UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED JANUARY 29, 2000

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT

FOR THE TRANSITION PERIOD FROM ............ TO ............

COMMISSION FILE NUMBER: 0-14818

TRANS WORLD ENTERTAINMENT CORPORATION
(Exact name of registrant as specified in its charter)

                 New York                                    14-1541629
                 --------                                    ----------
(State or other jurisdiction of incorporation    (I.R.S. Employer Identification
   or organization)                                           Number)

38 Corporate Circle
Albany, New York 12203
(Address of principal executive offices, including zip code)

(518) 452-1242
(Registrant's telephone number, including area code)

Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's Knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or an amendment to this Form 10-K. [ ]

As of April 26, 2000, 48,356,304 shares of the Registrant's Common Stock, excluding 5,104,432 shares of stock held in Treasury, were issued and outstanding. The aggregate market value of such shares held by non-affiliates of the Registrant, based upon the closing sale price of $10.25 on the NASDAQ National Market on April 26, 2000, was approximately $372,876,080. Shares of Common Stock held by the Company's controlling shareholder, who controls approximately 24.8% of the outstanding Common Stock, have been excluded for purposes of this computation. Because of such shareholder's control, shares owned by other officers, directors and 5% shareholders have not been excluded from the computation.


PART I

ITEM 1. BUSINESS

GENERAL

Trans World Entertainment Corporation (which, together with its consolidated subsidiaries, is referred to herein as the "Company") was incorporated in New York in 1972. Trans World Entertainment Corporation owns 100% of the outstanding common stock of Record Town, Inc., through which the Company's principal retail operations are conducted.

The Company operates a chain of retail entertainment stores and an e-commerce site in a single industry segment. Sales were $1.36 billion during the fiscal year ended January 29, 2000 (referred to herein as "1999"). The Company is one of the largest specialty retailers of compact discs, prerecorded audio cassettes, prerecorded videocassettes, digital versatile discs ("DVDs") and related accessories in the United States. At January 29, 2000, the Company operated 967 stores totaling approximately 4.9 million square feet in 44 states, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands, with the majority of the stores concentrated in the Eastern half of the United States. The Company's business is seasonal in nature, with the peak selling period being the Christmas holiday season in the Company's fourth fiscal quarter.

On April 22, 1999, the Company merged with Camelot Music Holdings, Inc. ("Camelot"). The Company exchanged 1.9 shares of its common stock for each share of Camelot common stock. The Company issued approximately 19.3 million shares of its common stock in exchange for all outstanding Camelot common stock. The transaction was accounted for as a pooling-of-interests. Accordingly, prior period consolidated financial statements have been restated to include combined results of operations, financial position and cash flows of Camelot as though it had been a part of the Company since Camelot's adoption of "fresh-start" accounting on January 31, 1998.

The Company's principal executive offices are located at 38 Corporate Circle, Albany, New York, 12203, and its telephone number is (518) 452-1242.

STORE CONCEPTS

The Company offers a broad selection of music and video titles at competitive prices in convenient, attractive stores. The Company has a number of distinct store concepts to take advantage of real estate opportunities and to satisfy varying consumer demands.

MALL STORES

The Company's mall stores include five concepts, all of which are designed to offer consumers an exciting shopping experience. The mall stores emphasize a strong in-store marketing message, and a broad merchandise selection to attract the casual impulse buyer.

FULL-LINE MUSIC STORES. The Company's full-line mall stores are located in large, regional shopping malls and operate under the trade names of Record Town, Camelot Music or The Wall. There were 572 such stores at January 29, 2000. This concept utilizes an average space of approximately 4,300 square feet with certain stores ranging in excess of 10,000 square feet. Camelot Music and The Wall stores were acquired as part of the Camelot acquisition.

SATURDAY MATINEE STORES. These stores are dedicated to the sale of prerecorded video merchandise and related accessories. These stores are located in large, regional shopping malls and average 2,200 square feet in size. There were 38 such locations in operation at January 29, 2000.

COMBINATION STORES. At January 29, 2000, the Company operated 92 combination Record Town/Saturday Matinee stores. The combination store concept occupies an average of 8,300 square feet. These stores share common storefronts and offer the consumer an exciting combination of music and video merchandise in one store location. The Company believes that the combination of the two concepts creates a marketing synergy by attracting different target customers.

FOR YOUR ENTERTAINMENT STORES. At January 29, 2000, the Company operated 12 F.Y.E. stores. These stores carry a broad assortment of music and video merchandise and an extensive selection of games, portable electronics,

1

accessories and boutique items, as well as a game arcade. This format makes the traditional superstore experience available to shopping mall consumers. This format is designed to be a semi-anchor or destination location in major regional malls. The F.Y.E. concept occupies an average of 24,000 square feet.

SPECIALTY MUSIC STORES. The specialty music concept is also located in large, regional shopping malls, but contrasts with full-line music stores in that they carry a less diverse merchandise selection. These stores, 9 of which were in operation at January 29, 2000, are generally operated under the name Tape World. The specialty mall stores operate in approximately 1,200 square feet. The Company's strategy is to reposition and expand these stores into Record Town stores or combination stores as opportunities become available.

FREESTANDING STORES

The Company's freestanding concept included 243 stores in operation at January 29, 2000, which primarily operate under the names Coconuts, Strawberries Music and Spec's Music. These stores are designed for freestanding, strip center and downtown locations in areas of high population density. These stores occupy an average space of approximately 5,200 square feet, and carry an extensive merchandise assortment. The Spec's Music stores were acquired as part of the Camelot acquisition. The Company's freestanding stores include 10 video rental stores operating under the name Movies Plus.

The Company also operates "Planet Music," a 31,000 square foot, freestanding superstore in Virginia Beach, VA. The store offers an extensive catalog of music, video and other related merchandise.

E-COMMERCE

During 1998, the Company established a subsidiary to develop a strategy to conduct business on the Internet. In November 1998, the Company officially launched TWEC.COM, its Internet commerce site. TWEC.COM is the on-line hub for Trans World Entertainment's retail stores. With worldwide distribution spanning 16 countries in addition to the United States, the site features all of the music CDs and cassettes, video games, DVD and VHS home videos that are available at its retail stores, and more. The Company's strategy is to develop a profitable e-commerce business by establishing marketing, selling and customer service capabilities that take advantage of the synergies between its retail stores and its e-commerce site. The Company markets its e-commerce site through the same advertising and marketing channels used for its retail stores, as well as through strategic alliances with well-known Internet companies, such as Yahoo! and Real Networks. Customers can return on-line purchases at retail store locations. The Company currently fulfills its on-line sales through a third party and plans to provide its own fulfillment by the third quarter of fiscal 2000.

2

MERCHANDISE

The Company's stores offer a full assortment of compact discs, prerecorded audio cassettes, prerecorded video, DVDs and related accessories. Sales by merchandise category as a percent of total sales over the past three years were as follows:

                                            ----------------------------------------------
                                               JANUARY 29,     JANUARY 30,    JANUARY 31,
                                                      2000            1999           1998
                                            ----------------------------------------------

Compact discs                                   67.0%           64.3%          55.5%

Prerecorded audio cassettes                      9.5            12.2           14.2

Singles                                          2.9             3.6            4.3

Prerecorded video                               11.2            10.3           16.3

Other                                            9.4             9.6            9.7
                                            ----------------------------------------------
TOTAL                                          100.0%          100.0%         100.0%
                                            ----------------------------------------------

PRERECORDED MUSIC. The Company's music stores offer a full assortment of compact discs and prerecorded audio cassettes purchased primarily from five major manufacturers. Music categories include rock, pop, rap, soundtracks, alternative, Latin, urban, heavy metal, country, dance, vocals, jazz and classical. Merchandise inventory is generally classified for inventory management purposes in three groups: "hits", which are the best selling new releases, "fast moving", which are the top 1,000 titles with the highest rate of sale in any given month, and "catalog", which are items that customers purchase to build their collections.

PRERECORDED VIDEO. The Company offers prerecorded video cassettes and DVDs for sale in a majority of its stores. In 1999, DVD sales were 22% of the Company's total video sales. The Company believes that the DVD player will gradually replace VCRs as the DVD technology becomes more affordable and accessible. Paul Kagan Associates, an entertainment/media research firm, estimated that more than 2 million households owned a DVD player by the end of 1999 and as many as 43 million households will own a DVD player by the end of 2008. The Company plans to capitalize on this trend by making DVDs increasingly available in its stores.

OTHER MERCHANDISE. The Company stocks and promotes brand name blank audio cassette and videocassette tapes as well as accessory merchandise for compact discs, audio cassettes and videocassettes, including maintenance and cleaning products, storage cases, portable electronics, headphones and video games.

ADVERTISING

The Company makes extensive use of in-store signs and also pursues a mass-media marketing program for its freestanding stores through advertisements in newspapers, radio, and television. Most of the vendors from whom the Company purchases merchandise offer their customers advertising allowances to promote their merchandise.

3

INDUSTRY AND COMPETITIVE ENVIRONMENT

According to the Recording Industry Association of America, the U.S. retail music market was approximately $14.6 billion in 1999. According to Paul Kagan Associates, the video sell-through market, including VHS and DVD, totaled an estimated $9.5 billion in 1999 and is expected to grow at a compounded annual rate of 8.6% through 2003. The retail home entertainment industry is highly competitive. The Company's retail stores compete primarily with other specialty retail music and video chains (e.g. Musicland, Wherehouse Entertainment and Tower Records), as well as mass merchants (e.g. Wal-Mart, K-Mart, Target), book stores (e.g. Barnes and Noble, Borders) and consumer electronics stores (e.g. Best Buy, Circuit City), some of which may have greater financial or other resources than the Company. The recent trend in the consolidation of specialty retailers included not only the Company's acquisitions of Camelot Music Holdings, Inc. and Strawberries, Inc., but also Camelot's previous acquisition of The Wall and Spec's Music, as well as the acquisition of Blockbuster Music by Wherehouse Entertainment, Inc.

The Company also competes with mail order clubs (e.g. BMG Music and Columbia House) and Internet companies (e.g. Amazon.com and CDnow.com). In addition, a uniform format is being developed that will enable music companies to sell their products via direct Internet download. The Company believes that sales via the Internet will continue to become more significant over time. The Company launched its Internet commerce site in the late fall of 1998.

SEASONALITY

The Company's business is highly seasonal, with the fourth quarter constituting the Company's peak selling period. In fiscal 1999, the fourth quarter accounted for approximately 38% of annual sales and 79% of net income, excluding the one-time Camelot merger charge. In anticipation of increased sales activity during these months, the Company purchases substantial amounts of inventory and hires a significant number of temporary employees to supplement its permanent store sales staff. If for any reason the Company's net sales were below seasonal norms during the fourth quarter, including as a result of merchandise delivery delays due to receiving or distribution problems, the Company's operating results, particularly operating and net income, could be adversely affected. Quarterly results can be affected by the timing and strength of new releases, the timing of holidays, new store openings and the sales performance of existing stores.

DISTRIBUTION AND MERCHANDISE OPERATIONS

The Company's two distribution facilities use certain automated and computerized systems designed to manage merchandise receipt, storage and shipment. Store inventories of regular merchandise are replenished using daily merchandise sales information that is transmitted to the Company's central computer system from each store after the close of the business day. Shipments from the facilities to the Company's stores are made at least once a week and currently provide approximately 77% of all merchandise requirements. The balance of the stores' requirements is satisfied through direct shipments from manufacturers.

Company-owned trucks service approximately 21% of the Company's stores. The balance is serviced by several common carriers chosen on the basis of geography and rate considerations. The Company does not have any contractual arrangements with common carriers. The Company's sales volume and centralized merchandise distribution facilities enable them to take advantage of transportation economies.

The Company believes that its existing distribution centers are adequate to meet the Company's planned business needs.

4

SUPPLIERS AND PURCHASING

The Company purchases inventory from approximately 500 suppliers. Approximately 73% of purchases in fiscal 1999 were made from five suppliers:
WEA (Warner/Electra/Atlantic Corp.), Sony Music, Universal Distribution, BMG (Bertelsmann Music Group) and EMD (EMI Music Distribution). As is typical in this industry, the Company does not have material long-term purchase contracts and deals with its suppliers principally on an order-by-order basis. In the past, the Company has not experienced difficulty in obtaining satisfactory sources of supply, and management believes that it will retain access to adequate sources of supply. The Company also expects to continue to pass on to customers any price increases imposed by the suppliers of prerecorded music and video.

The Company produces store fixtures for its new and existing stores in its manufacturing facility located in Johnstown, New York. The Company believes that its costs of production are lower than purchasing from an outside manufacturer.

TRADE CUSTOMS AND PRACTICES

Under current trade practices with four of the five largest suppliers, retailers of compact discs and prerecorded audio cassettes are entitled to return merchandise they have purchased for other titles carried by these suppliers; however, the returns are subject to merchandise return penalties. The remaining supplier continues to accept merchandise returns, and recently changed its policy on merchandise returns to eliminate return penalties on the majority of its merchandise. This return practice permits the Company to carry a wider selection of music titles and reduce the risk of obsolete inventory. Most manufacturers and distributors of prerecorded video offer return privileges comparable to those with prerecorded music, but without merchandise return penalties. Except for the one large merchandiser mentioned above, merchandise return policies have not changed significantly during the past five years. Historically, the Company generally has adapted its purchasing policies to changes in the policies of its suppliers.

EMPLOYEES

As of January 29, 2000, the Company employed approximately 10,300 associates, of whom 4,300 were employed on a full-time basis. The remainder were employed on a part-time or temporary basis. The Company hires seasonal sales associates during peak seasons to assure continued levels of customer service. Store managers report to district managers, who, in turn, report to a regional manager. Store managers, district managers and regional managers may be eligible to receive incentive compensation based on the profitability of stores for which they are responsible. None of the employees are covered by collective bargaining agreements, and management believes that the Company enjoys favorable relations with its employees. Increases in the minimum wage have had a significant effect on the Company's compensation expense in prior years. Future increases in the minimum wage may have an adverse effect on the Company's results of operations and financial condition.

RETAIL INFORMATION SYSTEMS

The Company utilizes an IBM AS/400 computer system for the majority of its information processing. The system processes sales, inventory, accounting, payroll, telecommunications and other operating information. During fiscal 1998 and 1999, the Company completed a chain-wide rollout of a new point-of-sale system. This system has improved customer service while increasing the accuracy of perpetual inventory records at the store level. Features of the system include enhanced inventory management functions, including merchandise receiving and returns, and the ability to lookup, by SKU, a store's current in-stock inventory position. Additionally, the system facilitates streamlined checkout procedures and daily electronic communication between stores, the corporate offices and field management.

YEAR 2000

To date, the Company has not experienced any significant business disruptions and has had no delays in receiving product from its suppliers as a result of the Year 2000. While the risks associated with Year 2000 readiness peaked with the change of the date from December 31, 1999 to January 1, 2000, there is a risk that a Year 2000 related issue could surface within the year. The Company plans to devote the necessary resources to resolve any Year 2000 issues in a timely manner. However, if third parties upon which the Company relies fail to adequately address any of their Year 2000 problems, it could disrupt the Company's business. In the most reasonably likely worst case scenarios, the Company could experience delays in receiving product from vendors, shipping product to stores, accessing various types of information or communicating effectively with financial institutions or vendors.

5

The Company's Year 2000 readiness process for its internal systems was substantially complete by the third quarter of 1999. Incremental costs of addressing the Year 2000 issue, which have totaled approximately $721,000, were charged to expense as incurred. The Company primarily utilized internal resources for the completion of Year 2000 remediation.

6

ITEM 2. PROPERTIES

RETAIL STORES

At January 29, 2000, the Company operated 967 retail locations. All of the Company's retail stores are under operating leases with various terms and options. Substantially all of the stores provide for payment of fixed monthly rentals, a percentage of gross receipts of the store in excess of specified sales levels, and operating expenses for maintenance, property taxes, insurance and utilities. The following table lists the number of leases due to expire (assuming no renewal options are exercised) in each of the fiscal years shown, as of January 29, 2000:

                        # of                                         # of
YEAR                   LEASES                  YEAR                 LEASES
----                   ------                  ----                 ------
2000                     184                   2004                  146

2001                     116                   2005                   65

2002                     99                    2006                   31

2003                     133          2007 & Beyond                  193

The Company expects that as these leases expire, it will be able either to obtain renewal leases, if desired, or to obtain leases for other suitable locations.

CORPORATE OFFICES AND DISTRIBUTION CENTER FACILITIES

The Company leases its Albany, New York distribution facility and corporate office space from its largest shareholder and Chief Executive Officer under three capital leases that extend through the year 2015. All three leases are at fixed rentals with provisions for biennial increases based upon increases in the Consumer Price Index. Under such leases, the Company pays all property taxes, insurance and maintenance. The office portion of the facility is comprised of approximately 40,300 square feet. The distribution center portion is comprised of approximately 128,100 square feet. The Company owns its 236,600 square foot distribution center and 59,200 square feet of commercial office space in North Canton, Ohio.

The Company leases an 82,000 square foot facility in Johnstown, New York, where it manufactures its store fixtures. The operating lease expires in December 2000. The Company also leases 20,700 square feet of commercial office space in Albany, New York. There is currently no written lease for this facility.

ITEM 3. LEGAL PROCEEDINGS

The Company is party to various claims, legal actions, and complaints arising in the ordinary course of its business, including pre-petition assessments by the Internal Revenue Service ("IRS") aggregating approximately $7.9 million and relating to Camelot's corporate-owned life insurance program. No judgment has been rendered regarding these IRS assessments as of January 29, 2000. A trial to decide the matter began in March 2000 in the Federal District Court for the District of Delaware. A decision is expected to be rendered in the third or fourth quarter of fiscal 2000. In the event that a judgment is rendered against the Company in the full amount of the proposed assessment, the Company's results of operations would be materially adversely affected with a charge to earnings of approximately $7.9 million plus interest since January 1998. In the opinion of management, the IRS assessments and all other claims, legal actions and complaints are without merit or involve such amounts that unfavorable disposition will not have a material impact on the financial position, results of operations or cash flows of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended January 29, 2000.

7

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION. The Company's Common Stock trades on The NASDAQ Stock Market under the symbol "TWMC." As of January 29, 2000, there were approximately 6,900 shareholders of record. The following table sets forth high and low last reported sale prices, adjusted for stock splits, for each fiscal quarter during the period from February 1, 1998 through April 26, 2000.

CLOSING
SALES
PRICES

                               High         Low
           1998
1st Quarter                    $21.96     $ 16.00
2nd Quarter                     29.58       18.25
3rd Quarter                     26.75       11.33
4th Quarter                     24.38       13.25


           1999
1st Quarter                    $15.75      $ 9.63
2nd Quarter                     15.25       10.44
3rd Quarter                     13.13       10.19
4th Quarter                     12.25        9.25


           2000

1st Quarter (through
April 26, 2000) $10.69 $ 9.25

On April 26, 2000, the last reported sale price on the Common Stock on the NASDAQ National Market was $10.25.

Options for the Company's Common Stock trade on the Chicago Board Options Exchange.

DIVIDEND POLICY: The Company has never declared or paid cash dividends on its Common Stock. The Company's credit agreement currently allows the Company to pay a cash dividend once in each calendar year. Such dividends would be restricted to ten percent of the most recent fiscal year's consolidated net income and could only be paid if, after any payment of dividends, the Company maintains $25 million of availability under the credit agreement. Any future determination as to the payment of dividends will depend upon capital requirements and limitations imposed by the Company's credit agreement and such other factors as the board of directors of the Company may consider.

8

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data and other operating information of the Company and gives retroactive effect to the acquisition of Camelot for the periods subsequent to its "fresh-start reporting" on January 31, 1998, upon its reemergence from bankruptcy. The acquisition was accounted for using the pooling-of-interests method of accounting. The selected income statement and balance sheet data for the five fiscal years ended January 29, 2000 set forth below are derived from the audited consolidated financial statements of the Company. Each fiscal year of the Company consisted of 52 weeks except the fiscal year ended February 3, 1996, which consisted of 53 weeks. All share and per share amounts have been adjusted for stock splits. The information is only a summary and should be read in conjunction with the Company's audited consolidated financial statements and related notes and other financial information included herein and "Management's Discussion and Analysis of Financial Condition and Results of Operations."

                                                           FISCAL YEAR ENDED
                                   -------------------------------------------------------------------
                                    JANUARY 29,   JANUARY 30,  JANUARY 31,  FEBRUARY 1,  FEBRUARY 3,
                                       2000          1999         1998         1997         1996
                                   -------------------------------------------------------------------
INCOME STATEMENT DATA:                      (in thousands, except per share and store data)
Sales                                  $1,358,132   $1,282,385     $571,314     $481,657     $517,046
Cost of sales                             858,588      796,311      361,422      308,952      347,554
                                   -------------------------------------------------------------------
Gross profit                              499,544      486,074      209,892      172,705      169,492
Selling, general and
  administrative expenses                 371,998      372,886      170,834      150,218      168,313
Camelot  merger-related costs (1)          25,473          ---          ---          ---          ---
Asset impairment charge and
   restructuring charge
   (reversal), net (2)                        ---        1,537          ---          ---       24,204
                                   -------------------------------------------------------------------
Income (loss) from operations             102,073      111,651       39,058       22,487     (23,025)
Interest expense                            3,496        4,989        5,148       12,110       15,201
Other expenses (income), net              (4,086)      (2,221)        (153)      (1,343)        (979)
                                   -------------------------------------------------------------------
Income (loss) before income
  taxes                                   102,663      108,883       34,063       11,720     (37,247)
Income tax expense (benefit)               41,270       47,873       13,489        4,618     (13,431)
                                   -------------------------------------------------------------------
Net income (loss)                         $61,393      $61,010      $20,574       $7,102    ($23,816)
                                   ===================================================================
Basic earnings (loss) per share             $1.17        $1.19        $0.70        $0.24      ($0.82)
                                   ===================================================================
Weighted average number
  of shares outstanding-basic              52,457       51,105       29,483       29,271       29,178
                                   ===================================================================
Diluted earnings (loss) per share           $1.15        $1.14        $0.66        $0.24      ($0.82)
                                   ===================================================================
Weighted average number
  of shares outstanding-diluted            53,354       53,530       31,032       29,697       29,178
                                   ===================================================================

BALANCE SHEET DATA: (AT THE END OF THE PERIOD)
Working capital                          $303,562     $274,535      $88,974      $80,368     $78,773
Total assets                              956,410      798,610      374,019      311,610     391,888
Current portion of long-term
  obligations                               5,311        4,802           99        9,557       3,420
Long-term obligations                      19,461       36,065       41,409       50,490      60,364
Shareholders' equity                      494,173      432,376      124,522      102,919      95,661

OPERATING DATA:
Store Count (open at end of period):
     Mall stores                              723          741          340          357         379
     Freestanding stores                      244          247          199          122         163
                                   ------------------------------------------------------------------
     Total stores                             967          988          539          479         542

Comparable store sales increase
  (decrease)  (3)                            2.0%         7.5%        10.2%         3.6%      (3.5)%
Total square footage (in thousands)         4,913        4,693        2,442        2,008       2,140

9

(1) THE CAMELOT MERGER-RELATED COSTS INCLUDED THE WRITE-OFF OF THE BOOK VALUE OF RETIRED ASSETS, PROFESSIONAL FEES ASSOCIATED WITH THE COMPLETION OF THE MERGER, SEVERANCE COSTS, JOINT PROXY PRINTING AND DISTRIBUTION COSTS, AND REGULATORY FILING FEES.

(2) THE ASSET IMPAIRMENT CHARGE AND RESTRUCTURING CHARGE (REVERSAL), NET, DURING THE YEAR ENDED JANUARY 30, 1999, INCLUDED AN ASSET IMPAIRMENT CHARGE OF $3.7 MILLION TO WRITE DOWN THE CARRYING AMOUNT OF CERTAIN FIXED ASSETS AT STORES, PRIMARILY LEASEHOLD IMPROVEMENTS, AND THE ONE-TIME REVERSAL OF THE REMAINING BALANCE OF $2.2 MILLION IN THE STORE CLOSING RESERVE ORIGINALLY ESTABLISHED DURING THE FISCAL YEAR ENDED FEBRUARY 3, 1996. SEE NOTES 1 AND 2 TO THE CONSOLIDATED FINANCIAL STATEMENTS. DURING THE YEAR ENDED FEBRUARY 3, 1996, IT INCLUDED THE WRITE-DOWN OF ASSETS, ESTIMATED CASH PAYMENTS TO LANDLORDS FOR THE EARLY TERMINATION OF OPERATING LEASES, EARLY TERMINATION BENEFITS AND ESTIMATED PROFESSIONAL FEES. INVENTORY-RELATED COSTS, INCLUDING THE COST OF RETURNING MERCHANDISE AFTER THE STORE CLOSES, ARE INCLUDED IN COST OF SALES

(3) A STORE IS INCLUDED IN COMPARABLE STORE SALES CALCULATIONS AT THE BEGINNING OF ITS 13TH FULL MONTH OF OPERATION.

10

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is an analysis of the Company's results of operations, liquidity and capital resources. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment for the Company's merchandise, including the entry or exit of non-traditional retailers of the Company's merchandise to or from its markets; the release by the music industry of an increased or decreased number of "hit releases," general economic factors in markets where the Company's merchandise is sold, and other factors discussed in the Company's filings with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain income and expense items as a percentage of sales:

                                                       Fiscal Year Ended
                                             --------------------------------------
                                              January 29, January 30,  January 31,
                                                 2000        1999         1998
                                             --------------------------------------

Sales                                              100.0%      100.0%       100.0%
Gross profit                                        36.8%       37.9%        36.7%
Selling, general and
  administrative expenses                           27.4%       29.1%        29.9%
Camelot merger-related costs                         1.9%         ---          ---
Restructuring charge reversal and
  impairment charge, net                              ---        0.1%          ---
                                             --------------------------------------
Income from operations                               7.5%        8.7%         6.8%
Interest expense                                     0.3%        0.4%         0.8%
Other expenses (income), net                       (0.3)%      (0.2)%         0.0%
                                             --------------------------------------
Income before income taxes                           7.5%        8.5%         6.0%
Income tax expense                                   3.0%        3.7%         2.4%
                                             --------------------------------------

Net income                                           4.5%        4.8%         3.6%
                                             ======================================

Change in comparable store sales                     2.0%        7.5%        10.2%
                                             ======================================

FISCAL YEAR ENDED JANUARY 29, 2000 ("1999")
COMPARED TO FISCAL YEAR ENDED JANUARY 30, 1999 ("1998")

SALES. The Company's sales increased $75.7 million, or 5.9%, from 1998. The increase was primarily attributable to a comparable store sales increase of 2.0% and the addition of approximately 220,000 square feet of retail selling space through the opening of 34 stores and relocation of 46 stores, which was partially offset by the closing of 55 stores. Management attributes the comparable store sales increase to its focus on customer service, superior retail locations, inventory and merchandise presentation.

For 1999, comparable store sales increased 1.6% for mall stores and 4.2% for freestanding stores. By merchandise category, comparable store sales increased 1.1% in music, 9.9% in video and decreased 4.5% in other merchandise.

GROSS PROFIT. Gross profit, as a percentage of sales, decreased to 36.8% in 1999 from 37.9% in 1998 primarily as a result of higher inventory shrinkage in the acquired Camelot stores. The Company has taken action to reduce shrink at the Camelot stores, including implementing policies and procedures that have successfully kept shrink at reduced levels for the Company in the past.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A, as a percentage of sales, decreased to 27.4% in 1999 from 29.1% in 1998. The 1.7% decrease can be attributed to the leverage of SG&A on the total sales increase and the reduction of corporate overhead expenses through the consolidation of the Camelot corporate offices.

11

CAMELOT MERGER-RELATED COSTS. The Camelot merger costs, net, represents the one-time charge of $25.5 million for costs directly related to completing the merger with Camelot Music Holdings, Inc. The costs included the write-off of the book value of retired assets, professional fees associated with the completion of the merger, severance costs, joint proxy printing and distribution costs, and regulatory filing fees.

INTEREST EXPENSE. Interest expense decreased from $5.0 million in 1998 to $3.5 million in 1999. The decrease is due to lower average outstanding borrowings and lower interest rates.

INCOME TAX EXPENSE. The effective income tax rate was 40.2% in 1999. See Note 6 of Notes to Consolidated Financial Statements for a reconciliation of the statutory tax rate to the Company's effective tax rate.

NET INCOME. In 1999, the Company's net income increased to $61.4 million compared to a net income of $61.0 million in 1998. Excluding the one-time Camelot merger-related costs, pro forma 1999 net income is $76.6 million. The improved bottom line performance as compared to 1998 can be attributed to the improved leverage of SG&A expenses due to higher sales and the reduction of corporate overhead expenses.

FISCAL YEAR ENDED JANUARY 30, 1999 ("1998")
COMPARED TO FISCAL YEAR ENDED JANUARY 31, 1998 ("1997")

SALES. The Company's sales increased $711.1 million, or 124.5%, from 1997. The increase was primarily attributable to the retroactive effect of the acquisition of Camelot for the periods subsequent to its "fresh-start reporting" on January 31, 1998, upon its reemergence from bankruptcy, a comparable store sales increase of 7.5% and the sales increase resulting from the inclusion for a full year of 90 Strawberries' stores acquired in October 1997.

For 1998, comparable store sales increased 6.9% for mall stores and 9.7% for freestanding stores. By merchandise category, comparable store sales increased 6.6% in music, 10.2% in video and 10.2% in other merchandise.

GROSS PROFIT. Gross profit, as a percentage of sales, increased to 37.9% in 1998 from 36.7% in 1997 as a result of reduced inventory shrinkage, increased purchase discounts and a strong performance from higher margin merchandise categories.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A, as a percentage of sales, decreased to 29.1% in 1998 from 29.9% in 1997. The 0.8% decrease can be attributed to the leverage of SG&A expenses on the increased sales.

IMPAIRMENT CHARGE AND RESTRUCTURING CHARGE REVERSAL, NET. The impairment charge and restructuring charge reversal, net, represents a $3.7 million charge taken related to the impairment of fixed assets at certain stores where the carrying amount of such assets exceeded their estimated fair value. This was offset by a one-time reversal of a $2.2 million reserve remaining from restructuring charges taken in 1995. The restructuring was completed during the fourth quarter of 1998.

INTEREST EXPENSE. Interest expense decreased from $5.1 million in 1997 to $5.0 million in 1998. The decrease is due to lower average outstanding borrowings resulting from the equity offering in May 1998, partially offset by interest on long-term debt held by Camelot Music related to the Spec's acquisition.

INCOME TAX EXPENSE. The effective income tax rate was 44.0% in 1998. See Note 6 of Notes to Consolidated Financial Statements for a reconciliation of the statutory tax rate to the Company's effective tax rate.

NET INCOME. In 1998, the Company's net income increased to $61.0 million compared to a net income of $20.6 million in 1997. The improved bottom line performance can be attributed to the merger with Camelot in April 1999 with "fresh-start reporting" effective for periods subsequent to January 31, 1998, and the profitability of the additional new stores opened in 1998. The merger with Camelot added $20.4 million in net income in 1998. Also, the Company benefited from a comparable store sales increase, higher gross margin rate and improved SG&A leverage.

12

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of working capital are cash flows from operations and borrowings under its revolving credit facility. The Company ended fiscal 1999 with cash balances of approximately $280.0 million, compared to $139.4 million at the end of 1998. The increase was due to an increase in cash generated from operations. Cash provided by operations was $212.1 million in 1999 compared to $77.7 million in 1998. The increase was primarily related to improved inventory purchasing activities, as reflected by the net change in inventory and accounts payable. The net change in inventory and accounts payable was a net cash inflow of $121.4 million in 1999, as compared to a net cash outflow of $55.8 million in 1998. During 1999, the Company's accounts payable balance increased $132.7 million, compared to an increase in the balance of $17.8 million during 1998. The increase in accounts payable is due to improved payment terms for inventory purchased during the holiday season. Inventory increased $11.3 million in 1999, as compared to a $73.6 million increase in 1998. The large increase in inventory during 1998 was due to increased inventory requirements for stores acquired as part of the acquisitions of Spec's and The Wall.

Cash used in financing activities was $18.2 million in 1999, as compared to a net cash inflow of $38.5 million in 1998. In 1999, the primary uses of cash were a payment of $22.0 million to payoff the remaining debt associated with the Spec's acquisition and $11.5 million to repurchase outstanding shares of the Company's common stock under a program authorized by the Board of Directors on January 7, 2000. As of January 29, 2000, the Company had purchased approximately 1.1 million shares of the 5.0 million shares authorized by the Board. During 1998, the two largest sources of cash were $36.6 million received in a public offering of its common stock and $25.0 million borrowed for the acquisition of Spec's, partially offset by a $38.3 million repayment of long-term debt.

The Company has a three-year $100 million secured revolving credit facility with Congress Financial Corporation that expires in July 2000 and automatically renews on a year-to-year basis thereafter at the discretion of both parties. The Company fully expects to extend the current facility for three more years. The Revolving Credit Facility, with its below prime average lending rate, combined with lower borrowing needs, was responsible for the Company's interest expense decreasing to $3.5 million in 1999 from $5.0 million in 1998. As of January 29, 2000 and January 30, 1999, the Company had $0 and $20.0 million of long-term borrowings outstanding, respectively.

The Revolving Credit Facility contains certain restrictive provisions, including provisions governing cash dividends and acquisitions, is collateralized by merchandise inventory and has a minimum net worth covenant. On January 29, 2000, the Company had no outstanding borrowings under the Revolving Credit Facility, and $100 million was available.

CAPITAL EXPENDITURES. Most of the Company's capital expenditures are for new stores and the relocation of existing stores. The Company typically finances its capital expenditures through cash generated from operations. The Company may also receive financing from landlords in the form of construction allowances or rent concessions. Total capital expenditures were approximately $51.2 million in 1999. This includes approximately $9.9 million related to the installation of a new point-of-sale ("POS") system in the Camelot stores acquired in April 1999.

In fiscal 2000, the Company plans to spend approximately $35.0 million, net of construction allowances, for additions to fixed assets.

SEASONALITY. The Company's business is highly seasonal, with the highest sales and earnings occurring in the fourth fiscal quarter. See Note 12 of the Notes to Consolidated Financial Statements for quarterly financial highlights.

ACCOUNTING POLICIES. Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," issued in June 1998 and, as amended, effective for all quarters of fiscal years beginning after June 15, 2000, will require companies to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management is currently evaluating the impact of SFAS No. 133 and anticipates the adoption of the statement will not have a material effect on the Company's consolidated financial statements.

The Accounting Standards Executive Committee Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," issued in March 1998 and effective for fiscal years beginning after December 15, 1998, requires that certain costs of computer software developed or obtained for internal use be capitalized. The Company adopted this statement for the fiscal year beginning January 31, 1999. There was no impact on the Company's results of operations or financial position because it did not develop any new software internally, nor did it purchase any software.

13

The Accounting Standards Executive Committee Statement of Position 98-5, "Accounting for the Costs of Start-up Activities," issued in April 1998 and effective for fiscal years beginning after December 15, 1998, requires start-up costs and organization costs to be expensed as incurred. The Company adopted this statement for the fiscal year beginning January 31, 1999. There was no impact on the Company's results of operations or financial position because such costs were already being expensed as incurred.

DIVIDEND POLICY: The Company has never declared or paid cash dividends on its Common Stock. The Company's credit agreement currently allows the Company to pay a cash dividend once in each calendar year. These dividends are restricted to ten percent of the most recent fiscal year's consolidated net income and can only be paid if, after any payment of dividends, the Company maintains $25 million of availability under the credit agreement. Any future determination as to the payment of dividends would depend upon capital requirements and limitations imposed by the Company's credit agreement and such other factors as the board of directors of the Company may consider.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not hold any financial instruments that expose it to significant market risk and does not engage in hedging activities. Information about the fair value of financial instruments is included in Note 1 of the Notes to Consolidated Financial Statements.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The index to the Consolidated Financial Statements of the Company is included in Item 14, and the consolidated financial statements follow the signature page to this Annual Report on Form 10-K.

The quarterly results of operations are included herein in Note 12 of the Consolidated Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

14

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

(a) Identification of Directors

Incorporated herein by reference is the information appearing under the captions "Election of Directors" and "Board of Directors Meetings and Its Committees" in the Company's definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after January 29, 2000.

(b) Identification of Executive Officers

Incorporated herein by reference is the information appearing under the caption "Executive Officers and Compensation" in the Company's definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after January 29, 2000.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated herein by reference is the information appearing under the caption "Executive Officers and Compensation" in the Company's definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after January 29, 2000.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference is the information appearing under the captions "Principal Shareholders" and "Election of Directors" in the Company's definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after January 29, 2000.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference is the information appearing under the caption "Related Party Transactions" in the Company's definitive Proxy Statement for the Registrant's 2000 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after January 29, 2000.

15

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

14(A) (1) FINANCIAL STATEMENTS The consolidated financial statements and notes are listed in the Index to Financial Statements on page F-1 of this report.

14(A) (2) FINANCIAL STATEMENT SCHEDULES None of the schedules for which provision is made in the applicable accounting regulations under the Securities Exchange Act of 1934, as amended, are required.

14(A) (3) EXHIBITS Exhibits are as set forth in the "Index to Exhibits" which follows the Notes to the Consolidated Financial Statements and immediately precedes the exhibits filed.

14(B) REPORTS ON FORM 8-K On January 14, 2000, the Company filed a Form 8-K related to the implementation of an Accelerated Stock Repurchase Program.

14(C) EXHIBITS Exhibits are as set forth in the "Index to Exhibits" which follows the Notes to the Consolidated Financial Statements and immediately precedes the exhibits filed.

14(D) OTHER FINANCIAL STATEMENTS Not applicable.

16

SIGNATURES

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

TRANS WORLD ENTERTAINMENT CORPORATION

Date:   April 28 , 2000                            By: /s/ ROBERT J. HIGGINS
                                                --------------------------------
                                           Robert J. Higgins, Chairman and Chief
                                                               Executive Officer

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

NAME                                                              TITLE                                   DATE

/S/ ROBERT J. HIGGINS               Chairman and Chief Executive Officer                                 April 28, 2000
---------------------               (Principal Executive Officer)
 (Robert J. Higgins)

/S/ JOHN J. SULLIVAN                Senior Vice President, Treasurer and Chief Financial Officer         April 28, 2000
--------------------                (Principal Financial and Chief Accounting Officer)
 (John J. Sullivan)

/S/ MATTHEW H. MATARASO             Secretary and Director                                               April 28, 2000
-----------------------
 (Matthew H. Mataraso)

/S/ GEORGE W. DOUGAN                Director                                                             April 28, 2000
--------------------
 (George W. Dougan)

/S/ CHARLOTTE G. FISCHER            Director                                                             April 28, 2000
------------------------
 (Charlotte G. Fischer)

/S/ ISAAC KAUFMAN                   Director                                                             April 28, 2000
-----------------
 (Isaac Kaufman)

/S/ DEAN S. ADLER                   Director                                                             April 28, 2000
-----------------
 (Dean S. Adler)

 /S/ DR. JOSEPH G. MORONE           Director                                                             April 28, 2000
-------------------------
 (Dr. Joseph G. Morone)

/S/ MARTIN E. HANAKA                Director                                                             April 28, 2000
--------------------
 (Martin E. Hanaka)

/S/ MICHAEL B. SOLOW                Director                                                             April 28, 2000
--------------------
 (Michael B. Solow)

17

TRANS WORLD ENTERTAINMENT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                      Form 10-K
                                                                       Page No.

Independent Auditors' Report                                               F-2

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets at January 29, 2000 and January 30, 1999       F-3

Consolidated Statements of Income - Fiscal years
  ended January 29, 2000, January 30, 1999 and January 31, 1998            F-4

Consolidated Statements of Shareholders' Equity - Fiscal years
  ended January 29, 2000, January 30, 1999 and January 31, 1998            F-5

Consolidated Statements of Cash Flows - Fiscal years ended
  January 29, 2000, January 30, 1999 and January 31, 1998                  F-6


Notes to Consolidated Financial Statements                                 F-7

F-1

REPORT OF KPMG LLP
INDEPENDENT AUDITORS

The Board of Directors and Shareholders
Trans World Entertainment Corporation:

We have audited the accompanying consolidated balance sheets of Trans World Entertainment Corporation and subsidiaries as of January 29, 2000 and January 30, 1999, and the related consolidated statements of income, shareholders' equity and cash flows for each of the fiscal years in the three-year period ended January 29, 2000. 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 Trans World Entertainment Corporation and subsidiaries as of January 29, 2000 and January 30, 1999, and the results of their operations and their cash flows for each of the fiscal years in the three-year period ended January 29, 2000, in conformity with generally accepted accounting principles.

                                                  /s/ KPMG LLP


Albany, New York
March 17, 2000

F-2

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)

                                                                            JANUARY 29,    JANUARY 30,
                                                                               2000            1999
                                                                          -------------------------------
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                    $  280,026     $  139,411
  Accounts receivable                                                               5,973          5,800
  Merchandise inventory                                                           437,363        426,078
  Deferred tax asset                                                                  ---            633
  Prepaid expenses and other                                                        5,203          9,382
                                                                          -------------------------------
          Total current assets                                                    728,565        581,304
                                                                          -------------------------------

FIXED ASSETS, net                                                                 144,694        139,124
DEFERRED TAX ASSET                                                                 34,431         29,580
GOODWILL                                                                           31,433         33,026
OTHER ASSETS                                                                       17,287         15,576
                                                                          -------------------------------
          TOTAL ASSETS                                                         $  956,410     $  798,610
                                                                          ===============================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                                                             $  353,294     $  220,636
  Income taxes payable                                                             21,908         30,544
  Accrued expenses and other                                                       32,021         50,787
  Deferred tax liability                                                           12,469            ---
  Current portion of long-term debt and capital lease obligations                   5,311          4,802
                                                                           ------------------------------
          Total current liabilities                                               425,003        306,769
                                                                           ------------------------------

LONG-TERM DEBT, less current portion                                                  ---         20,000
CAPITAL LEASE OBLIGATIONS, less current portion                                    19,461         16,065
OTHER LIABILITIES                                                                  17,773         23,400
                                                                           ------------------------------
          TOTAL LIABILITIES                                                       462,237        366,234
                                                                           ------------------------------

SHAREHOLDERS' EQUITY:
 Preferred stock  ($0.01 par value; 5,000,000 shares authorized;
    none issued.)                                                                     ---            ---
 Common stock ($0.01 par value; 200,000,000 shares authorized;
    53,425,867 shares and 52,182,408 shares issued in
    1999 and 1998, respectively)                                                      534            522
 Additional paid-in capital                                                       283,932        271,805
 Unearned compensation - restricted stock                                           (348)           (78)
 Treasury stock at cost (1,177,432 and 105,432 shares in
     1999 and 1998, respectively)                                                (11,855)          (390)
 Retained earnings                                                                221,910        160,517
                                                                           ------------------------------
          TOTAL SHAREHOLDERS' EQUITY                                              494,173        432,376
                                                                           ------------------------------
          TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                           $  956,410     $  798,610
                                                                           ==============================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-3

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                                                                  FISCAL YEAR ENDED
                                                                      JANUARY 29,    JANUARY 30,    JANUARY 31,
                                                                          2000           1999           1998
                                                                     ---------------------------------------------

Sales                                                                   $ 1,358,132    $ 1,282,385     $  571,314
Cost of sales                                                               858,588        796,311        361,422
                                                                     ---------------------------------------------
Gross profit                                                                499,544        486,074        209,892
Selling, general and administrative expenses                                371,998        372,886        170,834
Camelot merger-related costs, net                                            25,473            ---            ---
Asset impairment charge and restructuring charge reversal, net                  ---          1,537            ---
                                                                     ---------------------------------------------
Income from operations                                                      102,073        111,651         39,058
Interest expense                                                              3,496          4,989          5,148
Other expense (income), net                                                 (4,086)        (2,221)          (153)
                                                                     ---------------------------------------------
Income before income taxes                                                  102,663        108,883         34,063
Income tax expense                                                           41,270         47,873         13,489
                                                                     ---------------------------------------------
NET INCOME                                                              $    61,393    $    61,010     $   20,574
                                                                     =============================================

BASIC EARNINGS PER SHARE                                                $      1.17    $      1.19     $     0.70
                                                                     =============================================

Weighted average number of common shares outstanding-basic                   52,457         51,105         29,483
                                                                     =============================================

DILUTED EARNINGS PER SHARE                                              $      1.15    $      1.14     $     0.66
                                                                     =============================================

Weighted average number of common shares outstanding-diluted                 53,354         53,530         31,032
                                                                     =============================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4

                                       TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                                           (IN THOUSANDS)

                                                                            UNEARNED
                                                             ADDITIONAL   COMPENSATION
                                        COMMON     STOCK      PAID IN        STOCK       TREASURY   RETAINED   SHAREHOLDERS'
                                        SHARES     AMOUNT     CAPITAL        PLANS        STOCK     EARNINGS      EQUITY
                                        ------     ------    -----------  ------------   --------   --------   -------------
Balance as of February 1, 1997            29,429     $  294    $  24,344     $    (245)   $  (407)   $  78,933    $  102,919
Issuance of treasury stock under
  incentive stock programs                   ---        ---          ---            ---         13         ---            13
Amortization of unearned
  compensation - restricted stock            ---        ---          ---             70        ---         ---            70
Exercise of stock options and
  related tax benefit                        294          3          943            ---        ---         ---           946
Net Income                                   ---        ---          ---            ---        ---      20,574        20,574
-----------------------------------------------------------------------------------------------------------------------------
Balance as of January 31, 1998
  as previously reported                  29,723        297       25,287          (175)      (394)      99,507       124,522
Opening equity balances of Camelot
  upon adoption of "fresh-start"
  accounting                              19,301        193      194,175            ---        ---         ---       194,368
-----------------------------------------------------------------------------------------------------------------------------
Balance as of January 31, 1998, as
  restated                                49,024        490      219,462          (175)      (394)      99,507       318,890
Issuance of treasury stock under
  incentive stock programs                   ---        ---           10            ---          4         ---            14
Stock issued                                 ---        ---          188            ---        ---         ---           188
Issuance of shares of common
  stock in a public offering               2,250         23       36,600            ---        ---         ---        36,623
Amortization of unearned
  compensation - restricted stock            ---        ---          ---             44        ---         ---            44
Issuance of director stock options           ---        ---          346            ---        ---         ---           346
Issuance of options under Camelot
   1998 Stock Option Plan                    ---        ---        5,112        (5,112)        ---         ---           ---
Amortization of unearned
  compensation - Camelot 1998 Stock          ---        ---          ---          5,112        ---         ---         5,112
  Option Plan
Forfeiture of unearned compensation -
  restricted stock                           ---        ---         (53)             53        ---         ---           ---
Exercise of stock options and
  related tax benefit                        908          9       10,140            ---        ---         ---        10,149
Net Income                                   ---        ---          ---            ---        ---      61,010        61,010
-----------------------------------------------------------------------------------------------------------------------------
Balance as of January 30, 1999            52,182        522      271,805           (78)      (390)     160,517       432,376
Issuance of treasury stock under
  incentive stock programs                   ---        ---            9            ---          4         ---            13
Repurchase of shares of treasury stock       ---        ---          ---            ---   (11,469)         ---      (11,469)
Issuance of restricted stock under
  incentive stock programs                    30        ---          336          (336)        ---         ---           ---
Amortization of unearned
  compensation - restricted stock            ---        ---          ---             66        ---         ---            66
Issuance of director stock options           ---        ---           64            ---        ---         ---            64
Exercise of stock options and
  related tax benefit                      1,214         12       11,718            ---        ---         ---        11,730
Net Income                                   ---        ---          ---            ---        ---      61,393        61,393
-----------------------------------------------------------------------------------------------------------------------------

Balance as of January 29, 2000            53,426    $   534    $ 283,932     $    (348)  $(11,855)   $ 221,910    $  494,173
=============================================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-5

                                       TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                           (IN THOUSANDS)

                                                                                          FISCAL YEAR ENDED
                                                                              ------------------------------------------
                                                                               JANUARY 29,   JANUARY 30,   JANUARY 31,
                                                                                  2000          1999          1998
                                                                              ------------------------------------------
OPERATING ACTIVITIES:
Net income                                                                          $61,393       $61,010       $20,574
Adjustments to reconcile net income to net cash provided by operating
  activities:
  Depreciation and amortization                                                      37,709        35,478        16,257
  Amortization of financing fees                                                        ---           253           ---
  Amortization of lease valuations, net                                             (2,765)         (388)           ---
  Reversal of restructuring charge                                                      ---       (2,157)           ---
  Loss on impairment from fixed assets                                                6,649         3,694           ---
  Stock compensation programs                                                           143         5,568            83
  Loss on disposal of assets                                                          3,670         1,560           ---
  Deferred tax expense                                                                8,251         4,529         1,370
Changes in operating assets and liabilities:
  Accounts receivable                                                                 (173)         (773)         5,868
  Merchandise inventory                                                            (11,285)      (73,557)       (9,872)
  Prepaid expenses and other                                                          4,179       (1,422)         (408)
  Other assets                                                                      (1,272)           178         2,481
  Accounts payable                                                                  132,658        17,788        42,751
  Income taxes payable                                                              (6,261)        26,461        12,119
  Accrued expenses and other                                                       (18,766)         5,884         7,344
  Store closing reserve                                                                 ---       (6,535)       (5,056)
  Other liabilities                                                                 (1,996)           135           198
                                                                              ------------------------------------------
Net cash provided by operating activities                                           212,134        77,706        93,709
                                                                              ------------------------------------------

INVESTING ACTIVITIES:
  Acquisition of property and equipment                                            (51,234)      (57,143)      (15,538)
  Acquisition of businesses, net                                                        ---     (103,264)      (20,901)
  Other assets and liabilities, net                                                 (2,100)         (235)           ---
  Disposal of videocassette rental inventory, net of purchases                           23         2,860           685
                                                                              ------------------------------------------
Net cash used by investing activities                                              (53,311)     (157,782)      (35,754)
                                                                              ------------------------------------------

FINANCING ACTIVITIES:
  Payments of long-term debt and financing fees                                    (22,000)      (38,281)      (18,440)
  Proceeds from long-term debt                                                          ---        25,000           ---
  Payments of capital lease obligations                                             (4,036)       (1,292)          (99)
  Proceeds from capital lease                                                         9,941        13,651           ---
  Payments for purchases of treasury stock                                         (11,469)           ---           ---
  Proceeds from public offering of common stock                                         ---        36,623           ---
  Exercise of stock options                                                           9,356         2,750           545
                                                                              ------------------------------------------
Net cash provided (used) by financing activities                                   (18,208)        38,451      (17,994)
                                                                              ------------------------------------------

Opening cash balance of Camelot upon adoption of "fresh-start" accounting               ---        86,304           ---
Net increase (decrease) in cash and cash equivalents                                140,615      (41,625)        39,961
Cash and cash equivalents, beginning of year                                        139,411        94,732        54,771
                                                                              ------------------------------------------
Cash and cash equivalents, end of year                                             $280,026      $139,411       $94,732
                                                                              ==========================================
Supplemental disclosure of non-cash investing and financing activities:
  Issuance of treasury stock under incentive stock programs                             $13           $14           $13
  Issuance of restricted shares under restricted stock plan                             336           ---           ---
  Income tax benefit resulting from exercises of stock options                        2,374         7,347           400

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS: Trans World Entertainment Corporation is one of the largest specialty retailers of music, video and related accessories in the United States. The Company operates in a single industry segment, the operation of a chain of retail entertainment stores. At January 29, 2000, the Company operated 967 stores in 44 states, the District of Columbia, Commonwealth of Puerto Rico and the U.S. Virgin Islands, with a majority of the stores concentrated in the Eastern half of the United States.

BASIS OF PRESENTATION: The consolidated financial statements consist of Trans World Entertainment Corporation, its wholly-owned subsidiary, Record Town, Inc. ("Record Town"), and Record Town's subsidiaries, all of which are wholly owned. All significant intercompany accounts and transactions have been eliminated. 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. On April 22, 1999, the Company merged with Camelot Music Holdings, Inc. ("Camelot"). The transaction was accounted for as a pooling-of-interests. Accordingly, prior period consolidated financial statements have been restated to include combined results of operations, financial position and cash flows of Camelot as though it had been a part of the Company since Camelot's adoption of "fresh-start" accounting on January 31, 1998.

FISCAL YEAR: The Company's fiscal year is a 52 or 53-week period ending on the Saturday nearest to January 31. Fiscal 1999, 1998 and 1997 ended January 29, 2000, January 30, 1999 and January 31, 1998, respectively, and each fiscal year consisted of 52 weeks.

REVENUE RECOGNITION: Revenue from sales of merchandise is recognized at the point of sale to the consumer, at which time payment is tendered. There are no provisions for uncollectible amounts since payment is received at the time of sale.

CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

CONCENTRATION OF CREDIT RISKS: The Company maintains centralized cash management and investment programs whereby excess cash balances are invested in short-term funds and money market instruments considered to be cash equivalents. The Company's investment portfolio is diversified and consists of short-term investment grade securities consistent with its investment guidelines. These guidelines include the provision that sufficient liquidity will be maintained to meet anticipated cash flow needs. The Company maintains cash and cash equivalents with various major financial institutions. At times, such amounts may exceed the F.D.I.C. limits. The Company limits the amount of credit exposure with any one financial institution and believes that no significant concentration of credit risk exists with respect to cash investments.

CONCENTRATION OF BUSINESS RISKS: The Company purchases inventory for its stores from approximately 500 suppliers, with approximately 73% of purchases being made from five suppliers. In the past, the Company has not experienced difficulty in obtaining satisfactory sources of supply, and management believes that it will retain access to adequate sources of supply. However, a loss of a major supplier could cause a loss of sales, which would have an adverse effect on operating results and also result in a decrease in vendor support for the Company's advertising programs.

MERCHANDISE INVENTORY AND RETURN COSTS: Inventory is stated at the lower of cost or market as determined principally by the average cost method. The Company is entitled to return merchandise purchased from major vendors for credit against other purchases from these vendors. The vendors often reduce the credit with a merchandise return charge ranging from 0% to 20% of the original merchandise purchase price depending on the type of merchandise being returned. The Company records the merchandise return charges in cost of sales.

F-7

VIDEOCASSETTE RENTAL INVENTORY: The cost of videocassette rental tapes is capitalized and amortized on a straight-line basis over their estimated economic life with a provision for salvage value. Major movie release additions, which have a relatively short economic life due to the frequency of rental, are amortized over twelve months, while other titles are amortized over thirty-six months. Depreciation and amortization expense related to the Company's videocassette rental inventory totaling $921,000, $1.2 million and $2.2 million in fiscal 1999, 1998 and 1997, respectively, is included in cost of sales.

FIXED ASSETS AND DEPRECIATION: Fixed assets are stated at cost. Major improvements and betterments to existing facilities and equipment are capitalized. Expenditures for maintenance and repairs that do not extend the life of the applicable asset are charged to expense as incurred. Buildings are depreciated over a 30-year term. Fixtures and equipment are depreciated using the straight-line method over their estimated useful lives, which range from three to seven years. Leasehold improvements are amortized using the straight-line method over the shorter of their estimated useful life or the related lease term. Primarily all of the Company's operating leases are ten years in term. Amortization of capital lease assets is included in depreciation and amortization expense.

FAIR VALUE OF LONG-LIVED ASSETS: Fixed assets and other long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. During fiscal 1999, the Company recorded an impairment loss of $6.7 million as part of the Camelot merger charge for the write-down of certain fixed assets acquired in the merger. During fiscal 1998, the Company recorded an impairment loss of $3.7 million to write-down the carrying amount of fixed assets, primarily leasehold improvements, at stores where the estimated future cash flows through the end of the store's lease were less than the carrying amount of that store's fixed assets.

GOODWILL: Goodwill represents the adjusted amount of the cost of acquisitions in excess of fair value of net assets acquired in purchase transactions, and is being amortized on a straight-line basis over estimated useful lives ranging from 15 to 20 years. The amortization period is determined by taking into consideration the following factors: the critical market position and establishment of brand names; the combined store mass of the companies; the amortization periods generally used in the retail music business; the highly competitive nature of the business including emerging forms of competition, and the overall history of profitability of the acquired businesses.

ADVERTISING COSTS: The costs of advertising are expensed in the first period in which such advertising takes place. Total advertising expense was $18.8 million, $19.2 million and $8.4 million in fiscal 1999, 1998 and 1997, respectively.

STORE OPENING AND CLOSING COSTS: Costs associated with opening a store are expensed as incurred. When it is determined that a store will be closed, estimated unrecoverable costs are charged to expense. Such costs include the net book value of abandoned fixtures, equipment, leasehold improvements and a provision for lease obligations, less estimated sub-rental income. The residual value of any fixed asset moved to a store as part of a relocation is transferred to the relocated store.

INCOME TAXES: Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

F-8

EARNINGS PER SHARE: The Company accounts for earnings per share under the provisions of Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share." This standard requires the Company to disclose basic earnings per share and diluted earnings per share. Basic earnings per share is calculated by dividing net income by weighted average common shares outstanding. Diluted earnings per share is calculated by dividing net income by the sum of the weighted average shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares, adjusted in fiscal 1999 and 1998 for the $2.4 million and $7.3 million, respectively, tax benefit resulting from stock option exercise activity, had been issued for the Company's common stock options from the Company's Stock Option Plans (see Note
9). In fiscal 1999, 1998 and 1997, the additional dilutive potential common shares were 0.9 million, 2.4 million and 1.5 million, respectively. As required by SFAS No. 128, all outstanding common stock options were included even though their exercise may be contingent upon vesting.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, and other current liabilities approximate fair value because of the immediate or short-term maturity of these financial instruments. The carrying value of long-term debt approximates fair value because its variable interest rate is adjusted to the current market rate on a monthly basis.

COMPREHENSIVE INCOME: The Company does not have other items of comprehensive income as defined by SFAS No. 130, "Reporting Comprehensive Income." Accordingly, comprehensive income is equal to net income.

RECLASSIFICATIONS: Certain amounts in prior years' financial statements have been reclassified to conform with the current year presentation.

NOTE 2. BUSINESS COMBINATIONS

On April 22, 1999, under the Agreement and Plan of Merger dated October 26, 1998, the Company acquired Camelot, a specialty retailer of prerecorded music, videocassettes and DVDs, and related accessories, in a stock-for-stock transaction accounted for as a pooling-of-interests. Camelot operated over 480 retail locations in 38 states, the District of Columbia and the Commonwealth of Puerto Rico. Upon completion of the merger, Camelot became a wholly owned subsidiary of the Company. In the merger, each share of Camelot's common stock was converted into 1.9 shares of the Company's common stock. Each outstanding option to purchase Camelot common stock immediately prior to the completion of the merger was converted into 1.9 fully vested and exercisable options to acquire the Company's common stock. The exercise prices of these options were adjusted accordingly for the 1.9 to 1 conversion ratio. As a result, the Company issued approximately 19.3 million shares of its common stock and converted 1.3 million options to acquire its common stock. In connection with the merger, all of Camelot's outstanding notes payable were repaid.

Effective July 29, 1998, Camelot acquired all of the outstanding common stock of Spec's Music, Inc. ("Spec's") under the terms of an Agreement and Plan of Merger dated June 3, 1998. Spec's is a retailer of prerecorded music stores in South Florida and Puerto Rico. The Spec's acquisition was accounted for as a purchase. The total purchase price was $42.7 million, net of cash acquired, including cash payment of $18.6 million, repayment of Spec's indebtedness of $9.2 million, assumption of liabilities aggregating $14 million and acquisition costs of $900,000. The excess of the purchase price over the fair values of the net assets acquired (goodwill) of $9.4 million is being amortized on a straight-line basis over 20 years.

Effective February 28, 1998, Camelot acquired certain assets and assumed certain liabilities and operating lease commitments of The Wall Music, Inc. ("The Wall") pursuant to an Asset Purchase Agreement dated December 10, 1997. The purchase price of The Wall was $74.6 million, net of cash acquired, (including approximately $2.3 million of acquisition costs) and was paid in cash. The acquisition was accounted for as a purchase, with the excess purchase price over fair values of the net assets acquired (goodwill) of $24.7 million being amortized on a straight-line basis over 20 years.

Effective October 8, 1997, the Company acquired 90 out of a total of 118 stores owned by Strawberries, Inc., a privately held freestanding music specialty retailer operating primarily in New England. The stores operate under the names "Strawberries" and "Waxie Maxie" and are primarily located in freestanding or strip center locations. The acquisition has been accounted for using the purchase method of accounting. At the time of the acquisition, the Company paid $21 million for the assets which included the fixed assets, merchandise inventories, other related current assets and $683,000 in goodwill. This goodwill is being amortized on a straight-line basis over a 15-year period.

NOTE 3. RESTRUCTURING CHARGE

F-9

The Company completed its 1995 restructuring program in fiscal 1998. The remaining balance in the store closing reserve of $2.2 million was credited to operations in the 4th quarter of fiscal 1998.

NOTE 4. PROPERTY, PLANT AND EQUIPMENT

                                                  January 29,     January 30,
                                                      2000            1999
                                                 --------------- ---------------
Buildings                                            $   18,926       $  19,530
Fixtures and equipment                                  166,229         148,752
Leasehold improvements                                   99,903          94,828
                                                 --------------- ---------------
                                                        285,058         263,110
Allowances for depreciation and
  amortization                                        (140,364)       (123,986)
                                                 --------------- ---------------
                                                     $  144,694       $ 139,124
                                                 =============== ===============

Depreciation and amortization expense related to the Company's distribution center facility and equipment of $1.6 million, $1.6 million and $1.1 million in fiscal 1999, 1998 and 1997, respectively, is included in cost of sales. All other depreciation and amortization of fixed assets is included in selling, general & administrative expenses. Depreciation and amortization of fixed assets is included in the condensed consolidated statements of income as follows:

                                                                                         Fiscal Year
                                                                        ----------------------------------------------
                                                                            1999            1998            1997
                                                                        -------------- ---------------- --------------
                                                                                       (IN THOUSANDS)
Cost of sales                                                                $  1,612        $   1,567       $  1,101
                                                                        ============== ================ ==============
Selling, general and administrative expenses                                 $ 33,732        $  30,552       $ 15,141
                                                                        ============== ================ ==============

F-10

NOTE 5. DEBT

The Company's $100.0 million secured revolving credit facility with Congress Financial Corporation matures in July 2000 and automatically renews on a year-to-year basis thereafter at the discretion of both parties. The Company fully expects to extend the current facility for three more years. The facility bears interest at the prime interest rate or the Eurodollar interest rate plus 1.75% (7.97% at January 29, 2000), and is collateralized by the Company's assets, allowing the Company to borrow up to 65% of its eligible merchandise inventory to a maximum of $100.0 million.

During fiscal 1999, 1998, and 1997, the highest aggregate balances outstanding under the current and previous revolving credit facilities were $3.3 million, $35.0 million and $45.9 million, respectively. The weighted average interest rates during fiscal 1999, 1998 and 1997 based on average daily balances were 7.44%, 8.50%, and 8.58%, respectively. The balances outstanding under the Company's revolving credit agreements at the end of fiscal 1999 and 1998 were $0.

Interest paid during fiscal 1999, 1998 and 1997 was approximately $3.6 million, $4.4 million, and $5.8 million, respectively.

On April 22, 1999, upon completion of the merger, the Company paid off and terminated the amended Camelot Revolving Credit Agreement, which had been in effect since June 12, 1998. The amended facility provided for working capital loans of up to $50 million during the peak period (October through December) and up to $35 million during the non-peak period (including in each case up to $5 million of letters of credit). In no case could the amount of loans exceed the borrowing base, which was 60% of eligible inventory. Camelot had $35 million of availability at January 30, 1999. The amended Revolving Credit Agreement also provided the ability to obtain a $25 million term loan to finance the Spec's acquisition. The term loan (drawn against effective July 29, 1998), which bore the same interest rate terms as the working capital portion of the Revolving Credit Agreement, was fully repaid upon completion of the Camelot acquisition.

NOTE 6. INCOME TAXES

Income tax expense consists of the following:

                                                        FISCAL YEAR
                                         --------------------------------------------
                                              1999          1998           1997
                                         --------------------------------------------
                                                        (IN THOUSANDS)
Federal - current                               $30,498       $36,207        $10,813
State - current                                   2,521         7,137          1,306
Deferred                                          8,251         4,529          1,370
                                         --------------------------------------------
                                                $41,270       $47,873        $13,489
                                         ============================================

A reconciliation of the Company's effective tax rates with the federal statutory rate is as follows:

                                                         FISCAL YEAR
                                         --------------------------------------------
                                              1999           1998          1997
                                         --------------------------------------------
Federal statutory rate                            35.0%          35.0%         35.0%
State income taxes, net of
   federal income tax effect                       1.4%           4.4%          3.0%
Unearned compensation - stock options               ---           1.9%           ---
Plan of reorganization adjustments                  ---           2.2%           ---
Merger costs                                       3.6%            ---           ---
Other                                              0.2%           0.5%          1.6%
                                         --------------------------------------------
Effective income tax rate                         40.2%          44.0%         39.6%
                                         ============================================

F-11

Significant components of the Company's deferred tax assets and liabilities are as follows:

                                                     JANUARY 29,     JANUARY 30,
                                                        2000             1999
                                                   --------------------------------
                                                              (IN THOUSANDS)
CURRENT DEFERRED TAX ASSETS
Accruals                                                   $ 1,570          $ 2,803
Other                                                           36              286
                                                   --------------------------------
Total Current Deferred Tax Assets                            1,606            3,089
                                                   --------------------------------

CURRENT DEFERRED TAX LIABILITIES
Inventory                                                   13,632            2,078
Prepaid expenses                                               443              378
                                                   --------------------------------
Total Current Deferred Tax Liabilities                      14,075            2,456
                                                   --------------------------------

Net Current Deferred Tax Asset (Liability)               ($12,469)            $ 633
                                                   ================================

NON-CURRENT DEFERRED TAX ASSETS
Tax over book asset basis                                  $20,911          $18,441
Federal and state net operating loss carryforwards           6,804            4,421
Accrued rent                                                 4,448            2,877
Lease values                                                 1,663            1,809
Capitalized leases                                             882              914
Executive retirement plan                                    1,336              252
Accruals                                                       890            1,300
Amortization                                                   344            1,062
Compensation related                                            87              107
Other                                                           73            1,054
                                                   --------------------------------
Total Non-Current Deferred Tax Assets                       37,438           32,237
                                                   --------------------------------

NON-CURRENT DEFERRED TAX LIABILITIES
Goodwill                                                     3,007            2,657
                                                   --------------------------------
Total Non-Current Deferred Tax Liabilities                  $3,007           $2,657
                                                   --------------------------------

Net Non-Current Deferred Tax Asset                         $34,431          $29,580
                                                   ================================

TOTAL NET DEFERRED TAX ASSET                               $21,962          $30,213
                                                   ================================

At January 29, 2000 and January 30, 1999, the Company had gross deferred tax assets of $39.0 million and $35.3 million, respectively, and gross deferred tax liabilities of $17.1 million and $5.1 million, respectively. The Company had a net operating loss carryforward of $10.0 million for Federal income tax purposes for fiscal 1999 and 1998, and $71.3 million and $17.9 million for state income tax purposes for fiscal 1999 and 1998, respectively, that expire at various times through 2013 and are subject to certain limitations.

In assessing the propriety of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of projected future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of those deductible differences. The amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable income during the carryforward period are reduced.

The Company paid income taxes of approximately $39.3 million, $17.1 million and $300,000 during fiscal 1999, 1998 and 1997, respectively.

F-12

NOTE 7. COMMITMENTS AND CONTINGENCIES

The Company is party to various claims, legal actions, and complaints arising in the ordinary course of its business, including pre-petition assessments by the Internal Revenue Service ("IRS") aggregating approximately $7.9 million and relating to Camelot's corporate-owned life insurance program. No judgment has been rendered regarding these IRS assessments as of January 29, 2000. A trial to decide the matter began in March 2000 in the Federal District Court for the District of Delaware. A decision is expected to be rendered in the third or fourth quarter of fiscal 2000. In the event that a judgment is rendered against the Company in the full amount of the proposed assessment, the Company's results of operations would be materially adversely affected with a charge to earnings of approximately $7.9 million plus interest since January 1998. In the opinion of management, the IRS assessments and all other claims, legal actions and complaints are without merit or involve such amounts that unfavorable disposition will not have a material impact on the financial position, results of operations or cash flows of the Company.

NOTE 8. LEASES

As more fully discussed in Note 11, the Company leases its distribution center and administrative offices under three capital leases with its Chief Executive Officer and largest shareholder. The Company also has a capital lease for its point-of-sale system.

Fixed asset amounts for capital leases, which are included in the fixed assets on the accompanying balance sheets, are as follows:

                                                     JANUARY 29,      JANUARY 30,
                                                        2000             1999
                                                  ----------------------------------
                                                             (IN THOUSANDS)
Buildings                                                 $9,342         $ 9,342
Fixtures and equipment                                    26,890          16,061
                                                  -------------------------------
                                                          36,232          25,403
Allowances for depreciation
   and amortization                                     (10,729)         (6,312)
                                                  ===============================
                                                         $25,503         $19,091
                                                  ===============================

The Company leases substantially all of its stores, many of which contain renewal options, for periods ranging from five to twenty-five years, with the majority being ten years. Most leases also provide for payment of operating expenses, real estate taxes, and for additional rent based on a percentage of sales.

Net rental expense was as follows:

                                                     FISCAL YEAR
                                  --------------------------------------------------
                                       1999             1998             1997
                                  --------------------------------------------------
                                                   (IN THOUSANDS)
Minimum rentals                          $108,818          $102,130      $   50,237
Contingent rentals                          2,957             1,310             719
                                  ==================================================
                                         $111,775          $103,440      $   50,956
                                  ==================================================

F-13

Future minimum rental payments required under all leases that have initial or remaining non-cancelable lease terms in excess of one year at January 29, 2000 are as follows:

                                           OPERATING         CAPITAL
                                             LEASES          LEASES
                                        ----------------------------------
                                                  (IN THOUSANDS)
                                   2000        $103,668            $7,807
                                   2001          94,873             7,807
                                   2002          85,918             6,318
                                   2003          75,248             2,994
                                   2004          60,312             1,679
                             Thereafter         159,733            18,075
                                        ----------------------------------
        Total minimum payments required        $579,752            44,680
                                        ================
   Less: Amounts representing interest                             19,908
                                                        ------------------
Present value of minimum lease payments                            24,772
                   Less current portion                             5,311
                                                        ------------------
    Long-term capital lease obligations                           $19,461
                                                        ==================

NOTE 9. BENEFIT PLANS

401(K) SAVINGS PLAN

The Company offers a 401(k) Savings Plan to eligible employees meeting certain age and service requirements. This plan permits participants to contribute up to 20% of their salary, including bonuses, up to the maximum allowable by Internal Revenue Service regulations. Participants are immediately vested in their voluntary contributions plus actual earnings thereon. Participant vesting of the Company's matching and profit sharing contribution is based on the years of service completed by the participant. Participants are fully vested upon the completion of four years of service. All participant forfeitures of non-vested benefits are used to reduce the Company's contributions in future years. The Company matching contribution totaled $962,000, $1.1 million and $529,000 in fiscal 1999, 1998 and 1997, respectively.

STOCK OPTION PLANS

The Company has four employee stock option plans, the 1986 Stock Option Plan, the 1994 Stock Option Plan, the 1998 Stock Option Plan, and the 1999 Stock Option Plan (the "Plans"). The Compensation Committee of the Board of Directors may grant options to acquire shares of common stock to employees of the Company and its subsidiaries at the fair market value of the common stock on the date of grant. Under the Plans, options generally become exercisable commencing one year from the date of grant in increments of 25% per year with a maximum term of ten years. Options authorized for issuance under the Plans totaled 12.3 million. The Company stopped issuing stock options under the 1986 Stock Option Plan as of June 1, 1995. At January 29, 2000, of the 10.8 million remaining options authorized for issuance under the Plans, 4.5 million have been granted and are outstanding, 1.6 million of which were vested and exercisable. Options available for future grants at January 29, 2000 and January 30, 1999 were 3.3 million and 2.5 million, respectively.

Under the terms of the Camelot merger agreement, all options issued under the Camelot 1998 Stock Option Plan (the "Camelot Plan") were converted to Trans World options. The Camelot Plan provided for the granting of either incentive stock options or nonqualified stock options to purchase shares of the Company's common stock. Vesting of the options was originally over a four-year period with a maximum term of ten years. Based on the terms of the Camelot Plan, vesting was accelerated based on the market performance of the Company's common stock whereby 50% of the options vested on March 13, 1998. The remaining 50% vested on April 22, 1999 in connection with the merger. At January 29, 2000, 530,500 options were outstanding and exercisable. The Company stopped issuing stock options under the Camelot Stock Option Plan as of April 22, 1999. The Company recognized $5.1 million in compensation expense during 1998, related to stock options granted below the market price at the date of grant and accelerated vesting.

F-14

The following table summarizes information about the stock options outstanding under the Plans and the Camelot Plan at January 29, 2000:

                   ------------------------------------------------   -------------------------------
                                     OUTSTANDING                               EXERCISABLE
                   ------------------------------------------------   -------------------------------
                                                          WEIGHTED                          WEIGHTED
                                           AVERAGE         AVERAGE                           AVERAGE
     EXERCISE                            REMAINING        EXERCISE                          EXERCISE
   PRICE RANGE              SHARES            LIFE           PRICE            SHARES           PRICE
-------------------------------------------------------------------   -------------------------------
   $1.21-$2.67           1,150,524             6.1           $1.61           745,784           $1.52
    2.68-5.33              567,552             6.1            4.17           311,052            4.32
    5.34-10.67              10,000            10.0           10.00                 0            0.00
   10.68-13.33           2,183,700             8.4           11.34           957,700           11.05
   13.34-16.00             725,050             9.2           15.18            25,300           14.02
   16.01-18.67             414,561             8.2           17.84            94,680           17.82
   18.68-21.33               5,000             8.7           19.75             1,250           19.75
   21.34-24.00               2,000             8.9           23.75               500           23.75
   24.01-26.67               6,000             8.4           25.79             1,500           25.79
                   ----------------                                   ---------------
Total                    5,064,387             7.7           $9.44         2,137,766           $7.10
                   ================                                   ===============

The Company also has a stock option plan for non-employee directors (the "1990 Plan"). Options under this plan are granted at 85% of the fair value at the date of grant. Under the 1990 Plan, options generally become exercisable commencing one year from the date of grant in increments of 25% per year with a maximum term of ten years. As of January 29, 2000, there were 750,000 options authorized for issuance and 280,750 options have been granted and are outstanding, 194,435 of which were vested and exercisable. There are 439,250 shares of common stock reserved for possible future option grants under the 1990 Plan.

Under the terms of the Camelot merger agreement, all options issued under the Camelot Outside Director Stock Option Plan (the "Camelot Director Plan") were converted to Trans World options. As of January 29, 2000, there were 4,750 options outstanding and exercisable under the Camelot Director Plan. During 1998, the Company recognized $234,000 in compensation expense based on the market value of the stock on the date of grant in June 1998 in connection with the initial grant of stock options under the Camelot Director Plan. The Company no longer issues options under the Camelot Director Plan.

The following table summarizes information about the stock options outstanding under the two Director Plans at January 29, 2000:

                   ------------------------------------------------   -------------------------------
                                     OUTSTANDING                               EXERCISABLE
                   ------------------------------------------------   -------------------------------
                                                          WEIGHTED                          WEIGHTED
                                           AVERAGE         AVERAGE                           AVERAGE
     EXERCISE                            REMAINING        EXERCISE                          EXERCISE
   PRICE RANGE              SHARES            LIFE           PRICE            SHARES           PRICE
-------------------------------------------------------------------   -------------------------------
   $1.19-$2.67              49,500             6.3          $ 1.64            38,625          $ 1.58
    2.68-5.33              138,000             4.8            3.46           101,250            3.57
    5.34-8.00               18,000             2.0            6.10            18,000            6.10
    8.01-10.67              45,000             3.1            9.49            33,750            9.26
   10.68-13.33              23,750             9.1           12.24             4,750           10.92
   13.34-15.12              11,250             8.3           15.12             2,810           15.12
                   ----------------                                   ---------------
Total                      285,500             5.1           $5.45           199,185           $4.71
                   ================                                   ===============

F-15

The following tables summarize activity under the Stock Option Plans:

                                 ------------------------------------------------------------------------------------------------
                                          EMPLOYEE STOCK OPTION PLANS                      DIRECTOR STOCK OPTION PLANS
                                 ------------------------------------------------------------------------------------------------
                                   Number of        Option        Weighted           Number of        Option        Weighted
                                 Shares Subject  Price Range       Average        Shares Subject   Price Range       Average
                                   To Option      Per Share    Exercise Price        To Option      Per Share    Exercise Price
                                 ------------------------------------------------------------------------------------------------
Balance February 1, 1997              3,139,696  $0.75-$6.17        $2.12                 210,000  $1.19-$9.14        $5.28
Granted                               2,865,500   3.33-11.20         9.42                 103,500   2.09-3.37          2.86
Exercised                             (285,086)   0.96-3.67          1.74                 (7,500)      3.69            3.69
Canceled                              (203,514)   0.96-4.58          1.79                (48,000)   3.33-9.14          7.57
---------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1998              5,516,596  $0.75-$11.20       $5.94                 258,000  $1.19-$9.14        $3.93
Granted                                 529,600  13.88-26.67        17.61                  50,000  10.20-15.12        11.65
Exercised                             (885,043)   0.75-10.92         3.08                (22,500)   2.09-3.68          3.15
Canceled                              (259,134)   1.21-17.79         4.64                      --       --              --
---------------------------------------------------------------------------------------------------------------------------------
Balance January 30, 1999              4,902,019  $0.75-$26.67       $7.79                 285,500  $1.19-$15.12       $5.34
Granted                               1,501,000  10.00-15.25        13.42                  29,000  12.22-12.96        12.45
Exercised                           (1,194,899)   0.75-17.79         7.65                (19,000)     10.92           10.92
Canceled                              (143,733)   0.75-17.79         9.65                (10,000)     12.22           12.22
---------------------------------------------------------------------------------------------------------------------------------
Balance January 29, 2000              5,064,387  $1.21-$26.67       $9.44                 285,500  $1.19-$15.12       $5.45
                                 ===============                                  ================

The per share weighted-average fair value of the stock options granted during fiscal 1999, 1998 and 1997 was $5.01, $6.48 and $2.82, respectively, using the Black Scholes option pricing model, with the following weighted-average assumptions; 1999 - expected dividend yield 0.0%, risk-free interest rate of 6.47%, expected life of five years and stock volatility of 72%; 1998 - expected dividend yield 0.0%, risk-free interest rate of 5.15%, expected life of five years and stock volatility of 70%; 1997 - expected dividend yield 0.0%, risk-free interest rate of 6.7%, expected life of five years and stock volatility of 48%.

The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements for employee stock options, which are issued at the closing stock price on the day of grant. During fiscal 1999, 1998 and 1997, the Company recognized expenses of $64,000, $57,000 and $52,000, respectively, for stock options issued to non-employee directors at 85% of the closing stock price on the date of grant. Had the Company determined compensation cost for employee stock options based on fair value in accordance with SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated below:

                                                                      FISCAL YEAR
                                                  ---------------------------------------------------
                                                        1999             1998             1997
                                                  ---------------------------------------------------
                                                       (in thousands, except per share amounts)
Net income, as reported                                   $ 61,393          $ 61,010        $ 20,574
Basic earnings per share, as reported                     $   1.17          $   1.19        $   0.70
Diluted earnings per share, as reported                   $   1.15          $   1.14        $   0.66

Pro forma net income                                      $ 57,621          $ 59,016        $ 19,168
Pro forma basic earnings per share                        $   1.10          $   1.15        $   0.65
Pro forma diluted earnings per share                      $   1.08          $   1.10        $   0.62

F-16

RESTRICTED STOCK PLAN

Under the 1990 Restricted Stock Plan, the Compensation Committee of the Board of Directors is authorized to grant awards for up to 900,000 restricted shares of common stock to executive officers and other key employees of the Company and its subsidiaries. The shares are issued as restricted stock and are held in the custody of the Company until all vesting restrictions are satisfied. If conditions or terms under which an award is granted are not satisfied, the shares are forfeited. Shares begin to vest under these grants after three years and are fully vested after five years, with vesting criteria which includes continuous employment until applicable vesting dates have expired. At January 29, 2000, a total of 255,000 shares have been granted, of which 75,000 were granted in fiscal 1996 with a weighted average grant date fair market value of $1.58, aggregating a total value of $118,750; an additional 150,000 were granted in fiscal 1995 with a weighted average grant date fair value of $1.55 per share, aggregating a total of $232,500 and an additional 30,000 were granted in fiscal 1999 with a weighted average grant date fair value of $11.19 aggregating a total of $335,625. As of January 29, 2000, a total of 120,000 of these shares had vested and 30,000 shares with an unamortized unearned compensation balance of $53,000, had been forfeited. Unearned compensation is recorded at the date of award, based on the market value of the shares, and is included as a separate component of shareholders' equity and is amortized over the applicable vesting period. The amount amortized to expense in fiscal 1999, 1998 and 1997 was approximately $66,000, $44,000 and $70,000, respectively. At January 29, 2000, outstanding awards and shares available for grant totaled 105,000 and 675,000, respectively.

SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN

The executive officers of the Company have a non-qualified Supplemental Executive Retirement Plan (SERP). The SERP, which is unfunded, provides eligible executives defined pension benefits that supplement benefits under other retirement arrangements. The annual benefit amount has been predetermined as part of the plan and vests based on years of service and age at retirement. For fiscal 1999, 1998 and 1997, expenses related to the plan totaled approximately $481,000, $342,000 and $361,000, respectively. The present value of the projected benefit obligation was approximately $3.6 million at January 29, 2000. The January 29, 2000 consolidated balance sheet includes $3.6 million of accrued expense for the SERP and a $2.5 million intangible asset for unrecognized prior service costs.

NOTE 10. SHAREHOLDERS' EQUITY

On May 1, 1998, the Company sold an additional 2.25 (adjusted) million shares of its common stock in a public offering for approximately $36.6 million net of issuance costs. A portion of the proceeds was used to repay long-term debt and the balance of the proceeds was used for general corporate purposes including investments in additional stores, fixtures and inventory.

On July 31, 1998, the Board of Directors approved a three-for-two common stock split to be distributed in the form of a 50% stock dividend. As a result, 10,937,104 shares were issued on September 15, 1998 to shareholders of record on September 1, 1998. Accordingly, amounts equal to the par value of the additional shares issued have been charged to additional paid in capital and credited to common stock. All references throughout these financial statements to number of shares, per share amounts, stock option data and market prices of the Company's common stock have been adjusted to reflect this stock split.

On January 7, 2000, the Board of Directors approved a stock repurchase plan authorizing the purchase of up to 5 million shares of the Company's common stock. As of January 29, 2000, the Company had purchased approximately 1.1 million shares of the 5 million shares authorized by the Board. At January 29, 2000 and January 30, 1999, the Company held 1,177,432 and 105,432 shares, respectively, in treasury stock.

NOTE 11. RELATED PARTY TRANSACTIONS

The Company leases its 168,400 square foot distribution center/office facility in Albany, New York from Robert J. Higgins, its Chairman, Chief Executive Officer and largest shareholder, under three capitalized leases that expire in the year 2015. The original distribution center/office facility was constructed in 1985. A 77,100 square foot distribution center expansion was completed in October 1989 on real property adjoining the existing facility. A 19,100 square foot expansion was completed in September 1998 adjoining the existing facility.

Under the three capitalized leases, dated April 1, 1985, November 1, 1989 and September 1, 1998 (the "Leases"), the Company paid Mr. Higgins an annual rent of $1.6 million, $1.4 million and $1.3 million in fiscal 1999, 1998 and 1997, respectively. On January 1, 2000, the aggregate rental payment increased in

F-17

accordance with the biennial increase in the Consumer Price Index, pursuant to the provisions of each lease. Effective January 1, 2002, and every two years thereafter, the rental payment increases in accordance with the biennial increase in the Consumer Price Index, pursuant to the provisions of the lease. None of the leases contains any real property purchase option at the expiration of its term. Under the terms of the Leases, the Company pays all property taxes, insurance and other operating costs with respect to the premises. Mr. Higgins' obligation for principal and interest on his underlying indebtedness relating to the real property is approximately $1.1 million per year.

The Company leases two of its retail stores from Mr. Higgins under long-term leases. Under the first store lease, annual rent payments were $40,000 in fiscal 1999 and 1998 and $35,000 in fiscal 1997. Under the second store lease, annual rent payments were $35,000 in fiscal 1999, 1998 and 1997. Under the terms of the leases, the Company pays property taxes, maintenance and a contingent rental if a specified sales level is achieved. Total additional charges for both locations, including contingent rent, was approximately $17,700, $18,100 and $16,900 in fiscal 1999, 1998 and 1997, respectively. In fiscal 1998 and 1997, the Company paid Mr. Higgins $30,000 under one-year operating leases expiring on October 31, 1998 and October 31, 1997, respectively, for certain parking facilities contiguous to the Company's distribution center/office facility. This lease was not renewed upon its expiration on October 31, 1998.

The Company regularly utilizes privately chartered aircraft owned or partially owned by Mr. Higgins. Under an unwritten agreement with Quail Aero Services of Syracuse, Inc., a corporation in which Mr. Higgins is a one-third shareholder, the Company paid $110,000, $65,000 and $59,000 for chartered aircraft services in fiscal 1999, 1998 and 1997, respectively. The Company also charters an aircraft from Crystal Jet, a corporation wholly owned by Mr. Higgins. Payments to Crystal Jet aggregated $64,000, $180,000 and $199,000 in fiscal 1999, 1998 and 1997, respectively. The Company also charters an aircraft from Richmor Aviation, an unaffiliated corporation that leases an aircraft owned by Mr. Higgins. Payments to Richmor Aviation in fiscal 1999, 1998 and 1997 were $325,000, $0 and $0, respectively. The Company believes that the charter rates and terms are as favorable to the Company as those generally available to it from other commercial charters.

The transactions that were entered into with an "interested director" were approved by a majority of disinterested directors of the Board of Directors, either by the Audit Committee or at a meeting of the Board of Directors. The Board of Directors believes that the leases and other provisions are at rates and on terms that are at least as favorable as those that would have been available to the Company from unaffiliated third parties under the circumstances.

In September 1999, in connection with his hiring as President and Chief Operating Officer, the Company made a $200,000 interest-free loan to Michael J. Madden.

F-18

NOTE 12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

                                     ----------------------------------------------------------------------------------
                                                                 FISCAL 1999 QUARTER ENDED
                                     ----------------------------------------------------------------------------------
                                                1999          1/29/00        10/30/99          7/31/99          5/1/99
                                     ----------------------------------------------------------------------------------
                                                          (in thousands, except per share amounts)
Sales                                   $  1,358,132      $   517,870       $ 275,968       $  277,275       $ 287,019
Gross profit                                 499,544          195,049          96,981          102,570         104,944
Net income                                    61,393           60,569           3,777            5,691         (8,644)
Basic earnings per share                $       1.17      $      1.15       $    0.07       $     0.11       $  (0.17)
                                     ----------------------------------------------------------------------------------
Diluted earnings per share              $       1.15      $      1.12       $    0.07       $     0.11       $  (0.17)
                                     ----------------------------------------------------------------------------------

                                     ----------------------------------------------------------------------------------
                                                                 FISCAL 1998 QUARTER ENDED
                                     ----------------------------------------------------------------------------------
                                                1998          1/30/99        10/31/98           8/1/98          5/2/98
                                     ----------------------------------------------------------------------------------
                                                         (in thousands, except per share amounts)
Sales                                   $  1,282,385      $   497,735       $ 270,706       $  262,561       $ 251,383
Gross profit                                 486,074          198,410         101,439           95,812          90,413
Net income                                    61,010           51,532           3,743            3,574           2,161
Basic earnings per share                $       1.19      $      1.01       $    0.07       $     0.07       $    0.04
                                     ----------------------------------------------------------------------------------
Diluted earnings per share              $       1.14      $      0.97       $    0.07       $     0.07       $    0.04
                                     ----------------------------------------------------------------------------------

F-19

INDEX TO EXHIBITS

DOCUMENT NUMBER AND DESCRIPTION

EXHIBIT NO.

2.1 Agreement and Plan of Merger dated October 26, 1998 by and among Trans World, CAQ Corporation and Camelot incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4, No. 333-75231.

3.1 Restated Certificate of Incorporation -- incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 1994. Commission File No. 0-14818.

3.2 Certificate of Amendment to the Certificate of Incorporation -- incorporated herein by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 1994. Commission File No. 0-14818.

3.3 Certificate of Amendment to the Certificate of Incorporation -- incorporated herein by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K for the year ended January 31, 1998. Commission File No. 0-14818.

*3.4 Amended By-Laws

3.5 Certificate of Amendment to the Certificate of Incorporation--incorporated herein by reference to Exhibit 3.5 to the Company's Registration Statement on Form S-4, No. 333-75231.

3.6 Certificate of Amendment to the Certificate of Incorporation--incorporated herein by reference to Exhibit 3.6 to the Company's Registration Statement on Form S-4, No. 333-75231.

4.1 Loan and Security Agreement, dated July 9, 1998, between Congress Financial Corporation and the Company, for the secured revolving credit agreement -- incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended August 2, 1997. Commission File No. 0-14818.

10.1 Lease, dated April 1, 1985, between Robert J. Higgins, as Landlord, and Record Town, Inc. and Trans World Music Corporation, as Tenant and Amendment thereto dated April 28, 1986 -- incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form S-1, No. 33-6449.

10.2 Second Addendum, dated as of November 30, 1989, to Lease, dated April 1, 1985, among Robert J. Higgins, and Trans World Music Corporation, and Record Town, Inc., exercising five year renewal option -- incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended February 3, 1990. Commission File No. 0-14818.

10.3 Lease, dated November 1, 1989, between Robert J. Higgins, as Landlord, and Record Town, Inc. and Trans World Music Corporation, as Tenant -- incorporated herein by reference to Exhibit 10.3 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1991. Commission File No. 0-14818.

10.4 Lease dated September 1, 1998, between Robert J. Higgins, as Landlord, and Record Town, Inc. and Trans World, as Tenant, for additional office space at 38 Corporate Circle -- incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 1998. Commission File No. 0-14818.

10.5 Employment Agreement, dated as of May 1, 1998 between the Company and Robert J. Higgins - incorporated herein by reference to Exhibit 10.4 to the Company's Quarterly Report of Form 10-Q for the fiscal quarter ended May 2, 1998. Commission File No. 0-14818.

10.6 Trans World Music Corporation 1986 Incentive and Non-Qualified Stock Option Plan, as amended and restated, and Amendment No. 3 thereto -- incorporated herein by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1991. Commission File No. 0-14818.

10.7 Trans World Music Corporation 1990 Stock Option Plan for Non-Employee Directors, as amended and restated -- incorporated herein by reference to Annex A to Trans World's Definitive Proxy Statement on Form 14A filed as of May 7, 1998. Commission File No. 0-14818.

F-20

10.8 Trans World Entertainment Corporation Amended 1990 Restricted Stock Plan -- incorporated herein by reference to Annex B to Trans World's Difinitive Proxy Statement on Form 14A filed as of May 17, 1999. Commission File No. 0-14818.

10.9 Form of Restricted Stock Agreement dated May 1, 1995 between the Company and Bruce J. Eisenberg, Senior Vice President of Real Estate, incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 1995. Commission File No. 0-14818.

10.10 Form of Restricted Stock Agreement dated May 1, 1996 between the Company

     and John J. Sullivan, Senior Vice President-Finance and Chief Financial
     Officer, incorporated herein by reference to Exhibit 10.14 to the Company's
     Annual Report on Form 10-K for the fiscal year ended February 1, 1997.
     Commission File No.
     0-14818.

10.11  Trans World Entertainment Corporation 1994 Stock Option Plan --
     incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly
     Report on Form 10-Q for the fiscal quarter ended July 30, 1994.
     Commission File No. 0-14818.

10.12  Trans World Entertainment Corporation 1998 Stock Option Plan --
     incorporated herein by reference to Annex B to Trans World's Definitive
     Proxy Statement on Form 14A filed as of May 7, 1998. Commission File No.
     0-14818.

10.13 Trans World Entertainment Corporation 1999 Stock Option Plan --
     incorporated herein by reference to Annex A to Trans World's Definitive
     Proxy Statement on Form 14A filed as of May 17, 1999. Commission File No.
     0-14818.

10.14  Trans World Entertainment Corporation 1994 Director Retirement Plan --
     incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly
     Report on Form 10-Q for the fiscal quarter ended October 31, 1994.
     Commission File No. 0-14818.

10.15  Form of Indemnification Agreement dated May 1, 1995 between the Company
     and its officers and directors incorporated herein by reference to Exhibit
     10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
     ended April 29, 1995. Commission File No. 0-14818.

10.16  Trans World Entertainment Corporation 1997 Supplemental Executive
     Retirement Plan - incorporated herein by reference to Exhibit 10.1 to the
     Company's Quarterly Report on Form 10-Q for the fiscal quarter ended May 3,
     1997. Commission File No. 0-14818.

10.17  Trans World Entertainment Corporation Asset Purchase Agreement with
     Strawberries, Inc.--incorporated herein by reference to Exhibit 10.16 to
     Trans World's Annual Report on Form 10-K for the year ended January 31,
     1998. Commission File No. 0-14818.

10.18  Voting Agreement dated October 26, 1998 between Trans World and certain
     stockholders named therein--incorporated herein by reference to Exhibit
     10.20 to the Company's Registration Statement on Form S-4, No. 333-75231.

10.19 Form of Restricted Stock Agreement dated September 27, 1999 between the Company and Michael Madden, President and Chief Operating Officer, incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 1999. Commission File No. 0-14818.

*10.20 Severance Agreement dated March 10, 2000 between the Company and Michael Madden, President and Chief Operating Officer.

* 22 Significant Subsidiaries of the Registrant.

* 23 Consent of KPMG LLP.

* 27 Financial Data Schedule (For electronic filing purposes only)
*Filed herewith.

F-21

EXHIBIT 3.4

TRANS WORLD ENTERTAINMENT CORPORATION

A New York Corporation

BY-LAWS


ARTICLE I

SHAREHOLDERS

SECTION 1.1. ANNUAL MEETING.

An annual meeting of shareholders for the purpose of electing directors and of transacting such other business as may come before it shall be held each year at such date, time, and place, either within or without the State of New York, as may be specified by the Board of Directors.

SECTION 1.2. SPECIAL MEETINGS.

Special meetings of shareholders shall be held at such time and place, within or without the state of New York, as may be designated in the notice of the meeting, whenever called by the Chairman of the Board, if any, the Chief Executive Officer, or a majority of the Board of Directors.

SECTION 1.3. NOTICE OF MEETINGS.

Written notice of shareholders meetings, stating the place, date, and hour thereof and, unless it is the annual meeting, stating the purpose or purposes for which the meeting is called, shall be given by the Chairman of the Board, if any, the Chief Executive Officer, the President, any Vice President, the Secretary, or an Assistant Secretary to each shareholder entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting.

SECTION 1.4. QUORUM.

Except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws, at any meeting of shareholders, the holders of a majority of the outstanding shares the holders of which are entitled to vote thereat shall be present in person or represented by proxy in order to constitute a quorum for the transaction of any business. A quorum which is present to organize a meeting shall not be broken by the subsequent withdrawal of one or more shareholders.

If a quorum shall not be present at the time fixed for any meeting, the shareholders present in person or by proxy and entitled to vote thereat shall have the power to adjourn the meeting from time to time, without notice other than an announcement at the meeting of the place, date and hour of the adjourned meeting, until a quorum shall be present; and at any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted had a quorum been present at the time originally fixed for the meeting; provided, that if after any such adjourned meeting, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each shareholder entitled to vote thereat.

SECTION 1.5. ORGANIZATION.

The Chairman of the Board, if any, or in his absence the Chief Executive Officer, or in their absence the President or any Vice President, shall call to order meetings of shareholders and shall act as chairman of such meetings. The Board of Directors or, if the Board fails to act, the shareholders may appoint any shareholder, director, or officer of

A-1

the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board, the Chief Executive Officer, the President, and all Vice Presidents.

The Secretary of the Corporation shall act as secretary of all meetings of shareholders, but, in the absence of the Secretary, the chairman of the meeting may appoint any other person to act as secretary of any meeting.

SECTION 1.6. VOTING.

Except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws and except for the election of directors, at any meeting duly called and held at which a quorum is present, a majority of the votes cast at such meeting upon a given question by the holders of outstanding shares of stock of all classes of stock of the Corporation entitled to vote thereon who are present in person or by proxy shall decide such question. At any meeting duly called and held for the election of directors at which a quorum is present, directors shall be elected by a plurality of the votes cast by the holders (acting as such) of shares of stock of the corporation entitled to elect such directors.

SECTION 1.7. CONDUCT OF MEETINGS.

At each meeting of stockholders, the chairman of the meeting shall fix and announce the date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at the meeting and shall determine the order of business and all other matters of procedure. Except to the extent inconsistent with any such rules and regulations as adopted by the Board of Directors, the chairman of the meeting may establish rules to maintain order and safety and for the conduct of the meeting. Without limiting the foregoing, he may:

(a) restrict attendance at any time to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the chairman;

(b) restrict dissemination of solicitation materials and use of audio or visual recording devices at the meeting;

(c) establish seating arrangements;

(d) adjourn the meeting without a vote of the stockholders, whether or not there is a quorum present; and

(e) make rules governing speeches and debate including time limits and access to microphones.

The chairman of the meeting acts in his absolute discretion and his rulings are not subject to appeal.

ARTICLE II

BOARD OF DIRECTORS

SECTION 2.1. NUMBER AND TERM OF OFFICE.

The business, property, and affairs of the Corporation shall be managed under the direction of its Board of Directors. The number of directors of the Corporation shall be fixed by resolution duly adopted from time to time by a majority of the entire Board; provided, however, that any decrease in the number of directors shall not shorten the term of any incumbent director.

SECTION 2.2. CHAIRMAN OF THE BOARD.

The directors may elect one of their members to be Chairman of the Board of Directors. The Chairman shall be subject to the control of and may be removed by the Board of Directors. He shall perform such duties as may from time to time be assigned to him under these by-laws and by the Board.

SECTION 2.3. MEETINGS.

The annual meeting of the Board of Directors, for the election of officers and the transaction of such other business as may come before the meeting, shall be held at the same place as, and immediately following, the annual meeting of shareholders.

A-2

Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board.

Special meetings of the Board of Directors shall be held at such time and place as shall be designated in the notice of the meeting whenever called by the Chairman of the Board, if any, the Chief Executive Officer, or by a majority of the directors then in office.

SECTION 2.4. NOTICE OF SPECIAL MEETINGS.

The Secretary, or in his absence any other officer of the Corporation, shall give each director notice of the time and place of holding of special meetings of the Board of Directors by mail at least three days before the meeting, or by telegram, cable, radiogram, facsimile transmission, electronic mail transmission or personal service at least one day before the meeting. Unless otherwise stated in the notice thereof

SECTION 2.5. QUORUM AND ORGANIZATION OF MEETINGS.

A majority of the entire Board of Directors or any committee of the Board constituted from time to time shall constitute a quorum for the transaction of business, but, if at any meeting of the Board of Directors or any committee of the Board (whether or not adjourned from a previous meeting) there shall be less than a quorum present, a majority of those present may adjourn the meeting to another time and place, and the meeting may be held as adjourned without further notice or waiver. Except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws, a majority of the directors or members of the committee present at any meeting at which a quorum is present may decide any question brought before such meeting. Meetings shall be presided over by the Chairman of the Board, if any, or in his absence by the Chief Executive Officer, or in the absence of both by such other person as the directors may select. The Secretary of the Corporation shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.

SECTION 2.6. COMMITTEES.

The Board of Directors, by resolution adopted by a majority of the entire Board, may designate from among its members one or more committees, each consisting of one or more directors, and each of which, to the extent provided in such resolution, shall have all the authority of the Board (except as otherwise provided by law or in the Certificate of Incorporation or these By-Laws). However, no such committee shall have authority as to any of the following matters:

(a) the submission to shareholders of any action as to which shareholders' authorization and approval is required by law, the Certificate of Incorporation, or these By-Laws;

(b) the filling of vacancies in the Board of Directors or in any committee;

(c) the fixing of compensation of the directors for serving on the Board or on any committee;

(d) the amendment or repeal of these By-Laws, or the adoption of new By-Laws; or

(e) the amendment or repeal of any resolution of the Board of Directors which by its terms shall not be so amendable or repealable.

The Board may designate one or more directors as alternate members of any such committee, who may replace any absent member or members at any meeting of such committee.

Each such committee shall serve at the pleasure of and be responsible to the Board. It shall keep minutes of its meetings and report the same to the Board.

SECTION 2.7. ACTION WITHOUT A MEETING.

Nothing contained in these By-Laws shall be deemed to restrict the power of directors or members of any committee to take any action required or permitted to be taken by them without a meeting.

A-3

SECTION 2.8. TELEPHONE MEETINGS.

Any one or more members of the Board or any committee thereof may participate in a meeting of the Board or committee by means of a conference telephone or similar communications equipment allowing all persons participating in the meeting to hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.

ARTICLE III

OFFICERS

SECTION 3.1. EXECUTIVE OFFICERS.

The executive officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice-Presidents, a Treasurer, and a Secretary, each of whom shall be elected by the Board of Directors. The Board of Directors may elect or appoint such other officers (including one or more Assistant Treasurers and Assistant Secretaries) as it may deem necessary or desirable. Each officer shall hold office for such term as may be prescribed by the Board of Directors from time to time. Any person may hold at one time two or more offices.

SECTION 3.2. POWERS AND DUTIES.

The Chairman of the Board, if any, or, in his absence, the Chief Executive Officer (if he shall be a director), shall preside at all meetings of the Board of Directors. If the offices of President and Chief Executive Officer are not held by the same person, the President shall be the chief operating officer of the Corporation. In the absence of the Chief Executive Officer, the President or a Vice President, as appointed by the Chief Executive Officer or, if the Chief Executive Officer fails to make such appointment, by the Board, shall perform all the duties of the Chief Executive Officer. The officers and agents of the Corporation shall each have such powers and authority and shall perform such duties in the management of the business, properties, and affairs of the Corporation as generally pertain to their respective offices, as well as such powers an authority and such duties as from time may be prescribed by the Board of Directors.

ARTICLE IV

RESIGNATIONS, REMOVALS, AND VACANCIES

SECTION 4.1. RESIGNATIONS.

Any director or office of the Corporation, or any member of any committee, may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, if any, the Chief Executive Officer, the President, or the Secretary. Any such resignation shall take effect at the time specified therein or, if the time be not specified therein, then upon receipt thereof. The acceptance of such resignation shall not be necessary to make it effective.

SECTION 4.2. REMOVALS.

The Board of Directors, by a vote of not less than a majority of the entire Board, at any meeting thereof, or by written consent, at any time, may, to the extent permitted by law, remove with or without cause from office or terminate the employment of any officer.

SECTION 4.3. VACANCIES.

Any vacancy occurring for any reason (including a removal without cause) in the office of any officer may be filled at any time by a majority of the directors then in office (even though less than a quorum remains) and, subject to the provisions of this Article IV, the person so chosen shall hold office until his successor shall have been elected and qualified.

ARTICLE V

CERTIFICATES REPRESENTING SHARES

SECTION 5.1. FORM OF CERTIFICATES.

The shares of the Corporation shall be represented by certificates which shall be in such form as is prescribed by law and approved from time to time by the Board of Directors.

A-4

SECTION 5.2. TRANSFER OF SHARES.

Shares of capital stock of the Corporation may be transferred on the books of the Corporation only by the holder of such shares or by his duly authorized attorney, upon the surrender to the Corporation or its transfer agent of the certificate representing such stock properly endorsed.

SECTION 5.3. LOST CERTIFICATES.

The Board of Directors or any transfer agent of the Corporation may direct a new certificate or certificates representing stock of the Corporation to be issued in place of any certificate or certificates theretofore issued by the Corporation, alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors (or any transfer agent of the Corporation authorized to do so by a resolution of the Board of Directors) may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as the Board of Directors (or any transfer agent so authorized) shall direct to indemnify the Corporation against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen, or destroyed or the issuance of such new certificates, and such requirement may be general or confined to specific instances.

SECTION 5.4. REGULATIONS.

The Board of Directors shall have power and authority to make all such rules and regulations as it may deem expedient concerning the issue, transfer, registration, cancellation, and replacement of certificates representing stock of the Corporation.

ARTICLE VI

GENERAL PROVISIONS

SECTION 6.1. FIXING RECORD DATE.

For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or for the purpose of determining the shareholders entitled to receive payment of any dividend or the allotment of any right, or for the purpose of any other action, the Board of Directors may fix, in advance, a date as the record date for any such determination of shareholders. Such date shall, unless otherwise provided by law, not be more than sixty nor less than ten days before the date of any meeting nor more than sixty days prior to the payment of any dividend, or the allotment of any right, or any other action.

SECTION 6.2. CORPORATE SEAL.

The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization, and the words "Corporate Seal" and "New York," and shall be in such form as may be approved from time to time by the Board of Directors.

SECTION 6.3. FISCAL YEAR.

The fiscal year of the Corporation shall be determined from time to time by resolution of the Board of Directors.

SECTION 6.4. NOTICES AND WAIVERS THEREOF.

Whenever any notice is required by law, the Certificate of Incorporation, or these By-Laws to be given to any shareholder, director, or officer, such notice, except as otherwise provided by law, may be given personally, or by mail, or, in the case of directors or officers, by telegram, cable, radiogram, facsimile transmission or electronic mail transmission addressed to such address as appears on the books of the Corporation. Any notice given by telegram, cable, radiogram, facsimile transmission or electronic mail transmission shall be deemed to have been given when it shall have been delivered for transmission and any notice given by mail shall be deemed to have been given when it shall have been deposited in the United States mail with postage thereon prepaid.

A-5

Whenever any notice is required to be given by law, the Certificate of Incorporation, or these By-Laws, a written waiver thereof, signed by the person entitled to such notice, whether before or after the meeting or the time stated therein, shall be deemed equivalent in all respects to such notice to the full extent permitted by law.

Timely written notice of any stockholder proposal (including for the election of directors) shall be given to the Board of Directors before any annual meeting of stockholders. To be timely, a stockholder's notice must be received not less than sixty days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary, notice by the stockholder to be timely must be so received not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of (1) the sixtieth day prior to such annual meeting or (2) the tenth day following the date on which notice of the date of the annual meeting was mailed or public disclosure thereof was made, whichever first occurs. Each such notice shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (c) the class, series and number of shares of the corporation which are beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. The presiding officer of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 6.4, and if he should so determine, any such business not properly brought before the meeting shall not be transacted. Nothing herein shall be deemed to affect any right of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended.

SECTION 6.5. SECURITIES OF OTHER CORPORATION OR OTHER INTERESTS.

Unless otherwise ordered by the Board of Directors, the Chairman of the Board, if any, the President, the Secretary, and such attorneys or agents of the Corporation as may from time to time be authorized by the Board of Directors or the President, shall have full power and authority on behalf of this Corporation to attend and to act and vote in person or proxy at any meeting of the holders or securities of any corporation or other entity in which this Corporation may own or hold shares or other securities, and at such meetings shall possess and may exercise all the rights and powers incident to the ownership of such shares or other securities which this Corporation, as the owner or holder thereof, might have possessed and exercised if present. The Chairman of the Board, if any, the President, the Secretary, or such attorneys or agents may also execute and deliver on behalf of this Corporation powers of attorney, proxies, consents, waivers, and other instruments relating to the shares or securities owned or held by this Corporation.

SECTION 6.6. INDEMNIFICATION OF DIRECTORS, OFFICERS, INCORPORATORS, EMPLOYEES, AND AGENTS.

Except to the extent expressly prohibited by the New York Business Corporation Law, the Corporation shall indemnify each person made or threatened to be made a party to any action or proceedings, whether civil or criminal, by reason of the fact that such person or such person's testator or intestate is or was a director or officer of the Corporation, or serves or served at the request of the Corporation any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise in any capacity, against judgments, fines, penalties, amounts paid in settlement and reasonable expenses, including attorneys' fees, incurred n connection with such action or proceedings, or any appeal therein, provided that no such indemnification shall be made if a judgment or other final adjudication adverse to such person establishes that his or her acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action as adjudicated, or that he or she personally gained in fact a financial profit or other advantage to which he or she was not legally entitled, and provided further that no such indemnification shall be required with respect to any settlement or other nonadjudicated disposition of any threatened or pending action or proceedings unless the Corporation has given its prior consent to such settlement or other disposition.

The Corporation shall advance or promptly reimburse upon request any person entitled to indemnification hereunder for all expenses, including attorneys' fees, reasonably incurred in defending any action or proceeding in advance of the final disposition thereof upon receipt of an undertaking by or on behalf of such person to repay such amount if such person is ultimately found not be entitled to indemnification or, where indemnification is granted, to the extent the expenses so advanced or reimbursed exceed the amount to which such person is entitled, provided, however, that such person shall cooperate in good faith with any request by the Corporation that common counsel be utilized by the parties to an action or proceeding who are similarly situated unless to do so would be inappropriate due to actual or potential differing interests between or among such parties.

A-6

Nothing herein shall limit or affect any right of any person otherwise than hereunder to indemnification or expenses, including attorneys' fees, under any statute, rule, regulation, certificate or incorporation, by-law, insurance policy, contract or otherwise.

Anything in these by-laws to the contrary notwithstanding, no elimination of this by-law, and no amendment of this by-law adversely affecting he right of any person to indemnification or advancement or expenses hereunder shall be effective until the 60th day following notice to such person of such action, and no elimination of or amendment to this by-law shall deprive any person of his or her rights hereunder arising out of alleged or actual occurrences, acts or failures to act prior to such 60th day.

The Corporation shall not, except by elimination or amendment of this by-law in a manner consistent with the preceding paragraph, take any corporate action or enter into any agreement which prohibits, or otherwise limits the rights of any person to, indemnification in accordance with the provisions of this by-law. The indemnification of any person provided by this by-law shall continue after such person has ceased to be a director, officer or employee of the Corporation and shall inure to the benefit of such person's heirs, executors, administrators and legal representatives.

The Corporation is authorized to enter into agreements with any of its directors, officers or employees extending rights to indemnification and advancement of expenses to such person to the fullest extent permitted by applicable law, but the failure to enter into any such agreement shall not affect or limit the rights of such person pursuant to this by-law, it being expressly recognized hereby that all directors, officers and employees of the Corporation, by serving as such after the adoption hereof, are acting in reliance hereon and that the Corporation is estopped to contend otherwise.

In case any provision in this by-law shall be determined at any time to be unenforceable in any respect, the other provisions shall not in any way be affected or impaired thereby; and the affected provision shall be given the fullest possible enforcement in the circumstances, it being the intention of the Corporation to afford indemnification and advancement of expenses to its directors, officers and employees, acting in such capacities or in the other capacities mentioned herein, to the fullest extent permitted by law.

For purposes of this by-law, the Corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his or her duties to the Corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan, and excise taxes assessed on a person with respect to an employee benefit plan pursuant to applicable law shall be considered indemnifiable expenses. For purposes of this by-law, the term "Corporation" shall include any legal successor to the Corporation, including any corporation which acquires all or substantially all of the assets of the Corporation in one or more transactions.

ARTICLE VII

AMENDMENTS

The holders of shares entitled at the time to vote for the election of directors shall have power to adopt, amend, or repeal the By-Laws of the Corporation by vote of not less than a majority of such shares, and the Board of Directors by vote of not less than a majority of the entire Board shall have power equal in all respects to that of the shareholders to adopt, amend, or repeal the By-Laws. However, any By-Law adopted by the Board may be amended or repealed and any By-Law repealed by the Board may be reinstated by vote of the holders of a majority of the shares entitled at the time to vote for the election of directors.

If any By-Law regulating an impending election of directors is adopted, amended, or repealed by the Board of Directors, there shall be set forth in the notice of the next meeting of shareholders for the election of directors the By-Law or By-Laws so adopted, amended, or repealed, together with a concise statement of the changes made.

A-7

EXHIBIT 10.19

Michael J. Madden
10 Finn Court
Mahwah, New Jersey 07430

Re: SEVERANCE AGREEMENT

Dear Michael:

Trans World Entertainment Corporation, a New York Corporation, and its wholly owned subsidiary, Record Town, Inc. (collectively, the "Company"), considers the establishment and maintenance of a sound and vital management to be essential to protecting and enhancing the best interests of the Company and its shareholders. In order to induce you to join the Company, this Agreement sets forth the severance benefits which the Company agrees will be provided to you in the event your employment with the company is terminated without "Cause," as further described below.

1. TERM OF AGREEMENT. This Agreement shall commence on the date hereof and shall continue in effect until May 1, 2000 (the "Term"); provided, however, that commencing of May 1, 2000 and each May thereafter, the term of this Agreement shall automatically be extended for one additional year. Notwithstanding anything in this Section 1 to the contrary, this Agreement shall terminate if you otherwise separate your employment from the Company.

2. SEPARATION FOR DISABILITY OR FOR CAUSE.

a) You shall be entitled to the benefits provided in Section 3 if, during the Term of this Agreement, your employment with the Company is ever terminated for any reason other than Cause (defined below), unless such termination is for Disability (defined below.)

b) DISABILITY. Termination by the Company of your employment based on "Disability" shall mean termination because of your absence from your duties with the Company on a full time basis for sixty (60) consecutive days as a result of your incapacity due to physical or mental illness, unless within thirty (30) days after notice of termination is given to you following such absence you shall have returned to the full-time performance of your duties. This provision shall not apply to accidents.

c) CAUSE. Termination by the Company of your employment for "Cause" shall mean termination for any of the following reasons: (i) the willful and continued failure by you to perform substantially your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness) after demand for substantial performance is delivered to you by the Chairman of the Board or the CEO of the Company, which demand specifically identifies the manner in which such executive believes that you have not substantially performed your duties; (ii) the willful engaging by you in illegal conduct that materially and demonstrably damages the Company's business or reputation; (iii) the commission of any act which injures, or in the reasonable judgment of the Board could reasonably be expected to injure, materially the reputation, business or business relationships of the Company, including, without limitation, any breach of written policies of the Company with respect to trading in securities; or (iv) any conduct in the course of your employment that constitutes, in the Company's reasonable judgement, gross negligence, fraud, embezzlement or any acts of moral turpitude that result or are intended to result, directly or indirectly, to your personal enrichment at the Company's expense. For purposes of this Section 2(c), no act or failure to act on your part shall be considered "willful" unless done, or omitted to be done, by you in bad faith and without reasonable belief that your action or omission was in, or not opposed to, the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advise of counsel for the company shall be conclusively presumed to be done, or omitted to be done, by you in good faith and in the best interests of the corporation.

d) EMPLOYMENT AT WILL. The Company or you may separate your employment at any time, subject to the Company's covenant to provide the benefits specified in accordance with the terms of this Agreement.

B-1

3. COMPENSATION UPON TERMINATION OR DURING DISABILITY: OTHER AGREEMENTS.

a) During any period that you fail to perform your duties as a result of incapacity due to physical or mental illness, you shall continue to receive your salary at the rate then in effect and any benefits or awards under any benefit plans shall continue to accrue during such period, which period shall be at least 90 days, until your employment is terminated without cause. Thereafter, your benefits shall be determined in accordance with any applicable benefit plans then in effect.

b) If your employment shall be terminated, other than for Cause, by the Company, then the Company shall pay you your base salary for 24 months at the rate in effect just prior to the time a notice of termination is given, plus (i) the lesser of (x) your bonus paid by the Company for the last fiscal year (or guaranteed to be paid in the case of fiscal 1999) and (y) the bonus you would have earned for the current fiscal year (not to exceed the bonus payable based upon achieving target) and
(ii) any benefits (including health, disability and 401(k) or awards including both cash, bonus and stock components) which, pursuant to the terms of any applicable plans, have been earned or become payable, but which have not yet been paid to you (it being understood that options and restricted stock awards that have not vested as of the date of termination shall terminate upon such date of termination). Thereafter, the Company shall have no further obligations to you under this Agreement; provided that (i) your benefits under the Company's Supplemental Executive Retirement Plan shall continue to accrue for a period of two years from the date of termination or your subsequent employment by a third party, whichever occurs sooner, at the rate accrued in the last full fiscal year prior to the notice of termination, and (ii) the Company shall continue your existing life insurance and health benefits for a period of two years from the date of termination or your subsequent employment by a third party, whichever occurs sooner.

c) To the extent that you shall receive cash compensation that is subject to federal income taxation in respect of other employment or a consulting position with another organization, and that consideration is payable to you solely in respect of the remainder of the Term of this Agreement as in effect immediately prior to such termination, or a portion thereof, the payments to be made by the Company under this
Section 3, shall be proportionately reduced.

d) To the extent that following a Change of Control (as such term is defined in the Company's 1998 Stock Option Plan as in effect on the date hereof) your responsibilities within the Company are materially diminished, you shall have the right to deem your employment to have been terminated, other than for Cause, by the Company by written notice to the Company within 30 days of such diminution of such responsibility.

4. TAXES. All payments to be made to you under this Agreement will be subject to required withholding of federal, state, and local income and employment taxes.

5. SURVIVAL. The respective obligations of, and benefits afforded to, the Company or you as provided in this Agreement shall survive any expiration or termination of this Agreement.

6. NOTICES. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United Sates registered mail, return receipt requested, postage prepaid and addressed, in the case of the Company, to the address set forth on the first page of this Agreement, or, in the case of the undersigned employee, to the address set forth below his signature, provided that all notices to the Company shall be directed to the attention of the Chairman of the company, with a copy to the Secretary of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.

7. MODIFICATION WAIVER: GOVERNING LAW. No provision of this Agreement may be modified, waived or discharged unless such modification, waiver or discharge is agreed to in writing signed by you and the Chairman of the Board or the CEO of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or of compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreements or representations, oral or other wise, expressed or implied, with respect to the subject matter hereof have been made by either party, which are not expressly set forth in this Agreement.

B-2

The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without reference to its principles of conflict of laws.

8. ARBITRATION. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Albany, New York by three arbitrators in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrators' award in any court having jurisdiction. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding pursuant to this Section 8.

9. EMPLOYEE'S CONTINUING COVENANTS.

a) For a period of 24 months after your employment is separated from the Company for whatever reason, whether or not it is for Cause, you covenant and agree not to compete with the Company, whether directly or indirectly, alone or as an employee, independent contractor of any type, partner, substantial shareholder (5% or greater) or holder of an option or right to become a substantial shareholder, in any music or video business in the United States. If any of the restrictions on post-employment competitive activity contained in this Section 9 are held by a court of competent jurisdiction to be excessively broad as to duration, geographical scope, activity or subject such restrictions shall be construed to be enforceable to the extent compatible with applicable law as it shall then exist, it being understood that by the execution of this Agreement the parties hereto regard such restrictions as reasonable and compatible with their respective rights and obligations.

b) In consideration for the Company's agreement hereunder, you agree that subsequent to your period of employment with the Company, you will not at any time communicate or disclose to any unauthorized person, without the written consent of the Company, business information, trade secrets, sales data or any proprietary processes of the Company or any subsidiary or other confidential information concerning their business affairs, products, suppliers, or customers, unless otherwise required by law.

If this letter correctly sets forth our agreement on the subject matter hereof, kindly sign and return it to the Company, which will then constitute our agreement.

Sincerely,

TRANS WORLD ENTERTAINMENT CORP.
RECORD TOWN, INC.

BY:
Robert J. Higgins
Chairman & CEO

ACKNOWLEDGED AND AGREED TO:

By:

Michael J. Madden

B-3

EXHIBIT 22

TRANS WORLD ENTERTAINMENT CORPORATION

SIGNIFICANT SUBSIDIARIES OF THE REGISTRANT

 Name of Significant                                                             Name(s) Under Which the
      Subsidiary                     State of Incorporation                      Subsidiary Does Business
-----------------------        -----------------------------------            -------------------------------

Media Logic, Inc.                           New York                          Media Logic, Inc.

Record Town, Inc.                           New York                          Record Town
                                                                              Saturday Matinee
                                                                              Movies Plus
                                                                              Tape World
                                                                              Coconuts
                                                                              Music World
                                                                              F.Y.E. (For Your Entertainment)
                                                                              Strawberries
                                                                              Waxie Maxie
                                                                              Planet Music
                                                                              Camelot Music
                                                                              The Wall

Record Town Michigan, Inc                   Delaware                          Record Town
                                                                              Saturday Matinee
                                                                              Tape World

Record Town Minnesota, Inc.                 Delaware                          Record Town

Spec's Music, Inc.                          Florida                           Spec's Music

Trans World New York, Inc.                  New York                          Trans World New York, Inc.

Trans World Management Company              New York                          Trans World Management Company

TWEC.com.                                   Delaware                          TWEC.com

Trans World Florida, Inc.                   Florida                           Trans World Florida, Inc.

C-1

EXHIBIT 23

ACCOUNTANTS' CONSENT

We consent to incorporation by reference in the registration statements (No. 33-14572, No. 33-40399, No. 33-51094, No. 33-51516, No. 33-59319, No. 333-75231 and No. 333-81685) on Form S-8 pertaining to the Trans World Music Corp. 1986 Incentive and Non-Qualified Stock Option Plan, the Trans World Music Corp. 1990 Stock Option Plan for Non-Employee Directors, the Trans World Entertainmemt Corp. 1994 Stock Option Plan, the Camelot Music Holdings, Inc. 1998 Stock Option Plan, the Camelot Music Holdings Inc. Outside Directors Stock Option Plan, the Trans World Entertainment Corp. 1998 Stock Option Plan, and the Trans World Entertainment Corp. 1999 Stock Option Plan of our report dated March 17, 2000, relating to the consolidated balance sheets of Trans World Entertainment Corporation and subsidiaries as of January 29, 2000 and January 30, 1999, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the fiscal years in the three-year period ended January 29, 2000, which report appears in the Annual Report on Form 10-K of Trans World Entertainment Corporation and subsidiaries for the fiscal year ended January 29, 2000.

/s/ KPMG LLP

Albany, New York


April 28, 2000


ARTICLE 5
THIS LEGEND CONTAINS DATA EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS, AND THE CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
CIK: 0000795212
NAME: TRANS WORLD ENTERTAINMENT CORPORATION
MULTIPLIER: 1,000


PERIOD TYPE 12 MOS
FISCAL YEAR END JAN 29 2000
PERIOD START JAN 31 1999
PERIOD END JAN 29 2000
CASH 280,026
SECURITIES 0
RECEIVABLES 5,973
ALLOWANCES 0
INVENTORY 437,363
CURRENT ASSETS 728,565
PP&E 285,058
DEPRECIATION 140,364
TOTAL ASSETS 956,410
CURRENT LIABILITIES 425,003
BONDS 0
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 534
OTHER SE 493,639
TOTAL LIABILITY AND EQUITY 956,410
SALES 1,358,132
TOTAL REVENUES 1,358,132
CGS 858,588
TOTAL COSTS 858,588
OTHER EXPENSES 393,385
LOSS PROVISION 0
INTEREST EXPENSE 3,496
INCOME PRETAX 102,663
INCOME TAX 41,270
INCOME CONTINUING 0
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME 61,393
EPS BASIC 1.17
EPS DILUTED 1.15