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Moovies Inc · 424A · On 5/24/96

Filed On 5/24/96 · SEC File 333-04270 · Accession Number 950168-96-954

  As Of               Filer                 Filing     On/For/As Docs:Pgs              Issuer               Agent

 5/24/96  Moovies Inc                       424A                   1:146                                    950168

Prospectus · Rule 424(a)
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 424A        Moovies 424A #43646.1                                146    800K

Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Acquisition Risks Acquisitions, The Additional Information Anti-Takeover Provisions Business Business and Expansion Strategy Capitalization Certain Charter and Bylaw Provisions Certain Transactions Company, The Compensation Committee Interlocks and Insider Participation Competition Description of Capital Stock Dividend Policy Employment Agreements; Covenants Not to Compete Executive Officers and Directors Experts Financing Growth Strategy First Row and Game Trader Implementation of New Management Information System Inability to Obtain and Adequately Manage Leased Inventory Independent Auditors' Report Index to Financial Statements Initial Acquisitions Inventory and Management Information Systems King Video L.A. Video Legal Matters Liquidity and Capital Resources Management Management's Discussion and Analysis of Financial Condition and Results of Operations Movie Stars Movies to Go Movie Store Movie Store Group Net income per share Offering, The Pending Acquisition Pic-A-Flick Pic-A-Flick Group Planet Video Preferred Stock Premiere Video Price Range of Common Stock Pricing of Videos Principal Stockholders Pro Forma Financial Information Prospectus Summary Recent Accounting Developments Recent Acquisitions Registration Rights Revenues Risk Factors Selected Historical and Pro Forma Financial Data Shares Eligible for Future Sale Showtime Suppliers Technological Obsolescence The Acquisitions The Company The Offering Underwriting Use of Proceeds Video Express Video Stars Video Warehouse I Video Warehouse II Warrants 1995 Stock Plan
1	1st Page
"	Underwriting
3	Prospectus Summary
"	The Company
4	The Offering
5	Risk Factors
"	Acquisition Risks
"	Financing Growth Strategy
6	Competition
7	Implementation of New Management Information System
"	Technological Obsolescence
"	Pricing of Videos
"	Inability to Obtain and Adequately Manage Leased Inventory
8	Shares Eligible for Future Sale
9	Anti-Takeover Provisions
10	The Acquisitions
"	Initial Acquisitions
"	Movie Stars
"	Video Express
"	Video Stars
"	Video Warehouse I
"	Video Warehouse II
"	King Video
"	L.A. Video
"	Planet Video
"	Recent Acquisitions
11	Movies to Go
"	Pic-A-Flick
"	Movie Store
"	Showtime
"	Pending Acquisition
12	Use of Proceeds
"	Price Range of Common Stock
13	Dividend Policy
"	Capitalization
14	Pro Forma Financial Information
17	Revenues
21	Selected Historical and Pro Forma Financial Data
23	Management's Discussion and Analysis of Financial Condition and Results of Operations
24	Recent Accounting Developments
27	Movie Store Group
28	Pic-A-Flick Group
29	Premiere Video
31	Liquidity and Capital Resources
33	Business
34	Business and Expansion Strategy
37	Inventory and Management Information Systems
"	Suppliers
40	Management
"	Executive Officers and Directors
44	Compensation Committee Interlocks and Insider Participation
"	First Row and Game Trader
47	Employment Agreements; Covenants Not to Compete
48	1995 Stock Plan
49	Certain Transactions
50	Principal Stockholders
51	Description of Capital Stock
"	Preferred Stock
"	Certain Charter and Bylaw Provisions
52	Warrants
"	Registration Rights
56	Legal Matters
"	Experts
57	Additional Information
58	Index to Financial Statements
60	Independent Auditors' Report
67	Net income per share

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Rule 424(a) Registration Statement Number 333-4270

SUBJECT TO COMPLETION, DATED MAY 17, 1996

PROSPECTUS
3,200,000 Shares

(Moovies Logo appears here)

Common Stock

All of the 3,200,000 shares of Common Stock offered hereby are being sold
by Moovies, Inc. (the "Company"). The Company's Common Stock is traded and
quoted on the Nasdaq Stock Market under the symbol "MOOV." On May 16, 1996, the
last reported sale price for the Company's Common Stock on the Nasdaq Stock
Market was $11.25. See "Price Range of Common Stock."

THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.

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

[CAPTION]

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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)

Per Share........................................... $ $ $
Total (3)........................................... $ $ $

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $1.0 million.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 480,000 shares of Common Stock solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ , and $ , respectively. See
"Underwriting."

The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject any
order in whole or in part. It is expected that certificates for the shares of
Common Stock will be available for delivery in New York, New York, on or about
, 1996.

Needham & Company, Inc.

Wheat First Butcher Singer

Scott & Stringfellow, Inc.

The date of this Prospectus is , 1996.

Language is rotated 90 degrees on left side of page and
reads as follows:

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

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[PHOTOS]

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ STOCK
MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934.
SEE "UNDERWRITING."

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PROSPECTUS SUMMARY

MOOVIES, INC. ACQUIRED 76 VIDEO SPECIALTY STORES AND CERTAIN OTHER RELATED
OPERATIONS CONCURRENTLY WITH THE CONSUMMATION OF ITS INITIAL PUBLIC OFFERING IN
AUGUST 1995 (THE "INITIAL ACQUISITIONS"). AFTER THE COMPLETION OF THE INITIAL
PUBLIC OFFERING, MOOVIES, INC. ACQUIRED AN AGGREGATE OF 53 ADDITIONAL VIDEO
SPECIALTY STORES IN SEVEN ACQUISITIONS (THE "RECENT ACQUISITIONS") (THE INITIAL
ACQUISITIONS AND THE RECENT ACQUISITIONS COLLECTIVELY, THE "ACQUISITIONS"). THE
FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND THE NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. UNLESS
THE CONTEXT OTHERWISE REQUIRES, (I) ALL INFORMATION IN THIS PROSPECTUS ASSUMES
NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, AND (II) ALL REFERENCES
HEREIN TO THE "COMPANY" INCLUDE MOOVIES, INC., ITS PREDECESSOR, TONIGHT'S
FEATURE LIMITED PARTNERSHIP II (THE "PREDECESSOR"), AND THE VIDEO SPECIALTY
STORES AND RELATED OPERATIONS ACQUIRED IN CONNECTION WITH THE ACQUISITIONS.

THE COMPANY

The Company currently owns and operates 158 video specialty stores located
in Georgia, South Carolina, North Carolina, Virginia, Pennsylvania, New Jersey,
New York, Connecticut, Ohio, Iowa and Colorado. In 1995, the Company had pro
forma revenues of $79.0 million and pro forma net income of $5.7 million ($22.7
million and $1.7 million, respectively, for the three months ended March 31,
1996). The Company operates all of its stores in the "superstore" format (i.e.,
a video specialty store with more than 7,500 videocassettes). The Company
believes that, based upon the number of stores operated by it at the end of
1995, it was one of the five largest operators of video specialty stores and one
of the three largest operators of video superstores in the United States.

The key elements of the Company's business and expansion strategy are (i)
to operate video superstores, which the Company believes is the most profitable
format for most locations, (ii) to concentrate store openings and acquisitions
in areas where the Company believes it can achieve economies of scale in
advertising, management and other overhead expenses, (iii) to open and acquire
video specialty stores in desirable locations and (iv) to offer a high level of
customer service at each store, including a commitment to provide more copies of
the newest releases than many of its competitors. The Company anticipates
opening approximately 50 new superstores in 1996 and through May 15, 1996, had
opened eight new superstores and signed leases for 18 new store sites, including
eight stores that were under construction. The Company estimates that the cash
investment required to open each new Moovies superstore generally ranges from
$250,000 to $300,000.

The Company has designed a visually appealing, customer-friendly and
family-oriented store layout which the Company believes distinguishes Moovies
superstores from those of its competitors. The Company currently operates
approximately 100 of its stores under the Moovies name and logo and expects to
convert substantially all of its remaining video specialty stores to the Moovies
name and logo by June 30, 1996.

According to estimates provided by entertainment media analyst Paul Kagan
Associates, Inc. ("Paul Kagan"), the domestic video rental and sales industry
has grown from $0.7 billion in revenues in 1982 to $14.8 billion in 1995 and is
projected to reach $19.1 billion in 2000. According to media analyst Veronis,
Suhler & Associates, the home video market was the largest single source of
revenue to movie distributors in 1995, accounting for approximately 46% of movie
distributors' worldwide revenues. The Company believes that the retail video
industry is highly fragmented and is undergoing consolidation. Paul Kagan
estimated that in 1994 there were approximately 27,400 video specialty stores,
including 6,100 video superstores, in the United States. According to VIDEO
STORE MAGAZINE, only nine multiple store businesses operated in excess of 100
stores in 1995. The Company believes that the fragmented nature of the industry
and the emergence of the superstore format present attractive opportunities to
open and acquire video specialty stores.

RECENT DEVELOPMENTS

Since the Company's initial public offering, the Company has acquired an
aggregate of 53 video specialty stores in seven acquisitions. These acquisitions
included the acquisition of the "Movies to Go" chain of 13 stores in September
1995, the "Pic-A-Flick" chain of 23 stores in December 1995, the "Movie Store"
chain of eight stores in December 1995, the "Showtime" chain of five stores in
March 1996 and several smaller acquisitions.

In March 1996, the Company sold its supermarket video business for
approximately $1.0 million in order to focus its resources on its video
superstores.

In April 1996, the Company signed an asset purchase agreement to acquire
the "Premiere Video" chain of 23 stores in Minnesota, Iowa, Wisconsin, South
Dakota and Nebraska (the "Pending Acquisition"). The Company anticipates closing
the Premiere Video acquisition concurrently with the completion of this
offering.

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THE OFFERING

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Common Stock offered by the Company................... 3,200,000 shares
Common Stock to be outstanding after offering......... 11,864,040 shares (1)
Use of Proceeds....................................... To repay certain outstanding indebtness, to finance the Pending
Acquisition, and for general corporate purposes, including new store
openings and future acquisitions. See "Use of Proceeds."
Nasdaq Stock Market Symbol............................ MOOV

(1) Excludes 803,950 shares of Common Stock reserved for issuance pursuant to
outstanding options granted under the Company's 1995 Stock Plan and 529,957
shares of Common Stock issuable upon exercise of outstanding warrants.

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

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HISTORICAL (1) PRO FORMA
(2)
YEARS ENDED THREE MONTHS ENDED YEAR ENDED
DECEMBER 31, MARCH 31, DECEMBER 31,
1993 1994 1995 1995 1996 1995

(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $3,889 $4,392 $24,658 $1,223 $19,316 $ 78,959
Operating income................................. 278 382 2,983 74 2,270 9,030
Income before income taxes and cumulative effect
of a change in accounting principle............ 235 281 2,811 47 1,948 9,503
Income before cumulative effect of a change in
accounting principle, net of taxes (3)......... 235 281 1,765 47 1,169 5,702
Net income....................................... 235 281 1,765 47 278 5,702
Net income per share............................. -- -- $ 0.52 -- $ 0.03 $ 0.47
Shares used in computation....................... -- -- 3,395 -- 8,976 12,160
OPERATING DATA:
Number of stores at end of period................ 8 9 148 11 158 176
Increase in same store revenues (4).............. 8.2% 10.5% 1.4% 0.0% 0.0% --

THREE MONTHS
ENDED MARCH
31, 1996

STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 22,652
Operating income................................. 2,862
Income before income taxes and cumulative effect
of a change in accounting principle............ 2,886
Income before cumulative effect of a change in
accounting principle, net of taxes (3)......... 1,732
Net income....................................... 1,732
Net income per share............................. $ 0.14
Shares used in computation....................... 12,176
OPERATING DATA:
Number of stores at end of period................ 181
Increase in same store revenues (4).............. --

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MARCH 31, 1996
AS
ACTUAL ADJUSTED (5)

BALANCE SHEET DATA:
Cash and cash equivalents............................................................................ $ 5,570 $ 13,124
Videocassette rental inventory, net.................................................................. 17,357 19,157
Total assets......................................................................................... 72,557 91,611
Line of credit and other short-term debt............................................................. 13,745 3,549
Long-term debt, less current portion................................................................. 3,698 198
Total liabilities.................................................................................... 34,816 21,120
Stockholders' equity................................................................................. 37,741 70,491

(1) The historical financial data reflect data for the Predecessor during 1993
and 1994, and for a portion of 1995. The Predecessor was a limited
partnership and therefore had no income tax liability.

(2) The pro forma statement of operations data for the year ended December 31,
1995 gives effect to the Acquisitions, the Company's initial public
offering, the Premiere Video acquisition and this offering as if they had
occurred as of the beginning of the year. The pro forma statements of
operations data for the three months ended March 31, 1996 give effect to
this offering and the consummation of the Pending Acquisition and the
Showtime acquisition as if they had occurred as of the beginning of the
period. See "Use of Proceeds," "The Acquisitions" and "Pro Forma Financial
Information."

(3) Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. The cumulative effect of the
change as of January 1, 1996 was to reduce net income by $891,000 and
earnings per share by $0.10 for the three months ended March 31, 1996. The
application of the new method of amortizing videocassette rental inventory
increased amortization expense by approximately $575,000 to $3.6 million and
reduced earnings per share by $0.04 for the three months ended March 31,
1996.

(4) The increase in same store revenues is computed by comparing on a quarterly
basis revenues from stores open during an entire quarter to revenues from
stores open during the entire corresponding quarter for the prior year. This
calculation includes acquired stores on a pro forma basis, that were owned
and operated at the end of the period.

(5) Adjusted to reflect the sale of 3,200,000 shares offered by the Company
hereby at an assumed price to the public of $11.25 per share and the use of
proceeds therefrom, including the repayment of certain outstanding
indebtness and the consummation of the Pending Acquisition. See
"Capitalization" and "Use of Proceeds".

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RISK FACTORS

IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN THE COMMON
STOCK OFFERED HEREBY.

ACQUISITION RISKS

GENERAL. The Company's growth strategy emphasizes acquisitions. There can
be no assurance that the Company will be able to successfully identify suitable
acquisition candidates, complete acquisitions, integrate acquired operations
into its existing operations or expand into new markets. There can be no
assurance that acquisitions will not have a material adverse effect upon the
Company's operating results, particularly in the fiscal quarters immediately
following the consummation of such transactions, while the operations of the
acquired businesses are being integrated into the Company's operations. Once
integrated, acquired operations may not achieve levels of revenues or
profitability comparable to those achieved by the Company's existing operations,
or otherwise perform as expected. See "The Acquisitions," "Pro Forma Financial
Information," and "Business -- Business and Expansion Strategy."

LIMITED KNOWLEDGE AND OPERATING HISTORY. Notwithstanding its own due
diligence investigation, management has, and will have, limited knowledge about
the specific operating history, trends and customer buying patterns of video
specialty stores it acquires. Consequently, there can be no assurance that the
Company will make acquisitions at favorable prices, that acquired stores will
perform as well as they had performed historically or that the Company will have
sufficient information to accurately analyze the markets in which it elects to
make acquisitions. Failure to pay reasonable prices for acquisitions or to
acquire profitable video specialty stores could have a material adverse effect
on the Company's financial condition and results of operations.

COMPETITION FOR ACQUISITIONS. Certain of the Company's larger, better
capitalized competitors may seek to acquire some of the same video specialty
stores that the Company seeks to acquire. Such competition for acquisitions
would be likely to increase acquisition prices and related costs and result in
fewer acquisition opportunities, which could have a material adverse effect on
the Company's growth.

MISREPRESENTATIONS AND BREACHES BY SELLERS. In consummating acquisitions,
the Company relies upon certain representations, warranties and indemnities made
by the sellers, as well as its own due diligence investigation. There can be no
assurance that such representations and warranties will be true and correct or
that the Company's due diligence will uncover all material adverse facts
relating to the operations and financial condition of the stores acquired. Any
material misrepresentations could have a material adverse effect on the
Company's financial condition and results of operations.

CONSIDERATION FOR ACQUIRED STORES EXCEEDS ASSET VALUE. Valuations of the
video specialty stores acquired in connection with the Acquisitions by the
Company were not established by independent appraisers, but through arm's-length
negotiations between the Company and the respective sellers. The consideration
paid for each of these stores was based primarily on management's estimate of
the value of such stores as going concerns and not on the value of the acquired
assets. No assurance can be given that the future performance of such stores
will justify or be commensurate with the consideration being paid to acquire
them. Similar risks apply to future acquisitions, including the Pending
Acquisition.

NEW STORE OPENINGS

The Company's continued growth will depend in part on its ability to open
and operate new stores on a profitable basis. Although the Company intends to
increase the number of its stores within its current market areas and believes
that adequate sites are currently available in these markets, the rate of new
store openings is subject to various contingencies, some of which are beyond the
Company's control. These contingencies include the Company's ability to secure
suitable store sites on a timely basis and on satisfactory terms, the Company's
ability to hire and train competent store management and personnel, the
availability of adequate capital resources and the successful integration of new
stores into existing operations. There can be no assurance that the Company will
be able to achieve its planned expansion or that its expansion will be
profitable. Failure of the Company to achieve its planned expansion on a
profitable basis could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Business and Expansion
Strategy."

FINANCING GROWTH STRATEGY

As of May 15, 1996, the Company had outstanding borrowings of $12.8 million
under its $22.5 million bank line of credit. At May 15, 1996 the Company had
$2.2 million available under this line of credit. The remaining $5.5 million
will become available upon the completion of this offering and the Premiere
Video acquisition. The Company intends to use $2.6

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million of the line of credit to secure the final payment due in January 1997 in
connection with the Premiere Video acquisition. The Company currently intends to
finance new store openings and future acquisitions with cash from operations,
borrowings under credit facilities and the net proceeds from the sale of debt or
equity securities. If the Company does not have sufficient cash from operations,
credit facilities or the ability to raise cash through the sale of debt or
equity securities, the Company will be unable to pursue its growth strategy,
which would have a material adverse effect on the Company's ability to increase
its revenues and net income and could have a material adverse effect on the
Company's financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Business and Expansion
Strategy."

COMPETITION

The video retail industry is highly competitive. According to Paul Kagan,
in 1994 there were approximately 27,400 video specialty stores, including 6,100
video superstores, in the United States. The Company competes with other video
specialty stores, including stores operated by regional and national chains, as
well as other businesses offering videos and video games such as supermarkets,
pharmacies, convenience stores, bookstores, mass merchants, mail order
operations and other retailers. Many of the Company's stores compete with stores
operated by Blockbuster Entertainment Corporation ("Blockbuster"), the dominant
video specialty retailer in the United States. Blockbuster and certain of the
Company's other competitors have significantly greater financial and marketing
resources, market share and name recognition than the Company. In addition, the
Company's stores compete with other leisure-time activities, including movie
theaters, network and cable television, programs made available directly by
satellite, live theater, sporting events and family entertainment centers. The
Company's failure to compete effectively would have a material adverse effect on
its financial condition and results of operations. See
"Business -- Competition."

NEW MANAGEMENT TEAM

The Company's management group, including the Chief Executive Officer, the
Chief Financial Officer and the Chief Operating Officer have had only a limited
time to work together. The Chief Executive Officer and the Chief Financial
Officer have only limited experience operating a company in the retail video
industry. Although certain members of the management team have experience
operating small companies in terms of annual revenues in the retail video
industry, no member of the management team has experience operating a
stand-alone company as large as the Company. As a result, there can be no
assurance that the Company's management group will succeed in managing the
operations of the Company or effectively implement the Company's business and
expansion strategy. Failure of the Company's management group to successfully
manage such operations or to effectively implement the Company's business and
expansion strategy could have a material adverse effect on the Company's
financial condition and results of operations. See "Management."

ABILITY TO MANAGE GROWTH

The Company is currently experiencing a period of rapid growth and
expansion. Such growth and expansion has placed and will continue to place a
significant strain on the Company's services and support operations,
administrative personnel and other resources. The Company's ability to manage
such growth effectively will require the Company to continue to improve its
operational, management and financial systems and controls and to train,
motivate and manage its employees. In addition, the Company may be unable to
retain or hire the necessary personnel or acquire other resources necessary to
service such growth adequately. There can be no assurance that the Company will
be able to effectively manage this rapid growth and expansion.

LOSS OF CUSTOMERS AND CUSTOMER LOYALTY

The success of the video specialty stores the Company acquires depends in
large part on the Company's ability to successfully convert them to the Moovies
name, logo and format without negatively impacting customer service in these
stores or customers' perceptions of these stores. The Company currently operates
approximately 100 of its stores under the Moovies name and logo and expects to
convert substantially all of its stores to the Moovies name and logo by June 30,
1996. To the extent that customers have developed loyalty to the current names
and logos of these stores, such transition could result in a loss of customers.
A significant loss of customers would have a material adverse effect on the
Company's financial condition and results of operations.

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IMPLEMENTATION OF NEW MANAGEMENT INFORMATION SYSTEM

The Company is in the process of replacing the various management
information systems ("MIS") used by its stores with a new MIS and as of May 15,
1996 had completed installation in approximately 125 stores. Implementation of
the new MIS in all of the Company's stores could cause significant disruption in
store operations and materially adversely affect the Company's financial
condition and results of operations. See "Business -- Inventory and Management
Information Systems."

TECHNOLOGICAL OBSOLESCENCE

The Company competes with pay-per-view cable television systems
("Pay-Per-View"), in which home subscribers pay a fee to see a movie selected by
the subscriber. Existing Pay-Per-View services offer a limited number of
channels and movies and are generally available only to households with a
converter to unscramble incoming signals. Technologies recently introduced to
the consumer market, however, permit certain cable companies, direct broadcast
satellite companies, telephone companies and other telecommunications companies
to transmit a much greater number of movies to homes in more markets as
frequently as every five minutes ("Near Video-on-Demand"). These technologies,
by providing alternatives to home video rentals and purchases, could have a
material adverse effect on the Company's business. Over the long term, further
improvements in these technologies, or the development of other similar
technologies, could lead to the availability of a broad selection of movies to
consumers on demand ("Video-on-Demand"), which could have a material adverse
effect on the Company's financial condition and results of operations. See
"Business -- Competition." Changes in the manner in which movies are marketed,
primarily related to the timing of releases of movie titles to these
distribution channels, and the prices charged by those channels, could also
substantially decrease the demand for video rentals, resulting in a material
adverse effect on the Company's financial condition and results of operations.
In addition, the advent of video compact discs, which may occur by the end of
1996, could reduce the demand for video rentals, resulting in a material adverse
effect on the Company's financial condition and results of operations. See
" -- Pricing of Videos," "Business -- Video Retail Industry Overview" and
"Business -- Competition."

DEPENDENCE UPON SUPPLIERS

The Company anticipates that in 1996 approximately 83% of its supply of
videos, in the aggregate, will be acquired from two suppliers. While the Company
believes that it can readily purchase sufficient quantities of titles on
comparable terms from other suppliers, there can be no assurance that an
alternative supplier or suppliers would provide service, support or payment
terms as favorable as those currently provided. Failure to obtain comparable
service, support or payment terms from an alternative supplier could have a
material adverse effect on the Company's financial condition and results of
operations. See "Business -- Suppliers."

PRICING OF VIDEOS

Changes in the movie studios' wholesale pricing structure for videos could
result in a competitive disadvantage for all video specialty stores, including
those of the Company, and could therefore have a material adverse effect on the
Company's financial condition and results of operations. Recently, movie studios
have begun pricing more of their film releases for sale to the consumer rather
than for rental, and to the extent that such sales reduce the volume or prices
of rentals, which generally provide higher margins, the Company's profit margins
would be reduced, which could have a material adverse effect on the Company's
financial condition and results of operations. In addition, the advent of video
compact discs, which may occur by the end of 1996, may result in an increase in
the ratio of sales to rental revenues and a decrease in the Company's overall
profit margins, which could have a material adverse effect on the Company's
financial condition and results of operations.

INABILITY TO OBTAIN AND ADEQUATELY MANAGE LEASED INVENTORY

The Company's ability to compete successfully depends in part on its
ability to lease appropriate quantities of the latest and most popular videos on
a timely basis and at favorable prices. The Company presently intends to spend
approximately 17% of its new release budget to obtain new releases from Rentrak
Corporation ("Rentrak") pursuant to a revenue sharing agreement. The Company
believes Rentrak is currently the sole supplier of leased videos to video
specialty stores. The Company's inability to renew this agreement on comparable
terms could have a material adverse effect on its financial condition and
results of operations. In order for the Company to obtain the most benefit from
the Rentrak revenue sharing arrangement, the Company must correctly identify new
release titles that it should lease from Rentrak and the stores which should
receive them. Because the Company's percentage share of revenue under the
Rentrak agreement is fixed, to the extent

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that the Company obtains new release videos from Rentrak for too many or the
wrong stores, the Company's profits may be adversely affected. See
"Business -- Suppliers."

NO ASSURANCE OF CONTINUED PROFITABILITY; QUARTERLY FLUCTUATIONS; SEASONALITY AND
OTHER FACTORS

Although the Company has been profitable since its initial public offering,
there is no assurance it will continue to be profitable. In addition, many of
the Company's stores have a limited operating history. Future operating results
may be affected by many factors, including variations in the number and timing
of store openings, the quality of new release titles available for rental and
sale, acquisition by the Company of existing video stores, additional and
existing competition, marketing programs, weather, special or unusual events and
other factors that may affect retailers in general. Any concentration of new
store openings and the related new store pre-opening costs near the end of a
fiscal quarter could have an adverse effect on the financial results for that
quarter and could, in certain circumstances, lead to fluctuations in quarterly
financial results. The video and video game rental portions of the Company's
business are somewhat seasonal, with revenues in April, May, September and
October generally being lower compared to other months of the year.

VOLATILITY OF STOCK PRICE

The market price of the Company's Common Stock has fluctuated substantially
since its initial public offering in August 1995. See "Price Range of Common
Stock." There is no assurance that the market price of the Common Stock will not
decline below the price to the public in this offering. The Common Stock is
traded on the Nasdaq Stock Market, which market has experienced and is likely to
experience in the future significant price and volume fluctuations, which could
adversely affect the market price of the Common Stock without regard to the
operating performance of the Company. The Company believes factors such as
quarterly fluctuations in financial results, announcements of new technologies
in movie distribution or announcements by competitors may cause the market price
of the Common Stock to fluctuate, perhaps substantially. These fluctuations, as
well as general economic conditions, such as recessions or high interest rates,
may adversely affect the market price of the Common Stock.

RELIANCE ON KEY PERSONNEL

The Company's operations are dependent on the continued efforts of John L.
Taylor, its President, Chairman of the Board and Chief Executive Officer, and
its other executive officers. If any of these individuals become unwilling or
unable to continue their employment or association with the Company, or if the
Company is unable to attract and retain other skilled employees when needed, the
Company's business could be materially, adversely affected. The Company has
obtained key man life insurance covering John L. Taylor in the amount of $1.0
million. See "Management."

CONTROL BY MANAGEMENT

Upon completion of this offering, the Company's executive officers and
directors will, in the aggregate, beneficially own 23.7% of the Company's
outstanding Common Stock (including 205,000 shares subject to currently
exercisable options and warrants). As a result, these stockholders voting
together will likely be able to cause the election of all of the Company's
directors and effectively control the Company. These stockholders voting
together could delay or prevent a change in control of the Company or a business
combination involving the Company that is favored by other stockholders. See
" -- Anti-Takeover Provisions," "Management," "Principal Stockholders" and
"Description of Capital Stock."

SHARES ELIGIBLE FOR FUTURE SALE

The sale of a substantial number of shares of the Common Stock in the
public market following this offering, or the perception that the sale of a
substantial number of shares might occur, could have a material adverse effect
on the prevailing market price of the Common Stock or the ability of the Company
to raise additional capital through a public offering of its equity securities.
Upon completion of this offering, the Company will have outstanding 11,864,040
shares of Common Stock, of which 6,822,500 shares, including the 3,200,000
shares sold in this offering (plus any additional shares sold upon exercise of
the Underwriter's over-allotment option) will be freely tradeable without
restriction or further registration under the Securities Act of 1933 (the
"Securities Act"), except for those shares held by "affiliates" (as defined in
the Securities Act) of the Company. None of the remaining 5,091,540 outstanding
shares of Common Stock (the "Restricted Shares") have been registered under the
Securities Act, and such shares may be resold only upon registration under the
Securities Act or in compliance with an exemption from the registration
requirements of the Securities Act. Holders of 461,665 Restricted Shares will be
eligible to sell such shares pursuant to Rule 144 under the Securities Act,
subject to the manner of sale, volume, notice and information requirements of
Rule 144, beginning in December 1996, holders of 349,175 Restricted Shares will
be eligible to

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sell such shares pursuant to Rule 144 beginning in February 1997, holders of
12,879 Restricted Shares will be eligible to sell such shares pursuant to Rule
144 beginning in June 1997, holders of 3,178,185 Restricted Shares will be
eligible to sell such shares pursuant to Rule 144 beginning in August 1997
holders of 500,531 Restricted Shares will be eligible to sell such shares
pursuant to Rule 144 beginning in September 1997, holders of 11,014 Restricted
Shares will be eligible to sell such shares in October 1997, holders of 497,583
Restricted shares will be eligible to sell such shares in December 1997, holders
of 25,000 Restricted Shares will be eligible to sell such shares in March 1998,
holders of 1,377 Restricted Shares will be eligible to sell such shares in April
1998 and holders of 4,131 Restricted Shares will be eligible to sell such shares
in May 1998. The Company has granted to certain holders of Restricted Shares and
warrants for shares of Common Stock certain demand and piggyback registration
rights. See "Description of Capital Stock -- Registration Rights," "Shares
Eligible for Future Sale," "Management -- Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions."

ANTI-TAKEOVER PROVISIONS

The Company's Board of Directors has the authority to issue up to one
million shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any shares of
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of the Company, thereby
delaying, deferring or preventing a change of control of the Company. In
addition, certain provisions in the Company's Certificate of Incorporation and
Bylaws relating to dividing the Board of Directors into three classes,
restrictions on calling special meetings of stockholders, restrictions on
amendments to the Bylaws and prohibitions against action by majority written
consent of the stockholders may discourage or make more difficult any attempt by
a person or group of persons to obtain control of the Company.

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

In addition, options issued pursuant to the Company's 1995 Stock Plan will
vest immediately upon a Change in Control as defined in the option agreements.
See "Management -- Compensation Committee Interlocks and Insider Participation."

DISCRETION IN USE OF PROCEEDS

A portion of the net proceeds of this offering will be added to the
Company's working capital and will be available for general corporate purposes,
including acquisitions and new store openings. As of the date of this
Prospectus, the Company cannot specify with certainty the particular uses for
the net proceeds to be added to its working capital, and accordingly, management
will have broad discretion in the application of such net proceeds. Other than
with regard to the Pending Acquisition, the Company currently has no agreements,
arrangements or understandings with respect to any particular acquisition, and
there can be no assurance that this acquisition or any other acquisition will be
completed. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Business and Expansion Strategy."

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THE ACQUISITIONS

THE COMPANY

The Predecessor owned and operated 11 video specialty stores under the
"Moovies" name, logo and format located in South Carolina, North Carolina and
Northern Georgia. Concurrently with the completion of its initial public
offering, the Predecessor's corporate general partner was merged into Moovies,
Inc. Moovies, Inc. was incorporated under the laws of the State of Delaware on
November 28, 1994. The Company's principal executive offices are located at 201
Brookfield Parkway, Greenville, South Carolina 29607, and its telephone number
is (864) 213-1700.

INITIAL ACQUISITIONS

Concurrently with its initial public offering in August 1995, the Company
acquired 76 video specialty stores located in Georgia, North Carolina, Virginia,
Pennsylvania, New Jersey, New York, Connecticut and Ohio, for aggregate
consideration of approximately $44.3 million, consisting of approximately $22.4
million in cash, approximately $21.4 million in shares of Common Stock
(approximately 1.8 million shares) and a $500,000 promissory note payable to a
seller. In addition, pursuant to the terms of the Initial Acquisitions, the
Company concurrently repaid approximately $4.2 million of long-term indebtedness
assumed in connection with the Initial Acquisitions and $1.4 million of
long-term indebtedness of the Predecessor. The Initial Acquisitions were
consummated concurrently with the initial public offering in August 1995. The
cash portion of the purchase price of the Initial Acquisitions was financed with
a portion of the net proceeds of the initial public offering.

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

FIRST ROW. The Company acquired from First Row Video, Inc. and Video Game
Trader, Inc. (collectively, "First Row and Game Trader") 24 video specialty
stores and certain related operations. All of the stores and outlets are located
in Eastern Ohio and Western Pennsylvania.

MOVIE STARS. The Company acquired from Movie Stars Entertainment Corp.
("Movie Stars") ten video specialty stores. Nine stores are located in
Poughkeepsie, New York and its surrounding area and the tenth store is located
in Fairfield, Connecticut.

VIDEO EXPRESS. The Company acquired from PARR-Four, Inc. ("Video Express")
ten video specialty stores located in the Norfolk, Virginia area.

VIDEO STARS. The Company acquired from BREM, Inc. ("Video Stars") eight
video specialty stores located in the Norfolk, Virginia area.

VIDEO WAREHOUSE I. The Company acquired from Lott's Video Warehouse of
Athens, Inc. and four other related corporations (collectively, "Video Warehouse
I") five video specialty stores located in Northern Georgia.

VIDEO WAREHOUSE II. The Company acquired from Video Warehouse of Augusta
#1, Inc. and six related partnerships and corporations (collectively, "Video
Warehouse II") seven video specialty stores located in Southern Georgia.

KING VIDEO. The Company acquired from King Video, Inc. ("King Video") five
video specialty stores located in Blacksburg, Virginia and its surrounding area.

L.A. VIDEO. The Company acquired from L.A. Video, L.A. Video of Upper
Dublin, Inc. and L.A. Video of Aldan, Inc. (collectively, "L.A. Video") five
video specialty stores located in suburban areas of Philadelphia, Pennsylvania.

PLANET VIDEO. The Company acquired from Planet Video, Inc., and a related
corporation, XIMPEC, Inc. (collectively, "Planet Video") two video specialty
stores located in Drescher, Pennsylvania and Trenton, New Jersey.

RECENT ACQUISITIONS

Since the Company's initial public offering, the Company has acquired an
aggregate of 53 video specialty stores in seven acquisitions. These acquisitions
included the acquisition of the "Movies to Go" chain of 13 stores in September
1995, the "Pic-A-Flick" chain of 23 stores in December 1995, the "Movie Store"
chain of eight stores in December 1995, the "Showtime Video" chain of five
stores in March 1996, and several smaller acquisitions.

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MOVIES TO GO. In September 1995, the Company acquired the "Movies to Go"
chain of 13 stores and certain related operations located in Iowa ("Movies to
Go") through a merger transaction with MoveAmerica, Inc. for aggregate
consideration of 344,421 shares of common stock of the Company, the assumption
of approximately $685,000 in debt, and approximately $1,420,000 in cash. The
Company paid the cash portion of the consideration with proceeds from its
initial public offering.

PIC-A-FLICK. In December 1995, the Company acquired the "Pic-A-Flick" chain
of 23 stores located in North and South Carolina ("Pic-A-Flick Group") through a
merger and asset purchase transaction with eight corporations for aggregate
consideration of 336,134 shares of common stock of the Company and notes in the
aggregate principal amount of $5,000,000, due January 5, 1996 (which were
secured by letters of credit from a bank and subsequently repaid using proceeds
from borrowings under the Company's line of credit).

MOVIE STORE. In December 1995, the Company acquired the "Movie Store" chain
of eight stores located in the Atlanta metropolitan area ("Movie Store Group")
through merger and asset purchase transactions with four corporations for
aggregate consideration of 161,449 shares of the Company's Common Stock, the
assumption of approximately $270,000 in debt ($166,000 of which was repaid at
closing), $190,000 in cash, a promissory note in the principal amount of
$435,000 due January 5, 1996 and a promissory note in the principal amount of
$469,000 with five installments of $93,730 each (plus interest at 8% per annum)
due quarterly from April 1, 1996 through April 1, 1997. Under the terms of the
merger agreement, the Company is required to issue up to a maximum of 42,580
additional shares to the former stockholder of the merged corporation if the
Company's closing trading price does not equal and/or exceed $14.375 for a ten
consecutive trading day period between December 21, 1995 and September 3, 1996.
If at any time during this period the price does exceed $14.375 for a
consecutive ten day trading period, the Company's contingent obligation to issue
these additional shares will terminate. The Company paid the cash portion of the
consideration with borrowings under its line of credit with a bank. The $435,000
note was repaid in January 1996 with borrowings under the line of credit.

SHOWTIME. In March 1996, the Company acquired the "Showtime Video" chain of
five stores in an asset purchase transaction for aggregate consideration of
approximately $400,000 in cash and a $1.9 million note payable. The Company paid
the cash portion of the consideration and repaid the note in April 1996 with
borrowings under its line of credit. Showtime operates three stores in Fort
Collins, Colorado, one in Boulder, Colorado, and one in Greeley, Colorado.

PENDING ACQUISITION

PREMIERE. In April 1996, the Company signed an asset purchase agreement to
purchase certain assets and business of American Multi-Entertainment, Inc. d/b/a
Premiere Video ("Premiere Video") (such purchase, as proposed in the asset
purchase agreement, the "Pending Acquisition") for a purchase price of
approximately $11.5 million, consisting of $8.9 million in cash at closing and a
final payment of $2.6 million payable January 1997 which will be secured by a
bank letter of credit. Premiere Video owns and operates 23 stores in Minnesota,
Iowa, Wisconsin, South Dakota and Nebraska. The Company's obligation to complete
the Pending Acquisition is contingent upon the availability, prior to July 31,
1996, of financing on terms acceptable to the Company. The Company anticipates
closing the Pending Acquisition concurrently with the completion of this
offering; however, there can be no assurance that the Pending Acquisition will
be consummated.

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USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,200,000 shares of
Common Stock offered by the Company hereby at an assumed price to public of
$11.25 per share, after deducting underwriting discounts and other offering
expenses (estimated to be approximately $1.0 million), are estimated to be
approximately $32.8 million ($37.8 million if the Underwriters' over-allotment
option is exercised in full). Of the net proceeds, the Company intends to use
(i) $12.8 million to repay the outstanding borrowings under its bank line of
credit, (ii) $8.9 million to fund the cash payable at closing of the Pending
Acquisition and (iii) $3.5 million to repay the outstanding balance under its
subordinated note payable. See "The Acquisitions -- Pending Acquisition." The
balance of the net proceeds from this offering will be added to the Company's
working capital and will be available for general corporate purposes, including
new store openings, possible future acquisitions and conversion of newly
acquired stores to the Moovies logo and format. The primary purpose of this
offering is to provide the Company with increased financial flexibility to
pursue new store openings and acquisitions of other businesses that are
consistent with the Company's growth strategy. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Business -- Business and Expansion Strategy."

Pending use of the net proceeds of this offering, the Company may make
temporary investments in interest-bearing savings accounts, certificates of
deposit, United States Government obligations, money market accounts, interest
bearing securities or other insured short-term, interest-bearing investments.

The indebtedness of the Company that may be repaid from the proceeds of
this offering bears interest at rates ranging from 7.9% to 13.5% per annum, with
a weighted average interest rate of 9.1% at May 16, 1996. Such indebtedness
matures at various dates through January 2001.

PRICE RANGE OF COMMON STOCK

The Company's Common Stock is traded and quoted on the Nasdaq Stock Market
under the symbol "MOOV". The following table shows the high and low sales prices
of the Common Stock since the Common Stock began trading publicly on August 4,
1995, as reported through May 16, 1996. The price to the public in the initial
public offering which occurred on August 3, 1995 was $12.00 per share.

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HIGH LOW

YEAR ENDED DECEMBER 31, 1995
Third Quarter (from August 3, 1995)................................................................. $22 3/4 $14 3/4
Fourth Quarter...................................................................................... 19 1/2 10
YEAR ENDING DECEMBER 31, 1996
First Quarter....................................................................................... 15 1/4 11 3/4
Second Quarter (through May 16, 1996)............................................................... 14 10 3/4

As of May 16, 1996, there were 265 record holders and approximately 2,400
beneficial owners of the Company's Common Stock. Approximately 3,582,000 shares
were held by brokers, dealers and their nominees on behalf of the beneficial
owners. The closing price of the Company's Common Stock as reported on the
Nasdaq Stock Market on May 16, 1996 was $11.25.

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DIVIDEND POLICY

The Company has never declared or paid any cash dividends on its Common
Stock. However, amounts totalling $22.9 million, reflecting the cash portions of
the purchase prices paid and a note issued in connection with the Initial
Acquisitions, were treated as deemed dividends pursuant to the accounting
treatment accorded to such acquisitions. See Footnote 2 to the Moovies, Inc.
Consolidated Financial Statements. The Company currently intends to retain its
future earnings, if any, to finance the expansion of its business and for
general corporate purposes and currently does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. Any payment of cash
dividends in the future will be at the discretion of the Board of Directors and
will depend upon, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to the payment of dividends and other factors that the Company's
Board of Directors deems relevant. In addition, the Company's credit facility
with Sirrom Capital Corporation ("Sirrom Capital") prohibits the Company from
declaring or paying any dividends without the prior written consent of Sirrom
Capital, and its credit facility with a bank prohibits the payment of any
dividends without the prior written consent of the bank. See "The Acquisitions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996 and as adjusted to reflect the sale by the Company
of the 3,200,000 shares of Common Stock offered hereby at the assumed public
offering price of $11.25 per share and the application of the net proceeds
therefrom as described under "Use of Proceeds," including the consummation of
the Pending Acquisition. This table should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus.

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MARCH 31, 1996
ACTUAL AS ADJUSTED

(IN THOUSANDS)
Line of credit and other short-term debt............................................................ $13,745 $ 3,549
Long-term debt, less current portion................................................................ $ 3,698 $ 198
Stockholders' equity:
Preferred Stock, $.001 par value; 1,000,000 shares authorized; none issued
or outstanding................................................................................. -- --
Common Stock, $.001 par value; 25,000,000 shares authorized; 8,658,532 shares issued and
outstanding, actual; 11,858,532 shares issued and outstanding, as adjusted (1)................. 9 12
Additional paid-in capital........................................................................ 35,857 68,604
Retained earnings................................................................................. 1,875 1,875
Total stockholders' equity........................................................................ 37,741 70,491
Total capitalization......................................................................... $41,439 $70,689

(1) Outstanding shares exclude 803,450 shares of Common Stock issuable as of
March 31, 1996 under outstanding options granted pursuant to the Company's
1995 Stock Plan. Options to acquire an additional 500 shares (net of
forfeitures) have been granted since March 31, 1996. Also excludes 535,465
shares of Common Stock issuable upon exercise of outstanding warrants. See
"Description of Capital Stock -- Warrants" and "Management -- Benefit
Plans."

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PRO FORMA FINANCIAL INFORMATION

PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 AND THREE MONTHS ENDED MARCH 31, 1996

Concurrently with the completion of the Company's initial public offering,
(i) the Predecessor's corporate general partner was merged into Moovies, Inc.
and (ii) Moovies, Inc. completed the Initial Acquisitions which resulted in the
acquisition of 76 video specialty stores for an aggregate consideration of
approximately $44.3 million, consisting of approximately $22.4 million in cash,
approximately $21.4 million in shares of Common Stock (approximately 1.8 million
shares) and a $500,000 promissory note payable to a seller. In addition,
approximately $4.2 million of indebtedness was assumed by the Company in
connection with the Initial Acquisitions and repaid concurrently with the
closing of the Company's initial public offering. Since the owners of the video
chains acquired pursuant to the Initial Acquisitions were considered promoters
as defined under Rule 1-02(s) of Regulation S-X and were stockholders who
transferred assets and liabilities to Moovies, Inc. in exchange for Common Stock
contemporaneously with the initial public offering, Moovies, Inc. recorded the
assets and liabilities acquired at the historical cost basis of the transferors
in accordance with the provisions of Securities and Exchange Commission Staff
Accounting Bulletin 48. As a result of recording the acquired assets and
liabilities at their historical cost basis, no goodwill was recorded by the
Company in connection with the Initial Acquisitions.

In September 1995, the Company acquired MoveAmerica, Inc. for $1.4 million
in cash, the issuance of 344,421 shares of Common Stock and the assumption of
approximately $685,000 in debt. In December 1995, the Company acquired
Pic-A-Flick Group for the issuance of a $5 million note payable and the issuance
of 336,134 shares of Common Stock. In December 1995, the Company acquired Movie
Store Group for the issuance of approximately $900,000 in notes payable, the
issuance of 161,449 shares of Common Stock, the assumption of approximately
$270,000 in debt ($166,000 of which was repaid at closing) and $190,000 in cash.
These acquisitions were accounted for under the purchase method of accounting
and accordingly the assets and liabilities were recorded at their fair market
value. The difference between fair market value and the purchase price was
recorded as goodwill.

Concurrently with the completion of this offering the Company plans to
acquire Premiere Video for $11.5 million, consisting of $8.9 million in cash at
closing and a final payment of $2.6 million payable in January, 1997 which will
be secured by a letter of credit. The acquisition will be accounted for under
the purchase method of accounting and accordingly the assets and liabilities
will be recorded at their fair market value. The difference between fair market
value and the purchase price will be recorded as goodwill.

The unaudited pro forma combined financial statements of the Company
reflect (i) the consummation of the Initial Acquisitions, the Recent
Acquisitions and the Pending Acquisition; (ii) the repayment of approximately
$10.5 million of indebtedness assumed in connection with the Acquisitions and
$1.4 million of long-term indebtedness of the Predecessor; (iii) the
establishment of a deferred tax asset arising from cumulative differences
between the book and tax basis of assets acquired; (iv) a provision for income
taxes as if the combined operations had been taxed as a C corporation; (v) the
completion of the Company's initial public offering and this Offering and the
application of the net proceeds therefrom; and (vi) the amortization of the
goodwill recorded in the above transactions (collectively, the "Pro Forma
Transactions"). The unaudited pro forma combined financial statements for the
year ended December 31, 1995 give effect to the Pro Forma Transactions as if
each had occurred as of the beginning of the year. The pro forma combined
financial statements for the three months ended March 31, 1996 give effect to
(i) the completion of this Offering and the application of the net proceeds
therefrom and (ii) the consummation of the Showtime acquisition and the Pending
Acquisition as if each had occurred as of the beginning of the period.

Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. The new method of amortization
has been applied to videocassette rental inventory that was held at January 1,
1996.

A retroactive adjustment has not been included in the December 31, 1995 pro
forma financial statements because the portion of the cumulative adjustment at
January 1, 1996 attributable to the year ended December 31, 1995 cannot be
computed. However, the Company believes that the effect of any such adjustment
for the period ended December 31, 1995 would be to reduce net income.

In the opinion of the Company's management, all adjustments necessary to
present fairly such pro forma combined financial statements have been made based
on the terms and structure of the Pro Forma Transactions.

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

The unaudited pro forma financial information should be read in connection
with the accompanying notes and the historical financial statements and notes
thereto of Moovies, Inc., Movie Stars, Parr Four, Inc. d/b/a Video Express,
Video Stars (a division of BREM, Inc.), Video Warehouse I Group, Video Warehouse
II Group, First Row Video, Inc., Video Game Trader, Inc., L.A. Video, Planet
Video, Inc., MoveAmerica, Incorporated d/b/a Movies to Go and Games to Go,
Pic-A-Flick Group, Movie Store Group, and Certain Stores of American
Multi-Entertainment, Inc. d/b/a Premiere Video and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this Prospectus.

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PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)

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THE PENDING PRO FORMA THE COMPANY
COMPANY ACQUISITION (1) ADJUSTMENTS PRO FORMA

(IN THOUSANDS)
Current assets:
Cash and cash equivalents........................................... $5,570 $ 11 $ 32,750(2) $ 13,124
(8,911)(3)
(16,296)(4)
Receivables......................................................... 1,738 -- -- 1,738
Merchandise inventory............................................... 2,390 49 (49)(3) 2,390
Deferred income tax benefit......................................... 308 -- -- 308
Prepaid rent........................................................ 1,030 -- -- 1,030
Other............................................................... 1,596 20 (20)(3) 1,596
Total current assets............................................. 12,632 80 7,474 20,186

Videocassette rental inventory, net................................... 17,357 1,888 (88)(3) 19,157
Furnishings and equipment, net........................................ 11,117 2,162 (1,562)(3) 11,717
Goodwill.............................................................. 30,535 -- 9,100(3) 39,635
Deposits and other assets............................................. 916 264 (264)(3) 916
$72,557 $ 4,394 $ 14,660 $ 91,611
Current liabilities:
Line of credit...................................................... $12,796 $ -- $ (12,796)(4) $ --
Notes payable....................................................... 500 -- 2,600(3) 3,100
Current portion of long-term debt................................... 449 -- -- 449
Due to AMI corporate................................................ -- 2,850 (2,850)(3) --
Accounts payable.................................................... 8,330 -- -- 8,330
Accrued expenses.................................................... 3,737 -- -- 3,737
Total current liabilities........................................ 25,812 2,850 (13,046) 15,616

Long-term debt, less current portion.................................. 3,698 -- (3,500)(4) 198
Deferred income tax payable........................................... 5,306 -- -- 5,306
34,816 2,850 (16,546) 21,120
Stockholders' equity:
Preferred stock..................................................... -- -- -- --
Common stock........................................................ 9 -- 3(2) 12
Additional paid-in capital.......................................... 35,857 -- 32,747(2) 68,604
Retained earnings................................................... 1,875 1,544 (1,544)(3) 1,875
Total stockholders' equity....................................... 37,741 1,544 31,206 70,491
$72,557 $ 4,394 $ 14,660 $ 91,611

(1) See the audited financial statements of certain stores of American
Multi-Entertainment, Inc. d/b/a Premiere Video.

(2) Reflects the sale of 3,200,000 shares of Common Stock net of the
underwriting discounts and offering expenses.

(3) Reflects the consummation of the Pending Acquisition and the adjustment to
fair market value of assets and liabilities acquired in the purchase
transaction.

(4) Reflects the repayment of certain debt with proceeds from the offering.

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PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(UNAUDITED)

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HISTORICAL
THE INITIAL RECENT PENDING PRO FORMA
COMPANY ACQUISITIONS (1) ACQUISITIONS (2) ACQUISITION ADJUSTMENTS

(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)

Revenues:
Rental revenues........................ $20,309 $ 21,288 $ 17,113 $6,429 $ --
Product sales.......................... 4,349 5,196 3,478 797 --
24,658 26,484 20,591 7,226 --

Operating costs and expenses:
Operating expenses..................... 15,593 18,178 14,153 4,765 (3,381)(3)
Cost of product sales.................. 2,979 3,761 2,403 1,252 --
General and administrative............. 2,955 3,429 2,261 397 (805)(4)
Amortization of goodwill............... 148 -- -- -- 1,841(5)
21,675 25,368 18,817 6,414 (2,345)

Operating income......................... 2,983 1,116 1,774 812 2,345
Non-operating income (expense):
Interest income (expense), net......... (197 ) (238) (225) (140) 1,258(6)
Other, net............................. 25 26 (130) -- 99(7)
Income before income taxes............... 2,811 904 1,419 672 3,697
Pro forma provision for income taxes..... 1,046 350 390 -- 2,015(8)
Pro forma net income..................... $1,765 $ 554 $ 1,029 $ 672 $ 1,682

Pro forma net income per share...........

Shares used in computation (9)...........

THE COMPANY
PRO FORMA

Revenues:
Rental revenues........................ $65,139
Product sales.......................... 13,820
78,959
Operating costs and expenses:
Operating expenses..................... 49,308
Cost of product sales.................. 10,395
General and administrative............. 8,237
Amortization of goodwill............... 1,989
69,929
Operating income......................... 9,030
Non-operating income (expense):
Interest income (expense), net......... 453
Other, net............................. 20
Income before income taxes............... 9,503
Pro forma provision for income taxes..... 3,801
Pro forma net income..................... $ 5,702
Pro forma net income per share........... $ 0.47
Shares used in computation (9)........... 12,160

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PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)

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HISTORICAL
THE RECENT PENDING PRO FORMA THE COMPANY
COMPANY ACQUISITIONS (2) ACQUISITION ADJUSTMENTS PRO FORMA

(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)

Revenues:
Rental revenues........................................ $16,957 $508 $ 2,439 $ -- $19,904
Product sales.......................................... 2,359 104 285 -- 2,748
19,316 612 2,724 -- 22,652

Operating costs and expenses:
Operating expenses..................................... 12,819 447 1,613 (232)(3) 14,647
Cost of product sales.................................. 1,537 83 465 -- 2,085
General and administrative............................. 2,329 69 119 44(4) 2,561
Amortization of goodwill............................... 361 -- -- 136(5) 497
17,046 599 2,197 (52) 19,790

Operating income......................................... 2,270 13 527 52 2,862
Non-operating income (expense):
Interest income (expense), net......................... (301 ) -- (30) 376(6) 45
Other, net............................................. (21 ) -- -- -- (21)
Income before income taxes............................... 1,948 13 497 428 2,886
Pro forma provision for income taxes..................... 779 -- -- 375(8) 1,154
Pro forma net income..................................... $1,169 $ 13 $ 497 $ 53 $ 1,732

Pro forma net income per share........................... $ 0.14

Shares used in computation (9)........................... 12,176

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(1) The table below sets forth certain information with respect to the Initial
Acquisitions for the period from January 1, 1995 through the respective
acquisition dates:

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NUMBER
INCOME BEFORE OF STORES
REVENUES INCOME TAXES ACQUIRED

First Row and Game Trader...................................................... $ 8,301 $(755) 24
Movie Stars.................................................................... 2,483 (372) 10
Video Express.................................................................. 3,783 151 10
Video Stars.................................................................... 1,796 151 8
Video Warehouse I.............................................................. 2,327 465 5
Video Warehouse II............................................................. 3,101 579 7
King Video..................................................................... 1,609 156 5
L.A. Video..................................................................... 2,502 476 5
Planet Video................................................................... 582 53 2
Total................................................................... $ 26,484 $ 904 76

(2) The table below sets forth certain information with respect to the Recent
Acquisitions from the beginning of the periods indicated through the
respective acquisition dates:

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YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1995 MARCH 31, 1996 NUMBER
INCOME BEFORE INCOME BEFORE OF STORES
REVENUES INCOME TAXES REVENUES INCOME TAXES ACQUIRED

Movies to Go........................................ $ 4,963 $ 368 $ -- $ -- 13
Pic-A-Flick Group................................... 7,104 316 -- -- 23
Movie Store Group................................... 3,613 411 -- -- 8
Showtime............................................ 3,902 156 612 13 5
Other Acquisitions.................................. 1,009 168 -- -- 4
Total........................................ $ 20,591 $ 1,419 $612 $ 13 53

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THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996

(3) Adjustments to operating expenses consist of the following:

A reduction in the amortization expense of videocassettes....................... $ 1,700 $ 115
A reduction in the depreciation expense of fixed assets......................... 431 117
The elimination of reserves to close Video Game Trader video game stores........ 1,250 --
Total.................................................................... $ 3,381 $ 232

(4) Adjustments to general and administrative expenses consist of the following:

An increase (decrease) in compensation paid to executives of certain entities
acquired in connection with the Acquisitions in excess of amounts to be
incurred under employment agreements and/or expected replacement costs for
these individuals.............................................................. $ (489) $ 44
The elimination of legal and accounting expenses recorded by the Acquisitions
related to their business combination with Moovies............................. (316) --
Total.................................................................... $ (805) $ 44

(5) Adjustments to amortization of goodwill consist of the following:

Amortization of goodwill (over a 20-year period on a straight-line basis)
recorded for all acquisitions accounted for under the purchase method of
accounting..................................................................... $ 1,841 $ 136

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THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 MARCH 31, 1996

(6) Adjustments to interest income (expense), net consists of the following:

The elimination of historical interest expense for long-term indebtedness being
repaid with a portion of the net proceeds of the initial public offering....... $ 800 $ 331
The addition of interest expense on a $500,000 promissory note issued by Moovies
to a seller in connection with the Initial Acquisitions........................ (50) (13)
The interest income earned by investing the remaining proceeds of the initial
public offering in short-term securities....................................... 704 125
The payment of credit facility fees............................................. (201) (67)
Total.................................................................... $ 1,253 $ 376

(7) Elimination of loss from sale of land and building.................................... $ 99 $ --

(8) Adjustments to the provision for income taxes (at an assumed rate of 40%) reflect the
following:

The estimated effect as if the Company (including the Acquisitions, other than
Showtime, some of which were formerly operated as S Corporations) had been
taxed as a C Corporation....................................................... $ 536 $ 204
The income tax effect on the pro forma adjustments in (4) through (8) above..... 1,479 171
Total.................................................................... $ 2,015 $ 375

(9) Computation of number of shares outstanding as follows:

Existing shareholders........................................................... 4,027 4,027
Issuance of Common Stock in the initial public offering......................... 3,623 3,623
Issuance of Common Stock in this public offering................................ 3,200 3,200
Shares issued in acquisition of Movies to Go stores............................. 344 344
Shares issued in acquisition of Pic-A-Flick Group stores........................ 336 336
Shares issued in acquisition of Movie Store Group stores........................ 162 162
Options and warrants (assumes as outstanding for each of the periods indicated
Common Stock equivalents, using the treasury stock method for options and
warrants)...................................................................... 468 484
Total.................................................................... 12,160 12,176

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SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

The selected historical financial data presented under the captions
Statement of Operations Data and Balance Sheet Data as of and for the years
ended December 31, 1992, 1993 and 1994 have been derived from the financial
statements of the Predecessor, which during 1995 was merged into the Company.
The selected historical financial data presented under the captions Statements
of Operations Data and Balance Sheet Data as of and for the year ended December
31, 1995 were derived from the consolidated financial statements of the Company.
Such financial statements were audited by KPMG Peat Marwick LLP, independent
certified public accountants. The financial statements of the Company as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995 and the accountants' report thereon are also included
elsewhere in this Prospectus. The selected financial data presented under the
captions Statement of Operations Data and Balance Sheet Data as of and for the
year ended December 31, 1991 are derived from the unaudited financial statements
of the Predecessor. The selected historical financial data presented under the
captions Statement of Operations Data and Balance Sheet Data as of and for the
three month periods ended March 31, 1995 and 1996 have been derived from the
unaudited financial statements of the Company included elsewhere in this
Prospectus. In the opinion of the Company, such unaudited financial statements
reflect all adjustments, consisting only of normal, recurring adjustments,
necessary for a fair presentation of the results of operations and financial
condition for such period. The pro forma Statement of Operations Data and pro
forma Balance Sheet Data do not purport to represent what the Company's results
of operations and financial position would actually have been had such
transactions actually occurred as of the dates indicated or to project the
Company's results of operations or financial position for any future period. The
Selected Historical and Pro Forma Financial Data and the operating data set
forth below should be read in conjunction with the consolidated financial
statements and notes thereto, "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Pro Forma Financial Information"
included elsewhere in this Prospectus.

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HISTORICAL(1)
PRO FORMA
THREE MONTHS (2)
ENDED YEAR ENDED
YEARS ENDED DECEMBER 31, MARCH 31, DECEMBER 31,
1991 1992 1993 1994 1995 1995 1996 1995

(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues.......................... $1,728 $2,857 $3,579 $4,070 $20,309 $1,114 $16,957 $ 65,139
Product sales............................ 244 256 310 322 4,349 109 2,359 13,820
Total.................................. 1,972 3,113 3,889 4,392 24,658 1,223 19,316 78,959
Operating costs and expenses:
Operating expenses....................... 1,387 2,241 2,798 3,121 15,593 871 12,819 49,308
Cost of product sales.................... 206 127 240 278 2,979 92 1,537 10,395
General and administrative............... 228 313 573 611 2,955 186 2,329 8,237
Amortization of goodwill................. -- -- -- -- 148 -- 361 1,989
Operating income........................... 151 432 278 382 2,983 74 2,270 9,030
Non-operating income (expense):
Interest expense, net.................... (29) (35) (43) (101) (197) (27) (301) 453
Other, net............................... -- -- -- -- 25 -- (21) 20
Income before income taxes and cumulative
effect of a change in accounting
principle................................ 122 397 235 281 2,811 47 1,948 9,503
Provision for income taxes................. -- -- -- -- 1,046 -- 779 3,801
Income before cumulative effect of a change
in accounting principle.................. 122 397 235 281 1,765 47 1,169 5,702
Cumulative effect of a change in accounting
principle, net of taxes (3).............. -- -- -- -- -- -- 891 --
Net income................................. $ 122 $ 397 $ 235 $ 281 $ 1,765 $ 47 $ 278 $ 5,702
Income before cumulative change in
accounting principle, net of taxes (3)... $ 0.52 $ 0.13 $ 0.47
Cumulative effect of change in accounting
principle................................ -- 0.10 --
Net income per share....................... $ 0.52 $ 0.03 $ 0.47
Shares used in computation................. 3,395 8,976 12,160
OPERATING DATA:
Number of stores at end of period........ 7 8 8 9 148 11 158 176
Increase (decrease) in same store
revenues (4)........................... 18.2% (6.5%) 8.2% 10.5% 1.4% 0.0% 0.0% --

THREE MONTHS
ENDED
MARCH 31,
1996

STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues.......................... $ 19,904
Product sales............................ 2,747
Total.................................. 22,651
Operating costs and expenses:
Operating expenses....................... 14,759
Cost of product sales.................... 1,972
General and administrative............... 2,561
Amortization of goodwill................. 497
Operating income........................... 2,862
Non-operating income (expense):
Interest expense, net.................... 45
Other, net............................... (21)
Income before income taxes and cumulative
effect of a change in accounting
principle................................ 2,886
Provision for income taxes................. 1,154
Income before cumulative effect of a change
in accounting principle.................. 1,732
Cumulative effect of a change in accounting
principle, net of taxes (3).............. --
Net income................................. $ 1,732
Income before cumulative change in
accounting principle, net of taxes (3)... $ 0.14
Cumulative effect of change in accounting
principle................................ --
Net income per share....................... $ 0.14
Shares used in computation................. 12,176
OPERATING DATA:
Number of stores at end of period........ 181
Increase (decrease) in same store
revenues (4)........................... --

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HISTORICAL PRO
FORMA (2)
DECEMBER 31, MARCH 31, MARCH 31,
1991 1992 1993 1994 1995 1996 1996

(IN THOUSANDS)
BALANCE SHEET DATA:
Cash.............................................. $ 89 $ 151 $ 242 $ 170 $ 3,564 $ 5,570 $13,124
Videocassette rental inventory, net............... 942 969 820 931 16,728 17,357 19,157
Total assets...................................... 1,520 1,660 1,644 2,098 68,219 72,557 91,611
Line of credit and other short-term debt.......... 285 187 377 430 8,916 13,745 3,549
Long-term debt, less current portion.............. 187 22 1,078 1,309 2,411 3,698 198
Total liabilities................................. 797 536 1,953 2,502 30,756 34,816 21,120
Equity (deficit).................................. 723 1,124 (309) (404) 37,463 37,741 70,491

(1) The Statement of Operations data reflect the results of operations of the
Predecessor for 1991 through 1994 and for a portion of 1995. The Predecessor
was a limited partnership and therefore had no income tax liability.

(2) The pro forma Statement of Operations Data for the year ended December 31,
1995 for the Company give effect to the initial public offering, this
offering and the Pro Forma Transactions as if they had occurred as of the
beginning of the year. The pro forma Statement of Operations Data for the
three months ended March 31, 1996 give effect to this offering and the
consummation of the Pending Acquisition and the Showtime acquisition as if
they had occurred as of the beginning of the period. The pro forma Balance
Sheet Data give effect to this offering and the Pending Acquisition as if
they had been completed as of March 31, 1996. See "Use of Proceeds" and "Pro
Forma Financial Information."

(4) The increase (decrease) in same store revenues is computed by comparing on a
quarterly basis revenues from stores open during an entire quarter to
revenues from stores open during the entire corresponding quarter for the
prior year. This calculation includes acquired stores on a pro forma basis
that were owned and operated at the end of the period.

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

OVERVIEW

The Company opened its first video superstore under the Moovies name, logo
and format in June 1992. The Company currently owns and operates 158 video
specialty stores, including 100 stores under the Moovies name and logo, and
certain related operations and has entered into an agreement to acquire an
additional 23 stores. See "The Acquisitions." The Company's revenues consist of
rental revenues and product sales revenues. Rental revenues include revenue from
rentals of videos, video games, video players and video game machines. Product
sales revenues are derived from sales of videos and video games, including
excess rental inventory, and confectionery and other items.

Operating Costs and Expenses are comprised of operating expenses, cost of
product sales, general and administrative expenses and amortization of goodwill.
Operating expenses consists of amortization of videos purchased for rental, fees
and lease expense for leased videos and all store expenses, including occupancy,
payroll, store opening expenses and direct store promotions expenses.

Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. See " -- Recent Accounting
Developments."

The Company presently spends approximately 17% of its new release budget to
obtain new releases from Rentrak. Under its agreement with Rentrak, pursuant to
which the Company leases videos for rental to its customers, the Company pays a
handling fee of $8 to $10 for each video. During the revenue sharing period,
which is generally one year (but does not exceed two years) the movie studio
that supplies the video to Rentrak owns the video, and the rental revenues are
shared by Rentrak and the Company on a predetermined basis. Generally, the
percentage of rental revenue retained by the Company is fixed for the first
sixty days of the revenue sharing period and is then set at a higher rate for
the remainder of the term. The Company may also sell excess copies of a video
title and share the sale proceeds with Rentrak on a predetermined basis. At the
end of the revenue sharing period for a video title, the Company may purchase
remaining copies of that title generally for less than $5 per copy. The handling
fee per video is amortized on a straight-line basis over the revenue sharing
period, and revenue sharing payments are expensed when incurred.

Cost of product sales is comprised of cost of videos sold rather than
rented to customers and the cost of confectionery and other products sold in the
Company's stores. The cost of a video is measured at its amortized basis when
sold, if previously used as a rental video, or at the Company's cost if
purchased for sell-through, or at a varying basis if a leased product, depending
upon when in the revenue sharing period it is sold.

General and administrative expense is comprised of corporate office
expenses, including office equipment and facilities costs, management salaries
and benefits, professional fees and all other items of corporate expense.

Since the stockholders and owners of each of the video chains acquired
pursuant to the Initial Acquisitions were considered promoters as defined under
Rule 1-02(s) of Regulation S-X and are stockholders who transferred assets and
liabilities to Moovies, Inc. in exchange for Common Stock contemporaneously with
the initial public offering, Moovies, Inc. recorded the assets and liabilities
acquired in the Initial Acquisitions at the historical cost basis of the
transferors in accordance with the provisions of Securities and Exchange
Commission Staff Accounting Bulletin 48. As a result of recording the acquired
assets at their historical cost basis, no goodwill was recorded by the Company
in connection with the Initial Acquisitions. The assets acquired in the Recent
Acquisitions were recorded under the purchase method of accounting, and the
excess of cost over the estimated fair value of the assets acquired of $31.0
million is being amortized over 20 years on a straight-line basis.

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The following table sets forth for the periods indicated (i) statement of
operations data expressed as a percentage of total revenues and (ii) the number
of stores open at the end of each period.

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HISTORICAL PRO FORMA
THREE MONTHS
YEARS ENDED THREE MONTHS YEAR ENDED ENDED
DECEMBER 31, ENDED MARCH 31 DECEMBER 31, MARCH 31,
1993 1994 1995 1995 1996 1995 1996

STATEMENT OF OPERATIONS DATA:
Revenues:
Rental revenues.......................... 92.0% 92.7% 82.4% 91.1% 87.8% 82.5% 87.9%
Product sales............................ 8.0 7.3 17.6 8.9 12.2 17.5 12.1
Total................................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Operating costs and expenses:
Operating expenses....................... 71.9 71.1 63.2 71.2 66.4 62.5 65.2
Cost of product sales.................... 6.2 6.3 12.1 7.6 7.9 13.2 8.7
General and administrative............... 14.7 13.9 12.0 15.2 12.0 10.4 11.3
Amortization of goodwill................. -- -- 0.6 -- 1.9 2.5 2.2
Total................................. 92.8 91.3 87.9 94.0 88.2 88.6 87.4
Operating income........................... 7.2 8.7 12.1 6.0 11.8 11.4 12.6
Non-operating income (expense)............. (1.1) (2.3) (0.7) (2.2) (1.7) 0.6 0.1
Income before income taxes................. 6.1% 6.4% 11.4% 3.8% 10.1% 12.0% 12.7%
Number of stores open at end of period..... 8 9 148 11 158 171 181

PRO FORMA RESULTS OF OPERATIONS FOR THE COMPANY

REVENUES. Pro forma revenues are comprised of rental revenues and product
sales, which were as a percentage of pro forma revenues, 82.5% and 17.5%,
respectively, for the year ended December 31, 1995 and 87.9% and 12.1%,
respectively, for the three months ended March 31, 1996. Not all of the video
specialty stores acquired by the Company have historically used leased product.
The Company believes that, because it intends to use leased product in the
acquired stores and to use more of its excess rental tapes as inventory in new
stores instead of offering such tapes for sale, rental revenues as a percentage
of total revenues will be higher for the year ending December 31, 1996 than they
were pro forma for the year ended December 31, 1995.

OPERATING COST AND EXPENSES. Pro forma operating expenses as a percentage
of revenues were 88.6% for 1995 and 87.4% for the three months ended March 31,
1996. The Company anticipates a decline in this percentage in 1996 as store
operating efficiencies are improved. The Company also expects a decrease in cost
of product sales as a percentage of revenues as sales of previously viewed tapes
are expected to decrease from the pro forma percentage for 1995. The Company
anticipates that these improvements will be partially offset during 1996 by an
increase in amortization of goodwill as additional acquisitions are completed.
The Company anticipates a slight decrease in general and administrative expenses
as a percentage of revenues if all of its planned new store openings and
acquisitions are completed.

INTEREST EXPENSE, NET. Interest expense for 1996 is expected to increase
compared to pro forma interest expense for 1995 due to borrowings under the
Company's $22.5 million revolving credit facility in order to fund operations,
new store openings and additional acquisitions. This increase is expected to be
partially offset by interest income generated by the investment of proceeds from
this offering.

RECENT ACCOUNTING DEVELOPMENTS

In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 will be effective for fiscal years beginning after
December 31, 1995 and will require the Company to either elect to recognize in
its consolidated financial statements costs related to its employee stock-based
compensation plans, such as stock options and stock purchase plans, or provide
disclosure of such costs in a footnote to the consolidated financial statements.
Costs under SFAS No. 123 will be determined using fair value as compared with
the intrinsic value method of Accounting Principles Board Opinion No. 25.

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The Company has determined that it will elect the disclosure only
alternative provided by SFAS No. 123 and will make the required pro forma
disclosures in a footnote to the consolidated financial statements. The Company
has not determined the impact of these pro forma adjustments to its net income
or earnings per share.

Effective January 1, 1996, the Company adopted an accelerated method of
amortizing its videocassette rental inventory. Under this new method,
videocassette rental inventory, which includes video games, is stated at cost,
including the related costs to prepare such videocassettes for rent, and is
amortized over its estimated economic life of 36 months, to its estimated
salvage value ($6 per videocassette during 1996). All copies of new release
videocassettes are amortized on an accelerated basis during their first four
months to an average net book value of $15 and then on a straight-line basis to
their estimated salvage value over the next 32 months. All copies of new release
videocassettes that are purchased for $15 or less are amortized on a
straight-line basis to their estimated salvage value over 36 months.

The method for calculating amortization of videocassette rental inventory
used in 1995 was as follows: videocassettes that were considered base stock
("catalog titles"), together with related costs to prepare them for rent, were
amortized over 36 months on a straight-line basis. New release videocassettes
were amortized as follows: the tenth and any succeeding copies of each title per
store were amortized over nine months on a straight-line basis; the fourth
through ninth copies of each title per store were amortized 40% in the first
year and 30% in each of the second and third years; and copies one through three
of the titles per store were amortized as base stock. The Company adopted its
previous method of amortization for videocassette rental inventory concurrently
with its initial public offering of common stock in August 1995. That method was
followed by the Company's major competitors and was considered to be the
industry standard. Recently, several competitors have announced changes in their
amortization methods. The Company adopted the new method of amortization because
it believes that accelerating expense recognition for new release videocassettes
during the first four months more closely matches the typically higher revenues
generated following a title's release, and believes $15 represents a reasonable
average carrying value for tapes to be rented or sold after four months and $6
represents a reasonable salvage value for all tapes after 36 months. The Company
also believes this method is similar to methods recently adopted by other large
video specialty store operators.

The new method of amortization has been applied to videocassette rental
inventory that was held at January 1, 1996. The cumulative effect of the change
as of January 1, 1996 was (i) to reduce net income by $890,814, after income
taxes of $593,876, and (ii) to reduce earnings per share by $0.10 for the three
months ended March 31, 1996. The application of the new method of amortizing
videocassette rental inventory increased amortization expense by approximately
$575,000 to approximately $3.6 million and reduced net income by approximately
$345,000 and earnings per share by $0.04 for the three months ended March 31,
1996.

HISTORICAL RESULTS OF OPERATIONS FOR THE COMPANY

THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995

REVENUES. Revenues increased $18,093,000, or 1,479.4%, for the three months
ended March 31, 1996 to $19,316,000 compared to revenues of $1,223,000 for the
same period in 1995. The increased revenues were a result of the additional
stores acquired and opened by the Company concurrently with and subsequent to
the initial public offering in August 1995. Product sales as a percentage of
total revenues increased to 12.2% for the 1996 quarter compared to 8.9% for the
1995 quarter. This increase is the result of greater emphasis by certain
acquired companies on product sales, including video game sales. Same store
revenues for the three months ended March 31, 1996 were flat, reflecting a 2.0%
increase in same store rental revenues offset by a decline in same store sale
product revenues. In March 1996, the Company sold its supermarket operation for
an amount approximating its net book value. The supermarket operation had
revenues of approximately $355,000 in the quarter ended March 31, 1996.

OPERATING COSTS AND EXPENSES. Operating expenses increased $11,948,000 to
$12,819,000 for the three months ended March 31, 1996 compared to $871,000 for
the same period in 1995. Operating expenses as a percentage of total revenues
were 66.4% for the 1996 quarter compared to 71.2% for the 1995 quarter. This
decrease was primarily the result of increased revenues from product sales in
the 1996 quarter without a corresponding increase in operating expenses,
partially offset by the impact of the change in the method of amortization of
videocassette rental inventory as described in note 10 to the consolidated
financial statements. The new method of accounting accelerates the amortization
of videocassette rental inventory. The Company anticipates that the amortization
for the last three quarters of 1996 will be greater under the new method of
amortization than it would have been under the previous method.

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Cost of product sales increased $1,445,000 to $1,537,000 for the 1996
quarter compared to $92,000 for the 1995 quarter. This increase is directly
related to the increase in product sales. Cost of product sales as a percentage
of product sales were 65.2% for the three months ended March 31, 1996 compared
to 84.4% for the 1995 quarter. This decrease is the result of closer management
of product sales by certain acquired companies and increasing the mix of higher
margin items.

General and administrative expenses increased $2,143,000 to $2,329,000 for
the 1996 quarter compared to $186,000 for the 1995 quarter, reflecting the
Acquisitions and additional store openings. General and administrative expenses
as a percentage of total revenues were 12.0% for 1996 compared to 15.2% for
1995. The percentage decrease, despite the increase in the amount of general and
administrative expenses, reflects the effect of spreading these expenses over
significantly greater revenues.

INTEREST EXPENSE. Interest expense increased $274,000 to $301,000 for the
1996 quarter from $27,000 for the 1995 quarter. The increase is related
primarily to (i) the issuance in April 1995 of a $1.5 million note payable,
which was incurred to provide financing for the completion of the Company's
initial public offering and (ii) additional borrowings under the Company's line
of credit agreements and subordinated credit facility.

INCOME TAX EXPENSE. The Company had no income tax expense for the three
months ended March 31, 1995 because the Predecessor operated as a partnership
for income tax purposes. Income tax expense for the three months ended March 31,
1996 was approximately $779,000, representing an effective income tax rate of
40%.

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

The Company's results of operations for the years ended December 31, 1994
and 1995 reflect only the operations of the Predecessor for the period from
January 1, 1994 to August 8, 1995 and include the results of the various
Acquisitions from and after their respective acquisition dates.

REVENUES. Revenues increased $20,266,000, or 461.5%, for 1995 to
$24,658,000 compared to revenues of $4,392,000 for 1994. The increased revenues
were primarily a result of the additional stores acquired and opened by the
Company between August 8 and December 31, 1995. Product sales as a percentage of
total revenues increased to 17.6% for 1995 compared to 7.3% for 1994. This
increase is the result of greater emphasis by certain acquired companies on
product sales, including video game sales. The Company anticipates that this
percentage will decrease during 1996. The Company intends to focus its resources
on its video specialty superstores. Accordingly, subsequent to the year ended
December 31, 1995, the Company sold its supermarket video operation in March
1996, for an amount approximating its book value. The supermarket operation
generated approximately $456,000 in revenues in 1995.

OPERATING COSTS AND EXPENSES. Operating expenses increased $12,472,000 to
$15,593,000 for 1995 compared to $3,121,000 for 1994. Operating expenses as a
percentage of total revenues were 63.2% for 1995 compared to 71.1% for 1994. The
difference in these percentages from 1994 to 1995 primarily reflects increased
revenues from product sales in 1995 without a corresponding increase in
operating expenses.

Cost of product sales increased $2,701,000 to $2,979,000 for 1995 compared
to $278,000 for 1994. The increase is directly related to the increases in
product sales. Cost of product sales as a percentage of product sales was 68.5%
for the year ended December 31, 1995 compared to 86.3% for 1994. This decrease
is the result of the Acquisitions' closer management of product sales and
increasing the mix of higher margin items, including video game sales. The
Company anticipates that the cost of product sales as a percentage of product
sales for 1996 will be comparable to 1995 results, but may vary according to the
mix of products sold.

General and administrative expenses increased $2,344,000 to $2,955,000 for
1995 compared to $611,000 for 1994, reflecting the Acquisitions (except
Showtime) and additional store openings. General and administrative expenses as
a percentage of total revenues were 12.0% and 13.9% for 1995 and 1994,
respectively. The percentage decrease, despite the increase in the amount of
general and administrative expenses, reflects the effect of spreading these
expenses over significantly greater revenues. The Company anticipates that 1996
general and administrative expenses will include incremental costs incurred in
connection with the establishment of the corporate infrastructure to support
anticipated future growth.

INTEREST EXPENSE, NET. Interest expense increased $96,000 to $197,000 for
1995 from $101,000 for 1994. The increase related primarily to the issuance of a
$1.5 million note payable in April 1995, which was incurred to provide financing
for the completion of the Company's initial public offering of Common Stock, and
the issuance of promissory notes in connection with one of the Initial
Acquisitions. These expenses were offset by interest income earned on the excess
cash received at the initial public offering, which was invested in short-term
securities from August 8, 1995 through December 31, 1995. Interest

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expense for 1996 is expected to increase due to borrowings under the Company's
$22.5 million revolving credit facility, obtained in March 1996 in order to fund
operations, new store openings and additional acquisitions.

INCOME TAX EXPENSE. The Company had no income tax expense for 1994 or for
1995 through August because the Predecessor was operated as a limited
partnership. Income tax expense for 1995 was approximately $1,046,000,
representing an effective income tax rate of 37.2%. The Company anticipates its
effective income tax rate will be approximately 40% in 1996.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

The Company's results of operations for the year ended December 31, 1994
reflect the operations of the Predecessor's eight stores plus one new store
opened during the year. The results of operations for the year ended December
31, 1993 reflect the operations of eight stores during the entire year.

REVENUES. Revenues increased $503,000, or 13.0%, to $4,392,000 for 1994
from $3,889,000 for 1993. Approximately $96,000 of the increase related to the
opening of the new store during 1994. The remainder of the increase related to
same store revenues increases of approximately 10.5% for 1994. The increase in
same store revenues in 1994 was attributable to a greater volume of customer
transactions, which the Company believes resulted primarily from the ongoing
implementation of its program of store upgrades which began in 1992. This
program generally involved relocation to more prominent positions in strip
centers or to stand-alone locations, improved store design, increased emphasis
on more new release inventory and the change to the Moovies name, logo and
format.

OPERATING COSTS AND EXPENSES. Operating expenses increased $323,000 to
$3,121,000 for 1994 from $2,798,000 for 1993. This increase corresponded to the
increase in revenues in 1994 and was attributable to the new store opened during
1994, the relocation of two stores and the change to the Moovies name, logo and
format. During this period, the Company changed the mix of inventory purchases,
decreasing the use of leased product, which contributed to the reduction in
operating expenses as a percentage of revenues from 1993 to 1994.

Cost of product sales increased to $38,000 to $278,000 for 1994 from
$240,000 for 1993, corresponding to the increased revenues from product sales.
Cost of sales as a percentage of product sales was 86.3% for 1994 compared to
77.4% for 1993. The increase was the result of a change in the mix of product
sales.

General and administrative expenses increased to $611,000 for 1994 from
$573,000 for 1993. General and administrative expenses as a percentage of total
revenues decreased to 13.9% for 1994 from 14.7% for 1993. This decrease was the
result of the Company's increasing revenues without a similar level of increase
in administrative cost.

INTEREST EXPENSE. Interest expense was $101,000 for 1994 compared to
$43,000 for 1993. This increase primarily resulted from a full year of
amortization of the discount on the long-term debt payable to the limited
partners in 1994 compared to only four months of discount amortization in 1993.

HISTORICAL RESULTS OF OPERATIONS FOR SELECTED ACQUISITION COMPANIES

Financial results are discussed below for Movie Store Group, Pic-A-Flick
Group and Movies to Go. These companies collectively accounted for 44 of the 53
video specialty stores acquired in connection with the Recent Acquisitions.

MOVIE STORE GROUP

Movie Store Group ("Movie Store Group"), opened its first video store in
December 1984, and was acquired by the Company in December 1995. At the time of
the acquisition, Movie Store Group operated eight video stores in Georgia.

ELEVEN MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Movie Store Group's result of operations for the eleven months ended
November 30, 1995 reflect the operations of eight stores. Movie Store Group's
results of operations for the year ended December 31, 1994 reflect the
operations of six stores.

REVENUES. Revenues increased $411,000, or 12.9%, to $3,613,000 for the
eleven months ended November 30, 1995 from $3,202,000 for the year ended
December 31, 1994. Approximately $535,000 of the increase related to two new
store openings occurring during 1995. This increase was partially offset by a
$124,000, or 3.4%, decline in same store revenues, reflecting the shorter 1995
period.

OPERATING COSTS AND EXPENSES. Operating expenses increased $1,158,000 to
$2,392,000 for the eleven months ended November 30, 1995 from $1,234,000 for the
year ended December 31, 1994. This increase corresponded to the increase in

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revenues in 1995 and was attributable primarily to the opening costs and
operating of two new stores and the relocation of one store, and was offset in
part by reduced same store expenses reflecting the shorter 1995 period.

Cost of product sales decreased $4,000 to $301,000 for the eleven months
ended November 30, 1995 from $305,000 for the year ended December 31, 1994. The
decrease was primarily the result of the shorter 1995 period that did not
include December, which is the highest sales month for product sales.

General and administrative expenses increased $124,000 to $482,000 for the
eleven months ended November 30, 1995 from $358,000 for the year ended December
31, 1994. General and administrative expenses as a percentage of total revenues
increased to 13.4% for 1995 from 11.2% for 1994. This increase was primarily the
result of rent on a corporate office added to centralize operations and office
supplies expenses to operate the corporate office.

INTEREST EXPENSE. Interest expense increased $8,000 to $34,000 for the
eleven months ended November 30, 1995 compared to $26,000 for the year ended
December 31, 1994. This increase resulted from borrowings to open the two new
stores.

PIC-A-FLICK GROUP

Pic-A-Flick Video ("Pic-A-Flick Group") opened its first video store in May
1981. Pic-A-Flick Group was acquired by the Company in December 1995. At the
time of the acquisition, Pic-A-Flick Group operated 23 video stores, 19 located
in South Carolina and four located in North Carolina. During 1995, Pic-A-Flick
Group opened four new stores and relocated two existing stores. During 1994
Pic-A-Flick Group opened three new stores and relocated one existing store.

ELEVEN MONTHS ENDED NOVEMBER 30, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

Pic-A-Flick Group results of operations for the eleven months ended
November 30, 1995 reflect the operations of 23 stores. Pic-A-Flick Group results
of operations for the twelve months ended December 31, 1994 reflect the
operations of 19 stores.

REVENUES. Revenues increased $747,000, or 12.1%, to $6,899,000 for the
eleven months ended November 30, 1995 from $6,152,000 for the year ended
December 31, 1994. Approximately $506,000 of the increase is attributable to the
new store openings in 1995 and 1994. The remaining increase is attributable to
same store revenue increases of approximately 4.5% for 1995.

OPERATING COSTS AND EXPENSES. Operating expenses increased $929,000 to
$5,227,000 for the eleven months ended November 30, 1995 from $4,298,000 for the
year ended December 31, 1994, notwithstanding the shorter 1995 period. The
increase was a result of Pic-A-Flick Group opening four new stores and
relocating two existing stores in 1995. Operating expenses as a percentage of
total revenues increased to 75.8% for the eleven months ended November 30, 1995
from 69.9% for the year ended December 31, 1994, as a result of the new stores
generating lower revenues than mature stores while incurring full operating
expense amounts.

Cost of product sales increased $75,000 to $544,000 for the eleven months
ended November 30, 1995 from $469,000 for the year ended December 31, 1994, as a
result of four new store openings and relocation of two existing stores. Cost of
product sales as a percentage of total revenues slightly increased to 7.9% for
the eleven months ended November 30, 1995 from 7.6% for the year ended December
31, 1994.

General and administrative expenses decreased $116,000 to $642,000 for the
eleven months ended November 30, 1995 from $758,000 for the year ended December
31, 1994. General and administrative expenses as a percentage of total revenues
decreased to 9.3% for the eleven months ended November 30, 1995 from 12.3% for
the year ended December 31, 1994. The decreases were a result of a reduction in
salary paid to the principal shareholder of Pic-A-Flick Group.

INTEREST EXPENSE. Interest expense increased slightly to $59,000 for the
eleven months ended November 30, 1995 from $56,000 for the year ended December
31, 1994. Interest expense consists primarily of mortgage interest on a 8,400
square-foot free-standing retail site located in North Carolina. One of the
Pic-A-Flick Group corporations owned the retail site until November 1995. In
November 1995, the land and building were transferred to the principal
shareholder in exchange for a note from such shareholder and his assumption of
the other remaining notes payable secured by the property.

MOVIES TO GO

Movies to Go opened its first video store in November 1984 and its first
game store, dba Games to Go, in May 1993. Movies to Go was acquired by the
Company in September 1995. At the time of the Acquisition, Movies to Go operated
13 video stores and five game stores located in Des Moines, Ankeny, Davenport,
Cedar Rapids and Coralville, Iowa.

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NINE MONTHS ENDED AUGUST 31, 1995 COMPARED TO NINE MONTHS ENDED AUGUST 31,
1994

Movies to Go results of operations for the nine months ended August 31,
1994 and the nine months ended August 31, 1995 reflect the operations of 13
video stores and five game stores.

REVENUES: Revenues decreased $136,000 to $4,963,000 for the nine months
ended August 31, 1995 compared to $5,099,000 for the nine months ended August
31, 1994. This decrease was due to a $253,000 decline in product sales at the
game stores which was partially offset by a 2.8% increase in same store revenues
at the video stores.

OPERATING COSTS AND EXPENSES: Operating expenses decreased $2,000 to
$3,176,000 for the nine months ended August 31, 1995 compared to $3,178,000 for
the nine months ended August 31, 1994. Operating costs and expenses as a
percentage of total revenues increased to 64.0% for the nine months ended August
31, 1995 compared to 62.3% for the prior period, as a result of the decline in
total revenues.

Cost of product sales increased $38,000 to $764,000 for the nine months
ended August 31, 1995 from $726,000 for the same period in 1994. Cost of product
sales as a percentage of product sales increased to 69.2% for the nine months
ended August 31, 1995 from 53.2% for the same period in 1994. The decline in
gross margin was the result of lower demand for video games.

General and administrative expenses decreased $215,000 to $538,000 for the
nine months ended August 31, 1995 from $753,000 for the nine months ended August
31, 1994. The decrease was the result of a reduction in advertising expense.

INTEREST EXPENSE: Interest expense increased $15,000 to $67,000 for the
nine months ended August 31, 1995 from $52,000 for the comparable period in 1994
as a result of increased borrowings to fund the two video stores opened in
fiscal 1994.

YEAR ENDED NOVEMBER 30, 1994 COMPARED TO YEAR ENDED NOVEMBER 30, 1993

Movies to Go results of operations for the year ended November 30, 1994
reflect the operations of 13 video stores and five game stores. Movies to Go
results of operations for the year ended November 30, 1993 reflect the
operations of 11 video stores and five game stores.

REVENUES. Revenues increased $1,743,000 to $6,536,000 for the year ended
November 30, 1994 from $4,793,000 for the year ended November 30, 1993.
Approximately $749,000 of the increase is attributable to the opening of two new
video stores in 1994 and $839,000 of the increase is attributable to five new
game stores which were open for only part of 1993 but were open for all of 1994.
The remaining increase is attributable to same store revenue increases of
approximately 9.0% for 1994.

OPERATING COSTS AND EXPENSES. Operating expenses increased $1,257,000 to
$4,302,000 for the year ended November 30, 1994 from $3,045,000 for the year
ended November 30, 1993, as a result of the two new video stores opened in 1994
and the five new games stores opened in 1993. Operating costs and expenses as a
percentage of total revenues increased slightly to 65.8% for 1994 from 63.5% for
1993, as operating expenses at new stores are generally a greater percentage of
revenues until those stores' revenues fully develop.

Cost of product sales increased $412,000 to $926,000 for the year ended
November 30, 1994 from $514,000 for the year ended November 30, 1993, as a
result of the year ended November 30, 1994 being the first full year of
operation for the five new game stores. Cost of product sales as a percentage of
product sales was 55.7% for 1994 and 55.8% for 1993.

General and administrative expenses decreased slightly by $29,000 to
$727,000 for the year ended November 30, 1994 from $756,000 for the year ended
November 30, 1993. No significant changes were made in the general and
administrative operations of the company during 1993 or 1994.

INTEREST EXPENSE. Interest expense, net, increased by $23,000 to $106,000
for the year ended November 30, 1994 from $83,000 for the year ended November
30, 1993, as a result of increased borrowings to fund the two new video stores
and the five new games stores.

PREMIERE VIDEO

Premiere Video opened its first store in July 1985, and currently owns and
operates 23 video stores located in Minnesota, South Dakota, Iowa, Nebraska, and
Wisconsin.

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THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995

Premiere Video's results of operations for the quarter ended March 31, 1996
reflect the operations of 22 stores. Premiere Video's results of operations for
the quarter ended March 31, 1995 reflect the operations of 12 stores.

REVENUES. Revenues increased $1,114,000 or 69.3% to $2,723,000 for March
31, 1996 from $1,609,000 for March 31, 1995. The increase is attributable to the
10 new stores opened after March 31, 1995, and was partially offset by a $25,000
decrease in revenues for stores that were open during both quarters.

OPERATING COSTS AND EXPENSES. Operating expenses increased $701,000 to
$1,613,000 for the three months ended March 31, 1996 from $912,000 for the three
months ended March 31, 1995. This increase corresponded to the increase in
revenues for the three months ended March 31, 1996 and was attributable to the
opening costs and operating of ten new stores. Operating costs and expenses, as
a percentage of total revenues, increased to 59.2% for the three months ended
March 31, 1996 from 56.7% for the three months ended March 31, 1995.

Cost of product sales increased $213,000 to $465,000 for the three months
ended March 31, 1996 from $252,000 for the three months ended March 31, 1995,
corresponding to the increased revenues from product sales. Cost of sales as a
percentage of total revenues increased to 17.1% for the three months ended March
31, 1996 from 15.7% for the three months ended March 31, 1995.

General and administrative expenses increased $57,000 to $119,000 for the
three months ended March 31, 1996 from $62,000 for the three months ended March
31, 1995. General and administrative expenses as a percentage of total revenues
increased to 4.4% for the three months ended March 31, 1996 from 3.9% for the
three months ended March 31, 1995.

INTEREST EXPENSE. Interest expense decreased $8,000 to $30,000 for the
three months ended March 31, 1996 compared to $38,000 for the three months ended
March 31, 1995. This decrease resulted primarily from a refinancing in the third
quarter of 1995.

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

Premiere Video's results of operations for the year ended December 31, 1995
reflect the operations of 22 stores. Premiere Video's results of operations for
the year ended December 31, 1994 reflect the operations of 12 stores.

REVENUES. Revenues increased $2,057,000 or 39.8% to $7,226,000 for 1995
from $5,169,000 for 1994. Approximately $1,432,000 of the increase related to
new stores opened during 1995. The remaining increase is attributable to a
$625,000 increase in revenues from stores that were open all of 1995.

OPERATING COSTS AND EXPENSES. Operating expenses increased $1,416,000 to
$4,765,000 for 1995 from $3,349,000 in 1994. This increase corresponded to the
increase in revenues in 1995 and was attributable to the opening costs and
operating of ten new stores. Operating costs and expenses, as a percentage of
total revenues, increased to 65.9% for the year ended December 31, 1995 from
64.8% for the year ended December 31, 1994.

Cost of product sales increased $342,000 to $1,252,000 for 1995 from
$910,000 in 1994, corresponding to the increased revenues from product sales.
Cost of sales as a percentage of total revenues decreased to 17.3% for 1995 from
17.6% for 1994.

General and administrative expenses increased $120,000 to $397,000 for 1995
from $277,000 in 1994. General and administrative expenses as a percentage of
total revenues increased to 5.5% for 1995 from 5.4% for 1994.

INTEREST EXPENSE. Interest expense increased $21,000 to $140,000 for 1995
from $119,000 for 1994. This increase resulted primarily from increased
borrowings to open the ten new stores.

YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993

Premiere Video's results of operations for the year ended December 31, 1994
reflect the operations of 12 stores. Premiere Video's results of operations for
the year ended December 31, 1993 reflect the operations of 9 stores.

REVENUES. Revenues increased $1,041,000 or 25.3% to $5,169,000 for 1994
from $4,128,000 for 1993. Approximately $947,000 of the increase related to
three new stores opened during 1994. The remaining increase is attributable to a
$94,000 increase in revenues for stores that were open all of 1994.

OPERATING COSTS AND EXPENSES. Operating expenses increased $834,000 to
$3,349,000 for 1994 from $2,515,000 in 1993. This increase corresponded to the
increase in revenues in 1994 and was attributable to the opening costs and
operating

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expenses of three new stores. Operating costs and expenses, as a percentage of
total revenues, increased to 64.8% for the year ended December 31, 1994 from
60.9% for the year ended December 31, 1993.

Cost of product sales increased $313,000 to $910,000 for 1994 from $597,000
in 1993, corresponding to the increased revenues from product sales. Cost of
sales as a percentage of total revenues increased to 17.6% for 1994 from 14.5%
for 1993.

General and administrative expenses decreased $5,000 to $277,000 for 1994
from $282,000 in 1993. General and administrative expenses as a percentage of
total revenues decreased to 5.4% for 1994 from 6.8% for 1993.

INTEREST EXPENSE. Interest expense increased $9,000 to $119,000 for 1994
from $110,000 for 1993. This increase resulted primarily from increased
borrowings to open the three new stores.

GENERAL ECONOMIC TRENDS, QUARTERLY RESULTS AND SEASONALITY

The Company's results of operations are affected by economic trends in its
market areas. To date, the Company has not operated during a period of high
inflation but believes that it would generally be able to pass on increased
costs relating to inflation to its customers.

The video and video game rental portions of the Company's business are
somewhat seasonal, with revenues in April, May, September and October generally
being lower compared to other months of the year due to the weather in the
spring, and the start of school, the football season and the new television
season in the fall. Future operating results may be affected by many factors,
including variations in the number and timing of store openings, the public
acceptance of new release titles available for rental and sale, the timing of
the acquisition of existing video specialty retail stores, the extent of
competition, marketing programs, weather, special or unusual events and other
factors that may affect retailers in general. Any concentration of new store
openings and the related pre-opening costs in any particular fiscal quarter
could have a material adverse effect on the Company's operating results for that
quarter.

LIQUIDITY AND CAPITAL RESOURCES

THE COMPANY

The Company's primary long-term capital needs are for opening and acquiring
new stores. The Company expects to fund such needs through cash flows from
operations, borrowing under credit facilities, operating equipment leases and
the net proceeds from the sale of debt and equity securities.

In August 1995 the Company closed its initial public offering and received
net proceeds of approximately $37.0 million. The proceeds were initially used
(i) to pay the $22.4 million cash portion of the Initial Acquisitions, which
were closed concurrently on August 9, 1995, and (ii) to repay approximately $4.2
million of long-term indebtedness assumed in connection with the Initial
Acquisitions and $1.4 million of long-term indebtedness of the Predecessor. The
remaining amount, $8.9 million, was invested temporarily in short-term
securities and was subsequently used to acquire and open additional superstores,
acquire new sites, renovate older locations, purchase computer equipment and for
general corporate purposes.

In December 1995 and January 1996 the Company borrowed a total of $6.5
million under an existing revolving credit facility from a bank. The proceeds
were used to fund a portion of the Recent Acquisitions. In addition, in January
1996 the Company borrowed $2.0 million (the "Subordinated Credit Facility"),
which is subordinated to the Company's revolving credit facility. Borrowings
outstanding under this Subordinated Credit Facility bear interest at an annual
rate equal to 13% and mature in January 2001. In conjunction with this
financing, the Company issued the lender a warrant to purchase 20,000 shares of
Common Stock at an exercise price of $10.80 per share.

In March 1996, the Company signed a revolving credit facility (the
"Facility") for up to $22.5 million to replace its existing credit facilities.
The available amount of the Facility will reduce quarterly beginning on March
31, 1997 with final maturity of June 30, 1998. The interest rate of the Facility
is variable based on LIBOR and the Company may repay the Facility at any time
without penalty. As of March 31, 1996, the Company had outstanding borrowings of
$12.8 million and had $4.2 million available under the Facility. The remaining
$5.5 million will become available upon the completion of this offering and the
Pending Acquisition. The Company intends to use $2.6 million of the line of
credit to support a letter of credit to secure the final payment due in January
1997 in connection with the Pending Acquisition. See "The Acquisitions --
Pending Acquisition."

The Company funds its short-term working capital needs, including the
acquisition of videos and other inventory, primarily through cash from
operations. The Company expects that cash from operations will be sufficient to
fund future video

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and other inventory purchases and other working capital needs. Under generally
accepted accounting principles, rental inventories are treated as non-current
assets because they are not assets that are reasonably expected to be completely
realized in cash or sold in the normal business cycle. Although the rental of
this inventory generates a substantial portion of the Company's revenue, the
classification of these assets as noncurrent excludes them from the computation
of working capital. The cost of video inventory purchases, however, is reported
as a current liability until paid, and accordingly, is included in the
computation of working capital. Consequently, the Company believes working
capital is not an appropriate measure of its liquidity and it anticipates that
it will operate with a working capital deficit during 1996.

During 1995, net cash provided by operating activities was $9.3 million.
Net cash used in investing activities was $17.6 million, consisting primarily of
$3.5 million used to pay the cash portion of the Recent Acquisitions, $8.3
million to acquire rental inventory and $5.9 million used to purchase furniture
and fixtures. Net cash provided by financing activities was $11.7 million.
Financing sources of cash consisted of $36.9 million from the initial public
offering ("IPO") and $4.1 million from issuance of long-term debt. The primary
financing uses of cash were the payment of $22.4 million in the form of a deemed
dividend in connection with the Initial Acquisitions and $9.2 million to repay
long-term debt. At December 31, 1995, the Company had cash of $3.6 million.

For the quarter ended March 31, 1996, net cash provided by operating
activities was $4.9 million. Net cash used in investing activities was $9.0
million, consisting primarily of $2.4 million used to pay the cash portion of
the Showtime acquisition, $5.9 million to acquire rental inventory, and $1.5
million to purchase furniture and fixtures offset by $746,000 received from the
sale of the grocery division. Net cash provided by financing activities was $6.1
million consisting of $10.3 million from increased line of credit borrowing and
$2.0 million from the issuance of long-term debt offset by $6.2 million of
repayments of long-term debt. At March 31, 1996 the Company had cash of $5.6
million.

The Company's capital expenditures in 1996 will continue to focus on
opening new stores, converting stores to the Moovies name and logo and
implementing a new MIS. The Company intends to open approximately 50 superstores
in 1996 (including eight superstores already opened in the first quarter of
1996). The Company estimates that the total cash required to open a new Moovies
superstore, including store fixtures and equipment, leasehold improvements and
rental and sale inventory, typically ranges from $250,000 to $300,000 per
superstore. In addition, the Company intends to complete the conversion of the
remaining stores acquired in connection with the Acquisitions to the Moovies
name and logo at an estimated aggregate cost of approximately $2.5 million. The
Company's MIS is currently being used in approximately 125 video specialty
stores that were acquired in connection with the Acquisitions. In 1996, the
Company intends to replace the various systems used by its other stores with
this system and to improve the computerized information systems at the corporate
offices at an estimated aggregate cost of approximately $1.0 million.

In April 1996, the Company signed an asset purchase agreement to acquire
the Premiere Video chain. Pursuant to the asset purchase agreement, the Company
will pay $8.9 million in cash concurrently with the closing of this offering.
The Company intends to fund the cash portion of the purchase price with proceeds
from this offering. In addition, the Company will make a final payment of $2.6
million in January 1997. The Company's obligation to make this payment will be
secured by a letter of credit. See "The Acquisitions -- Pending Acquisition" and
"Use of Proceeds".

The Company believes that cash from operations and borrowing availability
under its existing credit facilities will be sufficient to fund its existing
operations, including its planned capital expenditures and new store openings,
through December 31, 1996. The proceeds from this offering will enable the
Company to fund the Pending Acquisition and give the company flexibility to
pursue additional acquisitions and store openings.

SELECTED ACQUISITION COMPANIES

Movies to Go funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Movies to Go's cash provided by operations was $1.6 million for the
year ended November 30, 1994 compared to $1.3 million for the same period in
1993.

Pic-A-Flick Group funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Pic-A-Flick Group's cash provided by operations was $2.3 million for
the eleven months ended November 30, 1995 compared to $2.0 million for the year
ended December 31, 1994.

Movie Store Group funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Movie Store Group's cash provided by operations was $1.3 million for
the eleven months ended November 30, 1994 compared to $1.6 million for the year
ended December 31, 1994.

Premiere Video funded its operations primarily through cash flow from
operations. New store openings were funded through cash flow from operations and
borrowings. Premiere Video's cash provided by operations was $2.9 million for
the year ended December 31, 1995 compared to $2.2 million for the year ended
December 31, 1994. Premiere Video's cash provided by operations was $1.3 million
for the three months ended March 31, 1996 (unaudited).

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BUSINESS

GENERAL

The Company currently operates 158 video specialty superstores located in
Georgia, South Carolina, North Carolina, Virginia, Pennsylvania, New Jersey, New
York, Connecticut, Ohio, Iowa and Colorado and has entered into an agreement to
acquire an additional 23 stores in four additional states. See "The
Acquisitions." The Company's superstores rent and sell a wide range of videos
and video games, rent video players and video game equipment, and sell video
accessories such as blank cassettes, cleaning equipment and a variety of
confectionery items. Tonight's Feature, the Company's predecessor, opened its
first store in 1989 and in 1992 introduced the Moovies superstore format which
was the prototype for the Company's stores. Approximately 100 of the Company's
stores are now operating under the Moovies name and logo. The Company expects to
convert substantially all of its remaining video specialty superstores to the
Moovies name and logo by June 30, 1996. The Company had pro forma revenues of
$79.0 million and pro forma net income of $5.7 million for the year ended
December 31, 1995 and pro forma revenues of $22.7 million and pro forma net
income of $1.7 million for the three months ended March 31, 1996. See "Pro Forma
Financial Information."

VIDEO RETAIL INDUSTRY

According to estimates provided by Paul Kagan, the video rental and sales
industry has grown from $0.7 billion in revenues in 1982 to $14.8 billion in
1995 and is projected to reach $19.1 billion in 2000. Annual revenues, according
to Paul Kagan, increased each year. The industry is highly fragmented. Paul
Kagan estimates that in 1994 there were approximately 27,400 video specialty
stores, including 6,100 superstores, in the United States. Only nine multiple
store businesses operated in excess of 100 stores in 1995. Few single store
owners are able to expand to multiple store operations, in part due to the
difficulty of obtaining working capital financing from banks. Multiple store
operations that do exist are generally chains of fewer than 50 stores. Because
of a recent trend toward consolidation in the video retail industry, the Company
believes, and its experience has been, that many smaller chain operators
perceive the need to join larger organizations for enhanced access to working
capital, marketing efficiencies and other economies of scale to compete
successfully in the future. The Company believes it is well positioned to
benefit from this consolidation trend by acquiring successful smaller chain
operations.

Although the domestic video retail industry includes both rentals and
sales, consumers primarily rent rather than buy videos. By setting wholesale
video prices, movie studios influence the relative levels of video rentals
versus sales. Videos released at a relatively high price, typically $60 to $67,
are purchased by video specialty stores and are offered primarily as rental
titles. Videos released at a relatively low price, typically $8 to $17 and known
as "sell-through", are purchased by video specialty stores and are generally
offered as both rental and sales titles. Typically, movie studios attempt to
maximize total revenue from video releases by maintaining prices at a relatively
high level during the first six months to one year after a new release, during
which time sales will be made primarily to video specialty stores for rental,
and then re-releasing the video at a lower price to promote sales.

From time to time, however, movies that are believed to have mass appeal,
such as FORREST GUMP and THE LION KING, are initially released as sell-through
titles. The Company believes that the studios release videos on a sell-through
basis when they estimate that the lower selling price will generate six or more
times the unit volume of a higher priced rental tape. Mass appeal sell-through
tapes also enable video store operators to purchase large quantities of popular
titles that can draw customers into the stores. Sell-through titles are
dominated by children's or family videos which are replayed numerous times in
the home and are thus more likely to be purchased than rented. These
"sell-through" titles are also placed in the rental pool and can generate
significant cash flow for the stores since the lower cost of the tapes is
recovered in three to six rentals as opposed to 20 to 23 rentals for a typical
rental title. The Company believes that the ability to offer more copies of a
popular title when it is priced for sell-through combined with the higher
profits from rentals that do occur in those titles more than offsets the
potential rental revenues lost when such tapes are purchased by some consumers.

According to Paul Kagan's latest annual industry report, total United
States consumer filmed entertainment spending has increased from approximately
$4.7 billion in 1980 to approximately $39.6 billion in 1994. According to
industry analyst Veronis, Suhler & Associates, in 1994 the home video market was
the largest single source of revenue to movie distributors, accounting for
approximately 46% of movie distributors' worldwide revenue. The Company believes
that home video revenues are important to the success of the studios and could
not be easily replaced through other distribution channels. Of the many movies
produced by major studios and released in the United States each year,
relatively few are profitable for the studios based on box office revenue alone.
In addition to purchasing box office hits, video specialty stores typically
purchase movies on video that were not successful at the box office as customers
will often rent a video that they might not view at a theater. The Company
believes the consumer is more likely to view movies that were not box office
hits on a rented video

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than on any other medium because video specialty stores provide an inviting
opportunity to browse and make an impulse choice among a very broad selection of
movie titles at a relatively low price. Purchases by the video stores provide
the major movie studios with a reliable source of revenue for the majority of
their movies.

Historically, new technologies have led to the creation of additional
distribution channels for movie studios. Movie studios seek to maximize their
revenues by releasing movies in sequential release date "windows" to various
movie distribution channels. These distribution channels currently include, in
release date order, movie theaters, video specialty stores, Pay-Per-View, pay
television, basic cable television, direct broadcast satellite and network and
syndicated television. The Company believes that this method of sequential
release has allowed movie studios to increase their total revenue with
relatively little adverse effect on the revenue derived from previously
established channels and that movie studios will continue the practice of
sequential release as new distribution channels become available. The Company
believes that video stores with their broad purchases will continue to occupy
the first release date window after the box office. Some studios, notably
Disney, have released titles directly to video without exhibiting them at
theaters.

BUSINESS AND EXPANSION STRATEGY

The key elements of the Company's business and expansion strategy are:

SUPERSTORES. The Company believes that focusing on the superstore
format will enhance the Company's profitability. Superstores are defined by
Paul Kagan as stores carrying 7,500 or more videocassettes. The Company
believes that the superstore format is generally the most profitable
format. All of the Company's stores are superstores. The most significant
advantages of the superstore format include the following:

(Bullet) A broader selection of titles and greater availability of new
releases, which generate increased customer traffic;

(Bullet) Sufficient floor space to develop categories and themes and
to create an entertaining environment; and

(Bullet) Reduced labor costs (the Company's highest operating expense)
as a percentage of revenues.

These characteristics enable superstores to produce revenues and
profit levels sufficient to pay the generally higher lease rates of
preferred store locations.

CUSTOMER SERVICE. The Company seeks to provide a high level of
customer service at each of its stores. The Company offers a broad
selection of new releases and catalog product, is committed to offering
more copies of the newest releases than many of its competitors, provides
customers with personalized attention and maintains a fun, family-oriented
environment centered around the "Moovies" theme.

GEOGRAPHIC CONCENTRATION. The Company prefers to concentrate its new
store openings and activities in the areas in which other Moovies stores
are located to maximize operating efficiencies. The Company believes that a
geographic concentration allows the Company to more easily monitor store
operations through its area management structure and to achieve operating
efficiencies in inventory management, marketing, distribution, training and
store supervision. The Company will move to new geographic areas when it
sees an opportunity to be a top competitor in a particular market. A key
benefit to operating multiple stores is the Company's ability to receive
relatively large aggregate cooperative advertising credits from its
distributors and use them more efficiently than smaller competitors. The
Company receives cooperative advertising credits for each store it
operates, and by operating multiple stores in a single geographic market,
the Company can more effectively use cooperative advertising credits to
maximize the impact of its advertising.

TARGETED ACQUISITIONS. The Company believes that acquiring clusters of
superstores in targeted market areas is often the most cost-effective means
of entering a new market, particularly when the stores are in desirable
locations. Other than its preference for concentrating new store openings
and acquisitions in areas where it already has stores, the Company does not
focus its acquisition searches on specific regions of the country,
preferring instead to evaluate opportunities as and where they arise.
Because of a recent trend toward consolidation in the industry, the Company
believes smaller chain operators perceive the need to join larger
organizations for enhanced access to working capital, marketing
efficiencies and other economies of scale to compete successfully in the
future. This has created an opportunity for the Company to grow further
through acquisitions, and as a result, the Company believes that it will
continue to be presented with attractive acquisition opportunities
throughout the U.S. See "Risk Factors -- Acquisition Risks" and "Risk
Factors -- Financing Growth Strategy," "The Acquisitions."

NEW STORE DEVELOPMENT. The Company intends to expand its operations
through new store openings. The Company opened 15 new Moovies superstores
from the date of the Company's initial public offering to December 31,
1995.

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In 1996 the Company opened eight additional stores and closed or sold a
total of five stores. The Company anticipates opening approximately 42
additional new superstores by the end of 1996, principally in markets with
multiple shopping areas and a sufficient population base to support more
than one video specialty store operator. The Company generally intends to
open these stores in geographic areas where the Company is already
operating stores and attractive acquisition opportunities are not
available. The Company currently estimates that the total cash required to
open a new Moovies superstore, including store fixtures and equipment,
leasehold improvements and rental and sale inventory, typically ranges from
$250,000 to $300,000 per superstore.

STORE LOCATIONS

The following table sets forth the locations of the Company's stores and
the Premiere Video stores as of May 15, 1996:

CONNECTICUT
Fairfield

COLORADO
Boulder
Greeley
Fort Collins (3)

GEORGIA
Athens (2)
Atlanta (9)
Augusta (3)
Dublin
Gainesville
Macon (2)
Milledgeville
Savannah (2)
Toccoa

IOWA
Ames (2)
Ankeny
Cedar Rapids
Coralville
Council Bluffs*
Des Moines (5)
Iowa City
Sioux City (2)*
Urbandale
Waterloo*
West Des Moines (3)

MINNESOTA
Bemidji*
Brainerd*
Sauk Rapids*
Savage*
St. Cloud*

NEBRASKA
Columbus*
Kearney*
Norfolk*
South Sioux City*

NEW JERSEY
Ewing

NEW YORK
Fishkill
Larchmont
Middletown
Nanuet
Newburgh
Pleasant Valley
Poughkeepsie
Stony Point
Wappingers Falls
White Plains

NORTH CAROLINA
Asheville (2)
Charlotte (5)
Clyde
Elizabeth City
Greenville
Jacksonville
Jamestown
Raleigh
Wilmington (2)

OHIO
Ashtabula
Austintown
Boardman
Calcutta
Conneaut
Cortland
Garrettsville
Newton Falls
Niles
Norwalk
Ravenna
Struthers
Warren (4)
Youngstown (4)

PENNSYLVANIA
Altoona
Drescher
Du Bois
Johnstown
Kittanning
New Castle
Philadelphia (11)

SOUTH CAROLINA
Anderson (2)
Chester
Clemson
Columbia (3)
Easley
Greenville (10)
Greenwood
Greer (2)

Lexington (2)
Newberry
Orangeburg
Pickens
Powdersville
Seneca
Spartanburg
Union
Williamston

SOUTH DAKOTA
Brooking*
Sioux Falls (3)*
Yankton*

VIRGINIA
Blacksburg
Chesapeake (4)
Christianburg
Martinsville
Norfolk (2)
Poquoson
Portsmouth
Radford
Roanoke
Salem
Tabb
Virginia Beach (6)

WISCONSIN
Marshfield*
Plover*
Shawano*
Sturgeon Bay*
Two Rivers*

* Premiere Video stores.

In addition, as of May 15, 1996 the Company had signed leases for 18 new
store sites, including 8 new stores under construction.

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MERCHANDISING

A typical Company superstore carries a broad selection of new release
titles (videos released in the last 12 months) and approximately 8,500 catalog
titles (generally, videos in release for over 12 months). Each store has a few
special interest titles, covering subjects such as sports, exercise and
education, which are selected to appeal to the customer base in the particular
store's market area. Movies are listed and displayed alphabetically within each
category. In 1995, over 82% of the Company's pro forma net revenues and 83% of
its actual net revenues were derived from the rental of videos and video games.
In 1995, over 17% of the Company's pro forma net revenues and 16% of its actual
net revenues were derived from the sale of videos, including previously rented
videos, video games and other products.

The Company generally has a three day, two night rental term for both new
releases and catalog titles. The Company is committed to offering more copies of
popular new releases than its competitors. See " -- Competition." In the case of
a major box office hit offered for rental, the Company typically orders 20 to 40
copies of that title for each store and may order as many as 200 copies for a
single store. For each superstore, the Company bases the selection and quantity
of videos on demographic data for the region or neighborhood in which the store
is located, as well as the past or projected performance of that store. Upon
conversion to the Moovies format, the Company will not rent or sell adult
movies. The Company is in the process of phasing out the limited number of adult
videos that were acquired in connection with the Initial Acquisitions. The
Company assesses late fees for videos returned beyond the initial term.

As of March 31, 1996, approximately 100 stores were operated under the
Moovies name and logo. The Company expects to convert substantially all of its
remaining stores to the Moovies name and logo by June 30, 1996. Moovies stores
feature distinctive signs and colorful awnings on the store's exterior and
interior. Whimsical category titles such as "Mooving On" (travel), "Moo-Dun-It"
(mystery), "Cowboys" (westerns), "Kung Moo" (martial arts) and "Moosicals"
(musicals) direct customers to their preferred titles. "Moo Releases" (new
releases) are displayed alphabetically along the perimeter of each store for
easier selection by customers. The Company's new prototype store will
incorporate a children's section complete with a monitor playing children's
videos.

MARKETING AND ADVERTISING

The Company markets its stores and merchandise through radio and direct
mail and to a lesser extent through newspaper advertising, discount coupons,
celebrity appearances and promotional materials. The Company also publishes a
proprietary monthly video guide designed to help customers make video
selections. The cost of these activities is primarily funded through advertising
allowances and market development funds that the Company receives from its video
wholesale suppliers. In addition, the Company benefits from the advertising and
marketing of studios and theaters in connection with their efforts to promote
films and increase box office revenues. The Company's advertising emphasizes the
stores' selection and service and also promotes the Company's family
orientation.

STORES

The Company's management structure is designed to enhance the overall
performance of the Company's video specialty stores by providing more consistent
and supportive supervision of store operations. The Company's operations are
divided into four geographic areas, each of which has district managers
responsible for store operations within the area. Each of the Company's stores
is managed by a full time store manager, who typically has one assistant
manager.

Management believes that the concentration of the Company's stores in
clusters enhances the Company's control of its store operations and enables the
Company to respond more quickly to changing market conditions. Because the
Company's stores are geographically concentrated, area managers typically visit
stores within their respective areas at least twice a month. These visits are
made to ensure adherence to Company-specified operating standards and to discern
current market information. In addition, area managers meet on a regular basis
with other senior management at the Company's headquarters to discuss their
operations. The Company believes that these meetings facilitate prompt
decision-making and enable the Company to respond rapidly to changing market
conditions and consumer demand.

In choosing new store sites, the Company considers such factors as
visibility, access, traffic volume, consumer demographics and convenience to
residential neighborhoods, regardless of the proximity of competing video
specialty stores. Company superstores are generally located in trade areas with
populations of more than 15,000, such as suburbs of metropolitan markets. The
Company's stores have generally performed well in close proximity to competing
superstores, which the

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Company believes is due in part to unsatisfied market demand. The Company's
stores generally are located in stand-alone sites or strip shopping centers for
heightened visibility, with a preference for end-cap locations. The Company's
stores range in size from approximately 3,000 to 11,000 square feet, with an
average size of approximately 5,700 square feet. Most of the stores are leased
pursuant to leases with terms ranging from one to ten years and varying renewal
options. The Company is responsible for taxes, insurance and utilities under
most of these leases. Generally, the Company's stores are open seven days a
week, from 10:00 a.m. to 11:00 p.m.

In executing its new store development strategy, the Company estimates that
its gross investment in each new Moovies superstore, including store fixtures
and equipment, leasehold improvements and rental and sale inventory, generally
has been and will be approximately $250,000 to $300,000.

As a result of one of its acquisitions, the Company supplied and managed
the video inventory of video departments located in approximately 80
supermarkets in several states. The Company generally received 75% of the
revenues from such operations. In 1995, the revenues received by the Company
from the supermarket operations of the entity acquired were approximately
$456,000. The Company sold this business in March 1996 to enable the Company to
focus its resources on the operation of video specialty stores.

INVENTORY AND MANAGEMENT INFORMATION SYSTEMS

The Company aggressively manages its store inventory. In each of its
markets, management seeks to maintain the largest selection of new releases and
catalog product that is consistent with long-term store profitability. Buying
decisions are made centrally and are based on the size of the active customer
base, new release dates, box office results, industry newsletters and
management's knowledge of the popularity of certain types of movies in its
markets. The Company believes that centralized buying allows it to obtain better
volume discounts. Rentals are monitored on a daily basis in each store, enabling
the Company to reallocate videos and video games among stores to respond to
customer demand and enhance profitability.

The Company is installing a new management information system ("MIS"). As
of April 30, 1996, the new system was installed in approximately 125 stores. The
Company expects the new system to be implemented in substantially all of the
stores it now operates by June 30, 1996. The new MIS uses a point-of-sale
("POS") computer located at each store that records all rental and sale
information upon customer checkout using scanned bar code information and
updates such information when the videos and video games are returned. This POS
system is tied to a computerized information system at the corporate offices.
The Company believes data generated by the MIS will help management monitor
store operations and inventory more effectively and at lower cost than the
previous systems. The Company also believes its ability to review rental history
by title and location will assist it in making purchasing decisions with respect
to new releases. The MIS can also enable the Company to perform its monthly
physical inventory using bar code recognition, which is more efficient, more
accurate and less costly than a manual count.

While management believes that disruptions caused by the implementation of
the new system in all of the Company's stores have been and will be minor, there
can be no assurance that such implementation, which will involve, among other
things, the retraining of existing employees, will not cause a significant
disruption in store operations that would materially adversely affect the
Company's financial condition and results of operations. See "Risk
Factors -- Implementation of New Management Information System."

SUPPLIERS

The video inventory in each of the Company's stores consists of catalog and
new release titles, which it either purchases or rents. The Company purchases
approximately 83% of its new release videos and all of its catalog videos
directly from video wholesalers. The Company purchases from such wholesalers
rather than directly from movie studios because the Company believes that the
cost savings of direct purchases would not offset the expense to the Company of
establishing its own distribution system. Currently, the typical cost of new
release videos purchased by the Company is approximately $60 to $67 for titles
the Company will rent and $8 to $17 for titles acquired for sell-through as well
as for rental. Catalog titles also typically cost from $8 to $17. The Company
has historically used two primary suppliers, Rentrak, and Baker & Taylor
Entertainment, a division of Baker & Taylor ("BTE") to fulfill the majority of
its video needs. BTE and Mr. John Taylor, the Company's Chief Executive Officer,
are not affiliated. The Company may expand its group of primary suppliers with
one or more additional sources. The Company believes that if its relationships
with its primary suppliers are terminated, the Company could obtain videos from
other suppliers at prices and on terms comparable to those available from its
current suppliers.

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The Company also rents new release titles under revenue sharing
arrangements. The Company presently spends approximately 17% of its new release
budget to obtain new releases from Rentrak pursuant to a long-term revenue
sharing agreement. Under this agreement, the Company is obligated to obtain a
minimum annual dollar amount of new release titles from Rentrak. The Company may
choose which stores offer a title from Rentrak, but if a store obtains a copy of
a new release title from Rentrak it must obtain all copies of that title from
Rentrak. The Company believes that Rentrak is often a more cost effective source
for larger orders of an individual title and typically chooses to use Rentrak
titles in newly opened stores or stores with significant competition in order to
build customer traffic. Using Rentrak enables the Company to order larger
numbers (often 3 times as many) of copies of a particular title to satisfy
customer demand than would be cost-effective if the copies were purchased for
rental and allows the Company to order a large number of copies for certain
stores to meet most of the heavy initial demand that exists during the first few
weekends after a title's release. When the Company chooses to offer a title
under the Rentrak agreement a minimum number of copies for each store is often
established by Rentrak based on prior experience with similar titles. The
Company believes that these minimum order requirements have not been burdensome
since it typically orders large numbers of copies when it chooses a Rentrak
title. The Company is able to obtain a wide variety of titles under this
agreement since Rentrak has a supplier relationship with four of the six largest
studios.

During the revenue sharing period, which is generally one year (but does
not exceed two years) per title, the movie studio retains ownership of the video
and the Company shares the rental revenue with Rentrak rather than purchasing
the video for a fixed cost. In addition, the Company must make an initial
payment in the form of a handling charge of from $8 to $10 per video obtained
pursuant to this agreement. At the end of the revenue sharing period for a
title, the Company has the option to purchase the copies of that title,
generally for less than $5 per copy. Revenue sharing reduces the risk that the
Company will be unable to recover the acquisition cost of a video through rental
revenue before the popularity of the title declines significantly. In order to
obtain the full benefits of the Rentrak revenue sharing arrangement, the Company
must correctly identify the new release titles that it should lease from Rentrak
and the stores which should receive them. Because the Company's percentage share
of revenue under the Rentrak agreement is fixed, to the extent that the Company
obtains new release videos from Rentrak for too many or the wrong stores, the
Company's profits may be adversely affected. See "Risk Factors -- Inability to
Obtain and Adequately Manage Leased Inventory."

The Company purchases approximately 60% of its new release titles from BTE
pursuant to a letter agreement that expires April 1, 1997. The Company believes
that BTE is a major supplier in the wholesale video industry. The BTE agreement
provides for purchase of videos at a set discount from manufacturers suggested
retail price, and allows the Company to return overstock items for a specified
percentage credit against future purchases. The Company believes that it is a
major customer of BTE and that the terms of the BTE agreement are competitive
within the video wholesale market.

COMPETITION

The video retail industry is highly competitive. The Company's stores
compete with other video specialty stores, including stores operated by regional
and national chains, such as Blockbuster, and with other businesses offering
videos and video games, such as supermarkets, pharmacies, convenience stores,
bookstores, mass merchants, mail order operations and other retailers. Some of
the Company's competitors, including Blockbuster, have significantly greater
financial and marketing resources, market share and name recognition than the
Company. In addition, the Company's stores compete with other leisure-time
activities, including movie theaters, network, cable and direct broadcast
satellite television, live theater, sporting events and family entertainment
centers. However, many of these have a higher per-person cost than the rental of
a video. See "Risk Factors -- Competition."

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

The Company's stores also compete with Pay-Per-View cable television
systems, in which home subscribers pay a fee to see a movie selected by the
subscriber. Existing Pay-Per-View services offer a limited number of channels
and movies and are generally available only to households with a converter to
unscramble incoming signals. Recently developed technologies, however, permit
certain cable companies, direct broadcast satellite companies, telephone
companies and other telecommunications companies to transmit a much greater
number of movies to homes in more markets as frequently as every five minutes,
referred to as "Near Video-on-Demand." These technologies, by providing
alternatives to home video rentals and purchases, could have a material adverse
effect on the Company's business. None of these technologies, however, currently

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have penetration in the consumer market as high as the 80% penetration of the
VCR nor currently represent as large a percentage of revenue to the movie
studios as video specialty stores. Over the long term, further improvement in
these technologies could lead to the availability of a broad selection of movies
to consumers on demand, referred to as "Video-on-Demand," at a price which is
competitive with the price of video rentals, which could have a material adverse
effect on the Company's financial condition and results of operations. Although
the Company does not believe that these technologies represent a near-term
competitive threat to its business, technological advances or changes in the
manner in which movies are marketed, including the earlier release of movie
titles to cable television or other distribution channels, could make these
technologies more attractive and economical, which could have a material adverse
effect on the business of the Company and on the Company's financial condition
and results of operations. See "Risk Factors -- Technological Obsolescence."

EMPLOYEES

As of March 31, 1996, the Company employed 1,875 persons, of whom 560 were
employed on a full-time basis. None of the Company's employees are represented
by a labor union, and the Company believes that its relations with its employees
are good.

PROPERTIES

All of the Company's stores are leased pursuant to leases with terms
ranging from one to ten years, with varying option renewal periods and which
range from approximately 3,000 to 11,000 square feet. The Company anticipates
that future stores will also be located on leased premises. See "Certain
Transactions."

The Company recently occupied a new leased corporate headquarters located
at 201 Brookfield Parkway, Greenville, South Carolina. This facility consists of
an aggregate of approximately 25,000 square feet of office space.

INTELLECTUAL PROPERTY

The Company owns a number of trademarks and service marks that have been
registered with the United States Patent and Trademark Office, including MOOVIES
and the current logos for the Moovies stores. The Company has applied to
register CLUB COW A BUBBA and HOLY COW WHATTA VIDEO STORE! for video rental
services and promotional products related to its business. In addition, the
Company intends to seek federal trademark protection for the name and design of
its mascot character "Bubba" for video, retail services, toys and apparel. The
Company considers its intellectual property rights to be an important part of
its business.

LEGAL PROCEEDINGS

The Company is not currently involved in any legal proceedings that
management believes could have a material adverse effect on the Company's
financial condition or results of operations.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company and their ages as of
May 15, 1996 are as follows:

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NAME AGE POSITION

John L. Taylor............................... 44 President, Chief Executive Officer, Chairman of the Board
F. Andrew Mitchell........................... 42 Chief Financial Officer, Director
Robert J. Klein.............................. 48 Chief Operating Officer, Director
Victor B. John, III.......................... 43 Senior Vice President -- Real Estate
Ross Miller.................................. 42 Senior Vice President, General Counsel, Secretary
Jeffrey L. Plain............................. 36 Senior Vice President -- Purchasing
Arthur F. Greeder, III....................... 49 Vice President -- Store Development -- MidAtlantic Region, Director
Rokki Rogan.................................. 38 Vice President -- Acquisitions, Director
Michael A. Yeargin........................... 48 Vice President -- Administration, Director
Theodore J. Coburn........................... 42 Director
Douglas M. Raines............................ 47 Director
Charles D. Way............................... 43 Director

JOHN L. TAYLOR has served as President, Chief Executive Officer and a
director of the Company since November 1994 and as Chairman of the Board since
November 1995. Mr. Taylor became President and Chief Executive Officer of the
Predecessor in September 1994. From March 1986 through July 1989 Mr. Taylor was
President and Chief Operating Officer, and thereafter through July 1994 was
President and Chief Executive Officer, of Ingram Entertainment, Inc., the
largest video wholesaler in the United States. Mr. Taylor graduated in 1976 from
the University of North Carolina, Charlotte, with a B.S. in accounting.

F. ANDREW MITCHELL has served as Chief Financial Officer and as a Director
of the Company since March 1995. From 1987 to March 1995 Mr. Mitchell was a
partner with KPMG Peat Marwick LLP and was managing partner of the 70-person
Greenville, South Carolina office for his last three and a half years with that
firm. During his 20-year career with KPMG he had extensive experience servicing
public and privately-held clients in the financial institution, entertainment
and franchise restaurant industries. He graduated in 1975 from the University of
Cincinnati with a B.B.A. in accounting.

ROBERT J. KLEIN became Chief Operating Officer of the Company in February
1996. From June 1995 to February 1996, he served as Vice President, Chief
Operating Officer -- Eastern Pennsylvania and New Jersey Region of the Company.
From January 1994 to June 1995, Mr. Klein was President of Planet Video, which
sold its two video specialty stores to the Company in August 1995. From March
1990 to May 1993, Mr. Klein was a Senior Vice President of Choices Entertainment
Corporation, a video retail company. Mr. Klein received his B.S. from Temple
University in 1970 and a M.A. in administration in 1975 from Villanova
University. Mr. Klein was elected to the Company's Board of Directors at the
annual meeting of stockholders held on May 15, 1996.

VICTOR B. JOHN, III became Vice President -- Real Estate of the Company in
June 1995 and Senior Vice President in March 1996. From 1982 to June 1995, Mr.
John was a broker with Edens and Avant, Incorporated, a commercial real estate
firm in Columbia, South Carolina.

ROSS MILLER became Senior Vice President and General Counsel of the Company
in January 1996 and became Secretary of the Company in March 1996. From 1994 to
December 1995, Mr. Miller was corporate counsel with the Atlanta, Georgia law
firm of Rogers & Hardin. From 1991 to 1994, Mr. Miller was a partner in the
Chicago law firm of Schwartz, Cooper, Greenberger & Krauss. From 1986 to 1991,
Mr. Miller was a partner in the Chicago law firm of Katten Muchin & Zavis. Mr.
Miller received an A.B. degree from the University of North Carolina at Chapel
Hill, a J.D. from the University of Michigan Law School and a L.L.M., in
International and Comparative Law, from the University of Brussels. Mr. Miller
is a member of the Georgia, Illinois, Texas, and New York bars.

JEFFREY L. PLAIN became Vice President -- Purchasing in September 1995 and
Senior Vice President in March 1996. From 1989 to 1992, Mr. Plain was an Area
Manager, and thereafter through September 1995, was Director of Purchasing for
the New York Video and New England Video Limited Partnerships, which are
Blockbuster Video franchisees operating stores

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in New York and Connecticut, respectively. Mr. Plain received a Bachelor of
Science, Health and Physical Education degree (business concentration) from West
Chester University.

ARTHUR F. GREEDER, III became Vice President -- Store
Development -- MidAtlantic Region of the Company in October 1995 and became a
director in August 1995. From June 1995 to October 1995, Mr. Greeder was Vice
President, Chief Operating Officer -- MidAtlantic Region of the Company. From
1981 to June 1995, Mr. Greeder was President of Video Express, which merged its
ten stores into the Company in August 1995.

ROKKI ROGAN became Vice President -- Acquisitions of the Company in October
1995 and became a director in August 1995. From June 1995 to October 1995, he
was Vice President, Chief Operating Officer -- Midwest Region of the Company.
From 1983 to June 1995, Mr. Rogan was President of First Row and Game Trader,
which merged their 24 video specialty stores and certain other related
operations into the Company in August 1995.

MICHAEL A. YEARGIN co-founded the Company in 1985. From June 1995 to March
1996, Mr. Yeargin was Executive Vice President -- Purchasing, Secretary and a
Director of the Company. In March 1996, Mr. Yeargin resigned as Executive Vice
President and Secretary and became Vice President -- Administration of the
Company.

THEODORE J. COBURN became a director of the Company in June 1995. Since
1991, Mr. Coburn has been a partner and a director of Brown, Coburn & Co., an
investment banking firm. From 1986 until 1991, he was a Managing Director of
Global Equity Transactions and a member of the Board of Directors of Prudential
Securities. From 1983 to 1986 Mr. Coburn served as Managing Director of Merrill
Lynch Capital Markets. Mr. Coburn received his B.S. from the University of
Virginia in 1975 and an M.B.A. from Columbia University Graduate School of
Business in 1978. Mr. Coburn serves as a director of Sage Analytics
International ("Sage"), Nicholas-Applegate Growth Equity Fund, the Emerging
Germany Fund, and Premiere Radio Networks, Inc. ("Premiere Radio"), serves as a
trustee of Nicholas-Applegate Mutual Funds, and serves on the compensation
committees of Sage and Premiere Radio.

DOUGLAS M. RAINES co-founded the Company in 1985 and managed the business
until September 1994. In June 1995, Mr. Raines became Chairman of the Board and
Executive Vice President -- Real Estate and Development of the Company
responsible for site selection and construction for new stores. Mr. Raines
resigned as Chairman of the Board in November 1995 and as Executive Vice
President in March 1996.

CHARLES D. WAY became a director of the Company in August 1995. Since June
1988, Mr. Way has been President of Ryan's Family Steakhouses Inc. ("Ryan's"), a
chain of restaurants. In October 1989 he was elected Chief Executive Officer,
and in October 1992 he was elected Chairman of the Board of Ryan's. He graduated
in 1975 from Clemson University with a B.S. in Accounting. Mr. Way serves as a
director of World Acceptance Corp.

DIRECTOR COMPENSATION

The Company pays its non-employee directors $5,000 per year plus $1,000 for
each board or committee meeting attended in person (plus out-of-pocket
expenses). In addition, the Company granted Mr. Way options to purchase 5,000
shares of Common Stock exercisable at the initial public offering price of
$12.00 per share, subject to vesting over a 90-day period. These options are
exercisable over a period of ten years.

BOARD COMMITTEES, STAGGERED BOARD AND EXECUTIVE OFFICERS

The Board of Directors has established a Compensation Committee and an
Audit Committee. The Compensation Committee is currently composed of Mr. Coburn
and Mr. Taylor. The Compensation Committee is responsible for, among other
things, establishing compensation of the Company's executive officers and for
administering the Company's Stock Plan. The Audit Committee is currently
composed of Mr. Coburn and Mr. Way. The Audit Committee is responsible for,
among other things, recommending independent auditors, reviewing with the
independent auditors the scope and results of the audit engagement, monitoring
the Company's accounting policies and control procedures and reviewing and
monitoring the provision of non-audit services by the Company's auditors.

The directors are divided into three classes serving staggered terms that
expire at the 1996, 1997 or 1998 annual meeting of stockholders. The terms of
the directors will expire as follows: Messrs. Taylor, Mitchell and Klein in
1999, Messrs. Greeder, Rogan and Way in 1997, and Messrs. Raines, Yeargin and
Coburn in 1998. Directors for each class will be elected at the annual meeting
of stockholders held in the year in which the term for such class expires and
will serve thereafter for three years or until their earlier resignation or
removal, or until their successors are elected or qualified. Messrs. Taylor,
Mitchell and Klein were elected as directors at the annual meeting of
stockholders held on May 15, 1996.

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All executive officers of the Company are elected annually by, and serve at
the discretion of, the Board of Directors.

LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS AND
EXECUTIVE OFFICERS

The Company's Amended and Restated Certificate of Incorporation
("Certificate of Incorporation") limits the liability of its directors. As
permitted by the General Corporation Law of the State of Delaware (the "Delaware
Code"), directors will not be liable to the Company for monetary damages arising
from a breach of their fiduciary duty as directors in certain circumstances.
Such limitation does not affect liability for (i) any breach of the director's
duty of loyalty to the Company or its stockholders, (ii) acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) unlawful payment of dividends or unlawful stock purchases or
redemptions or (iv) any transaction from which such director derives an improper
personal benefit. Such limitation of liability also does not affect the
availability of equitable remedies such as injunctive relief or rescission.

The Company's Certificate of Incorporation and Bylaws provide that the
Company shall indemnify its directors and officers to the fullest extent
permitted by the Delaware Code.

EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation paid to the Chief
Executive Officer and the four highest paid executive officers of the Company
who earned more than $100,000 in annual salary and bonus pursuant to employment
agreements with Moovies, Inc. in 1995:

SUMMARY COMPENSATION TABLE

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LONG-TERM
COMPENSATION
ANNUAL COMPENSATION OTHER SECURITIES
BONUS AMOUNT UNDERLYING ALL OTHER
NAME AND SALARY ($) COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR ($) (1) (2) ($) (3) (#) (4) ($) (5)

John L. Taylor
Chairman of the Board of Directors, President 1995 200,000 0 0 0 1,110
and Chief Executive Officer 1994 66,694(6) 0 0 0 0
F. Andrew Mitchell 1995 190,181 10,000(8) 0 0 1,910
Chief Financial Officer (7) 1994 0 0 0 0 0
Robert J. Klein (9) 1995 97,014 0 0 40,000 0
Chief Operating Officer 1994 53,000 0 11,500(10) 0 0
Michael A. Yeargin (11) 1995 98,207 0 0 0 113,853(12)
Vice President-Administration 1994 65,000 0 0 0 188,148(12)
Douglas M. Raines (11)(13) 1995 97,380 0 0 0 113,853(12)
Director 1994 65,000 0 0 0 188,148(12)

(1) In determining the Named Executives, the salaries and other compensation
paid by certain executives' acquired video chains prior to August 1995 were
not considered. The Named Executives were selected based on annual salary
payable pursuant to employment agreements with the Company, as follows: Mr.
Taylor $200,000; Mr. Mitchell, $200,000 (plus an additional $2,000 per
month for his first 12 months with the Company); Mr. Klein, $150,000; and
Messrs. Raines and Yeargin, each $150,000. For Messrs. Klein, Raines and
Yeargin, salaries under these agreements were paid from August 9, 1995 (the
date of the Company's initial public offering) through December 31, 1995.
For Mr. Taylor and Mr. Mitchell, salaries under these agreements were paid
from January 1 and March 1, respectively, through December 31, 1995. See
" -- Employment Agreements; Covenants Not to Compete."

(2) Includes bonuses earned by the Named Executives for the periods presented
or, for executives hired during the periods, for the period from the date
of hire to the end of the applicable year.

(3) Other than for Mr. Klein in 1994, amounts for perquisites and other
personal benefits extended to the Named Executives are less than 10% of the
total of annual salary and bonus of such Named Executive.

(4) During the periods presented, the only form of long-term compensation
utilized by the Company has been the grant of stock options. The Company
has not awarded restricted stock or stock appreciation rights, nor has it
made any long-

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term incentive payouts. Accordingly, the columns for "Restricted Stock
Award(s)" and "Long Term Incentive Payouts" have been omitted.

(5) In 1995, the Company adopted its supplemental life insurance program for
Mr. Taylor and Mr. Mitchell. The Company's contributions to supplemental
life insurance program for 1995 were $1,110 for Mr. Taylor and $1,910 for
Mr. Mitchell.

(6) Includes $46,774 of deferred salary earned by Mr. Taylor in 1994 but paid
in 1995.

(7) Mr. Mitchell joined the Company in March 1995.

(8) Mr. Mitchell's bonus represents a signing bonus paid in March 1995.

(9) For Mr. Klein, includes amounts paid by Planet Video, Inc., a video chain
acquired by the Company in August 1995. The salary amounts paid by Planet
Video, Inc. were $53,000 for 1994 and $41,000 for 1995. The salary amount
paid by the Company in 1995 was $56,014.

(10) Includes professional fees reimbursed of $5,000, auto allowance of $3,500,
and travel and entertainment allowance of $3,000, all paid to Mr. Klein by
Planet Video, Inc.

(11) For Messrs. Yeargin, and Raines, includes salaries paid to the Named
Executive from Tonight's Feature Limited Partnership II (the "Predecessor")
during the periods presented prior to August 8, 1995, the date the
Predecessor was merged with the Company, in the amount of $40,500, and
$40,500, respectively.

(12) Represents capital distributions from the Predecessor.

(13) Mr. Raines served as Chairman prior to November 1995 and Executive Vice
President prior to March 1996.

GRANT OF OPTIONS. During 1995, options were granted to Mr. Klein in
recognition of his performance. No options were granted to any of the other
Named Executives during 1995. No stock appreciation rights (SARs) have been
granted by the Company. The following table sets forth information regarding the
grant of options in 1995.

OPTION/SAR GRANTS IN LAST FISCAL YEAR (1995)

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INDIVIDUAL GRANTS POTENTIAL REALIZABLE
% OF TOTAL VALUE
NUMBER OF OPTIONS/SARS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF
UNDERLYING EMPLOYEES APPRECIATION FOR OPTION
OPTIONS/SARS IN FISCAL EXERCISE EXPIRATION TERM
NAME GRANTED (#) YEAR PRICE ($/SH) DATE (1) 5%($) 10%($)

Robert J. Klein........................... 40,000 6.0% $ 10.875 12/11/05 $273,569 $693,278

(1) Options are subject to earlier termination in the event of death,
disability, retirement, or termination of employment.

OPTIONS EXERCISED. No options were exercised by Named Executives in 1995.
The following table sets forth information regarding the number of options held
by the Named Executives as listed in the Summary Compensation Table, including
the value of unexercised in-the-money options as of December 31, 1995. The
closing price of the Company's Common Stock on December 31, 1995 used to
calculate such values was $13.50 per share.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR (1995)
AND FISCAL YEAR-END OPTION/SAR VALUES (AS OF DECEMBER 31, 1995)

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VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
SHARES UNDERLYING UNEXERCISED OPTIONS/SARS
ACQUIRED ON OPTIONS/SARS AT YEAR END
EXERCISE VALUE AT YEAR END (#) ($)
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE

Robert J. Klein............................. 0 $0 0 40,000 $ 0

NAME UNEXERCISABLE

Robert J. Klein............................. $ 105,000

OPTION REPRICING. The Company did not reprice any stock options in 1994 or
1995 and, to date, has not issued any stock appreciation rights.

LONG TERM INCENTIVE PLANS. Presently, the Company has no long-term
incentive plans.

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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Since August 1995, compensation decisions for Moovies, Inc. have been made
by the Compensation Committee, comprised of Messrs. Taylor and Coburn. Prior to
August 1995, (i) compensation decisions for Moovies, Inc. were made by its Board
of Directors of which Mr. Taylor is a member, (ii) compensation decisions for
Video Express were made by its Board of Directors of which Mr. Greeder was a
member, (iii) compensation decisions for L.A. Video were made by Mr. Warshaw as
President and owner of L.A. Video, (iv) compensation decisions for First Row
were made by its Board of Directors of which Mr. Rogan was a member, (v)
compensation decisions for Movie Stars were made by its Board of Directors of
which Mr. Daniels was a member, (vi) compensation decisions for Planet Video
were made by its Board of Directors of which Mr. Klein was a member and (vii)
compensation decisions for the Predecessor were made by Messrs. Raines and
Yeargin as general partners.

In connection with the organization of Moovies, Inc., Mr. Taylor, an
executive officer and director of the Company, purchased 461,665 shares of
Common Stock of Moovies, Inc., for nominal consideration. Upon completion of the
initial public offering, Mr. Taylor beneficially owned 6.0% of the outstanding
Common Stock. In addition, in connection with the organization of Moovies, Inc.,
the Company granted Mr. Taylor certain demand and piggyback registration rights
with respect to such Common Stock. See "Description of Capital
Stock -- Registration Rights."

In November 1994, the Company granted a warrant to Theodore J. Coburn, a
director of the Company, in connection with his providing assistance to the
Company in completing its business plan and in selecting underwriters for the
initial public offering. Under the warrant, Mr. Coburn may purchase 150,000
shares of Common Stock of the Company at $1.00 per share at any time prior to
June 30, 2000. Shares purchased upon exercise of the warrant will be entitled to
the benefits of a registration rights agreement providing for certain demand and
piggyback registration rights with respect to such Common Stock. See
"Description of Capital Stock -- Registration Rights." In addition, Mr. Coburn
received approximately $140,000 during 1995 for investment advisory services,
primarily in connection with the Company's initial public offering, and
continues to receive $4,500 per month as a retainer as an investment advisor to
the Company.

MERGER OF TONIGHT'S FEATURE, INC. INTO MOOVIES, INC.

In August 1995, Tonight's Feature, Inc. ("TFI") was merged into Moovies,
Inc. under an Agreement and Plan of Merger. TFI beneficially owned 90.1% of the
outstanding partnership interests of the Predecessor prior to the merger.
Messrs. Raines and Yeargin, both executive officers and directors of the
Company, each beneficially owned 50% of the outstanding capital stock of TFI. In
connection with the merger of TFI into Moovies, Inc., (i) all of the partnership
interests of the Predecessor beneficially owned by Messrs. Raines and Yeargin
were converted into 641,149 shares and 641,149 shares, respectively, of Common
Stock of the Company (which represented in each case 8.4% of the Common Stock
outstanding upon completion of the initial public offering) and (ii) Messrs.
Raines and Yeargin were granted certain demand and piggyback registration rights
with respect to such Common Stock. See "Description of Capital
Stock -- Registration Rights."

THE ACQUISITIONS

FIRST ROW AND GAME TRADER. In August 1995, the Company entered into a
Merger Agreement with First Row and Game Trader, pursuant to which the Company
acquired 24 video specialty stores and certain other related operations. Prior
to these acquisitions, Mr. Rogan, an executive officer and director of the
Company, beneficially owned 70% of the outstanding capital stock of First Row
and Game Trader. In exchange for such interest, Mr. Rogan received aggregate
consideration of $8.4 million, consisting of $3.6 million in cash and $4.8
million in shares of Common Stock (400,000 shares) in the merger. In addition,
the Company repaid approximately $2.1 million of indebtedness of First Row and
Game Trader. In connection with the merger, the Company granted Mr. Rogan
certain demand and piggyback registration rights with respect to his Common
Stock. See "Description of Capital Stock -- Registration Rights." Pursuant to
the Agreement and Plan of Merger, Mr. Rogan agreed to indemnify the Company
against certain liabilities arising out of any misrepresentation relating to the
agreement subject to a cap of $4.2 million and not including the first $100,000
of indemnified claims. The merger consideration is subject to adjustment based
on the indemnification agreement. Potential adjustments to the merger
consideration in an aggregate amount of approximately $348,000 are currently
pending, subject to further adjustments. In August 1995, the Company granted Mr.
Rogan options to purchase 50,000 shares of Common Stock immediately exercisable
at the initial public offering price of $12.00 per share.

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In January 1995, First Row and Game Trader loaned $260,804 to an affiliate
which is 70% owned by Mr. Rogan pursuant to a demand promissory note with an
annual interest rate of 6%. As of December 31, 1995, $268,804 was outstanding
under this note. The greatest amount outstanding under notes with similar terms
during 1993, 1994, 1995 and the three months ended March 31, 1996 was $129,013,
$260,804, $268,804 and $268,804, respectively.

VIDEO EXPRESS. In June 1995, the Company entered into a Merger Agreement
with Video Express pursuant to which the Company acquired ten video specialty
stores. Mr. Greeder, an executive officer and director of the Company, and his
spouse beneficially owned 100% of the outstanding capital stock of Video Express
prior to the merger. Pursuant to the Merger Agreement, in exchange for all such
outstanding capital stock of Video Express, Mr. Greeder and his spouse received
aggregate consideration of approximately $7.1 million, consisting of
approximately $2.7 million in cash and approximately $4.4 million in shares of
Common Stock (362,500 shares). In addition, the Company repaid approximately
$123,000 of indebtedness of Video Express. In connection with the merger, the
Company granted Mr. Greeder and his spouse certain demand and piggyback
registration rights with respect to their Common Stock. See "Description of
Capital Stock -- Registration Rights." Pursuant to the Agreement and Plan of
Merger, Mr. Greeder and his spouse agreed to indemnify the Company against
certain liabilities arising out of any misrepresentation relating to the
agreement or certain liabilities relating to the business or assets of Video
Express. The merger consideration is subject to adjustment based on the
indemnification agreement. Potential adjustments to the merger consideration in
an aggregate amount of approximately $600,000 are currently pending, subject to
further adjustments.

In March 1995, Video Express borrowed $319,314 from Mr. Greeder pursuant to
a demand promissory note with annual interest accruing at a rate equal to the
applicable federal rate published periodically by the United States Treasury
Department. As of December 31, 1995, $319,314 was outstanding under this note.
The greatest amount outstanding under notes with similar terms during 1993,
1994, 1995 and the three months ended March 31, 1996 was $260,680, $260,680,
$326,501 and $326,501, respectively. In August 1995, the Company granted to Mr.
Greeder options to purchase 50,000 shares of Common Stock, exercisable at the
initial public offering price of $12.00 per share, subject to vesting over a
one-year period. See "Description of Capital Stock -- Registration Rights."

MOVIE STARS. In June 1995, the Company entered into an Asset Purchase
Agreement with Movie Stars pursuant to which the Company acquired ten video
specialty stores. Mr. Daniels, a former executive officer and director of the
Company, beneficially owned 100% of the outstanding capital stock of Movie
Stars. Pursuant to the Asset Purchase Agreement, in exchange for substantially
all of the assets of Movie Stars, the Company paid Movie Stars aggregate
consideration of approximately $5.3 million, consisting of approximately $1.8
million in cash, a $500,000 promissory note and approximately $3.0 million in
shares of Common Stock (252,083 shares). The promissory note is payable on
August 9, 1996 with annual interest accruing at a rate equal to the prime rate
as published by NationsBank, N.A., Atlanta, Georgia. In connection with the
acquisition, the Company granted Movie Stars certain demand and piggyback
registration rights with respect to its Common Stock. See "Description of
Capital Stock -- Registration Rights." Pursuant to the Asset Purchase Agreement,
Mr. Daniels agreed to indemnify the Company against liabilities arising out of
any misrepresentation relating to the agreement or certain liability relating to
the business or assets of Movie Stars. In addition, in connection with the
acquisition, the Company repaid approximately $1.1 million of indebtedness of
Movie Stars. Upon the completion of the Company's initial public offering, the
Company granted to Mr. Daniels options to purchase 250,000 shares of Common
Stock exercisable at the initial public offering price of $12.00 per share, of
which 100,000 were immediately exercisable and 150,000 were subject to vesting
over a three-year period.

In March 1996, the Company and Mr. Daniels entered into a settlement
agreement whereby (i) the Company received approximately $77,000 from escrow and
Mr. Daniels received approximately $33,000 as a severance payment, (ii) Mr.
Daniels resigned as a director of the Company effective December 1995, and (iii)
Mr. Daniels' options were amended to reduce the total number of option shares to
125,000, all of which vested immediately and expire in March 1999.

In September 1993, Movie Stars borrowed $184,406 from Mr. Daniels. This
advance was payable on demand. Beginning in 1994, Movie Stars paid interest on
Mr. Daniels' personal borrowings from an unaffiliated bank in consideration for
the advances made by Mr. Daniels to Movie Stars. In March 1994, Movie Stars
borrowed $52,786 from Mr. Daniels' spouse. This advance was payable on demand
and bore interest at a rate of 3.84%. The greatest amount outstanding on these
advances during 1993, 1994 and 1995 was approximately $184,406, $235,701 and
$194,000, respectively. The interest paid by Movie Stars on these advances for
1993, 1994 and 1995 was approximately $0, $13,161 and $12,000, respectively. In
1994, Mr. Daniels borrowed $182,915 from an unaffiliated bank, which loan was
secured by certain assets of Movie Stars and by a Movie Stars guaranty. At March
31, 1995, $161,141 was outstanding under such bank loan, all of which was repaid
by Mr. Daniels concurrently with the completion of the Company's offering with a
portion of the net proceeds received by

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Mr. Daniels under the Asset Purchase Agreement. In March 1995, Movie Stars
borrowed $225,000 from an unaffiliated bank pursuant to a variable interest
demand note, which loan was secured by a guaranty of Mr. Daniels. In May 1995,
Movie Stars borrowed an additional $255,000 from this bank, which loan was
secured by the same guaranty of Mr. Daniels. These borrowings financed two new
stores of Movie Stars. The balance of this loan was paid in full concurrently
with the completion of the Company's initial public offering.

L.A. VIDEO. In June 1995, Moovies, Inc. entered into an Asset Purchase
Agreement with L.A. Video pursuant to which the Company acquired five video
specialty stores. Mr. Warshaw, who was an executive officer of the Company from
June 1995 through August 1995, and his spouse beneficially owned 100% of the
outstanding equity interests in L.A. Video. Pursuant to the Asset Purchase
Agreement, in exchange for substantially all of the assets of L.A. Video, the
Company paid L.A. Video aggregate consideration of approximately $5.1 million
consisting of approximately $3.3 million in cash and approximately $1.8 million
in shares of Common Stock (149,125 shares). In addition, the Company repaid
approximately $360,000 of indebtedness of L.A. Video. In connection with the
acquisition, the Company granted L.A. Video certain demand and piggyback
registration rights with respect to its Common Stock. See "Description of
Capital Stock -- Registration Rights." Pursuant to the Asset Purchase Agreement,
Mr. Warshaw and his spouse agreed to indemnify the Company against certain
liabilities arising out of any misrepresentation relating to the agreement or
certain liabilities relating to the business or assets of L.A. Video. In August
1995, the Company granted Mr. Warshaw options to purchase 25,000 shares of
Common Stock exercisable at the initial public offering price of $12.00 per
share, subject to vesting over a one-year period.

In December 1994, March 1995 and June 1995, L.A. Video borrowed $198,035,
$40,000 and $34,114, respectively, from Mr. Warshaw. These advances are payable
on demand and are non-interest bearing. As of December 31, 1995, these amounts
had been paid in full. The greatest amounts outstanding under these advances
during 1994 and 1995 were $198,035 and $272,149, respectively.

PLANET VIDEO. In June 1995, the Company entered into an Asset Purchase
Agreement with Planet Video to acquire two video specialty stores. Mr. Klein, an
executive officer of the Company, beneficially owned 100% of the outstanding
capital stock of Planet Video. Pursuant to the Asset Purchase Agreement, in
exchange for substantially all of the assets of Planet Video, the Company paid
Planet Video aggregate consideration of approximately $653,000 consisting of
approximately $335,000 in cash and approximately $325,000 in shares of Common
Stock (27,083 shares). In addition, the Company repaid approximately $240,000 of
indebtedness of Planet Video. In connection with the acquisition, the Company
granted Planet Video certain demand and piggyback registration rights with
respect to its Common Stock. See "Description of Capital Stock -- Registration
Rights." Pursuant to the Asset Purchase Agreement, Mr. Klein agreed to indemnify
the Company against certain liabilities arising out of any misrepresentation
relating to the agreement or certain liabilities relating to the business or
assets of Planet Video.

LEASES

In August 1995, the Company entered into a ten year lease with Mr. Daniels
and his spouse with annual rental payments ranging from $60,000 in the first
year to $78,956 in the tenth year. The Company also entered into a five year
lease with Mr. Greeder with annual rental payments of $87,120. For 1995 and the
three months ended March 31, 1996 the Company made rental payments of $29,040
and $21,780, respectively, under this lease. The Company continues to pay rent
under these leases at these rental rates. In addition, the Company entered into
a five year lease with Mr. Rogan with annual rental payments of $29,200. The
Company subsequently sold the store subject to this lease and no longer pays
rent thereunder. All of such leases pertain to stores acquired by the Company in
connection with the acquisition of stores beneficially owned by Messrs. Daniels,
Greeder and Rogan.

Prior to August 1995, the Predecessor leased its office from a partnership
owned 100% by Messrs. Raines and Yeargin, and leased one of its store facilities
from a partnership which is 50% owned by Messrs. Raines and Yeargin. The
partnership sold this store property in October 1995 and thereafter received no
further lease payments from the Company. For 1992, 1993 and 1994, the
Predecessor made rental payments under this lease aggregating approximately
$12,691, $12,691 and $45,849, respectively. The Company assumed these leases in
connection with the consummation of the Acquisitions. For the year ended 1995
and the three months ended March 31, 1996, the Company and the Predecessor made
rental payments aggregating approximately $90,000 and $5,500 under these leases.

Prior to August 1995, First Row and Game Trader leased certain store
facilities and a warehouse from an affiliated company. Mr. Rogan owns 70% of
this affiliated company. For 1993, 1994 and 1995, First Row and Game Trader made

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rental payments under this lease aggregating $91,250, $134,610 and $176,812. The
Company assumed these leases in connection with the consummation of the
Acquisitions. For 1995 and three months ended March 31, 1996 the Company made
rental payments under these leases aggregating $105,813 and $78,876,
respectively.

Prior to August 1995, Video Express leased one of its store facilities from
Mr. Greeder. For each of the years ended March 31, 1993, 1994 and 1995, Video
Express made rental payments under this lease aggregating $85,200.

Prior to August 1995, Movie Stars leased one of its store facilities from
Mr. Daniels and his spouse. For 1993, 1994 and 1995, Movie Stars made rental
payments under this lease aggregating approximately $24,607, $62,155 and
$45,000, respectively. In addition, prior to August 1995, Movie Stars leased one
of its store facilities from Mr. Daniels' father-in-law. For 1993, 1994 and
1995, Movie Stars made rental payments under this lease aggregating
approximately $36,182, $37,629 and $28,000, respectively. The Company assumed
these leases in connection with the consummation of the Acquisitions. For the
year ended 1995 and the three months ended March 31, 1996, the Company made
rental payments aggregating approximately $41,000 and $35,000 under these
leases.

MANAGEMENT FEES

Prior to August 1995, the Predecessor paid a management fee to its general
partner, TFI. TFI was wholly owned by Messrs. Raines and Yeargin. For 1993, 1994
and 1995, such management fees aggregated $187,309, $218,356 and $0,
respectively.

Prior to August 1995, First Row and Game Trader received management fees
from certain corporations owned by the stockholders of First Row and Game
Trader. For 1993, 1994, and 1995, such management fees aggregated $38,744,
$50,704 and $0, respectively.

Following the consummation of the Initial Acquisitions, the Company did not
and does not intend to pay any such management fees.

With the exception of the Acquisitions, each of which was negotiated
between unaffiliated parties, management believes that the transactions
described above may not have been on terms as favorable to the Company, the
Predecessor or the relevant video store chains, as applicable, as those that
could have been obtained from unaffiliated parties; however, it is the Company's
policy that all future transactions, if any, with affiliated parties will comply
with the requirements of the Delaware General Corporation Law. As a result, any
such transactions will be approved by the disinterested members of the Company's
Board of Directors (or a committee thereof) or by the stockholders of the
Company.

CERTAIN PRIOR RELATIONSHIPS

Ingram Entertainment, Inc., of which Mr. Taylor was an executive officer
from March 1986 through July 1994, was a wholesale video supplier for the
Predecessor, Video Stars, Movie Stars, King Video, L.A. Video and Video
Warehouse 2 and certain stores owned by one of its owners, Gerald Pryor.

Prior to joining the Company in March 1995, Mr. Mitchell was a partner with
KPMG Peat Marwick LLP ("Peat Marwick"). Mr. Mitchell was involved during October
and November 1994 with the proposal to the Predecessor to engage Peat Marwick as
the Predecessor's independent auditors. Peat Marwick began its audit of the
Predecessor in November 1994. In late November 1994, Mr. Mitchell entered into
negotiations with Moovies, Inc. regarding his possible employment. At that time,
Mr. Mitchell ceased all involvement with respect to the audit of Moovies, Inc.,
the Predecessor and each of the video store chains to be acquired pursuant to
the Acquisitions.

Except as set forth above, there were no relationships prior to the
discussions which led to the Acquisitions between the Company, the Predecessor,
and the principals thereof, and the principals of any of the video chains to be
acquired pursuant to the Acquisitions.

EMPLOYMENT AGREEMENTS; COVENANTS NOT TO COMPETE

Effective September 1994, the Company entered into a three-year employment
agreement with Mr. Taylor pursuant to which Mr. Taylor serves as President and
Chief Executive Officer at an annual base salary of $200,000 and is eligible for
an annual bonus at the discretion of the Board of Directors. The Company also
maintains for the benefit of Mr. Taylor a $1.0 million life insurance policy and
a $1.0 million life insurance policy for the benefit of the Company.

Effective March 1995, the Company entered into a two-year employment
agreement with Mr. Mitchell pursuant to which he serves as Chief Financial
Officer at an annual base salary of $200,000 and a guaranteed additional payment
of

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$2,000 per month through March 1996. The agreement is automatically renewable by
both parties on a year-to-year basis, but it may be terminated at any time by
Mr. Mitchell or the Company upon 90-days prior written notice. Upon the
expiration or termination of the Agreement, except for voluntary termination of
employment by Mr. Mitchell or termination for just cause by the Company, Mr.
Mitchell shall be paid severance compensation equal to twelve months base salary
plus an amount equal to the average of any aggregate annual cash bonuses
received by him during the prior two calendar years of employment (collectively
the "Expiration Payment"). The Company may terminate the agreement without cause
if it pays Mr. Mitchell the Expiration Payment plus, if such termination occurs
during the original term of the agreement, an amount equal to the base salary
which would have been paid to Mr. Mitchell had he remained an employee through
the end of such two-year term. The Company also maintains a $1.5 million life
insurance policy for the benefit of Mr. Mitchell.

In August 1995, the Company entered into two-year employment agreements
with Messrs. Raines and Yeargin, as Executive Vice President -- Real Estate and
Development and as Executive Vice President -- Purchasing, respectively,
pursuant to which each were paid a base salary at the annual rate of $150,000
and were eligible for an annual bonus granted at the discretion of the Board of
Directors.

In August 1995, the Company entered into three-year employment agreements
with Messrs. Daniels and Klein, two-year employment agreements with Messrs.
Rogan and Warshaw, and a one-year employment agreement with Mr. Greeder under
which their annual base salaries were $100,000 and they were eligible for
payment of bonuses granted at the discretion of the Board of Directors. In March
1996, the Daniels' employment agreement was terminated by mutual consent of the
parties. See " -- The Acquisitions -- Movie Stars."

Each of the above employment agreements contain covenants not to compete
within a five-mile radius of the Company's store locations in existence upon
completion of this offering for a period of two years following termination of
employment, except that in the case of Messrs. Mitchell, Rogan, Warshaw, Greeder
and Klein such covenants are for a period of one year following termination of
employment.

In May 1996, the Board of Directors of the Company authorized the Company
to enter into severance agreements with each of seven officers, including
Messrs. John, Plain and Miller, that provide for a severance payment of two
times the applicable officer's average annual compensation (including salary and
bonus) for the prior two years in the event that a "Change in Control" occurs
and the officer either resigns or is terminated without cause by the Company
within six months after such Change in Control. In addition, the Board approved
a similar severance agreement for Mr. Klein that provides for a severance
payment equal to (i) $1,000,000 minus (ii) the aggregate difference between the
value of Mr. Klein's outstanding stock options (as measured by the spread
between the market value of the Company's common stock and the exercise price)
and $2,000,000. All such severance agreements will define "Change of Control" as
the occurrence of any of the following events:

(a) any person or entity, including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, other than the
Company, a wholly owned subsidiary of the Company, or any employee benefit plan
of the Company or its subsidiaries, becomes the beneficial owner of the
Company's securities having 51 percent or more of the combined voting power of
the then outstanding securities of the Company that may be cast for the election
for directors of the Company; or

(b) as the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or contested
election, or any combination of the foregoing transactions, less than a majority
of the combined voting power of the then outstanding securities of the Company
or any successor corporation or entity entitled to vote generally in the
election of directors of the Company or such other corporation or entity after
such transaction, are held in the aggregate by holders of the Company's
securities entitled to vote generally in the election of directors of the
Company immediately prior to such transaction; or

In addition, stock option agreements granted to the employees of the
Company, including Messrs. Klein, John, Miller, Plain, Greeder and Rogan,
provide for immediate vesting of the options upon a Change of Control as
described above. See " -- 1995 Stock Plan."

1995 STOCK PLAN

In June 1995, the Board of Directors adopted, and the stockholders
approved, the Moovies, Inc. 1995 Stock Plan (the "Plan"). The Plan provides for
the award of incentive stock options to officers and employees and the award of
non-qualified stock options and other incentive grants to directors, officers,
and employees. The Company reserved 560,000 shares of

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Common Stock for issuance under the Plan. In February 1996, the Board of
Directors of the Company approved an amendment to the Plan to increase the
shares reserved to 1,200,000 shares, subject to stockholder approval. In April
1996, the Board of Directors and the Stockholders of the Company approved a
further amendment to the Plan to increase the shares reserved to 1,500,000
shares. The Board of Directors has granted an aggregate of 803,950 shares under
the Plan.

The Plan is administered by the Compensation Committee of the Board of
Directors (the "Committee"), the members of which must be "disinterested
directors" as defined under Rule 16b-3 promulgated pursuant to the Securities
Exchange Act of 1934, as amended. Committee members are not eligible to receive
discretionary stock-based awards under any plan of the Company while they are
members of the committee. The current Committee members are Messrs. Taylor and
Coburn. Subject to the terms of the Plan, the Committee has the authority to
determine the employees to whom options or rights may be granted, the exercise
price and number of shares subject to each option or right and the time or times
when each option shall become exercisable, to interpret the Plan and prescribe
and rescind rules and regulations consistent with the Plan and to determine
certain other provisions with respect to each option or right.

The purchase price of Common Stock upon exercise of incentive stock options
must not be less than the fair market value of the Common Stock at the date of
the grant or, in the case of incentive stock options issued to holders of more
than 10% of the outstanding voting securities of the Company, 110% of fair
market value on the date of grant. The maximum term of incentive stock options
is ten years, or five years in the case of 10% stockholders. The aggregate fair
market value on the date of the grant of the stock for which incentive stock
options are exercisable for the first time by an employee during any calendar
year may not exceed $100,000. Options are exercisable over a period of time in
accordance with the terms of option agreements entered into at the time of
grant. Options granted under the Plan are generally nontransferable by the
optionee and, unless otherwise determined by the Committee, must be exercised by
the optionee during the period of the optionee's employment or service with the
Company or within a specified period following termination of employment or
service. The option agreements generally provide for immediate vesting in the
event of a "Change in Control," as described at
" -- Employment Agreements; Covenants Not to Compete," provided that the
optionee is employed by the Company on the date of such Change in Control.

CERTAIN TRANSACTIONS

Moovies, Inc. was incorporated in the State of Delaware in November 1994.
In connection with the organization of Moovies, Inc., Messrs. Mitchell and
Taylor, both executive officers and directors of the Company, purchased 224,711
shares and 461,665 shares of Common Stock of Moovies, Inc., respectively, for
nominal consideration. Upon completion of this offering, Messrs. Mitchell and
Taylor will beneficially own 1.9% and 3.8%, respectively, of the outstanding
Common Stock. In addition, in connection with the organization of Moovies, Inc.,
the Company granted Messrs. Mitchell and Taylor certain demand and piggyback
registration rights with respect to such Common Stock. See "Description of
Capital Stock -- Registration Rights."

Mortco, Inc. ("Mortco") beneficially owned 9.9% of the outstanding
partnership interests of the Predecessor. Mortco acquired its interest in the
Predecessor in 1993 for aggregate consideration of $250,000. In connection with
the merger of the Predecessor into Moovies, Inc., (i) all of the partnership
interests beneficially owned by Mortco were converted into 140,897 shares of
Common Stock of the Company (which represents approximately 1.2% of the Common
Stock outstanding upon completion of this offering) and (ii) Mortco was granted
certain demand and piggyback registration rights with respect to such Common
Stock. See "Description of Capital Stock -- Registration Rights."

Mortco is a wholly owned subsidiary of Rentrak which leases videos to the
Company. For 1993, 1994, 1995 and the three months ended March 31, 1996, the
Predecessor or the Company, as applicable, paid Rentrak lease and revenue
sharing payments aggregating approximately $526,262, $662,481, $1.3 million and
$583,000, respectively. In addition, First Row and Game Trader, Planet Video,
Video Express and Video Stars also leased videos from Rentrak. Pursuant to a
revolving credit agreement, in November 1994 Mortco provided the Predecessor a
revolving line of credit initially having aggregate borrowing availability of
$250,000, which was subsequently increased to $750,000 in March 1995. Borrowing
under this facility bears interest at a rate equal to the greater of 7% or the
prime rate as published by the Wall Street Journal plus 2.0%. During the year
ended December 31, 1995, the aggregate amounts owed to Mortco during such period
ranged from $150,000 to $750,000 and the aggregate interest paid by the
Predecessor or the Company, as applicable, to Mortco during such period was
$70,000. The note was paid in full in December 1995. In April 1995 in
consideration of Mortco subordinating its revolving line of credit to other
financing obtained by the Predecessor from a third party, Moovies, Inc. issued
to Mortco a warrant to purchase 40,877 shares of Common Stock of the Company at
an exercise price equal to the initial public offering price of $12.00 per
share. The registration rights granted to Mortco also apply to the Common Stock
subject to this warrant.

See "Management -- Compensation Committee Interlocks and Insider
Participation" for a description of certain other transactions among the Company
and certain of its affiliates.

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With the exception of transactions between the Company or the Predecessor,
and Mortco and its affiliates, management believes that the transactions
described above may not have been on terms as favorable to the Company or the
Predecessor, as applicable, as those that could have been obtained from
unaffiliated parties; however, it is the Company's policy that all future
transactions, if any, with affiliated parties will comply with the requirements
of the Delaware General Corporation Law. As a result, any such transactions will
be required to be approved by the disinterested members of the Company's Board
of Directors (or a committee thereof) or by the stockholders of the Company.

PRINCIPAL STOCKHOLDERS

The table below sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 30 by (i) each person who is known to
the Company to be the beneficial owner of more than 5% of the Common Stock, (ii)
each director, (iii) each executive officer of the Company, and (iv) all
executive officers and directors of the Company as a group, both before and
after giving effect to this offering (assuming no exercise of the Underwriters'
over-allotment option). Except as set forth below, the stockholders listed below
have sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them.

· Enlarge/Download Table

COMMON PERCENTAGE PERCENTAGE
STOCK OF CLASS OF CLASS
BENEFICIALLY PRIOR TO AFTER
NAME (1) OWNED OFFERING OFFERING

Directors and Executive Officers:
John L. Taylor........................................................................... 453,740(2) 5.2% 3.8%
F. Andrew Mitchell....................................................................... 221,711(3) 2.6 1.9
Robert J. Klein.......................................................................... 27,083 * *
Victor B. John, III...................................................................... 100 * *
Ross Miller.............................................................................. 0 * *
Jeffrey L. Plain......................................................................... 0 * *
Arthur F. Greeder, III................................................................... 347,800(4) 4.0 2.9
Rokki Rogan.............................................................................. 378,400(5) 4.3 3.2
Michael A. Yeargin....................................................................... 637,649 7.4 5.4
Theodore J. Coburn....................................................................... 150,000(6) 1.7 1.2
Douglas M. Raines........................................................................ 629,149 7.3 5.3
Charles D. Way........................................................................... 19,000(7) * *
All executive officers and directors as a group (12 persons)............................. 2,864,632(8) 32.3% 23.7%

* Less than 1.0%.

(1) The address of the persons listed above is c/o Moovies, Inc., 201 Brookfield
Parkway, Greenville, South Carolina 29607.

(2) Includes 2,400 shares held of record by Mr. Taylor as custodian for minor
children.

(3) Includes 2,000 shares held of record by Mr. Mitchell's spouse as custodian
for minor children.

(4) Includes 165,150 shares held jointly with Mr. Greeder's spouse and 1,400
shares held by a dependent child.

(5) Includes 50,000 shares of Common Stock which are issuable upon the exercise
of currently exercisable options.

(6) Consists of 150,000 shares which may be purchased upon exercise of a warrant
that is currently exercisable.

(7) Includes 5,000 shares which are issuable upon the exercise of currently
exercisable options.

(8) Includes 205,000 shares which may be purchased upon exercise of a warrant
and options that are currently exercisable.

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DESCRIPTION OF CAPITAL STOCK

GENERAL

The authorized capital stock of Moovies, Inc. consists of 25,000,000 shares
of Common Stock, $.001 par value per share, and 1,000,000 shares of preferred
stock, $.001 par value per share (the "Preferred Stock"). As of May 15, 1996,
Moovies, Inc. had outstanding 8,964,040 shares of Common Stock and no shares of
Preferred Stock. Upon completion of this offering, the Company will have
outstanding 11,964,040 shares of Common Stock (12,444,040 shares if the
Underwriters' over-allotment option is exercised in full) and no shares of
Preferred Stock.

COMMON STOCK

Except as otherwise required by law or as provided by the Board of
Directors with respect to any class or series of Preferred Stock, the entire
voting power and all voting rights shall be vested exclusively in the Common
Stock. Each holder of shares of Common Stock shall be entitled to one vote for
each share outstanding in his or her name on the books of the Company.

Subject to such preferential rights as may be granted by the Board of
Directors in connection with the future issuance of Preferred Stock, holders of
Common Stock are entitled to such dividends as may be declared by the Board of
Directors out of funds legally available therefor. The Company has no current
plans to pay cash dividends on its Common Stock.

In the event of any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, after the distribution or payment to the
holders of shares of any series of Preferred Stock as provided by the Board of
Directors with respect to any such series of Preferred Stock, the remaining
assets of the Company available for distribution to stockholders shall be
distributed among and paid to the holders of Common Stock ratably in proportion
to the number of shares of Common Stock held by them respectively.

On June 13, 1995 the Company effected a 76.7449-for-one Common Stock split
payable as a stock dividend to common stockholders of record on June 13, 1995.
On August 3, 1995 the Company effected a .0733-for-one Common Stock split
payable as a stock dividend to common stockholders of record on August 2, 1995.

PREFERRED STOCK

The Board of Directors is authorized to issue shares of Preferred Stock at
any time and from time to time, in one or more series, and to fix or alter the
designations, preferences and relative, participating, optional or other special
rights and qualifications, limitations or restrictions of such shares of
Preferred Stock, including without limitation of the generality of the
foregoing, dividend rights, dividend rates, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), redemption
price or prices and liquidation preferences of any wholly unissued series of
preferred shares and the number of shares constituting any of such series and
the designation thereof, or any of them; and to increase or decrease the number
of shares of a series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.

One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. Furthermore, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company,
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.

CERTAIN CHARTER AND BYLAW PROVISIONS

Stockholders' rights and related matters are governed by the Delaware
General Corporation Law, the Company's Certificate of Incorporation and its
Bylaws. Certain provisions of the Certificate of Incorporation and Bylaws of the
Company, which are summarized below, tend to limit stockholders' ability to
influence matters pertaining to corporate governance.

CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is divided
into three classes of directors serving staggered terms of three years each. See
"Management -- Executive Officers and Directors." As a result, it will be more

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difficult to change the composition of the Company's Board of Directors, which
may discourage or make more difficult any attempt by a person or group of
persons to obtain control of the Company.

SPECIAL MEETING CALL RESTRICTIONS. Under the Company's Bylaws, special
meetings of the stockholders may only be called by the Chairman of the Board, a
majority of the Board of Directors or upon the written demand of the holders of
a majority of the outstanding shares of Common Stock entitled to vote at any
such meeting. This provision makes it more difficult for stockholders to require
the Company to call a special meeting of stockholders to consider any proposed
corporate action, including any sale of the Company, which may be favored by the
stockholders.

RESTRICTIONS ON AMENDMENTS TO BYLAWS. Under the Company's Certificate of
Incorporation, the Company's Bylaws may not be amended by the stockholders and
any contrary provision may not be adopted without the affirmative vote of at
least two-thirds of the shares entitled to vote generally in the election of
directors. This supermajority restriction makes it more difficult for the
stockholders of the Company to amend the Bylaws and thus enhances the power of
the Company's Board of Directors vis-a-vis stockholders with regard to matters
of corporate governance that are governed by the Bylaws.

LIMITED ACTION BY WRITTEN CONSENT OF STOCKHOLDERS. In general, stockholder
action may only be taken at a special or annual stockholder meeting called for
such purpose or with the unanimous written consent of the stockholders. These
requirements may delay stockholder action on matters requiring stockholder
approval.

WARRANTS

In November 1994, the Company granted to a director a warrant to purchase
150,000 shares of Common Stock of the Company at $1.00 per share. In March 1995,
the Company granted 19 former limited partners of the Predecessor warrants to
purchase an aggregate of 74,352 shares of Common Stock of the Company for $.01
per share. In April 1995, the Company's Predecessor granted to Mortco, Inc., in
connection with the Company's note payable to Mortco, a warrant to acquire
40,877 shares of Common Stock at an exercise price equal to the initial public
offering price per share (I.E. $12.00 per share). In April 1995, the Company
granted to Sirrom Capital Corporation a warrant to acquire 156,110 shares of
Common Stock at $.01 per share in connection with a loan from Sirrom to the
Predecessor. In July 1995, the Company agreed to issue to the managing
underwriters in the initial public offering ("IPO Representatives"), warrants to
purchase 236,250 shares of Common Stock at a purchase price per share equal to
120% of the initial public offering price per share (I.E. $14.40 per share). In
December 1995, the Company issued a warrant for 25,000 shares of Common Stock at
a purchase price of $14.875 per share in connection with the Pic-A-Flick
acquisition. In January 1996, in connection with the Subordinated Credit
Facility, the Company granted to Sirrom Capital Corporation a warrant to
purchase 20,000 shares of Common Stock at an exercise price of $10.80 per share.
See Footnote 7 to Consolidated Financial Statements, "Underwriting."

REGISTRATION RIGHTS

The Company has granted piggyback and/or demand registration rights to
certain holders of Common Stock (or warrants for shares of Common Stock)
including Messrs. Taylor, Raines, Mitchell, Daniels, Yeargin, Greeder, Rogan,
Warshaw, Klein and Coburn and certain of their spouses. All of such holders
beneficially own an aggregate of approximately 4.9 million shares of Common
Stock. In the event the Company proposes to register shares of Common Stock
under the Securities Act for its own account or for the account of others,
holders of piggyback registration rights will have the right to require the
Company to include their shares in the registration, subject to the right of any
managing underwriter of the offering to exclude some or all the shares for
marketing reasons. Holders of demand registration rights as a group will have
the right to require the Company on one occasion only to register shares held by
them under the Securities Act at any time between August 9, 1995 and August 9,
2000, provided, however, that such offering must be underwritten on a firm
commitment basis and the proposed net offering price of shares to be registered
must be at least $2,000,000. The Company is not obligated to effect a demand
registration within six months after the effective date of a previous Company
registration. The registration expenses of such shares, other than underwriting
discounts and filing fees, shall be borne by the Company except to the extent
otherwise prohibited by law. See "Certain Transactions." The Company also
granted demand and piggyback registration rights to Mortco, Inc. as the
beneficial owner of 178,589 shares of Common Stock. Mortco has two demand
registration rights exercisable any time beginning one year after August 3, 1995
and unlimited piggyback registration rights exercisable beginning one year after
August 3, 1995. In addition, the Company issued to the IPO Representatives
warrants to purchase shares of Common Stock in August 1995. See " -- Warrants"
and "Underwriting." The shares of Common Stock underlying the warrants are
accorded one demand registration right exercisable at any time between one and
five years after the warrants are issued and unlimited piggyback registration
rights exercisable at any time between one and seven years after the warrants
are issued.

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DELAWARE BUSINESS COMBINATION STATUTE

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("Section 203"), an anti-takeover law. Section 203
provides, with certain exceptions, that a publicly held Delaware corporation may
not engage in a "business combination" with a person, or an affiliate or
associate of such person, who is an "interested stockholder" for a period of
three years from the date that such person became an interested stockholder
unless: (i) the transaction resulting in a person becoming an interested
stockholder, or the business combination, is approved by the Board of Directors
of the corporation before the person becomes an interested stockholder; (ii) the
interested stockholder acquired 85% or more of the outstanding voting stock of
the corporation in the same transaction that made such person an interested
stockholder (excluding shares owned by persons who are both officers and
directors of the corporation, and shares held by certain employee stock
ownership plans); or (iii) on or after the date the person becomes an interested
stockholder, the business combination is approved by the corporation's board of
directors and by the holders of at least 66 2/3% of the corporation's
outstanding voting stock at an annual or special meeting, excluding shares owned
by the interested stockholder. For purposes of Section 203, a "business
combination" includes a merger, asset sale or other transaction resulting in a
financial benefit to the interested stockholder and an "interested stockholder"
is defined as any person who is: (i) the owner of 15% or more of the outstanding
voting stock of the corporation or (ii) an affiliate or associate of the
corporation who was the owner of 15% or more of the outstanding voting stock of
the corporation at any time within the three-year period immediately prior to
the date on which it is sought to be determined whether such person is an
interested stockholder.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Stock is First Union
National Bank of North Carolina.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, the Company will have outstanding
11,864,040 shares of Common Stock. Of these shares, the 3,622,500 shares sold in
the Company's initial public offering are, and the 3,200,000 shares sold in this
offering (plus any additional shares sold upon exercise of the Underwriters'
over-allotment option) will be, freely tradeable without restriction or further
registration under the Securities Act except for those shares held by
"affiliates" (as defined in the Securities Act) of the Company. None of the
remaining 5,041,540 outstanding shares of Common Stock (collectively, the
"Restricted Shares") have been registered under the Securities Act, and they may
be resold publicly only upon registration under the Securities Act or in
compliance with an exemption from the registration requirements of the
Securities Act. The Company has granted demand and piggyback registration rights
to holders of Restricted Shares and warrants to purchase shares of Common Stock.
See "Description of Capital Stock -- Registration Rights."

Rule 144 provides generally that if two years have elapsed since the later
of the date of the acquisition of restricted shares of Common Stock from the
Company or any affiliate of the Company, the acquiror or subsequent holder
thereof may sell, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares that does not exceed the greater of
1% of the then outstanding shares of Common Stock or the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the date on
which notice of the sale is filed with the Securities and Exchange Commission.
Sales under Rule 144 are also subject to certain manner of sale provisions,
notice requirements and the availability of current public information about the
Company. If three years have elapsed since the later of the date of acquisition
of restricted shares of Common Stock from the Company or from any affiliate of
the Company and the acquiror or subsequent holder thereof is deemed not to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, such person would be entitled to sell such shares under Rule 144(k)
without regard to the limitations described above. Holders of 461,665 Restricted
Shares will be eligible to sell such shares pursuant to Rule 144 under the
Securities Act, subject to the manner of sale, volume, notice and information
requirements of Rule 144, beginning in December 1996, holders of 349,175
Restricted Shares will be eligible to sell such shares pursuant to Rule 144
beginning in February 1997, holders of 12,879 Restricted Shares will be eligible
to sell such shares pursuant to Rule 144 beginning in June 1997, holders of
3,178,185 Restricted Shares will be eligible to sell such shares pursuant to
Rule 144 beginning in August 1997, holders of 500,531 Restricted Shares will be
eligible to sell such shares pursuant to Rule 144 beginning in September 1997,
holders of 11,014 Restricted Shares will be eligible to sell such shares in
October 1997, holders of 497,583 Restricted shares will be eligible to sell such
shares in December 1997, holders of 25,000 Restricted Shares will be eligible to
sell such shares in March 1998, holders of 1,377 Restricted Shares will be
eligible to sell such shares in April 1998 and holders of 4,131 Restricted
Shares will be eligible to sell such shares in May 1998.

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The Underwriters intend to obtain lock-up agreements whereby the Company,
executive officers, directors and certain stockholders of the Company will agree
not (directly or indirectly) to offer, sell, offer to sell, contract to sell,
assign, pledge, grant any option to purchase or otherwise dispose of or transfer
(or announce any offer, sale, offer of sale, contract for sale, assignment,
pledge, grant of an option to purchase or other disposition or transfer of) any
Common Stock of the Company, or any other security of the Company, convertible
into, or exchangeable or exercisable for, Common Stock for a period of 90 days
after the effective date of the registration statement (the "Lock-up Period")
without the prior written consent of the Underwriters, except that (a) the
Company (i) may issue Common Stock or options to purchase Common Stock under the
Stock Plan, (ii) may issue Common Stock upon the exercise of presently
outstanding warrants and (iii) may issue Common Stock in connection with the
Company's express strategy of growth through acquisitions provided that such
Common Stock is restricted and is not tradeable prior to the expiration of the
Lock-up Period and (b) the executive officers, directors and certain
stockholders of the Company may make bona fide gifts to donees who agree to be
bound by the foregoing restrictions. See "Underwriting."

The Company filed a registration statement under the Securities Act
registering the 560,000 shares of Common Stock reserved for issuance under the
Stock Plan in December 1995. See "Management -- 1995 Stock Plan." In April 1996,
the Board of Directors approved an amendment to the Stock Plan to increase the
number of shares available under the Stock Plan to 1,500,000, subject to
stockholder approval. This amendment was approved by the stockholders at the
annual meeting on May 15, 1996. The Company intends to file a registration
statement to register the additional shares under the Stock Plan. Accordingly,
shares registered under such registration statements will be available for sale
in the open market, unless such shares are subject to vesting restrictions
imposed by the Company.

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UNDERWRITING

The Underwriters named below, acting through their representatives, Needham
& Company, Inc., Wheat, First Securities, Inc. and Scott & Stringfellow, Inc.
(the "Representatives"), have severally agreed with the Company, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
the number of shares of Common Stock set forth opposite their respective names
below. The Underwriters are committed to purchase and pay for all of such shares
if any are purchased.

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NUMBER OF
UNDERWRITERS SHARES

Needham & Company, Inc...........................................................................................
Wheat, First Securities, Inc.....................................................................................
Scott & Stringfellow, Inc........................................................................................

Total..................................................................................................... 3,200,000

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share, of which $ may
be reallowed to other dealers. After this offering, the public offering price,
concession and reallowance to dealers may be reduced by the Representatives. No
such reduction shall change the amount of proceeds to be received by the Company
as set forth on the cover page of this Prospectus.

The Company issued to the IPO Representatives warrants to purchase 236,250
shares of Common Stock at a purchase price per share equal to $14.40 in August
1995. The warrants will be exercisable during the four year period commencing
one year after the date the warrants are issued. The shares of Common Stock
underlying the warrants are accorded one demand registration right exercisable
at any time during the warrant exercise period and unlimited piggyback
registration rights exercisable at any time between one and seven years after
the warrants are issued. See "Description of Capital Stock -- Registration
Rights" and "Shares Eligible for Future Sale."

The Company has granted to the Underwriters an option, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to 480,000
additional shares of Common Stock at the same price per share as the Company
receives for the 3,200,000 shares that the Underwriters have agreed to purchase.
To the extent that the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
3,200,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 3,200,000
shares are being sold.

The Underwriting Agreement contains covenants of indemnity between the
Underwriters and the Company against certain civil liabilities including
liabilities under the Act.

Pursuant to the terms of lock-up agreements, directors, officers and
certain stockholders of the Company have agreed not to, directly or indirectly,
offer, sell, offer to sell, contract to sell, assign, pledge, grant any option
to purchase or otherwise dispose of or transfer (or announce any offer, sale,
offer of sale, contract for sale, assignment, pledge, grant of an option to
purchase or other disposition or transfer of) any Common Stock of the Company,
or any other security of the Company convertible into, or exchangeable or
exercisable for, Common Stock for a period of 90 days after the date hereof (the
"Lock-up Period"), without the prior written consent of the Underwriters except
that such directors, officers and stockholders may make bona fide gifts to
donees who agree to be bound by such restrictions. The Company also has agreed
not to, directly or indirectly, offer, sell, offer to sell, contract to sell,
assign, pledge, grant any option to purchase or otherwise dispose of or transfer
(or announce any offer, sale, offer of sale, contract for sale, assignment,
pledge, grant of an option to purchase or

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other disposition or transfer of) any Common Stock of the Company, or any other
security of the Company, convertible into, or exchangeable or exercisable for,
Common Stock for a period of 90 days after the date hereof, without the prior
written consent of the Underwriters, except that the Company (i) may issue
Common Stock or options to purchase Common Stock under the Stock Plan, (ii) may
issue Common Stock upon the exercise of presently outstanding warrants and (iii)
may issue Common Stock in connection with the Company's strategy of growth
through acquisitions provided that such Common Stock is restricted and is not
tradeable prior to the expiration of the Lock-up Period.

The rules of the Commission generally prohibit the Underwriters from making
a market in the Common Stock during the two business days prior to commencement
of sale in this offering (the "Cooling Off Period"). The Commission has,
however, adopted Rule 10b-6A ("Rule 10b-6A"), which provides an exemption from
such prohibition for certain passive market making transactions. Such passive
market making transactions must comply with applicable price and volume limits
and must be identified as passive market making transactions. In general,
pursuant to Rule 10b-6A, a passive market maker must display its bid for a
security at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group members
may engage in passive market making in the Common Stock during the Cooling Off
Period. Passive market making may stabilize the market price of the Common Stock
at a level above that which might otherwise prevail, and if commenced, may be
discontinued at any time.

The Underwriters have informed the Company that they do not expect to make
sales to accounts over which they exercise discretionary authority in excess of
five percent of the number of shares of Common Stock offered hereby.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Arnall Golden & Gregory, Atlanta, Georgia, and for the Underwriters
by King & Spalding, Atlanta, Georgia.

EXPERTS

The financial statements of Moovies, Inc. as of December 31, 1994 and 1995
and for each of the years in the three year period ended December 31, 1995, have
been included herein and in the Registration Statement in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
auditing and accounting.

The financial statements of the Pic-A-Flick Group and the Movie Store Group
have been included herein and in the Registration Statement in reliance upon the
reports of KPMG Peat Marwick LLP, independent certified public accountants, as
of the dates and for the periods indicated in their reports appearing elsewhere
herein, and upon the authority of said firm as experts in auditing and
accounting.

The financial statements of MoveAmerica, Incorporated d/b/a Movies To Go
and Games To Go have been included herein and in the Registration Statement in
reliance upon the reports of McGladrey & Pullen, LLP, independent certified
public accountants, as of the dates and for the periods indicated in their
reports appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.

The financial statements of (i) Movie Stars (a division of Movie Stars
Entertainment Corp.); (ii) PARR-Four, Inc. (d/b/a Video Express); (iii) Video
Stars (a division of BREM, Inc.); (iv) Video Warehouse I Group; (v) Video
Warehouse II Group; (vi) Planet Video; (vii) First Row Video, Inc.; (viii) Video
Game Trader, Inc.; and (ix) L.A. Video have been included herein and in the
Registration Statement in reliance upon the reports of KPMG Peat Marwick LLP,
independent certified public accountants, as of the dates and for the periods
indicated in their reports appearing elsewhere herein, and upon the authority of
said firm as experts in auditing and accounting. The report of KPMG Peat Marwick
LLP covering the December 31, 1993 and 1994 financial statements of First Row
Video, Inc. refers to a change in the method of computing amortization of
videocassette rental inventory.

The financial statements of Certain Stores of American Multi-Entertainment,
Inc. d/b/a Premiere Video have been included herein and in the Registration
Statement in reliance upon the reports of McMahon, Hartmann, Amundson & Co.

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LLP, independent certified public accountants, as of the dates and for the
periods indicated in their reports appearing elsewhere herein, and upon the
authority of said firm as experts in auditing and accounting.

ADDITIONAL INFORMATION

The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copies at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional
offices of the Commission located at 7 World Trade Center, Suite 1300, New York,
New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of such material can be obtained by mail from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Common Stock is listed on the Nasdaq Stock Market and such
reports, proxy and information statements and other information concerning the
Company can be inspected and copied at the Nasdaq Stock Market, 1735 K Street,
N.W., Washington, D.C. 20006-1506.

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

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MOOVIES, INC.

INDEX TO FINANCIAL STATEMENTS

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PAGE

Moovies, Inc.
Independent Auditors' Report......................................................................................... F-3
Consolidated Balance Sheets.......................................................................................... F-4
Consolidated Statements of Operations................................................................................ F-5
Consolidated Statements of Stockholders' Equity and Partners' Equity (Deficit)....................................... F-6
Consolidated Statements of Cash Flows................................................................................ F-7
Notes to Consolidated Financial Statements........................................................................... F-8
Movie Stars (a division of Movie Stars Entertainment Corp.)
Independent Auditors' Report......................................................................................... F-17
Statements of Operating Revenues and Expenses........................................................................ F-18
Statements of Cash Flows............................................................................................. F-19
Notes to Financial Statements........................................................................................ F-20
Parr-Four, Inc. (d/b/a Video Express)
Independent Auditors' Report......................................................................................... F-22
Statements of Operations............................................................................................. F-23
Statements of Cash Flows............................................................................................. F-24
Notes to Financial Statements........................................................................................ F-25
Video Stars (a division of BREM, Inc.)
Independent Auditors' Report......................................................................................... F-28
Statement of Operating Revenues and Expenses......................................................................... F-29
Statement of Cash Flows.............................................................................................. F-30
Notes to Financial Statements........................................................................................ F-31
Video Warehouse I Group
Independent Auditors' Report......................................................................................... F-33
Combined Statements of Operating Revenues and Expenses............................................................... F-34
Combined Statements of Cash Flows.................................................................................... F-35
Notes to Combined Financial Statements............................................................................... F-36
Video Warehouse II Group
Independent Auditors' Report......................................................................................... F-38
Combined Statements of Operating Revenues and Expenses............................................................... F-39
Combined Statements of Cash Flows.................................................................................... F-40
Notes to Combined Financial Statements............................................................................... F-41
Planet Video
Independent Auditors' Report......................................................................................... F-43
Combined Statements of Operating Revenues and Expenses............................................................... F-44
Combined Statements of Cash Flows.................................................................................... F-45
Notes to Combined Financial Statements............................................................................... F-46
First Row Video, Inc.
Independent Auditors' Report......................................................................................... F-48
Statements of Income................................................................................................. F-49
Statements of Cash Flows............................................................................................. F-50
Notes to Financial Statements........................................................................................ F-51
Video Game Trader, Inc.
Independent Auditors' Report......................................................................................... F-54
Statements of Operations............................................................................................. F-55
Statements of Cash Flows............................................................................................. F-56
Notes to Financial Statements........................................................................................ F-57

F-1

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PAGE
L.A. Video

Independent Auditors' Report......................................................................................... F-59
Combined Statements of Operating Revenues and Expenses............................................................... F-60
Combined Statements of Cash Flows.................................................................................... F-61
Notes to Combined Financial Statements............................................................................... F-62
MoveAmerica, Incorporated d/b/a Movies To Go and Games To Go
Independent Auditors' Report......................................................................................... F-64
Statements of Income................................................................................................. F-65
Statements of Cash Flows............................................................................................. F-66
Notes to Financial Statements........................................................................................ F-67
Movie Store Group
Independent Auditors' Report......................................................................................... F-69
Combined Statements of Operating Revenues and Expenses............................................................... F-70
Combined Statements of Cash Flows.................................................................................... F-71
Notes to Combined Financial Statements............................................................................... F-72
Pic-A-Flick Group
Independent Auditors' Report......................................................................................... F-75
Combined Statements of Operating Revenues and Expenses............................................................... F-76
Combined Statements of Cash Flows.................................................................................... F-77
Notes to Combined Financial Statements............................................................................... F-78
Certain Stores of American Multi-Entertainment, Inc. d/b/a Premiere Video
Independent Auditors' Report......................................................................................... F-81
Combined Statements of Net Assets.................................................................................... F-82
Combined Statements of Operations.................................................................................... F-83
Statement of Changes in Stores' Capital.............................................................................. F-84
Combined Statements of Cash Flows.................................................................................... F-85
Notes to Combined Financial Statements............................................................................... F-86

F-2

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INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Moovies, Inc:

We have audited the accompanying consolidated balance sheets of Moovies,
Inc. as of December 31, 1994 and 1995 and the related consolidated statements of
operations, stockholders' equity and partners' equity (deficit), and cash flows
for each of the years in the three year period ended December 31, 1995. 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 audits 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 consolidated financial position of
Moovies, Inc. as of December 31, 1994 and 1995, and the consolidated results of
its operations and its cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.

KPMG PEAT MARWICK LLP

Greenville, South Carolina
March 1, 1996

F-3

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MOOVIES, INC.
CONSOLIDATED BALANCE SHEETS

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DECEMBER 31, MARCH 31,
1994 1995 1996

(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents...................................................... $ 169,591 $ 3,563,788 $ 5,570,084
Receivables.................................................................... 6,544 2,780,214 1,737,596
Merchandise inventory.......................................................... 9,985 2,617,496 2,390,047
Deferred income tax benefit.................................................... -- 984,136 308,224
Prepaid rent................................................................... -- 739,804 1,030,112
Other.......................................................................... 116,810 1,243,708 1,595,951
Total current assets........................................................ 302,930 11,929,146 12,632,014
Videocassette rental inventory, net.............................................. 931,212 16,728,416 17,356,976
Furnishings and equipment, net................................................... 566,743 9,858,952 11,116,831
Goodwill......................................................................... -- 29,080,621 30,535,285
Deposits and other assets........................................................ 297,502 622,361 916,183
$2,098,387 $68,219,496 $72,557,289
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit................................................................. $ -- $ 2,500,000 $12,795,934
Notes payable.................................................................. -- 5,935,215 500,000
Current portion of long-term debt.............................................. 430,726 481,064 448,971
Accounts payable............................................................... 672,993 10,567,375 8,330,138
Accrued liabilities............................................................ 89,573 3,065,603 3,737,165
Total current liabilities................................................... 1,193,292 22,549,257 25,812,208
Long-term debt, less current portion............................................. 1,309,002 2,410,987 3,698,356
Deferred income tax payable...................................................... -- 5,796,051 5,305,468
2,502,294 30,756,295 34,816,032
Commitments

Stockholders' equity (partners' deficit):
Preferred stock, $.001 par value; 1,000,000 shares authorized; no shares issued
and outstanding............................................................. -- -- --
Common stock, $.001 par value; 25,000,000 shares authorized; issued and
outstanding 8,658,532 shares at March 31, 1996 and December 31, 1995 and
none at December 31, 1994................................................... -- 8,659 8,659
Additional paid-in capital..................................................... -- 35,857,767 35,857,767
Retained earnings.............................................................. -- 1,596,775 1,874,831
Partners' deficit.............................................................. (403,907) -- --
Total stockholders' equity (partners' deficit).............................. (403,907) 37,463,201 37,741,257
$2,098,387 $68,219,496 $72,557,289

See accompanying notes to consolidated financial statements.

F-4

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MOOVIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

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THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
1993 1994 1995 1995 1996

(UNAUDITED)
Revenues:
Rental revenues................................... $3,578,535 $4,069,509 $20,309,185 $1,114,672 $16,957,403
Product sales..................................... 310,458 322,099 4,349,124 108,581 2,358,658
3,888,993 4,391,608 24,658,309 1,223,253 19,316,061
Operating costs and expenses:
Operating expenses................................ 2,798,239 3,120,557 15,592,814 870,729 12,819,016
Cost of product sales............................. 239,426 278,448 2,978,728 92,392 1,537,095
Selling, general and administrative............... 573,006 610,471 2,955,493 186,502 2,328,845
Amortization of goodwill.......................... -- -- 148,112 -- 361,084
3,610,671 4,009,476 21,675,147 1,149,623 17,046,040
Operating income.................................... 278,322 382,132 2,983,162 73,630 2,270,021
Interest expense.................................... (43,134) (101,030) (197,236) (27,097) (301,047)
Other, net.......................................... -- -- 25,014 -- (20,900)
Income before income taxes and cumulative effect of
a change in accounting principle.................. 235,188 281,102 2,810,940 46,533 1,948,074
Income tax expense.................................. -- -- 1,045,822 -- 779,204
Income before cumulative effect of a change in
accounting principle.............................. 235,188 281,102 1,765,118 46,533 1,168,870
Cumulative effect of a change in accounting
principle, net of taxes........................... -- -- -- -- 890,814
Net income.......................................... $ 235,188 $ 281,102 $ 1,765,118 $ 46,533 $ 278,056
Earnings per share:
Income before cumulative effect of a change in
accounting principle.............................. $ N/A $ N/A $ .52 $ N/A $ .13
Cumulative effect of a change in accounting
principle......................................... N/A N/A -- N/A .10
Net income.......................................... $ N/A $ N/A $ .52 $ N/A $ .03
Weighted average shares outstanding................. N/A N/A 3,395,000 N/A 8,976,000

See accompanying notes to consolidated financial statements.

F-5

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MOOVIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND PARTNERS' EQUITY (DEFICIT)

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ADDITIONAL PARTNERS' TOTAL
COMMON PAID-IN RETAINED EQUITY STOCKHOLDERS'
STOCK CAPITAL EARNINGS (DEFICIT) EQUITY

Balance at December 31, 1992.......................... $-- $ -- $ -- $ 1,124,295 $ 1,124,295
Net income.......................................... -- -- -- 235,188 235,188
Limited partner buy-out............................. -- -- -- (1,691,107) (1,691,107)
Partner contributions............................... -- -- -- 22,910 22,910
Balance at December 31, 1993.......................... -- -- -- (308,714) (308,714)
Net income.......................................... -- -- -- 281,102 281,102
Partner withdrawals................................. -- -- -- (376,295) (376,295)
Balance at December 31, 1994.......................... -- -- -- (403,907) (403,907)
Partner withdrawals................................. -- -- -- (227,707) (227,707)
Partnership net income, through
August 8, 1995................................... -- -- -- 168,343 168,343
Net proceeds from issuance and sale of 3,622,500
shares of common stock in connection with the
initial public offering, net of issuance costs of
$3,463,770....................................... 3,623 36,959,707 -- -- 36,963,330
Issuance of common stock to companies acquired
concurrently with the initial public offering of
common stock..................................... 4,027 9,654,626 -- -- 9,658,653
Payment of deemed dividend.......................... -- (22,949,114) -- -- (22,949,114)
Elimination of partner's deficit.................... -- (463,271) -- 463,271 --
Issuance of 842,004 shares of common stock in
connection with acquisitions of video rental
chains........................................... 842 12,654,315 -- -- 12,655,157
Exercise of warrants for 167,124 shares............. 167 1,504 -- -- 1,671
Net income.......................................... -- -- 1,596,775 -- 1,596,775
Balance at December 31, 1995.......................... 8,659 35,857,767 1,596,775 -- 37,463,201
Net income (unaudited).............................. -- -- 278,056 -- 278,056
Balance at March 31, 1996 (unaudited)................. $8,659 $35,857,767 $1,874,831 $ -- $ 37,741,257

See accompanying notes to consolidated financial statements.

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MOOVIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

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THREE MONTHS ENDED MARCH
YEARS ENDED DECEMBER 31, 31,
1993 1994 1995 1995 1996

(UNAUDITED)
Operating activities:
Net income......................................... $ 235,188 $ 281,102 $ 1,765,118 $ 46,533 $ 278,056
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting
principle..................................... -- -- -- -- 890,814
Depreciation and amortization................... 865,330 906,949 4,643,167 252,902 4,360,964
Amortization of discount on
long-term debt................................ 20,849 65,355 -- 17,021 --
Loss on disposal of furnishings and equipment... 4,066 8,837 -- -- --
Changes in operating assets and liabilities:
Receivables................................... (10,603) 9,852 (2,543,634) (42,032) 1,296,993
Merchandise inventory......................... (1,054) (2,747) (847,187) (5,615) 227,449
Other current assets.......................... -- -- (679,401) -- (642,551)
Deposits and other assets, net................ (31,921) (56,674) 34,103 (188,137) (293,822)
Accounts payable.............................. 176,890 233,698 4,720,501 811,513 (2,237,237)
Accrued liabilities........................... (5,934) 31,473 1,166,108 (25,088) 271,562
Deferred income taxes......................... -- -- 1,045,822 -- 779,204
Net cash provided by operating
activities................................. 1,252,811 1,477,845 9,304,597 867,097 4,931,432
Investing activities:
Purchases of videocassette rental
inventory, net.................................. (622,828) (890,931) (8,282,582) (539,192) (5,868,674)
Purchases of furnishings and equipment............. (95,540) (217,431) (5,884,931) (163,612) (1,483,893)
Proceeds from the sale of the grocery
division........................................ -- -- -- -- 745,625
Business acquisitions.............................. -- -- (3,477,311) -- (2,434,187)
Net cash used in investing activities......... (718,368) (1,108,362) (17,644,824) (702,804) (9,041,129)
Financing activities:
Proceeds from line of credit borrowings............ -- -- 2,500,000 -- 10,295,934
Proceeds from issuance of long-term debt........... 550,000 581,646 4,116,151 600,000 2,000,000
Principal payments on long-term debt............... (206,257) (362,620) (9,222,697) (102,927) (6,179,941)
Capitalized initial public offering costs.......... -- (285,024) -- (582,806) --
Proceeds from issuance of common stock, net........ -- -- 36,963,330 -- --
Cash paid, in the form of a deemed dividend, for
the purchase of video chains.................... -- -- (22,396,324) -- --
Proceeds from the exercise of warrants............. -- -- 1,671 -- --
Payment to limited partners........................ (810,000) -- -- -- --
Capital/partner contributions (withdrawals),
net............................................. 22,910 (376,295) (227,707) (73,027) --
Net cash provided by (used in) financing
activities................................. (443,347) (442,293) 11,734,424 (158,760) 6,115,993
Increase (decrease) in cash and cash
equivalents........................................ 91,096 (72,810) 3,394,197 5,533 2,006,296
Cash and cash equivalents at beginning
of year............................................ 151,305 242,401 169,591 169,591 3,563,788
Cash and cash equivalents at end of year............. $ 242,401 $ 169,591 $ 3,563,788 $ 175,124 $ 5,570,084
Supplemental disclosure of cash flow information:
Cash paid for interest............................. $ 22,286 $ 35,674 $ 161,718 $ 26,114 $ 58,007
Issuance of limited partnership promissory
notes........................................... $ 881,107 $ -- $ -- $ -- $ --

See accompanying notes to consolidated financial statements.

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MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Moovies, Inc. (the "Company") was incorporated in November 1994 for the
purpose of entering into agreements to acquire video specialty stores,
consummating an initial public offering of stock and operating video specialty
stores. Concurrently with the completion of an initial public offering of stock
in August 1995, the Company acquired ten other video specialty chains, including
Tonight's Feature Limited Partnership II, the Company's predecessor (the
"Predecessor" or "Tonight's Feature"). As of December 31, 1995, the Company
operated 148 video specialty stores located in South Carolina, North Carolina,
Georgia, Iowa, Virginia, Ohio, New Jersey, New York, Connecticut and
Pennsylvania. Prior to August 1995, Moovies, Inc. had no operations.

BASIS OF PRESENTATION

The accompanying consolidated financial statements reflect the 1993, 1994
and 1995 results of operations of Tonight's Feature, the Company's predecessor,
and from August 1995, the operations of the combined acquisitions (see note 2).
In August 1995, Tonight's Feature was merged into the Company. Throughout these
consolidated financial statements, references to the Company refer to Tonight's
Feature for periods prior to August 1995.

The consolidated balance sheet as of March 31, 1996 and the consolidated
statements of operations, stockholders' equity and partners' equity (deficit)
and cash flows for the three months ended March 31, 1995 and 1996 have been
prepared by the Company without audit. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of the financial position, results of operations and cash
flows as of March 31, 1996 and for the three months ended March 31, 1995 and
1996, have been included.

The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries from and after the date of acquisition of each
such subsidiary. All significant intercompany balances and transactions have
been eliminated in consolidation.

USE OF ESTIMATES

The preparation of consolidated 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.

CASH EQUIVALENTS

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

MERCHANDISE INVENTORY

Merchandise inventory, consisting primarily of prerecorded videocassettes,
children's books and confectionery items, is stated at the lower of cost or
market. Cost is determined using the first-in, first-out method of accounting.

VIDEOCASSETTE RENTAL INVENTORY

Videocassette rental inventory, which includes video games, is stated at
cost, and is amortized over its estimated economic life with no provision for
salvage value. Videocassettes that are considered base stock ("catalog titles"),
together with related costs to prepare them for rent, are amortized over 36
months on a straight-line basis. New release videocassettes are amortized as
follows: the tenth and any succeeding copies of each title per store are
amortized over nine months on a straight-line basis; the fourth through ninth
copies of each title per store are amortized 40% in the first year and 30% in
each of the second and third years; and copies one through three of the titles
per store are amortized as base stock.

Certain videocassettes in the rental inventory are leased under a revenue
sharing agreement with a vendor, as broker for various studios. During the
revenue sharing period, which does not exceed two years, the studios retain
ownership of the videocassette, and the Company shares the rental revenue with
the vendor rather than purchasing the videocassette for a fixed

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MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cost (typically $60 to $67). Under this agreement, the percentage of rental
revenue retained by the Company generally increases during the first 90 days of
the revenue sharing period, reaching a fixed percentage at 90 days. The
associated handling fee per leased videocassette is amortized on a straight-line
basis over the term of the lease. Revenue sharing allows the Company to order a
substantially larger number of copies to fill most of the temporarily heavy
demand that exists during the first few weekends of a title's release. Revenue
sharing reduces the risk that the Company will be unable to recover the
acquisition cost of a videocassette through rental revenue before the popularity
of the title declines significantly. At the end of the revenue sharing period
for a title, the Company may purchase the remaining copies of that title for
generally less than $5 per copy. The purchased copies are then amortized as base
stock (see Note 10).

Videocassette rental inventory and related amortization are as follows:

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DECEMBER 31,
1994 1995 MARCH 31, 1996

(UNAUDITED)
Videocassette rental inventory........................ $ 3,039,992 $ 38,903,293 $ 32,328,659
Accumulated amortization.............................. (2,108,780) (22,174,877) (14,971,683)
$ 931,212 $ 16,728,416 $ 17,356,976

Amortization expense related to videocassette rental inventory amounted to
$772,119, $779,285, and $3,988,296 for the years ended December 31, 1993, 1994
and 1995, respectively, and $217,653 and $3,573,335 for the three months ended
March 31, 1995 and 1996 (unaudited), respectively. As videocassette rental
inventory is sold or retired, the applicable cost and accumulated amortization
are eliminated from the accounts and any related gain or loss is recognized.

FURNISHINGS AND EQUIPMENT

Furnishings and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives (5 to 7 years) for furnishings and
equipment and the lesser of the useful lives or lease term (primarily 5 to 10
years) for leased items using the straight-line method.

VIDEOCASSETTE REVENUE

Revenue is recognized at the time of rental or sale of the videocassette.

GOODWILL

Goodwill consists of the excess of acquisition costs over the fair market
value of assets acquired. Goodwill is amortized over 20 years and is shown net
of accumulated amortization of $148,112 at December 31, 1995 and $509,196 at
March 31, 1996 (unaudited). If facts and circumstances suggest that the excess
of cost over net assets acquired will not be recoverable, as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company's carrying value of the excess cost over net
assets acquired will be reduced by the estimated shortfalls of cash flows.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1994 and 1995 and at March 31, 1996 (unaudited), the
carrying value of financial instruments such as cash and cash equivalents and
accounts payable and notes payable approximated their fair values, based upon
the short-term maturities of these instruments. The fair value of the Company's
long-term debt is estimated using discounted cash flow analysis, based upon the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying value of such instruments approximated their fair
value at December 31, 1994 and 1995 and at March 31, 1996 (unaudited).

INCOME TAXES

The Predecessor operated as a partnership for income tax purposes through
August 1995. Accordingly, income taxes were paid by the Predecessor's general
partners and the Predecessor had no income tax liability.

The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement

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MOOVIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates in effect for the year 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.

NET INCOME PER SHARE

Net income per share is computed by dividing net income by the weighted
average number of common and common equivalent shares outstanding. Weighted
average common and common equivalent shares include common shares, stock options
using the treasury stock method and the assumed exercise of the outstanding
warrants to purchase common stock.

(2) INITIAL STOCK OFFERING AND ACQUISITIONS

PUBLIC OFFERING

In August 1995, the Company completed its initial public offering of
3,622,500 shares of common stock for $12.00 per share (the "offering"). The net
proceeds of the offering, after deducting applicable issuance costs and
expenses, were approximately $37.0 million. The proceeds were used to pay the
cash portion of the acquisitions of $22.4 million, which together with the
issuance of a $500,000 note payable were considered to be deemed dividends, and
to repay approximately $4.2 million of long-term indebtedness of the
acquisitions and $1.4 million of long-term indebtedness of Tonight's Feature.
The remaining proceeds were used to acquire additional video rental chains and
to open new stores, acquire new sites, renovate older locations, purchase
computer equipment and for general corporate purposes.

ACQUISITIONS

Concurrently with the completion of the offering, the Company purchased
substantially all of the assets, assumed certain liabilities and acquired the
businesses of 76 video specialty stores. As defined under Rule 1-02(s) of
Regulations S-X, the shareholders and owners of these video stores were
considered promoters who transferred assets and liabilities to the Company in
exchange for common stock. As a result, the Company recorded the assets and
liabilities acquired at their historical cost bases and no goodwill was recorded
in the transaction.

Subsequent to the initial public offering, the Company acquired 48 video
specialty stores from six unrelated sellers for approximately $22.1 million,
including the issuance of approximately $5.9 million in notes payable and the
issuance of approximately 842,000 shares of common stock. These acquisitions
were recorded under the purchase method of accounting. The excess of cost over
the estimated fair value of the assets acquired of approximately $29.2 million
is being amortized over 20 years on a straight-line basis.

The following unaudited pro forma information presents the results of
operations of the Company as though the aforementioned acquisitions had occurred
as of the beginning of the year in which the acquisition occurred and the
immediately preceding year.

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Moovies Inc · 424A · On 5/24/96

Filed On 5/24/96 · SEC File 333-04270 · Accession Number 950168-96-954

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