speakers Ranges Recordable Tapes
Car Stereos Dishwashers Telephones
Portable Radios Refrigerators Fax Machines
Turntables Freezers Audio/Video Accessories
Vacuum Cleaners Radar Detectors
Dehumidifiers CB Radios
Garbage Disposals
</TABLE>

<PAGE>
Among the leading brands sold by us during fiscal 1999, in alphabetical
order, were Aiwa, General Electric, Hitachi, Hotpoint, JVC, Panasonic, Phillips
Magnavox, Pioneer, RCA, Sharp, Technics, Toshiba, Whirlpool and Zenith. In
fiscal 2000 we added Sony and Maytag products.

All our stores carry a broad range of televisions, video and audio
products, microwave ovens and air conditioners and a limited line of home office
products. In addition, 224 stores carry major appliances.

The following table shows the approximate percent of net sales for each
major product group for the last three fiscal years.

<TABLE>
<CAPTION>
FISCAL YEAR
----------------------
PRODUCT CATEGORY 1997 1998 1999
---------------- ---- ---- ----
<S> <C> <C> <C>
Televisions................................................. 36% 36% 36%
Video....................................................... 18 19 17
Audio....................................................... 18 17 18
Appliances.................................................. 18 20 21
Other....................................................... 10 8 8
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>

PRICING. Our policy is to offer our products at guaranteed lowest prices
combined with frequent special sales and promotions. Our retail prices are
established by our merchandising department, but each district manager is
responsible for monitoring the prices offered by competitors and has authority
to adjust prices to meet local market conditions. Our commitment to offer the
lowest prices is supported by our guarantee to refund 125% of the difference in
price if, within 30 days of purchase, a customer can locate the same item
offered by a local competitor at a lower price.

ADVERTISING. We use a 'price and item' approach in our advertising,
stressing the offering of nationally recognized brands at significant savings.
The emphasis of our advertising is our Guaranteed Lowest Price. Our guarantee
states:

'Our prices are guaranteed in writing. If you find any other local store
stocking and offering to sell for less the identical item in a factory
sealed box within 30 days after your REX purchase, we'll refund the
difference plus an additional 25% of the difference.'

Advertisements are concentrated principally in newspapers and preprinted
newspaper inserts, which are produced for us by an outside advertising agency.
We supplement our newspaper advertising with television and radio advertisements
in certain markets. Advertisements are also complemented by in-store signage
highlighting special values, including 'Value Every Day,' 'Best Value,' and 'Top
of the Line.' Our advertising strategy includes preferred customer private
mailers, special events such as 'Midnight Madness Sales' and coupon sales to
provide shopping excitement and generate traffic.

PURCHASING. Our merchandise purchasing and opportunistic buying are
performed predominantly by three members of senior management. Each individual
has responsibility for a specific product category, and two share appliance
buying responsibility. By purchasing merchandise in large volume, we are able to
obtain quality products at competitive prices and advertising subsidies from
vendors to promote the sale of their products. For fiscal 1999, six vendors
accounted for approximately 55% of our purchases. We typically do not maintain
long-term purchase contracts with vendors and operate principally on an
order-by-order basis.

E-COMMERCE

In April 1999, we began selling selected televisions, audio and video
products and small appliances on our Web site at www.rexstores.com. We are an
Amazon.com Auctions Charter Merchant and also offer selected products on the
eBay and Yahoo! auction Web sites. The entry into e-commerce offers us the
opportunity to expand our sales into larger markets.

<PAGE>
DISTRIBUTION

Our stores are supplied by three regional distribution centers. The
distribution centers consist of:

a 315,000 square foot leased facility in Dayton, Ohio;

a 180,000 square foot owned facility in Pensacola, Florida, of which we
lease 90,000 square feet to an outside company; and

a 145,000 square foot owned facility in Cheyenne, Wyoming.

We also lease a 67,000 square foot auxiliary warehouse in Pensacola,
Florida. In addition, we lease overflow warehouse space as needed to accommodate
seasonal inventory requirements and opportunistic purchases.

INVENTORY MANAGEMENT

The regional distribution centers reduce inventory requirements at
individual stores, while preserving the benefits of volume purchasing and
facilitating centralized inventory and accounting controls. Virtually all of our
merchandise is distributed through our distribution centers, with the exception
of major appliances which are often shipped directly by the vendor to the retail
location. All deliveries to stores are made by independent contract carriers.

MANAGEMENT INFORMATION SYSTEMS

We have developed a computerized management information system which
operates an internally developed software package. Our computer system provides
management with the information necessary to manage inventory by stock keeping
unit (SKU), monitor sales and store activity on a daily basis, capture marketing
and customer information, track productivity by salesperson and control our
accounting operations.

Our mainframe computer is an IBM A/S 400E series model and is Year 2000
compliant. The host computer is integrated with our point-of-sale system which
serves as the collection mechanism for all sales activity. The combined system
provides for next-day review of inventory levels, sales by store and by SKU and
commissions earned, assists in cash management and enables management to track
merchandise from receipt at the distribution center until time of sale.

As is the case with most business organizations, we utilize software and
related technology that are date sensitive and may be affected by the date
change which will occur in the year 2000. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations' for further
discussion of the Year 2000 issue.

COMPETITION

Our business is characterized by substantial competition. Our competitors
include national and regional large format merchandisers and superstores such as
Best Buy and Circuit City, other specialty electronics retailers including
RadioShack, department and discount stores such as Sears, Wal-Mart and
Montgomery Ward, furniture stores, warehouse clubs, home improvement retailers
and Internet and store-based retailers who sell competitive products online. We
also compete with small chains and specialty single-store operators in some
markets, as well as Sears' dealer-operated units. Some of our competitors have
greater financial and other resources than us, which may increase their ability
to purchase inventory at a lower cost, better withstand economic downturns or
engage in aggressive price competition. Competition within the consumer
electronics/appliance retailing industry is based upon price, breadth of product
selection, product quality and customer service. We expect competition within
the industry to increase.

FACILITIES

We own 112 of our stores. The remaining 115 stores operate on leased
premises, with the unexpired terms of the leases ranging from one year to
26 years, inclusive of options to renew,

<PAGE>
except for four month to month leases. For fiscal 1999, the total net rent
expense for our leased facilities was approximately $6,932,000.

To date, we have not experienced difficulty in securing leases or
purchasing sites for suitable store locations. We continue to remodel and
upgrade existing stores as appropriate. In addition, to minimize construction
costs, we have developed prototype formats for new store construction.

EMPLOYEES

At September 28, 1999, we had 151 hourly and salaried employees and 958
commission-based sales employees. We also employ additional personnel during
peak selling seasons. None of our employees are represented by a labor union. We
consider our relationship with our employees to be good.

SERVICE MARKS

We have registered our rights in our service mark 'REX' with the United
States Patent and Trademark Office. We are not aware of any adverse claims
concerning our service mark.

<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

Set forth below is certain information concerning our directors, executive
officers and key employees.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Stuart Rose.................................. 44 Chairman of the Board and Chief Executive
Officer(1)
Lawrence Tomchin............................. 71 President, Chief Operating Officer and
Director(1)
Douglas Bruggeman............................ 39 Vice President -- Finance and Treasurer
Edward Kress................................. 50 Secretary and Director
Robert Davidoff.............................. 72 Director(2)(3)
Lee Fisher................................... 48 Director(2)(3)

KEY EMPLOYEES:
David Fuchs.................................. 45 Vice President -- Management Information Systems
Keith Magby.................................. 40 Vice President -- Operations
Zafar Rizvi.................................. 49 Vice President -- Loss Prevention
Richard Santia............................... 53 Vice President -- Corporate Development
David Hyatt.................................. 36 Vice President -- Store Operations
Robert Immekus............................... 48 Vice President -- Store Operations
Philip Kellar................................ 45 Vice President -- Store Operations
Walter Partlow, Jr........................... 37 Vice President -- Store Operations
</TABLE>

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

(1) Member of Executive Committee

(2) Member of Audit Committee

(3) Member of Compensation Committee

Stuart Rose has been our Chairman of the Board and Chief Executive Officer
since our incorporation in 1984 as a holding company to succeed to the ownership
of Rex Radio and Television, Inc., Kelly & Cohen Appliances, Inc. and Stereo
Town, Inc. Prior to 1984, Mr. Rose was Chairman of the Board and Chief Executive
Officer of Rex Radio and Television, Inc., which he founded in 1980 to acquire
the stock of a corporation which operated four retail stores.

Lawrence Tomchin has been our President and Chief Operating Officer since
1990. From 1984 to 1990, he was our Executive Vice President and Chief Operating
Officer. Mr. Tomchin has been a director since 1984. Mr. Tomchin was Vice
President and General Manager of the corporation which was acquired by Rex Radio
and Television, Inc. in 1980 and served as Executive Vice President of Rex Radio
and Television, Inc. after the acquisition.

Douglas Bruggeman has been our Vice President -- Finance and Treasurer
since 1989. From 1987 to 1989, Mr. Bruggeman was our Manager of Corporate
Accounting. Mr. Bruggeman was employed with the accounting firm of Ernst & Young
prior to joining us in 1986.

Edward Kress has been our Secretary since 1984 and a director since 1985.
Mr. Kress has been a partner of the law firm of Chernesky, Heyman & Kress
P.L.L., our legal counsel, since 1988. From 1985 to 1988, Mr. Kress was a member
of the law firm of Smith & Schnacke. Mr. Kress has practiced law in Dayton, Ohio
since 1974.

Robert Davidoff has been a director since 1984. Mr. Davidoff has been
employed by Carl Marks & Co., Inc., an investment banking firm, since 1950 and
currently is Vice President in charge of corporate finance. Mr. Davidoff is also
a director of Hubco Exploration, Inc., Marisa Christina, Inc. and Aquis
Communications Group, Inc.

Lee Fisher has been a director since 1996. Mr. Fisher is the President and
Chief Executive Officer of the Center for Families and Children, a private
nonprofit human services organization.

<PAGE>
Mr. Fisher was a partner of the law firm of Hahn Loeser & Parks LLP from 1995 to
March 1999. Mr. Fisher served as Ohio Attorney General from 1991 to 1995, State
Senator, Ohio General Assembly, from 1983 to 1991, and State Representative,
Ohio General Assembly, from 1981 to 1983. Mr. Fisher also practiced law with
Hahn Loeser & Parks from 1978 to 1991.

David Fuchs has been our Vice President -- Management Information Systems
since 1989. From 1985 to 1989, Mr. Fuchs was our Manager of Management
Information Systems. Mr. Fuchs is responsible for our management information
systems and buys digital satellite systems.

Keith Magby joined us as Vice President -- Operations in 1991. Mr. Magby's
primary responsibilities include warehouse and distribution operations and
appliance buying. Mr. Magby has been employed within the consumer
electronics/appliance retailing industry since 1982.

Zafar Rizvi joined us as Vice President -- Loss Prevention in 1991. Mr.
Rizvi's primary responsibilities include internal audit and loss prevention,
negotiating advertising contracts with newspapers, e-commerce initiatives and
Web site development. Mr. Rizvi has served in various management positions
within the video retailing industry since 1986.

Richard Santia has been our Vice President -- Corporate Development since
1984 and has been employed by us since 1980. Mr. Santia's primary
responsibilities include site selection and store construction and remodeling.
Mr. Santia has been employed within the consumer electronics/appliance retailing
industry since 1975.

David Hyatt has been Vice President -- Store Operations for our southern
region stores since 1996 and has been employed by us since 1985.

Robert Immekus has been Vice President -- Store Operations for our western
region stores since 1996. Mr. Immekus has been employed by us and our subsidiary
Kelly & Cohen Appliances, Inc. since 1974.

Philip Kellar has been Vice President -- Store Operations for our northern
region stores since 1990 and has been employed by us since 1988. Mr. Kellar has
been employed within the consumer electronics/appliance retailing industry since
1977.

Walter Partlow, Jr. has been Vice President -- Store Operations for our
southern region stores since 1996 and has been employed by us since 1987.

<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of our common stock as of September 29, 1999, and as
adjusted to give effect to the sale of common stock offered hereby, by:

each of our directors and executive officers;
all directors and executive officers as a group;
each selling stockholder; and
each person or group known by us to own more than 5% of our common stock.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER THE OFFERING(2)
--------------------------- SHARES ---------------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
---- ------ ------- ------------- ------ -------
<S> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS
AND SELLING STOCKHOLDERS:(3)
Stuart Rose(4)................ 2,300,059 27.7% 700,747 1,599,312 16.3%
Lawrence Tomchin(5)........... 583,912 7.3 177,898 406,014 4.3
Douglas Bruggeman(6).......... 54,266 * 17,500 36,766 *
Edward Kress(7)............... 53,735 * -- 53,735 *
Robert Davidoff(8)............ 97,983 1.3 -- 97,983 1.1
Lee Fisher(9)................. 9,037 * 3,855 5,182 *
All directors and executive
officers as a group
(6 persons)(10)............. 3,098,992 35.8 900,000 2,198,992 21.7

5% BENEFICIAL OWNERS:
FMR Corp.(11) ................ 636,400 8.3 -- 636,400 6.9
82 Devonshire Street
Boston, MA 02109
Investment Counselors of
Maryland, Inc.(12) ........... 583,500 7.6 -- 583,500 6.4
803 Cathedral Street
Baltimore, MD 21201-5297
Dimensional Fund Advisors
Inc.(13) ................... 533,100 7.0 -- 533,100 5.8
1299 Ocean Avenue,
11th Floor
Santa Monica, CA 90401
The TCW Group, Inc.(14) ...... 513,100 6.7 -- 513,100 5.6
865 South Figueroa St.
Los Angeles, CA 90017
</TABLE>

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

* Less than 1%.

(1) Beneficial ownership numbers and percentages are calculated on the basis of
the number of shares owned and outstanding on September 29, 1999 plus the
number of shares issuable upon the exercise of options held by the person
or group which are exercisable within 60 days after September 29, 1999.

(2) Assumes no exercise of the underwriters' over-allotment option. If the
underwriters' over-allotment option is exercised in full, the number of
shares owned and the percentage of ownership after the offering for Mr.
Rose would be 1,494,200 shares and 14.9%, for Mr. Tomchin would be 379,329
shares and 3.9%, for Mr. Bruggeman would be 34,141 shares and less than 1%,
for Mr. Fisher would be 4,604 shares and less than 1% and for all directors
and executive officers as a group would be 2,063,992 shares and 19.9%.

(3) The address of Mr. Rose, Mr. Tomchin and Mr. Bruggeman is 2875 Needmore
Road, Dayton, Ohio 45414. Mr. Fisher's address is Western Reserve Building,
1468 West 9th Street, Cleveland, Ohio 44113.

(4) Includes 146,084 shares held by the Stuart Rose Family Foundation, an Ohio
nonprofit corporation of which Mr. Rose is the sole member, chief executive
officer and one of three
(footnotes continued on next page)

<PAGE>
(footnotes continued from previous page)
members of the board of trustees, the other two being members of his
immediate family. Also includes 621,818 shares issuable upon the exercise
of options.

(5) Includes 4,583 shares held by Mr. Tomchin's wife and 278,497 shares
issuable upon the exercise of options.

(6) Includes 36,766 shares issuable upon the exercise of options.

(7) Includes 16,960 shares held by Mr. Kress as co-trustee of a trust for the
benefit of adult children of Mr. Tomchin with respect to which Mr. Kress
has shared voting and investment power, 2,123 shares held by Mr. Kress as
trustee of two trusts for the benefit of his minor children and 14,651
shares issuable upon the exercise of options.

(8) Includes 14,651 shares issuable upon the exercise of options.

(9) Includes 9,037 shares issuable upon the exercise of options. Mr. Fisher
will exercise options to purchase 3,855 shares at an exercise price of
$10.38 per share for sale to the underwriters in this offering.

(10) Includes 975,420 shares issuable upon the exercise of options.

(11) Based on a Schedule 13G filing dated February 1, 1999. Fidelity Management
& Research Company, a wholly-owned subsidiary of FMR Corp. and a registered
investment adviser, is the beneficial owner of 636,400 shares of REX common
stock as a result of acting as investment adviser to various registered
investment companies. One investment company, Fidelity Low-Priced Stock
Fund, owns 571,400 shares. Edward C. Johnson 3d (Chairman of FMR Corp.),
FMR Corp., through its control of Fidelity Management & Research Company,
and the funds each has sole power to dispose of the 636,400 shares owned by
the funds, while the sole power to vote or direct the voting of such shares
resides solely with the funds' boards of trustees.

(12) Based on a Schedule 13G filing dated February 1, 1999. All shares of common
stock are owned by various investment advisory clients of Investment
Counselors of Maryland, Inc., which is deemed to be a beneficial owner of
those shares due to its discretionary power to make investment decisions
over such shares for its clients and its ability to vote such shares.
Investment Counselors of Maryland, Inc. has sole power to vote and dispose
of 583,500 shares.

(13) Based on a Schedule 13G filing dated February 11, 1999. Dimensional Fund
Advisors Inc., a registered investment adviser, furnishes investment advice
to four registered investment companies and serves as investment manager to
certain other investment vehicles, including commingled group trusts.
Dimensional Fund Advisors Inc. has sole power to vote and dispose of
533,100 shares owned by those portfolios. Dimensional Fund Advisors Inc.
disclaims beneficial ownership of all such shares.

(14) Based on a Schedule 13G filing dated February 12, 1999. The TCW Group, Inc.
and Robert Day (an individual who may be deemed to control The TCW Group,
Inc.) have shared power to vote and dispose of 513,100 shares, which shares
are held by Trust Company of the West, TCW Asset Management Company and
Oakmont Corporation.

<PAGE>
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

Our authorized capital stock consists of 45,000,000 shares of common stock,
$.01 par value per share. Each share of common stock is entitled to participate
pro rata in distributions upon liquidation and to one vote on all matters
submitted to a vote of shareholders. The holders of common stock may receive
dividends as declared by the board of directors out of funds legally available
for dividends, subject to limitations in our revolving credit agreement. Holders
of common stock have no preemptive or similar rights, nor do they have
cumulative voting rights. The outstanding shares of common stock are, and the
shares offered by us hereby when issued will be, fully paid and nonassessable.
The holders of a majority of the outstanding shares have the voting power to
elect all directors and to approve mergers, sales of assets and similar material
corporate transactions.

ANTI-TAKEOVER EFFECTS OF DELAWARE LAW

We are subject to Section 203 of the Delaware General Corporation Law. In
general, Section 203 prevents a publicly-held Delaware corporation from engaging
in a 'business combination' with an 'interested stockholder' for three years
after the date the person became an interested stockholder, unless:

Prior to the date the person became an interested stockholder, the board
of directors of the corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder;

Upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding stock held by persons who are
directors and also officers of the corporation and stock held by certain
employee stock plans; or

On or subsequent to the date of the transaction in which the person became
an interested stockholder, the business combination is approved by the
board of directors of the corporation and authorized at a meeting of
stockholders by the affirmative vote of the holders of at least two-thirds
of the outstanding voting stock of the corporation which is not owned by
the interested stockholder.

A 'business combination' includes:

Any merger or consolidation involving the corporation and an interested
stockholder;

Any sale, lease, exchange, mortgage, pledge, transfer or other disposition
involving an interested stockholder of 10% or more of the assets of the
corporation;

Subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock of the corporation to
an interested stockholder;

Any transaction involving the corporation or any majority-owned subsidiary
of the corporation which has the effect of increasing the proportionate
share of the stock of any class or series of the corporation or of any
such subsidiary beneficially owned by the interested stockholder; or

The receipt by an interested stockholder of any loans, guarantees, pledges
or other financial benefits provided by or through the corporation or any
majority-owned subsidiary.

An 'interested stockholder' is any person who beneficially owns 15% or more
of the outstanding voting stock of the corporation or any person affiliated with
or controlling or controlled by any such person.

TRANSFER AGENT AND REGISTRAR

American Stock Transfer & Trust Company, New York, New York is the transfer
agent and registrar for our common stock.

<PAGE>
UNDERWRITING

Subject to the terms and conditions stated in the underwriting agreement
dated the date of this prospectus, each underwriter named below has severally
agreed to purchase, and REX and the selling stockholders have agreed to sell to
each underwriter, the number of shares of common stock set forth opposite the
name of that underwriter.

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
---- ---------
<S> <C>
Salomon Smith Barney Inc. .................................. 900,000
Credit Suisse First Boston Corporation...................... 600,000
Gerard Klauer Mattison & Co., Inc. ......................... 300,000
ING Barings LLC............................................. 300,000
Morgan Keegan & Company, Inc. .............................. 300,000
---------
Total.................................................. 2,400,000
---------
---------
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of legal matters by counsel and to other conditions. The underwriters
are obligated to purchase all the shares, other than those covered by the
over-allotment option described below, if they purchase any of the shares.

The underwriters, for whom Salomon Smith Barney Inc., Credit Suisse First
Boston Corporation, Gerard Klauer Mattison & Co., Inc., ING Barings LLC and
Morgan Keegan & Company, Inc. are acting as representatives, propose to offer
some of the shares directly to the public at the public offering price set forth
on the cover page of this prospectus and some of the shares to certain dealers
at the public offering price less a concession not in excess of per $1.19 share.
The underwriters may allow, and such dealers may reallow, a concession not in
excess of $0.10 per share on sales to certain other brokers and dealers. If all
of the shares are not sold at the initial offering price, the representatives
may change the public offering price and the other selling terms.

REX and the selling stockholders have granted to the underwriters an
option, exercisable for 30 days from the date of this prospectus, to purchase up
to 360,000 additional shares of common stock at the public offering price less
the underwriting discount. Such additional shares will be purchased from REX and
the selling stockholders on a pro rata basis. The underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with this offering. To the extent such option is exercised, each underwriter
will be obligated, subject to certain conditions, to purchase a number of
additional shares approximately proportionate to such underwriter's initial
purchase commitment.

REX and the selling stockholders have agreed that, for a period of 90 days
and 270 days, respectively, from the date of this prospectus, they will not,
without the prior written consent of Salomon Smith Barney Inc., on behalf of the
underwriters, offer, pledge, sell, contract to sell, sell any option or contract
to purchase, purchase any option or contract to sell, or otherwise dispose of,
directly or indirectly, any shares of common stock or any securities convertible
into or exercisable or exchangeable for common stock. These restrictions shall
not apply, however, to:

the common stock to be sold in this offering;

the issuance by REX of common stock upon the exercise of an option or
warrant or the conversion of a security outstanding on the date of this
prospectus;

the issuance by REX of additional options to purchase shares of common
stock pursuant to REX's existing stock option plans; and

certain other limited transactions.

Salomon Smith Barney Inc. in its sole discretion may release any of the
securities subject to these lock-up agreements at any time without notice.

The common stock is listed on the New York Stock Exchange under the symbol
'RSC.'

<PAGE>
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by REX and the selling stockholders in connection with
this offering. These amounts are shown assuming both no exercise and full
exercise of the underwriters' option to purchase additional shares of common
stock.

<TABLE>
<CAPTION>
PAID BY REX PAID BY SELLING STOCKHOLDERS
--------------------------- -----------------------------
NO EXERCISE FULL EXERCISE NO EXERCISE FULL EXERCISE
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Per share............................... $ 1.984 $ 1.984 $ 1.984 $ 1.984
Total................................... $2,976,000 $3,422,400 $1,785,600 $2,053,440
</TABLE>

In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.

The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.

Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the New York
Stock Exchange or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.

REX and the selling stockholders estimate that their respective portions of
the total expenses of this offering will be $218,750 and $131,250.

REX and the selling stockholders have agreed to indemnify the underwriters
against certain liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be required to make in
respect of any of those liabilities.

LEGAL MATTERS

The validity of the shares of common stock offered hereby will be passed
upon for REX and the selling stockholders by Chernesky, Heyman & Kress P.L.L.,
Dayton, Ohio. Edward Kress, a partner of Chernesky, Heyman & Kress P.L.L., is
secretary and a director of REX. Mr. Kress owns 20,001 shares of REX common
stock for his own account, holds 19,083 shares as trustee for the benefit of
others and holds options to purchase 35,032 shares. Certain legal matters in
connection with this offering will be passed upon for the underwriters by Cahill
Gordon & Reindel (a partnership including a professional corporation), New York,
New York.

EXPERTS

The audited consolidated financial statements and schedule included or
incorporated by reference in this prospectus and elsewhere in the registration
statement, to the extent and for the periods indicated in their reports, have
been audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.

<PAGE>
WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other
information with the Securities and Exchange Commission. Investors may read and
copy these reports, proxy statements and other information at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of
these documents are available upon payment of a duplicating fee by writing to
the SEC. Investors may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements and other
information regarding issuers that file electronically with the SEC. The address
of the site is http://www.sec.gov. Reports, proxy statements and other
information concerning us can also be inspected and copied at the offices of the
New York Stock Exchange at 20 Broad Street, New York, New York 10005.

For more information concerning us and the common stock offered hereby, we
refer you to the registration statement on Form S-3 filed by us with the SEC
under the Securities Act. This prospectus does not contain all of the
information set forth in the registration statement and the exhibits to the
registration statement. Statements contained in this prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract
or document filed as an exhibit to the registration statement.

The SEC allows us to 'incorporate by reference' the information we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information.

The following documents filed by us with the SEC are incorporated by
reference in this prospectus:

Our annual report on Form 10-K for the fiscal year ended January 31, 1999;

Our quarterly reports on Form 10-Q for the quarters ended April 30 and
July 31, 1999; and

The description of common stock contained in our registration statement on
Form 8-A filed under the Exchange Act.

All documents subsequently filed by us with the SEC pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this
offering shall be deemed to be incorporated by reference in this prospectus and
to be a part of this prospectus from the date of filing.

Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference in this prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this prospectus.

We will provide to each person, including any beneficial owner, to whom
this prospectus is delivered, a copy of any or all of the information
incorporated by reference in this prospectus other than exhibits to documents
which are not specifically incorporated by reference in such documents. We will
provide this information upon written or oral request and at no cost to the
requester. Requests for this information must be made to Douglas Bruggeman, Vice
President -- Finance and Treasurer, REX Stores Corporation, 2875 Needmore Road,
Dayton, Ohio 45414, telephone (937) 276-3931.

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:

Report of Independent Public Accountants.................... F-2

Consolidated Balance Sheets as of January 31, 1998 and
1999...................................................... F-3

Consolidated Statements of Income for the years ended
January 31, 1997, 1998 and 1999........................... F-4

Consolidated Statements of Shareholders' Equity for the
years ended January 31, 1997, 1998 and 1999............... F-5

Consolidated Statements of Cash Flows for the years ended
January 31, 1997, 1998 and 1999........................... F-6

Notes to Consolidated Financial Statements.................. F-7

UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS:

Unaudited Consolidated Condensed Balance Sheets as of
July 31, 1998 and 1999.................................... F-15

Unaudited Consolidated Statements of Income for the Six
Months Ended July 31, 1998 and 1999....................... F-16

Unaudited Consolidated Statements of Shareholders' Equity
for the periods ended July 31, 1998, January 31, 1999 and
July 31, 1999............................................. F-17

Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended July 31, 1998 and 1999....................... F-18

Notes to Unaudited Consolidated Financial Statements........ F-19
</TABLE>

F-1

<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors
of REX STORES CORPORATION:

We have audited the accompanying consolidated balance sheets of REX Stores
Corporation (a Delaware corporation) and subsidiaries as of January 31, 1999 and
1998, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three fiscal years in the period ended
January 31, 1999. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of REX Stores
Corporation and subsidiaries as of January 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 31, 1999, in conformity with generally accepted accounting
principles.

ARTHUR ANDERSEN LLP
Cincinnati, Ohio
March 24, 1999

F-2

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1998 AND 1999

<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 16,937 $ 11,912
Accounts receivable, net of allowance for doubtful
accounts of $428 and $430 in 1998 and 1999,
respectively (Note 5)................................. 2,775 2,297
Merchandise inventory (Note 5)......................... 126,498 132,002
Prepaid expenses and other............................. 2,078 2,039
Equity investment in limited partnerships (Note 2)..... -- 1,838
Future income tax benefits............................. 7,899 9,366
-------- --------
Total current assets.............................. 156,187 159,454
Property and equipment, net (Notes 1, 5 and 6).............. 93,165 98,891
Future income tax benefits.................................. 9,541 8,109
Restricted investments (Note 1)............................. 1,637 1,828
-------- --------
Total assets...................................... $260,530 $268,282
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Current portion of long-term mortgage debt (Note 6).... $ 2,959 $ 3,114
Current portion of deferred income and deferred gain on
sale and leaseback (Notes 1 and 8).................... 11,402 11,453
Accounts payable, trade................................ 49,832 52,674
Accrued income taxes................................... 1,671 147
Accrued payroll........................................ 5,810 5,889
Other current liabilities.............................. 7,263 8,817
-------- --------
Total current liabilities......................... 78,937 82,094
Long-term liabilities:
Long-term mortgage debt (Note 6)....................... 52,661 55,478
Deferred income (Note 1)............................... 17,886 16,723
Deferred gain on sale and leaseback (Note 8)........... 5,264 3,777
-------- --------
Total long-term liabilities....................... 75,811 75,978
Commitments and contingencies (Notes 8 and 10)
Shareholders' equity (Notes 4, 5, and 7):
Common stock, 45,000 shares authorized, 9,688 and 9,767
shares issued, at par................................. 97 98
Paid-in capital........................................ 57,896 58,596
Retained earnings...................................... 64,175 75,370
Treasury stock, 1,955 and 2,587 shares................. (16,386) (23,854)
-------- --------
Total shareholders' equity............................. 105,782 110,210
-------- --------
Total liabilities and shareholders' equity........ $260,530 $268,282
-------- --------
-------- --------
</TABLE>

The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.

F-3

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $427,378 $411,005 $416,673
-------- -------- --------
Costs and expenses:
Cost of merchandise sold............................... 317,767 297,757 302,894
Selling, general and administrative expenses........... 91,905 94,055 93,578
-------- -------- --------
Total costs and expenses.......................... 409,672 391,812 396,472
-------- -------- --------
Income from operations...................................... 17,706 19,193 20,201
Investment income........................................... 85 202 347
Interest expense............................................ (5,624) (7,143) (6,448)
Gain on sale of real estate................................. -- -- 2,410
Equity in losses of limited partnerships.................... -- -- (1,312)
-------- -------- --------
Income before provision for income taxes............... 12,167 12,252 15,198
Provision for income taxes.................................. 4,805 4,840 4,003
-------- -------- --------
Net income.................................................. $ 7,362 $ 7,412 $ 11,195
-------- -------- --------
-------- -------- --------
Weighted average number of common shares outstanding........ 8,948 7,919 7,427
-------- -------- --------
Basic net income per share.................................. $ 0.82 $ 0.94 $ 1.51
-------- -------- --------
-------- -------- --------
Weighted average number of common and common equivalent
shares outstanding........................................ 9,219 8,178 7,833
-------- -------- --------
Diluted net income per share................................ $ 0.80 $ 0.91 $ 1.43
-------- -------- --------
-------- -------- --------
</TABLE>

The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.

F-4

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
COMMON STOCK
----------------------------------
ISSUED TREASURY
--------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996.................. 9,521 $95 534 $ 3,882 $56,732 $49,401
Net income................................. -- -- -- -- -- 7,362
Treasury stock acquired.................... -- -- 854 7,486 -- --
Common stock issued........................ 81 1 -- -- 497 --
----- --- ----- ------- ------- -------
Balance, January 31, 1997.................. 9,602 96 1,388 11,368 57,229 56,763
Net income................................. -- -- -- -- -- 7,412
Treasury stock acquired.................... -- -- 567 5,018 -- --
Common stock issued........................ 86 1 -- -- 667 --
----- --- ----- ------- ------- -------
Balance, January 31, 1998.................. 9,688 97 1,955 16,386 57,896 64,175
Net income................................. -- -- -- -- -- 11,195
Treasury stock acquired.................... -- -- 632 7,468 -- --
Common stock issued........................ 79 1 -- -- 700 --
----- --- ----- ------- ------- -------
Balance, January 31, 1999.................. 9,767 $98 2,587 $23,854 $58,596 $75,370
----- --- ----- ------- ------- -------
----- --- ----- ------- ------- -------
</TABLE>

The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.

F-5

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JANUARY 31, 1997, 1998 AND 1999

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 7,362 $ 7,412 $11,195
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization, net................ 2,943 2,979 3,194
Gain on sale of real estate....................... -- -- (2,410)
Equity in losses of limited partnerships.......... -- -- 1,312
Deferred income................................... 3,221 165 (993)
Deferred income tax provision..................... (2,054) (1,015) (137)
Changes in assets and liabilities:
Accounts receivable............................... 127 (1,298) 478
Merchandise inventory............................. 11,533 8,535 (5,504)
Other current assets.............................. (323) (2,228) 131
Accounts payable, trade........................... (8,260) 18,567 2,842
Other current liabilities......................... (3,678) 2,400 109
------- ------- -------
Net cash provided by operating activities.... 10,871 35,517 10,217
------- ------- -------
Cash flows from investing activities:
Capital expenditures................................... (23,448) (8,015) (12,736)
Proceeds from sale of real estate and capital
disposals............................................ 552 573 4,630
Equity investment in limited partnerships.............. -- -- (3,150)
Restricted investments................................. (120) 8 (191)
------- ------- -------
Net cash used in investing activities........ (23,016) (7,434) (11,447)
------- ------- -------
Cash flows from financing activities:
Increase (decrease) in note payable.................... 2,815 (12,142) --
Proceeds from long-term debt........................... 21,911 4,473 7,003
Payments of long-term debt............................. (2,318) (3,086) (4,031)
Common stock issued.................................... 497 668 701
Treasury stock acquired................................ (7,486) (5,018) (7,468)
------- ------- -------
Net cash provided by (used in) financing
activities................................. 15,419 (15,105) (3,795)
------- ------- -------
Net increase (decrease) in cash and cash equivalents........ 3,274 12,978 (5,025)
Cash and cash equivalents, beginning of year................ 685 3,959 16,937
------- ------- -------
Cash and cash equivalents, end of year...................... $ 3,959 $16,937 $11,912
------- ------- -------
------- ------- -------
</TABLE>

The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.

F-6

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Principles of Consolidation -- The accompanying financial statements
consolidate the operating results and financial position of REX Stores
Corporation and its wholly-owned subsidiaries (the Company). All significant
intercompany balances and transactions have been eliminated. The Company
operates 228 retail consumer electronics and appliance stores under the REX name
in 35 states.

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

c. Cash Equivalents -- Cash equivalents are principally short-term
investments with original maturities of less than three months. The carrying
amount of cash equivalents is a reasonable estimate of fair value.

d. Merchandise Inventory -- Substantially all inventory is valued at the
lower of average cost or market, which approximates cost on a first-in,
first-out (FIFO) basis, including certain costs associated with purchasing,
warehousing and transporting merchandise. The inventory of an acquired
subsidiary, Kelly & Cohen Appliances, Inc. (K&C), is valued at the lower of cost
or market using the last-in, first-out (LIFO) method. Following the lower of
cost or market principle, the K&C inventory value using the LIFO method
($30,203,000 and $32,405,000 at January 31, 1998 and 1999, respectively) is
equivalent to the FIFO value for all years presented. Six suppliers accounted
for approximately 55% of the Company's purchases in 1999.

e. Property and Equipment -- Property and equipment is recorded at cost.
Depreciation is computed using the straight-line method. Estimated useful lives
are 15 to 40 years for buildings and improvements, and 3 to 12 years for
fixtures and equipment. Leasehold improvements are depreciated over 10 to 12
years. The components of property and equipment at January 31, 1998 and 1999 are
as follows:

<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land............................................ $ 24,779 $ 26,716
Buildings and improvements...................... 59,006 64,586
Fixtures and equipment.......................... 14,615 15,477
Leasehold improvements.......................... 9,747 10,217
-------- --------
108,147 116,996
Less: accumulated depreciation.................. (14,982) (18,105)
-------- --------
$ 93,165 $ 98,891
-------- --------
-------- --------
</TABLE>

In accordance with SFAS No. 121 'Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of', the carrying
value of long-lived assets is assessed for recoverability by management when
changes in circumstances indicate that the carrying amount may not be
recoverable, based on an analysis of undiscounted future expected cash flows
from the use and ultimate disposition of the asset. There were no material
impairment losses incurred in the fiscal years ended January 31, 1997, 1998 and
1999.

f. Restricted Investments -- Restricted investments, which are principally
marketable securities, are stated at cost plus accrued interest, which
approximates market. The carrying amount of restricted investments approximates
fair value. Restricted investments at January 31, 1998 and 1999 are restricted
by two states to cover possible future claims under product service contracts.

F-7

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

g. Revenue Recognition -- The Company recognizes sales of products upon
receipt by the customer. The Company will honor returns from customers within
seven days from the date of sale. The Company establishes liabilities for
estimated returns at the point of sale.

The Company also sells product service contracts covering periods beyond
the normal manufacturers' warranty periods, usually with terms of coverage
(including manufacturers' warranty periods) of between 12 to 60 months. Contract
revenues, net of sales commissions, are deferred and amortized on a
straight-line basis over the life of the contracts after the expiration of
applicable manufacturers' warranty periods. The Company retains the obligation
to perform warranty services and such costs are charged to operations as
incurred.

h. Interest Cost -- Interest expense of $5,624,000, $7,143,000 and
$6,448,000 for the years ended January 31, 1997, 1998 and 1999, respectively, is
net of approximately $193,000, $33,000 and $238,000 of interest capitalized
related to store construction. Total interest expense approximates interest paid
for all years presented.

i. Loan Acquisition Costs -- Direct expenses and fees associated with
obtaining notes payable or long-term mortgage debt are capitalized and amortized
to interest expense over the life of the loan.

j. Advertising Costs -- Advertising costs are expensed as incurred.
Advertising expense was approximately $33,473,000, $32,813,000 and $30,468,000
in 1997, 1998 and 1999, respectively.

k. Store Opening and Closing Costs -- Store opening costs are expensed as
incurred. The costs associated with closing stores are accrued when the decision
is made to close a location. Store closing costs incurred in the fiscal years
ended January 31, 1997, 1998 and 1999 were not material.

2. INVESTMENT IN LIMITED PARTNERSHIPS

During fiscal 1999, the Company invested $3,150,000 in two limited
partnerships which produce synthetic fuels. The Company accounts for its
ownership interest in the limited partnerships, which approximates 30%, under
the equity method. The Company recorded a pre-tax charge of $1,312,000 in fiscal
1999 to reflect its equity in the losses of the limited partnerships. The
limited partnerships also earn Federal income tax credits under Section 29 of
the Internal Revenue Code based upon the quantity and content of synthetic fuel
production. The Company accounts for its share of the income tax credits
(approximately $2,000,000 earned in fiscal 1999) as a reduction of the income
tax provision in the period earned (see Note 9).

3. NET INCOME PER SHARE

The Company reports net income per share in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128 'Earnings per Share.'

Basic net income per share is computed by dividing net income available to
common shareholders by the weighted average number of common shares outstanding
during the year. Diluted net income per share is computed by dividing net income
available to common shareholders by the weighted average number of common and
common equivalent shares outstanding during the year. Common share equivalents
include the number of shares issuable upon the exercise of outstanding options,
less the shares that could be purchased with the proceeds from the exercise of
the options, based on the average trading price of the Company's common stock
for 1997, 1998 and 1999.

F-8

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

The following table reconciles the basic and diluted net income per share
computations for each year presented (in thousands, except per share data):

<TABLE>
<CAPTION>
1997
------------------------------------
INCOME SHARES PER SHARE
------ ------ ---------
<S> <C> <C> <C>
Basic net income per share........................... $ 7,362 8,948 $0.82
-----
-----
Effect of stock options.............................. -- 271
------- ------
Diluted net income per share......................... $ 7,362 9,219 $0.80
------- ------ -----
------- ------ -----

<CAPTION>
1998
------------------------------------
INCOME SHARES PER SHARE
------ ------ ---------
<S> <C> <C> <C>
Basic net income per share........................... 7,412 7,919 0.94
-----
-----
Effect of stock options.............................. -- 259
------- ------
Diluted net income per share......................... $ 7,412 8,178 $0.91
------- ------ -----
------- ------ -----

<CAPTION>
1999
------------------------------------
INCOME SHARES PER SHARE
------ ------ ---------
<S> <C> <C> <C>
Basic net income per share.......................... 11,195 7,427 1.51
-----
-----
Effect of stock options.............................. -- 406
------- ------
Diluted net income per share......................... $11,195 7,833 $1.43
------- ------ -----
------- ------ -----
</TABLE>

For the years ended January 31, 1997, 1998 and 1999, a total of 1,509,000,
1,413,000, and 1,164,000 shares, subject to outstanding options were not
included in the common equivalent shares calculation as the exercise prices were
above the average trading price of the Company's common stock for those periods.

SFAS No. 128 replaced the calculation of primary and fully diluted net
income per share under previous accounting standards with basic and diluted net
income per share. As a result of adopting SFAS No. 128, the Company restated
primary net income per share of $0.80 to basic net income per share of $0.82 for
the year ended January 31, 1997. There was no impact of restating fully diluted
net income per share to diluted net income per share for the year ended
January 31, 1997.

4. COMMON STOCK TRANSACTIONS

During the years ended January 31, 1997, 1998 and 1999, the Company
purchased 854,000, 567,000 and 632,000 shares of its common stock for $7,486,000
$5,018,000 and $7,468,000, respectively. The Company is authorized by its Board
of Directors to purchase an additional 465,000 shares of its common stock and
all shares purchased will be held in treasury for possible future use.

5. REVOLVING LINE OF CREDIT

The Company has a revolving credit agreement with seven banks which expires
on July 31, 2000. Under the terms of the agreement, available revolving credit
borrowings are equal to the lesser of: (i) $100 million for the months of
January through June and $150 million for the months of July through December or
(ii) the sum of specific percentages of eligible accounts receivable and
eligible inventories, as defined. Borrowings available are reduced by any letter
of credit commitments outstanding. The Company had no outstanding borrowings
under the revolving credit agreement at January 31, 1998 and January 31, 1999.
At January 31, 1999, a total of approximately $84.1 million was available for
borrowings under the revolving credit agreement.

F-9

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

The interest rate charged on borrowings is prime or LIBOR plus 1.875% and
commitment fees of 1/4% are payable on the unused portion. Borrowings are
secured by certain fixed assets, accounts receivable and inventories.

The revolving credit agreement contains restrictive covenants which require
the Company to maintain specified levels of consolidated tangible net worth and
limit capital expenditures and the incurrence of additional indebtedness. The
revolving credit agreement also places restrictions on the amount of common
stock repurchases and the payment of dividends.

6. LONG-TERM MORTGAGE DEBT

Long-term mortgage debt consists of notes payable secured by certain land,
buildings and leasehold improvements. Interest rates range from 6.9% to 10.0%.
Principal and interest are payable monthly over terms which generally range from
10 to 15 years. Substantially all of the notes payable require balloon payments
at the end of the scheduled term.

Maturities of long-term debt are as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31, AMOUNT
- ----------- ------
<S> <C>
2000..................................................... $ 3,114
2001..................................................... 4,060
2002..................................................... 6,166
2003..................................................... 5,067
2004..................................................... 5,325
Thereafter............................................... 34,860
-------
$58,592
-------
-------
</TABLE>

The fair value of the Company's long-term debt at January 31, 1998 and 1999
was approximately $56.6 million and $60.9 million, respectively. The fair value
was estimated based on rates available to the Company for debt with similar
terms and maturities.

7. EMPLOYEE BENEFITS

Stock Option Plans -- The Company maintains the REX Stores Corporation 1995
Omnibus Stock Incentive Plan (the Omnibus Plan). Under the Omnibus Plan, the
Company may grant to officers and key employees awards in the form of incentive
stock options, non-qualified stock options, stock appreciation rights,
restricted stock, other stock-based awards and cash incentive awards. The
Omnibus Plan also provides for yearly grants of non-qualified stock options to
directors who are not employees of the Company. The exercise price of each stock
based award must be at least 100% of the fair market value of the Company's
common stock on the date of grant. A maximum of 2,000,000 shares of common stock
are authorized for issuance under the Omnibus Plan and at January 31, 1999,
21,405 shares remained available for issuance. At January 31, 1999, 91,559 stock
options also remained outstanding under the 1984 Incentive Stock Option Plan
which expired in fiscal 1995.

On October 14, 1998, the Company's Board of Directors approved a grant of
non-qualified stock options to two key executives for 650,000 shares at an
exercise price of $9.94, which represented the market price on the date of
grant. These options vest over a three-year period commencing on December 31,
2000, and all of these options remained outstanding at January 31, 1999. At
January 31, 1999, non-qualified stock options awarded in 1989 also remained
outstanding and exercisable for 512,079 shares at an exercise price of $3.38 per
share, which represented the market price on the date of grant. All 512,079 of
these non-qualified stock options were exercised subsequent to year-end on
March 23, 1999.

F-10

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

On February 26, 1997, the Company's Board of Directors approved a
re-pricing of 362,035 stock options, with exercise prices ranging from $13.00 to
$18.98 per share, to the market price as of the date of approval of $8.13 per
share. Stock options held by employees who are members of the Board of Directors
and stock options held by Non-Employee Directors were not re-priced.

The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, 'Accounting for Stock Issued to Employees', under which no
compensation cost has been recognized. Had compensation cost for these plans
been determined at fair value consistent with SFAS No. 123, 'Accounting for
Stock-Based Compensation', the Company's net income and net income per share
would have been reduced to the following pro forma amounts:

<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Net income (000's):
As reported................................... $7,362 $7,412 $11,195
Pro forma..................................... 5,932 6,167 9,370
Basic net income per share:
As reported................................... $ 0.82 $ 0.94 $ 1.51
Pro forma..................................... 0.66 0.78 1.26
Diluted net income per share:
As reported................................... $ 0.80 $ 0.91 $ 1.43
Pro forma..................................... 0.72 0.79 1.25
</TABLE>

The fair values of options granted were estimated as of the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1997, 1998 and 1999, respectively:
risk-free interest rate of 6.3%, 5.7% and 5.7%; expected volatility of 46.7%,
41.5% and 39.2%; and a weighted average stock option life of 5 years, 5 years
and 9 years. In accordance with the provisions of SFAS No. 123, the fair value
method of accounting was not applied to options granted prior to February 1,
1995 in estimating the pro forma amounts. Therefore, the pro forma effect on net
income and net income per share may not be representative of that to be expected
in future years.

The following summarizes stock option activity for the years ended
January 31, 1997, 1998 and 1999 (options granted and cancelled during fiscal
1998 include the effect of the February 26, 1997 re-pricing):

<TABLE>
<CAPTION>
1997 1998 1999
------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE SHARES EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year........... 2,069 $11.60 2,119 $12.15 2,288 $11.06
Granted.................................... 202 15.47 653 9.13 997 10.54
Exercised.................................. (81) 5.34 (86) 7.20 (79) 7.54
Canceled or expired........................ (71) 14.62 (398) 14.54 (11) 13.18
----- ------ ----- ------ ----- ------
Outstanding at end of year................. 2,119 $12.15 2,288 $11.06 3,195 $10.98
----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------
Exercisable at end of year................. 1,143 $10.37 1,368 $10.62 1,639 $11.10
----- ------ ----- ------ ----- ------
----- ------ ----- ------ ----- ------
Weighted average fair value of options
granted.................................. $8.30 $4.68 $6.46
----- ----- -----
----- ----- -----
</TABLE>

F-11

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

Price ranges and other information for stock options outstanding as of
January 31, 1999 were as follows:

<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------ ------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF SHARES AVERAGE REMAINING SHARES AVERAGE
EXERCISE PRICES (000'S) EXERCISE PRICE LIFE (000'S) EXERCISE PRICE
--------------- ------- -------------- ---- ------- --------------
<S> <C> <C> <C> <C> <C>
$3.38....................... 512 $ 3.38 0.8 yrs. 512 $ 3.38
$8.13 to $11.50.................. 1,519 9.98 8.0 yrs. 225 8.69
$12.50 to $18.13.................. 1,159 15.60 5.5 yrs. 898 16.07
$18.98....................... 5 18.98 0.2 yrs. 4 18.98
----- ------ -------- ----- ------
3,195 $10.98 5.9 yrs. 1,639 $11.10
----- ------ -------- ----- ------
----- ------ -------- ----- ------
</TABLE>

Profit Sharing Plan -- The Company has a qualified, noncontributory profit
sharing plan covering full-time employees who meet certain eligibility
requirements. The Plan also allows 401(k) savings contributions by participants
with certain Company matching contributions. Aggregate contributions to the Plan
are determined annually by the Board of Directors and are not to exceed 15% of
total compensation paid to all participants during such year. The Company
contributed matching amounts of approximately $28,000, $31,000 and $36,000 for
the years ended January 31, 1997, 1998 and 1999, respectively, under the Plan.

8. LEASES AND COMMITMENTS

The Company is committed under operating leases for certain warehouse and
retail store locations. The lease agreements are for varying terms through 2007
and contain renewal options for additional periods. Real estate taxes, insurance
and maintenance costs are generally paid by the Company. Contingent rentals
based on sales volume are not significant. Certain leases contain scheduled rent
increases and rent expense is recognized on a straight-line basis over the term
of the leases.

On August 30, 1989, the Company completed a transaction for the sale and
leaseback of certain stores and warehouse facilities under an initial 15-year
lease term. This transaction resulted in a pre-tax financial statement gain of
$15.6 million, which was deferred and is being amortized as a reduction to lease
expense over the term of the leases. The unamortized deferred gain at
January 31, 1999 was approximately $4.6 million.

During the year ended January 31, 1999, the Company purchased three store
locations that were leased pursuant to the sale/leaseback. For financial
statement purposes, the purchase of these three stores resulted in approximately
$660,000 of the deferred gain associated with the sale/leaseback being recorded
as a reduction in the carrying value of properties purchased.

The following is a summary of rent expense under operating leases (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED MINIMUM GAIN SUBLEASE
JANUARY 31, RENTALS AMORTIZATION INCOME TOTAL
- ----------- ------- ------------ ------ -----
<S> <C> <C> <C> <C>
1997........................................... $9,076 $(629) $(1,503) $6,944
1998........................................... 9,453 (943) (1,713) 6,797
1999........................................... 9,729 (943) (1,854) 6,932
</TABLE>

F-12

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

Future minimum annual rentals and gain amortization on non-cancelable
leases as of January 31, 1999 are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED MINIMUM GAIN
JANUARY 31, RENTALS AMORTIZATION
- ----------- ------- ------------
<S> <C> <C>
2000...................................................... $8,663 $ 824
2001...................................................... 8,113 824
2002...................................................... 7,102 824
2003...................................................... 5,924 824
2004...................................................... 5,384 824
Thereafter................................................ 3,981 481
------- ------
$39,167 $4,601
------- ------
------- ------
</TABLE>

9. INCOME TAXES

The provision for income taxes for the years ended January 31, 1997, 1998
and 1999 consists of the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal:
Current................................................ $5,803 $5,007 $3,304
Deferred............................................... (1,824) (957) (217)
------ ------ ------
3,979 4,050 3,087
------ ------ ------
State and Local:
Current................................................ 1,056 848 836
Deferred............................................... (230) (58) 80
------ ------ ------
826 790 916
------ ------ ------
$4,805 $4,840 $4,003
------ ------ ------
------ ------ ------
</TABLE>

The tax effects of significant temporary differences representing deferred
tax assets and liabilities are as follows:

<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1998 1999
---- ----
<S> <C> <C>
Assets:
Deferral of service contract income.................... $ 9,991 $ 9,853
Sale and leaseback deferred gain....................... 2,172 1,842
Accrued liabilities.................................... 2,257 2,757
Other items............................................ 3,291 4,053
------- -------
17,711 18,505
Liabilities:
Depreciation........................................... (271) (1,030)
------- -------
Total net future income tax benefits.............. $17,440 $17,475
------- -------
------- -------
</TABLE>

The Company paid income taxes of $9,801,000, $7,604,000 and $5,633,000 in
the years ended January 31, 1997, 1998 and 1999, respectively.

F-13

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE YEARS ENDED JANUARY 31, 1998 AND 1999

The effective income tax rate on consolidated pre-tax income differs from
the Federal income tax statutory rate as follows:

<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------------------------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate................ 35.0% 35.0% 35.0%
Tax credits from investment in limited partnerships
(See Note 2)...................................... -- -- (13.2)
State and local taxes, net of federal tax benefit... 4.1 4.2 3.9
Other............................................... 0.4 0.3 0.6
---- ---- -----
39.5% 39.5% 26.3%
---- ---- -----
---- ---- -----
</TABLE>

10. CONTINGENCIES

The Company is involved in various legal actions arising in the normal
course of business. After taking into consideration legal counsels' evaluation
of such actions, management is of the opinion that their outcome will not have a
significant effect on the Company's consolidated financial statements.

F-14

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS
JULY 31, 1998 AND 1999

<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 6,014 $ 9,734
Accounts receivable, net............................... 518 1,414
Merchandise inventory.................................. 144,523 149,362
Prepaid expenses and other............................. 2,833 2,177
Equity investment in limited partnerships.............. 3,150 781
Future income tax benefits............................. 7,899 9,366
-------- --------
Total current assets.............................. 164,937 172,834

Property and equipment, net................................. 93,624 101,716
Future income tax benefits.................................. 9,577 8,109
Restricted investments...................................... 1,744 1,949
-------- --------
Total assets...................................... $269,882 $284,608
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Notes payable.......................................... $ 13,618 $ --
Current portion of long-term debt...................... 3,011 3,203
Current portion, deferred income and deferred gain on
sale and leaseback.................................... 11,379 11,349
Accounts payable, trade................................ 49,507 56,908
Accrued income taxes................................... -- 663
Accrued payroll........................................ 4,388 6,515
Other liabilities...................................... 10,612 11,342
-------- --------
Total current liabilities......................... 92,515 89,980
-------- --------
Long-term liabilities:
Long-term debt......................................... 53,093 58,708
Deferred income........................................ 16,928 16,038
Deferred gain on sale and leaseback.................... 4,793 3,365
-------- --------
Total long-term liabilities....................... 74,814 78,111
-------- --------
Shareholders' equity:
Common stock........................................... 97 99
Paid-in capital........................................ 58,403 57,226
Retained earnings...................................... 66,773 81,555
Treasury stock......................................... (22,720) (22,363)
-------- --------
Total shareholders' equity............................. 102,553 116,517
-------- --------
Total liabilities and shareholders' equity........ $269,882 $284,608
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
statements.

F-15

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1999

<TABLE>
<CAPTION>
1998 1999
---- ----
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Net sales................................................... $180,410 $206,795
Costs and expenses:
Cost of merchandise sold............................... 130,384 149,483
Selling, general and administrative expenses........... 43,034 47,294
-------- --------
Total costs and expenses.......................... 173,418 196,777
-------- --------
Income from operations...................................... 6,992 10,018
Investment income........................................... 223 190
Interest expense............................................ (2,918) (2,756)
Income from limited partnerships............................ -- 796
-------- --------
Income before provision for income taxes............... 4,297 8,248
Provision for income taxes.................................. 1,699 2,063
-------- --------
Net income.................................................. $ 2,598 $ 6,185
-------- --------
Weighted average number of common shares outstanding........ 7,670 7,480
-------- --------
Basic net income per share.................................. $ 0.34 $ 0.83
-------- --------
-------- --------
Weighted average number of common and common equivalent
shares outstanding........................................ 8,034 8,122
-------- --------
Diluted net income per share................................ $ 0.32 $ 0.76
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
statements.

F-16

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE PERIODS ENDED JULY 31, 1998, JANUARY 31, 1999 AND JULY 31, 1999

<TABLE>
<CAPTION>
COMMON SHARES
----------------------------------
ISSUED TREASURY
--------------- ---------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
------ ------ ------ ------ ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1998................... 9,756 $97 2,484 $22,720 $58,403 $66,773
Common stock issued........................ 11 1 -- -- 193 --
Treasury stock acquired.................... -- -- 103 1,134 -- --
Net income................................. -- -- -- -- -- 8,597
----- --- ----- ------- ------- -------
Balance at January 31, 1999................ 9,767 98 2,587 23,854 58,596 75,370
Common stock issued........................ 167 1 (512) (4,721) (1,370) --
Treasury stock acquired.................... -- -- 209 3,230 -- --
Net income................................. -- -- -- -- -- 6,185
----- --- ----- ------- ------- -------
Balance at July 31, 1999................... 9,934 $99 2,284 $22,363 $57,226 $81,555
----- --- ----- ------- ------- -------
----- --- ----- ------- ------- -------
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
statements.

F-17

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 31, 1998 AND 1999

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
-------------------
1998 1999
---- ----
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 2,598 $ 6,185
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization, net................ 1,573 1,693
Equity in losses of limited partnerships.......... -- 1,057
Deferred income................................... (981) (696)
Changes in assets and liabilities:
Accounts receivable............................... 2,258 883
Merchandise inventory............................. (18,025) (17,360)
Other current assets.............................. (758) (141)
Accounts payable, trade................................ (325) 4,234
Other liabilities...................................... 256 3,574
-------- --------

Net cash used in operating activities........ (13,404) (571)
-------- --------

Cash flows from investing activities:
Capital expenditures.............................. (4,175) (5,869)
Capital disposals................................. 1,675 943
Equity investment in limited partnerships......... (3,150) --
Restricted investments............................ (143) (121)
-------- --------

Net cash used in investing activities........ (5,793) (5,047)
-------- --------

Cash flows from financing activities:
Increase in notes payable......................... 13,618 --
Payments of long-term debt........................ (2,224) (2,003)
Long-term debt borrowings......................... 2,707 5,322
Common stock issued............................... 507 1,623
Treasury stock issued............................. -- 1,728
Treasury stock acquired........................... (6,334) (3,230)
-------- --------

Net cash provided by financing activities.... 8,274 3,440
-------- --------

Net decrease in cash and cash equivalents................... (10,923) (2,178)

Cash and cash equivalents, beginning of period.............. 16,937 11,912
-------- --------

Cash and cash equivalents, end of period.................... $ 6,014 $ 9,734
-------- --------
-------- --------
</TABLE>

The accompanying notes are an integral part of these unaudited consolidated
statements.

F-18

<PAGE>
REX STORES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1999

NOTE 1. CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements included in this report have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments necessary to state fairly the information set forth
therein. Any such adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. It is suggested that these unaudited consolidated financial
statements be read in conjunction with the consolidated financial statements and
the notes thereto included in the Company's Annual Report on Form 10-K for the
year ended January 31, 1999.

NOTE 2. ACCOUNTING POLICIES

The interim consolidated financial statements have been prepared in
accordance with the accounting policies described in the notes to the
consolidated financial statements included in the Company's 1999 Annual Report
on Form 10-K. While management believes that the procedures followed in the
preparation of interim financial information are reasonable, the accuracy of
some estimated amounts is dependent upon facts that will exist or calculations
that will be accomplished at fiscal year end. Examples of such estimates include
changes in the LIFO reserve (based upon the Company's best estimate of inflation
to date) and management bonuses and the provision for income taxes. Any
adjustments pursuant to such estimates during the quarter were of a normal
recurring nature.

Certain reclassifications have been made to prior year amounts to conform
with their fiscal 2000 presentation.

NOTE 3. STOCK OPTION PLANS

The following summarizes options granted, exercised and canceled or expired
during the six months ended July 31, 1999:

<TABLE>
<CAPTION>
SHARES UNDER STOCK
OPTION PLANS
------------
<S> <C>
Outstanding at January 31, 1999 ($3.38 to $18.98 per
share).................................................... 3,194,951
Granted ($11.50 to $22.69 per share)........................ 212,221
Exercised ($3.38 to $10.38 per share)....................... (680,080)
Canceled or expired ($8.13 to $17.25 per share)............. (17,670)
---------
Outstanding at July 31, 1999 ($8.13 to $22.69 per share).... 2,709,422
---------
---------
</TABLE>

F-19

<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

INSIDE BACK COVER

Map showing store and warehouse locations.

<TABLE>

<S> <C> <C> <C> <C>
Alabama: (12) Idaho: (5) Massachusetts: (2) North Carolina: (5) South Carolina: (10)
- ------------- ------------- ----------------- ------------------- --------------------
Athens Coeur d'Alene Hadley Asheville Aiken
Auburn Idaho Falls Lanesborough Goldsboro Anderson
Daphne Lewiston Hendersonville Charleston
Decatur Pocatello Michigan: (3) Rocky Mount Florence
Florence Twin Falls ------------- Salisbury Greenwood
Gadsden Adrian Murrell's Inlet
Huntsville Illinois: (10) Bay City North Dakota: (3) North Myrtle Beach
Mobile (2) ------------- Benton Harbor ----------------- Orangeburg
Montgomery Alton Bismarck Rock Hill
Oxford Bradley Minnesota: (1) Grand Forks Sumter
Tuscaloosa Carbondale ------------- Minot
Danville Willmar South Dakota: (3)
Arkansas: (1) Decatur Ohio: (17) -----------------
- ------------- Galesburg Mississippi: (11) ------------- Aberdeen
Springdale Pekin ------------- Ashtabula Rapid City
Peru Columbus Beavercreek Watertown
Colorado: (3) Quincy Gautier Dayton (2)
- ------------- Sterling Greenville Defiance Tennessee: (6)
Grand Junction Gulfport Kettering --------------
Greeley Indiana: (3) Hattiesburg Lima Bristol
Pueblo ------------- Jackson (2) Marion Chattanooga
Anderson Meridian Miamisburg Cleveland
Florida: (26) Muncie Ridgeland Middletown Johnson City
- ------------- Richmond Tupelo New Philadelphia Kingsport
Charlotte Harbor Vicksburg Piqua Morristown
Crystal River Iowa: (12) Sandusky
Ft. Pierce ------------- Missouri: (3) St. Clairsville Texas: (10)
Gainesville Burlington ------------- Springfield -----------
Hudson Council Bluffs Jefferson City Wheelersburg Brownsville
Lake City Des Moines (2) Joplin Wooster Denton
Largo Dubuque St. Joseph Harlingen
Leesburg Ft. Dodge Oklahoma: (2) Lake Jackson
Mary Esther Marshalltown Montana: (3) ------------- Longview
Melbourne Mason City ------------- Enid Midland
Merritt Island Ottumwa Butte Lawton Odessa
Naples (2) Sioux City Great Falls San Angelo
Ocala Waterloo Missoula Pennsylvania: (18) Sherman
Palm Harbor West Des Moines ------------------ Victoria
Panama City Nebraska: (3) Altoona
Pensacola (2) Kansas: (2) ------------- Bloomsburg Virginia: (1)
St. Augustine ------------- Grand Island Chambersburg -------------
St. Petersburg Hutchinson Norfolk Cranberry Danville
Spring Hill Lawrence North Platte Erie (2)
Stuart Frackville Washington: (2)
Tallahassee (2) Kentucky: (3) New York: (20) Greensburg ---------------
Titusville ------------- ------------- Hanover Union Gap
Vero Beach Ashland Auburn Hazleton Wenatchee
Hopkinsville Clifton Park Hermitage
Georgia: (7) Paducah Cortland Indiana West Virginia: (5)
- ------------- Fredonia Johnstown ------------------
Albany Louisiana: (6) Geneva Lower Burrell Beckley
Brunswick ------------- Horseheads Meadville Bluefield
LaGrange Alexandria Ithaca New Castle Bridgeport
Macon Baton Rouge Kingston Scranton Morgantown
Rome Houma Lakewood Wilkes-Barre Vienna
Valdosta Lake Charles Latham
Warner Robins New Iberia Lockport Wisconsin: (4)
Opelousas New Hartford --------------
Niagara Falls Fond du Lac
Maryland: (2) Olean Janesville
------------- Plattsburg Manitowac
Cumberland Queensbury Oshkosh
Hagerstown Rome
Schenectady Wyoming: (2)
Utica ------------
Watertown Casper
Cheyenne

</TABLE>

Warehouse/Store Location

Store Locations

<PAGE>
________________________________________________________________________________

2,400,000 SHARES
REX STORES CORPORATION
COMMON STOCK

[LOGO]

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

PROSPECTUS
SEPTEMBER 29, 1999

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

SALOMON SMITH BARNEY
CREDIT SUISSE FIRST BOSTON
GERARD KLAUER MATTISON & CO., INC.
ING BARINGS
MORGAN KEEGAN & COMPANY, INC.

________________________________________________________________________________