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

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED ~~OCTOBER 29, 2011~~APRIL 28, 2012

	OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT FOR THE TRANSITION PERIOD FROM ~~__________~~………… TO ~~__________~~…………

COMMISSION FILE NUMBER: 0-14818

TRANS WORLD ENTERTAINMENT CORPORATION

(Exact name of registrant as specified in its charter)


New York		14-1541629

~~(State~~(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer
		Identification Number)

38 Corporate Circle

Albany, New York 12203

(Address of principal executive offices, including zip code)

(518) 452-1242

(Registrant’s telephone number, including area code)

Indicate by a check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filero Accelerated filero Non-accelerated filero Smaller reporting companyx

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Nox

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $.01 par value,
~~31,454,529~~31,455,004 shares outstanding as of ~~November 26, 2011~~

May 30, 2012

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


	Form 10-Q Page No.
PART 1. FINANCIAL INFORMATION

Item 1 – Interim Financial Statements (Unaudited)

Condensed Consolidated Balance Sheets at ~~October 29,~~April 28, 2012,
January 28, 2012 and April 30, 2011 ~~January 29, 2011 and October 30, 2010~~		3

Condensed Consolidated Statements of Operations –
Thirteen Weeks Ended April 28, 2012 and ~~Thirty-nine Weeks Ended October 29,~~April 30, 2011 ~~and October 30, 2010~~		4

Condensed Consolidated Statements of Cash Flows – ~~Thirty-nine~~
Thirteen Weeks Ended ~~October 29,~~April 28, 2012 and April 30, 2011 ~~and October 30, 2010~~		5

Notes to Condensed Consolidated Financial Statements		6

Item 2 - Management’s Discussion and Analysis of Financial
Condition and Results of Operations		12

Item 3 – Quantitative and Qualitative Disclosures about Market Risk		19

Item 4 – Controls and Procedures		19

PART II. OTHER INFORMATION

Item 1 – Legal Proceedings		20

Item 1A- Risk Factors		20

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds		20

Item 3 – Defaults Upon Senior Securities		20

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

Item 5 – Other Information		20

Item 6 – Exhibits		20

Signatures		21

~~TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES~~
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 1 - Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share and share amounts)
(unaudited)

~~Item 1 - Financial Statements~~
~~CONDENSED CONSOLIDATED BALANCE SHEETS~~
~~(in thousands, except per share and share amounts)~~
~~(unaudited)~~


	October 29,			January 29,			October 30,
	2011			2011			2010			April 28, 2012			January 28, 2012			April 30, 2011

ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	19,017		$	75,212		$	6,127		$	62,343		$	88,515		$	29,674
Merchandise inventory		223,528			234,164			270,800			176,227			191,327			217,785
Other current assets		8,551			8,385			17,673			7,673			8,613			6,868

Total current assets		251,096			317,761			294,600			246,243			288,455			254,327


NET FIXED ASSETS		17,968			21,478			26,763			15,681			16,651			20,047
OTHER ASSETS		8,160			9,485			9,427			8,006			8,014			9,399

TOTAL ASSETS		277,224		$	348,724		$	330,790		$	269,930		$	313,120		$	283,773


LIABILITIES
CURRENT LIABILITIES:
Accounts payable	$	78,539		$	130,007		$	115,312		$	52,163		$	93,141		$	71,021
Borrowings under line of credit		—			—			8,588			—			—			—
Accrued expenses and other current liabilities		24,275			28,025			27,635			26,850			29,516			25,985
Current portion of long-term debt		669			640			630			—			680			650
Current portion of capital lease obligations		797			723			700			850			823			746

Total current liabilities		104,280			159,395			152,865			79,863			124,160			98,402


LONG-TERM DEBT, less current portion		1,242			1,748			1,911			—			1,068			1,582
CAPITAL LEASE OBLIGATIONS, less current portion		3,157			3,763			3,953			2,718			2,941			3,568
OTHER LONG-TERM LIABILITIES		20,690			22,020			21,621			22,639			23,105			20,861

TOTAL LIABILITIES		129,369			186,926			180,350			105,220			151,274			124,413


SHAREHOLDERS’ EQUITY
Preferred stock ($0.01 par value; 5,000,000 shares authorized; none issued)		—			—			—			—			—			—
Common stock ($0.01 par value; 200,000,000 shares authorized; 56,557,519, 56,527,519 and 56,527,519 shares issued, respectively)		565			565			565
Common stock ($0.01 par value; 200,000,000 shares authorized; 56,557,519, 56,557,519 and 56,527,519 shares issued, respectively)											566			566			565
Additional paid-in capital		308,724			308,333			308,223			308,858			308,791			308,442
Treasury stock at cost (25,102,990, 25,102,990 and 25,102,990 shares, respectively)		(217,555	)		(217,555	)		(217,555	)		(217,555	)		(217,555	)		(217,555	)
Accumulated other comprehensive income		416			416			1,518
Accumulated other comprehensive (loss)income											(2,157	)		(2,157	)		416
Retained earnings		55,705			70,039			57,689			74,998			72,201			67,492

TOTAL SHAREHOLDERS’ EQUITY		147,855			161,798			150,440			164,710			161,846			159,360

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	277,224		$	348,724		$	330,790		$	269,930		$	313,120		$	283,773

See Accompanying Notes to Condensed Consolidated ~~Interim~~ Financial Statements.

~~TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES~~
TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)

~~(in thousands, except per share amounts)~~
~~(unaudited)~~

Thirteen Weeks Ended

Thirty-nine Weeks Ended

October 29,
2011

October 30,
2010

October 29,
2011

October 30,
2010

Net sales

$
109,996

$
128,787

$
349,483

$
421,129

Cost of sales

69,344

84,870

220,550

279,959

Gross profit

40,652

43,917

128,933

141,170

Selling, general and administrative expenses

44,394

59,051

140,778

181,783

Loss from operations

(3,742
)

(15,134
)

(11,845
)

(40,613
)
Interest expense, net

774

927

2,399

2,431

Loss before income tax expense (benefit)

(4,516
)

(16,061
)

(14,244
)

(43,044
)
Income tax expense (benefit)

(5
)

55

90

270

Net loss

$
(4,511
)
$
(16,116
)

$
(14,334
)
$
(43,314
)

LOSS PER SHARE:

Basic and diluted loss per share

$
(0.14
)
$
(0.51
)

$
(0.46
)
$
(1.38
)

Weighted average number of common shares outstanding – basic and diluted

31,454

31,425

31,445

31,415


	Thirteen Weeks Ended

	April 28,		April 30,
	2012		2011


Net sales	$	112,287	$	131,496
Cost of sales		70,472		83,207

Gross profit		41,815		48,289
Selling, general and administrative expenses		38,201		49,968

Income (loss) from operations		3,614		(1,679	)
Interest expense, net		770		832

Income (loss) before income tax expense		2,844		(2,511	)
Income tax expense		47		36

Net income (loss)	$	2,797	$	(2,547	)


BASIC AND DILUTED INCOME (LOSS) PER SHARE:

Basic income (loss) per share	$	0.09	$	(0.08	)


Weighted average number of common shares outstanding – basic		31,535		31,425



Diluted income (loss) per share	$	0.09	$	(0.08	)


Weighted average number of common shares outstanding – diluted		32,210		31,425

See Accompanying Notes to Condensed Consolidated ~~Interim~~ Financial Statements.

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)


	Thirty-nine Weeks Ended						Thirteen Weeks Ended

	October 29, 2011			October 30, 2010			April 28, 2012			April 30, 2011

Net cash used by operating activities	$	(53,547	)	$	(68,126	)	$	(24,048	)	$	(44,821	)


Cash flows from investing activities:
Purchases of fixed assets		(1,638	)		(2,347	)		(180	)		(389	)
Acquisition of business, net of cash received		—			(1,848	)

Net cash used by investing activities		(1,638	)		(4,195	)		(180	)		(389	)


Cash flows from financing activities:
Proceeds from line of credit		—			8,588
Payments of long-term debt		(477	)		(449	)		(1,748	)		(156	)
Payments of capital lease obligations		(533	)		(1,205	)		(196	)		(172	)

Net cash (used) provided used by financing activities		(1,010	)		6,934
Net cash used by financing activities								(1,944	)		(328	)


Net decrease in cash and cash equivalents		(56,195	)		(65,387	)		(26,172	)		(45,538	)
Cash and cash equivalents, beginning of period		75,212			71,514			88,515			75,212

Cash and cash equivalents, end of period	$	19,017		$	6,127		$	62,343		$	29,674

See Accompanying Notes to Condensed Consolidated ~~Interim~~ Financial Statements.

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
~~October 29,~~April 28, 2012 and April 30, 2011 ~~and October 30, 2010~~

Note 1. Nature of Operations

Trans World Entertainment Corporation and subsidiaries (“the Company”) is one of the largest specialty retailers of entertainment products, including video, music, electronics, trend, video games ~~trend, electronics~~ and related products in the United States. The Company operates a chain of retail entertainment stores, primarily under the names f.y.e. for your entertainment and Suncoast Motion Pictures, and e-commerce sites, www.fye.com, www.wherehouse.com, and www.secondspin.com in a single industry segment. As of ~~October 29, 2011,~~April 28, 2012, the Company operated ~~440~~379 stores totaling approximately ~~2.9~~2.4 million square feet in the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands.

Liquidity and Cash Flows:
The Company’s primary sources of working capital are cash provided by operations and borrowing capacity under its revolving credit facility (See Note 6 for further details). The Company’s cash flows fluctuate from quarter to quarter due to various items, including seasonality of sales and earnings, merchandise inventory purchases and returns and the related terms on the purchases and capital expenditures. Management believes it will have adequate resources to fund its cash needs for ~~at least~~ the next twelve months and beyond, including its capital spending, its seasonal increase in merchandise inventory and other operating cash requirements and commitments. During Fiscal ~~2010,~~2011, management carried out certain strategic initiatives in its efforts to reduce operating costs such as the reduction of headcount at the home office ~~the closing of a distribution in center in Carson, CA.~~ and the elimination or curtailment of certain other general and administrative expenses. Also, during the fourth quarter of Fiscal ~~2010,~~2011, management closed 7350 stores. Management has continued many of the initiatives begun in 2011, as part of the execution of its operating plan for ~~2011;~~2012; including a focus on the operation of a core base of stores, improved product selection based on customer preferences and industry changes, as well as further streamlining of its operations. An additional 2411 stores closed in the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011.~~April 28, 2012. The Company will continue its evaluation of its remaining stores profitability in consideration of lease terms, conditions and expirations.

Seasonality:
The Company’s business is seasonal in nature, with the fourth fiscal quarter constituting the Company’s peak selling period. In ~~2010,~~2011, the fourth fiscal quarter accounted for approximately ~~35%~~36% of annual ~~sales.~~sales and all of its income from operations for the year. In anticipation of increased sales activity during these months, the Company purchases additional inventory and hires additional seasonal employees to supplement its core store sales staff. If, for any reason, the Company’s net sales were below seasonal norms during the fourth quarter, the Company’s operating results, particularly operating and net income, would be adversely affected. Additionally, quarterly sales results, in general, are affected by the timing of new product releases, store closings and the performance of existing stores.

Note 2: Basis of Presentation

The accompanying unaudited condensed consolidated financial statements consist of Trans World Entertainment Corporation, its wholly-owned subsidiary, Record Town, Inc. (“Record Town”), and Record Town’s subsidiaries, all of which are wholly-owned. All significant intercompany accounts and transactions have been eliminated.

The interim condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in these unaudited condensed consolidated financial statements reflects all normal, recurring adjustments which, in the opinion of management, are necessary for the fair presentation of such financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to rules and regulations applicable to interim financial statements.

The information presented in the accompanying unaudited condensed consolidated balance sheet as of January ~~29, 2011~~28, 2012 has been derived from the Company’s January ~~29, 2011~~28, 2012 audited consolidated financial statements. All other information has been derived from the Company’s unaudited condensed consolidated financial statements as of and for the thirteen ~~and thirty-nine~~ weeks ended ~~October 29, 2011~~April 28, 2012 and ~~October~~April 30, ~~2010.~~2011. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January ~~29, 2011.~~28, 2012.

The Company’s significant accounting policies are the same as those described in Note 1 to the Company’s Consolidated Financial Statements on Form 10-K for the fiscal year ended January ~~29, 2011.~~28, 2012.

Note 3. Recently Adopted Accounting Pronouncements

~~There are no recently~~On January 29, 2012, we adopted ~~accounting standards~~Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2011-05, an amendment to Accounting Standards Codification (ASC) 220, Comprehensive Income. ASU 2011-05 introduces a new statement, the Consolidated Statement of Comprehensive Income, which begins with net income(loss) and adds or deducts other recognized changes in assets and liabilities that are ~~expected~~not included in net earnings, but are reported directly to ~~have a material effect on our~~equity, under GAAP. For example, unrealized changes in pension benefit obligations are included in the measure of comprehensive income but are excluded from net earnings. The amendments became effective for the first quarter 2012 financial ~~condition, results~~statements. The amendments affect only the display of ~~operations or cash flows.~~those components of equity categorized as other comprehensive income and do not change existing recognition and measurement requirements that determine net earnings. (See Note 7)

Note 4. Stock Based Compensation

Total stock-based compensation expense recognized in the condensed consolidated statements of operations for the thirteen weeks ended ~~October 29,~~April 28, 2012 and April 30, 2011 was $67,000 and ~~October 30, 2010 was $61,000 and $125,000,~~$109,000, respectively, before income taxes. No deferred tax benefit was recorded against stock-based compensation expense for the thirteen weeks ended ~~October 29, 2011~~April 28, 2012 and ~~October~~April 30, ~~2010.~~

Total stock-based compensation expense recognized in the condensed consolidated statements of operations for the thirty-nine weeks ended October 29, 2011 and October 30, 2010 was $244,000 and $507,000, respectively, before income taxes. No deferred tax benefit was recorded against stock-based compensation expense for the thirty-nine weeks ended October 29, 2011 and October 30, 2010.2011.

As of ~~October 29, 2011,~~April 28, 2012, there was approximately $0.7 million of unrecognized compensation cost related to stock award awards that is expected to be recognized as expense over a weighted average period of ~~2.6~~2.3 years.

As of ~~October 29, 2011,~~April 28, 2012, stock awards authorized for issuance under the Company’s plans total 20.6 million. Of these awards authorized for issuance, ~~6.4~~6.2 million were granted and are outstanding, 5.0 million of which were vested and exercisable. Awards available for future grants at ~~October 29, 2011~~April 28, 2012 were ~~2.3~~2.2 million.

The following table ~~below outlines the assumptions that the Company used to estimate the fair value of~~summarizes stock ~~based awards granted~~award activity during the ~~thirty nine~~thirteen weeks ended ~~October 29, 2011:~~April 28, 2012:


	Employee and Director Stock Award Plans

	Number of Shares Subject To Option			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Other Share Awards⁽¹⁾			Weighted Average Grant Fair Value
Balance January 28, 2012		6,126,851		$	6.28		3.6		362,444		$	2.71
Granted		—			—		—		—			—
Exercised		—			—		—		(279,898	)		1.63
Forfeited		—			—		—		—			—
Canceled		(16,078	)		9.76		—		—			—

Balance April 28, 2012		6,110,773		$	6.19		3.3		82,546		$	6.35
Exercisable April 28, 2012		4,917,023		$	7.20		2.1		82,546		$	6.35



		~~Thirty-nine weeks ended~~ ~~October 29, 2011~~

~~Dividend yield~~		0%
~~Expected stock price volatility~~		~~69.9 – 75.4%~~
~~Risk-free interest rate~~		~~2.3 – 2.8%~~
~~Expected award life (in years)~~		~~4.9 – 7.0~~
~~Weighted average fair value per share of awards granted during the period~~		~~$1.09 - $1.26~~

~~The following table summarizes stock award activity during the thirty-nine weeks ended October 29, 2011:~~

Employee and Director Stock Award Plans

Number of
Shares
Subject
To Award

Weighted
Average
Exercise Price
⁽¹⁾

Weighted
Average
Remaining
Contractual Term

Balance January 29, 2011

6,880,955

$
6.80

3.9

Granted

439,898

1.74

9.3

Exercised⁽²⁾

(30,000
)

—

—

Forfeited

(11,425
)

3.23

—

Expired

(858,357
)

8.82

—

Balance October 29, 2011

6,421,071

$
5.94

4.0

Exercisable at October 29, 2011

4,986,897

$
7.22

2.6


(1)	~~Exercise price ranges exclude the impact of~~Other Share Awards include deferred orshares granted to Directors and restricted stock units ~~that were granted at an exercise price of $0. During the thirty-nine weeks ended October 29, 2011, 279,898 restricted stock units were granted and 30,000 deferred shares were exercised.~~
~~(2)~~	~~Deferred shares are exchangeable for common shares on a 1:1 basis and therefore have an exercise price of $0.~~issued to employees.

As of ~~October 29, 2011,~~April 28, 2012, the intrinsic value of stock awards outstanding was ~~$1.0 million~~$252,000 and exercisable was ~~$175,000.~~$36,000.

Note 5. Defined Benefit Plans

The Company maintains a non-qualified Supplemental Executive Retirement Plan (“SERP”) for certain executive officers of the Company. The SERP provides eligible executives defined pension benefits that supplement benefits under other retirement arrangements.

The Company had previously provided the Board of Directors with a noncontributory, unfunded retirement plan (“Director Retirement Plan”) that paid retired directors an annual retirement benefit. Directors who were not yet vested in their retirement benefits as of June 1, 2003 had the present value of benefits already accrued as of the effective date converted to deferred shares of the Company’s Common Stock. Directors that were fully or partially vested in their retirement benefits were given a one time election to continue to participate in the current retirement program or convert the present value of their benefits to deferred shares.

The measurement date for the SERP and Director Retirement Plan is fiscal year end, using actuarial techniques which reflect estimates for mortality, turnover and expected retirement. In addition, management makes assumptions concerning future salary increases. Discount rates are generally established as of the measurement date using theoretical bond models that select high-grade corporate bonds with maturities or coupons that correlate to the expected payouts of the applicable liabilities.

The following represents the components of the net periodic pension cost related to the Company’s SERP and Director Retirement Plan for the respective periods:


	Thirteen weeks ended						Thirty-nine weeks ended						Thirteen weeks ended

	October 29, 2011			October 30, 2010			October 29, 2011			October 30, 2010			April 28, 2012		April 30, 2011

	(in thousands)						(in thousands)						(in thousands)
Service cost	$	37		$	33		$	111		$	99		$	22	$	37
Interest cost		168			163			504			489			159		168
Amortization of prior service cost		86			86			258			258			86		86
Amortization of net gain		(112	)		(171	)		(336	)		(513	)		—		(112	)

Net periodic pension cost	$	179		$	111		$	537		$	333		$	267	$	179

During the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011,~~April 28, 2012, the Company did not make any cash contributions to the SERP or the Director Retirement Plan, and presently expects to pay approximately $103,000 in benefits relating to the SERP and ~~$38,000~~$48,000 in benefits relating to the Director Retirement Plan during Fiscal ~~2011.~~2012.

Note 6. Line of Credit

In April 2010, the Company entered into a $100 million amended and restated Credit Agreement (“Amended Credit Facility”). The principal amount of all outstanding loans under the Amended Credit Facility together with any accrued but unpaid interest, ~~are~~was due and payable in April 2013, unless otherwise paid earlier pursuant to the terms of the Amended Credit Facility. Payments of amounts due under the Amended Credit Facility ~~are~~were secured by the assets of the Company.

The Amended Credit Facility includes customary provisions, including affirmative and negative covenants, which include representations, warranties and restrictions on additional indebtedness and acquisitions. The Company is compliant with all covenants. The Amended Credit Facility also includes customary events of default, including, among other things, material adverse effect, bankruptcy, and certain changes of control. The Amended Credit Facility also contains other terms and conditions, including prohibiting the payment of dividends and covenants around the number of store closings. It also changed the formula for interest rates.

Interest under the Amended Credit Facility will accrue, at the election of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of ~~Availability~~availability as defined in the Amended Credit Agreement, with the Applicable Margin for LIBO Rate loans ranging from 4.00% to 4.50% and the Applicable Margin for Base Rate loans ranging from 3.00% to 3.50%. In addition, a commitment fee of 0.75% is also payable on unused commitments.

outstanding under the Amended Credit Facility and had ~~$1.2~~$626,000 in outstanding letter of credit obligations. The Company did not have any borrowings during the first quarter.

As of April 30, 2011, the Company didn’t have any borrowings under the Amended Credit Facility and had $0.8 million in outstanding letter of credit obligations. The Company ~~has~~did not ~~had~~have any borrowings during the ~~first nine months of the year.~~quarter.

~~As of October 30, 2010,~~In May 2012, the Company ~~had $8.6~~entered into a $75 million ~~outstanding on the~~ Amended Credit Facility (“Second Amended Credit Facility”). The principal amount of all outstanding loans under the Second Amended Credit Facility together with any accrued but unpaid interest, are due and ~~had $1.1 million~~payable in ~~outstanding letter~~May 2017, unless otherwise paid earlier pursuant to the terms of ~~credit obligations~~the Second Amended Credit Facility. Payments of amounts due under the Second Amended Credit Facility are secured by the assets of the Company.

The Second Amended Credit Facility includes customary provisions, including affirmative and ~~$80.3 million was available for borrowing.~~negative covenants, which include representations, warranties and restrictions on additional indebtedness and acquisitions. The ~~weighted average interest rate on outstanding borrowings~~Company is compliant with all covenants. The Second Amended Credit Facility also includes customary events of default, including, among other things, material adverse effect, bankruptcy, and certain changes of control. The Second Amended Credit Facility also contains other terms and conditions, including covenants around the number of store closings and allows for the ~~thirteen weeks ended October 30, 2010 was 5.42%~~payment of dividends with certain restrictions. It also changed the formula for interest rates.

Interest under the Second Amended Credit Facility will accrue, at the election of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of availability as defined in the Credit Agreement, with the Applicable Margin for LIBO Rate loans ranging from 2.25% to 2.75% and the Applicable Margin for Prime Rate loans ranging from 0.75% to 1.25%. In addition, a commitment fee ranging from 0.375% to 0.50% is also payable on unused commitments.

Note 7. Accumulated Other Comprehensive (Loss)Income ~~and Loss~~

Accumulated other comprehensive (loss)income that the Company reports in the condensed consolidated balance sheets represents the excess of accrued pension liability over accrued benefit cost, net of taxes, associated with the Company’s defined benefit plans. Comprehensive ~~loss~~(loss)income was equal to the net ~~loss~~income (loss) for the thirteen ~~and thirty-nine~~ weeks ended ~~October 29, 2011~~April 28, 2012 and ~~October~~April 30, ~~2010.~~2011.

Note 8. Depreciation and Amortization of Fixed Assets

Depreciation and amortization of fixed assets included in the condensed consolidated statements of operations is as follows:


	Thirteen Weeks Ended				Thirty-nine Weeks Ended				Thirteen Weeks Ended

	October 29, 2011		October 30, 2010		October 29, 2011		October 30, 2010		April 28, 2012		April 30, 2011

	(in thousands)				(in thousands)				(in thousands)
Cost of sales	$	133	$	297	$	406	$	919	$	126	$	138
Selling, general and administrative expenses		1,345		2,769	$	4,666		8,420		941		1,715

Total	$	1,478	$	3,066	$	5,072	$	9,339	$	1,067	$	1,853

Note 9. ~~Loss~~Income(Loss) Per Share

Basic ~~loss~~income(loss) per share is calculated by dividing net ~~loss~~income(loss) by the weighted average common shares outstanding for the period. Diluted ~~earnings~~income per share reflects the potential dilution that could occur if

securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock (net of any assumed repurchases) that then shared in the earnings of the Company, if any. It is computed by dividing net ~~earnings~~income by the sum of the weighted average shares outstanding and additional common shares that would have been outstanding if the dilutive potential common shares had been issued for the Company’s common stock awards from the Company’s Stock Award Plans.

Weighted average shares are calculated as follows:


	Thirteen weeks ended

	April 28, 2012		April 30, 2011

	(in thousands)

Weighted average common shares outstanding – basic		31,535		31,425
Dilutive effect of employee stock options		675		—

Weighted average common shares outstanding–diluted		32,210		31,425


Anti-dilutive stock options		4,784		4,808

For the thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~October 29,~~April 30, 2011, ~~and October 30, 2010,~~ the impact of outstanding stock awards was not considered because the Company reported a net loss and such impact would be anti-dilutive. Accordingly, basic and diluted loss per share is the same. Total anti-dilutive stock awards for the thirteen weeks ended October 29, 2011 and October 30, 2010 were approximately 3.9 million and 4.7 million, respectively. Total anti-dilutive stock awards for the thirty-nine weeks ended October 29, 2011 and October 30, 2010 were approximately 4.2 million and 4.9 million, respectively.

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
~~PART 1. FINANCIAL INFORMATION~~
~~Item 2 - Management’s Discussion and Analysis of Financial Condition and~~
~~Results of Operations~~
~~October 29, 2011 and October 30, 2010~~

~~Overview~~
Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information that the Company’s management believes necessary to achieve an understanding of its financial statements and results of operations. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment for the Company’s merchandise, including the entry or exit of non-traditional retailers of the Company’s merchandise to or from its markets; releases by the music, video and video games industries of an increased or decreased number of “hit releases”; general economic factors in markets where the Company’s merchandise is sold; and other factors discussed in the Company’s filings with the Securities and Exchange Commission. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

PART 1. FINANCIAL INFORMATION

Item 2 - Management’s Discussion and Analysis of Financial Condition and

Results of Operations

April 28, 2012 and April 30, 2011

Overview

Management’s Discussion and Analysis of Financial Condition and Results of Operations provides information that the Company’s management believes necessary to achieve an understanding of its financial statements and results of operations. To the extent that such analysis contains statements which are not of a historical nature, such statements are forward-looking statements, which involve risks and uncertainties. These risks include, but are not limited to, changes in the competitive environment for the Company’s merchandise, including the entry or exit of non-traditional retailers of the Company’s merchandise to or from its markets; releases by the music, video and video games industries of an increased or decreased number of “hit releases”; general economic factors in markets where the Company’s merchandise is sold; and other factors discussed in the Company’s filings with the Securities and Exchange Commission. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and related notes included elsewhere in this report and the audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 28, 2012.

At ~~October 29, 2011,~~April 28, 2012, the Company operated ~~440~~379 stores totaling approximately ~~2.9~~2.4 million square feet in the United States, the District of Columbia, the Commonwealth of Puerto Rico and the U.S. Virgin Islands. The Company’s stores offer predominantly entertainment product, including ~~music~~video and ~~video.~~music. In total, these two categories represented ~~78%~~77% of the Company’s sales for the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011.~~April 28, 2012. The balance of categories, including electronics, trend, video games ~~electronics~~ and ~~trend~~related products represented ~~22%~~23% of the Company’s sales for the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011.~~April 28, 2012.

The Company’s results have been, and will continue to be, contingent upon management’s ability to understand industry trends and to manage the business in response to those trends and general economic trends. Management monitors a number of key performance indicators to evaluate its performance, including:

Sales and comparable store sales: The Company measures and reports the rate of comparable store sales change. A store is included in comparable store sales calculations at the beginning of its thirteenth full month of operation. Mall stores relocated in the same shopping center after being open for at least thirteen months are considered comparable stores. Closed stores that were open for at least thirteen months are included in comparable store sales through the month immediately preceding the month of closing. The Company further analyzes sales by store format and by product category.

Cost of Sales and Gross Profit: Gross profit is impacted primarily by the mix of products sold, by discounts negotiated with vendors and discounts offered to customers. The Company records its distribution and product shrink expenses in cost of sales. Distribution expenses include those costs associated with receiving, shipping, inspecting and warehousing product and costs associated with product returns to vendors. Cost of sales further includes obsolescence costs and is reduced by the benefit of vendor allowances, net of direct reimbursements of expense.

Selling, General and Administrative (“SG&A”) Expenses: Included in SG&A expenses are payroll and related costs, occupancy charges, general operating and overhead expenses and depreciation charges (excluding those related to distribution operations, as disclosed in Note 8 to the condensed consolidated financial statements). SG&A expenses also include asset impairment charges and write-offs, if any, and miscellaneous items, other than interest.

Balance Sheet and Ratios: The Company views cash, net inventory investment (merchandise inventory less accounts payable) and working capital (current assets less current liabilities) as relevant indicators of its financial position. See Liquidity and Capital Resources for further discussion of these items.

RESULTS OF OPERATIONS

Thirteen ~~and Thirty Nine~~ Weeks Ended ~~October 29, 2011~~April 28, 2012
Compared to the Thirteen ~~and Thirty Nine~~ Weeks Ended ~~October~~April 30, ~~2010~~2011

The following table sets forth a period over period comparison of the Company’s net sales by category:


	Thirteen weeks ended															Thirty-nine weeks ended															Thirteen weeks ended

	October 29, 2011			October 30, 2010			Change			%			Comp Store Sales			October 29, 2011			October 30, 2010			Change			%			Comp Store Sales			April 28, 2012			April 30, 2011			Change			%			Comp Store Sales

				(in thousands)															(in thousands)												(in thousands, except store data)

Net sales	$	109,996		$	128,787		$	(18,791	)		(14.6	%)		0	%	$	349,483		$	421,129		$	(71,646	)		(17.0	%)		(3	%)	$	112,287		$	131,496		$	(19,209	)		(14.6	%)		1	%

As a % of sales
Video		42.5	%		43.6	%								(2	%)		41.9	%		43.4	%								(5	%)		43.7	%		42.3	%								6	%
Music		34.6	%		36.6	%								(7	%)		36.2	%		36.9	%								(6	%)		33.2	%		36.7	%								(9	%)
Electronics		9.2	%		7.7	%								16	%		9.1	%		7.6	%								14	%		10.5	%		8.8	%								19	%
Trend		8.8	%		7.0	%								27	%		7.9	%		6.9	%								14	%		7.9	%		7.0	%								15	%
Video Games		4.9	%		5.1	%								(4	%)		4.9	%		5.2	%								(9	%)		4.7	%		5.2	%								(10	%)

Store Count:																	440			533			(93	)		(17.4	%)					379			444			(65	)		(14.6	%)

Net sales.Net sales decreased 14.6% ~~and 17.0%~~ during the thirteen weeks ~~and thirty-nine weeks~~ ended ~~October 29, 2011,~~April 28, 2012, as compared to the same ~~periods~~period last year. The decline in sales for the thirteen week period resulted from a decrease in store count of ~~17.4%~~14.6%. For the thirteen week period comparable stores net sales were ~~flat~~up 1% as compared to the ~~comparable~~same period last year. ~~The decline in sales for the thirty-nine week period resulted from a comparable store net sales decline of 3%, along with the decrease in store count.~~ While the Company believes a meaningful amount of sales from the closed stores was transferred to ongoing stores, there was a reduction of sales resulting from store closings.

Video:
Comparable store net sales in the video category decreased 2% and 5% during the thirteen and thirty-nine weeks ended October 29, 2011, respectively. According to Warner Brothers Home Video, industry sales were up 2% for the quarter. The video category represented 42.5% of total net sales for the thirteen weeks ended October 29, 2011 compared to 43.6% in the comparable quarter last year.

~~Music:~~
Comparable store net sales in the music category decreased 7% and 6% during the thirteen and thirty-nine weeks ended October 29, 2011, respectively. According to Soundscan, total CD unit sales industry-wide

Comparable store net sales in the video category increased 6% during the thirteen weeks ended April 28, 2012. The increase for the quarter was driven by the release of Breaking Dawn and a strong performance in our catalog business in both DVD and Blu ray. According to Warner Brothers Home Video, industry sales were down 8% for the quarter. The video category represented 43.7% of total net sales for the thirteen weeks ended April 28, 2012 compared to 42.3% in the comparable quarter last year.

Music:

Comparable store net sales in the music category decreased 9% during the thirteen weeks ended April 28, 2012. According to Soundscan, total physical CD unit sales industry-wide were down 10% during the period corresponding to the Company’s first fiscal quarter. The music category represented 33.2% of total net sales for the thirteen weeks ended April 28, 2012 compared to 36.7% in the comparable quarter last year.

were flat during the period corresponding to the Company’s third fiscal quarter. The music category represented 34.6% of total net sales for the thirteen weeks ended October 29, 2011 compared to 36.6% in the comparable quarter last year.
Electronics:
Comparable store sales in the electronics category increased 16% and 14% during the thirteen and thirty-nine weeks ended October 29, 2011, respectively. The increases were driven by strong back-to-school promotions, expanded product lines and improved selection. Electronics sales represented 9.2% of total net sales for the thirteen weeks ended October 29, 2011 compared to 7.7% in the comparable quarter last year.
~~Trend:~~
Comparable store sales in the trend category increased 27% and 14% during the thirteen and thirty-nine weeks ended October 29, 2011, respectively. The increases were driven by strong back-to-school promotions, expanded product lines and improved selection. Trend product represented 8.8% of total net sales for the thirteen weeks ended October 29, 2011 compared to 7.0% in the comparable quarter last year.
~~Video Games:~~
Comparable store sales for video games decreased 4% and 9% during the thirteen and thirty-nine weeks ended October 29, 2011, respectively. Currently, 121 stores, or 27.5% of the company’s stores carry games. Games sales represent 4.9% of total net sales for the thirteen weeks ended October 29, 2011 compared to 5.1% in the comparable quarter last year.
Comparable store sales in the electronics category increased 19% during the thirteen weeks ended April 28, 2012. The increase was driven by expanded product lines and improved selection. Electronics sales represented 10.5% of total net sales for the thirteen weeks ended April 28, 2012 compared to 8.8% in the comparable quarter last year.
Trend:
Comparable store sales in the trend category increased 15% during the thirteen weeks ended April 28, 2012. The increase was driven by expanded product lines and improved selection. Trend product represented 7.9% of total net sales for the thirteen weeks ended April 28, 2012 compared to 7.0% in the comparable quarter last year.
Video Games:
Comparable store sales for video games decreased 10% during the thirteen weeks ended April 28, 2012. Currently, 107 stores, or 28.2% of the company’s stores carry games. According to NPD Group, industry sales were down 25% for the quarter. Games sales represent 4.7% of total net sales for the thirteen weeks ended April 28, 2012 compared to 5.2% in the comparable quarter last year.

Gross Profit.The following table sets forth a period over period comparison of the Company’s gross profit:


	Thirteen weeks ended (in thousands)						Change						Thirty-nine weeks ended (in thousands)						Change						Thirteen weeks ended (in thousands)						Change

	October 29, 2011			October 30, 2010			$			%			October 29, 2011			October 30, 2010			$			%			April 28, 2012			April 30, 2011			$			%

Gross Profit	$	40,652		$	43,917		$	(3,265	)		(7.4	%)	$	128,933		$	141,170		$	(12,237	)		(8.7	%)	$	41,815		$	48,289		$	(6,474	)		(13.4	%)

As a % of sales		37.0	%		34.1	%								36.9	%		33.5	%
As a % of net sales																										37.2	%		36.7	%

Gross profit decreased ~~7.4% and 8.7%~~13.4% for the thirteen ~~and thirty-nine~~ weeks ended ~~October 29, 2011~~April 28, 2012 as compared to the comparable ~~periods~~period last year. The decline in gross profit ~~for both periods~~ is due to the decline in net sales. The decline in net sales was partially offset by increases in the gross profit as a percentage of net sales due to higher margin rates in all product ~~categories and the leveraging of distribution and freight costs.~~categories.

SG&A Expenses. The following table sets forth a period over period comparison of the Company’s SG&A expenses:


	Thirteen weeks ended (in thousands)						Change						Thirty-nine weeks ended (in thousands)						Change						Thirteen weeks ended (in thousands)						Change

	October 29, 2011			October 30, 2010			$			%			October 29, 2011			October 30, 2010			$			%			April 28, 2012			April 30, 2011			$			%

SG&A	$	44,394		$	59,051		$	(14,657	)		(24.8	%)	$	140,778		$	181,783		$	(41,005	)		(22.6	%)	$	38,201		$	49,968		$	(11,767	)		(23.5	%)

As a % of sales		40.4	%		45.9	%								40.3	%		43.2	%
As a % of net sales																										34.0	%		38.0	%

For the thirteen weeks ended ~~October 29, 2011,~~April 28, 2012, SG&A expenses decreased ~~$14.7~~$11.8 million, or ~~24.8%~~23.5% on the net sales decline of 14.6% resulting in a ~~550~~400 basis point improvement in SG&A ~~Expenses~~expenses as a percentage of net sales. The decrease is primarily due to lower overhead expenses associated with the decrease in store count, lower ~~depreciation expense due to lower store count and the write-down of fixed assets at underperforming locations during the fourth quarter of 2010, lower~~ occupancy expenses in ongoing stores and effective expense management.

For the thirty-nine weeks ended October 29, 2011, SG&A expenses decreased $41.0 million, or 22.6% on the net sales decline of 17.0% resulting in a 290 basis point improvement in SG&A Expenses as a percentage of sales. The decrease is primarily due to lower overhead expenses associated with the decrease in store count, lower depreciation expense due to lower store count and the write-down of fixed assets at underperforming locations during the fourth quarter of 2010, lower occupancy expenses in ongoing stores and effective expense management.

Interest Expense, Net. Net interest expense was ~~$0.8 million and $2.4 million~~$770,000 during the thirteen ~~and thirty-nine~~ weeks ended ~~October 29, 2011, respectively,~~April 28, 2012, compared to ~~$0.9 million and $2.4 million~~$832,000 during the thirteen ~~and thirty nine~~ weeks ended ~~October~~April 30, ~~2010.~~2011.

Income Tax Expense (Benefit).As of January ~~29, 2011~~28, 2012 and January 30, ~~2010,~~2011, the Company had incurred cumulative three-year losses. Based on ~~the~~these cumulative three-year losses and other available objective evidence, management concluded that a full valuation allowance should be recorded against the Company’s deferred tax assets. ~~Due~~The Company has significant net operating losses carry forwards and other tax attributes that are available to ~~the recognition of a full valuation allowance as of January 29, 2011, the~~offset projected ~~net loss~~taxable income and current taxes payable for the year ending ~~January 28, 2012 and~~February 2, 2013. The deferred tax impact resulting from the utilization of the net operating loss ~~incurred for~~carry forwards and other tax attributes will be offset by a reduction in the ~~thirty-nine weeks ended October 29, 2011, the Company did not provide a current tax benefit for the net loss incurred for this thirteen week period.~~

~~During~~valuation allowance. For the thirteen weeks ended ~~October 29, 2011,~~April 28, 2012 the ~~Company reversed a liability for an uncertain~~Company’s current tax ~~position for which the applicable statute of limitations expired during the period. This benefit~~expense was ~~partially offset by the~~associated with quarter-specific items attributable to interest ~~accrual~~accruals on related to uncertain tax positions and state taxes based on modified gross receipts incurred ~~during~~for this thirteen week period.

For ~~all other periods presented,~~the thirteen weeks ended April 28, 2012 and April 30, 2011, the tax expense associated with the quarter-specific items is primarily attributed to the net impact of the interest accrual related to uncertain tax positions and state taxes based on modified gross receipts incurred during this ~~period~~period.

Net ~~Loss.~~Income(Loss). The following table sets forth a period over period comparison of the Company’s net ~~loss:~~income (loss):

Thirteen weeks ended

Thirty-nine weeks ended

(in thousands)

October 29,
2011

October 30,
2010

Change

October 29,
2011

October 30,
2010

Change

Loss before income tax

$
(4,516
)
$
(16,061
)
$
11,545

$
(14,244
)
$
(43,044
)
$
28,800

Income tax expense (benefit)

(5
)

55

60

90

270

180

Net loss

$
(4,511
)
$
(16,116
)
$
11,605

$
(14,334
)
$
(43,314
)
$
28,980


	Thirteen weeks ended

	April 28, 2012		April 30, 2011			Change

	(in thousands)

Income(loss) before income tax	$	2,844	$	(2,511	)	$	5,355

Income tax expense		47		36			11

Net income(loss)	$	2,797	$	(2,547	)	$	5,344

For the thirteen weeks ended ~~October 29, 2011,~~April 28, 2012, the Company’s net ~~loss decreased $11.6~~income increased $5.3 million to ~~$4.5~~$2.8 million from ~~$16.1~~a net loss of $2.5 million for the thirteen weeks ended ~~October~~April 30, ~~2010.~~2011. The ~~decreased loss was due to~~

~~a higher gross margin percentage and a reduction in SG&A expenses partially offset by the decline in gross profit from lower sales.~~

~~For the thirty-nine weeks ended October 29, 2011, the Company’s net loss decreased $29.0 million to $14.3 million from $43.3 million for the thirteen weeks ended October 30, 2010. The decreased loss~~increase was due to a higher gross margin percentage and a reduction in SG&A expenses partially offset by the decline in gross profit from lower sales.

LIQUIDITY

Liquidity and Cash Flows: The Company’s primary sources of working capital are cash provided by operations and borrowing capacity under its revolving credit facility (See Note 6 for further details). The Company’s cash flows fluctuate from quarter to quarter due to various items, including seasonality of sales and earnings, merchandise inventory purchases and returns and the related terms on the purchases and capital expenditures. Management believes it will have adequate resources to fund its cash needs for at least the next twelve months and beyond, including its capital spending, its seasonal increase in merchandise inventory and other operating cash requirements and commitments. During Fiscal ~~2010,~~2011, management carried out certain strategic initiatives in its efforts to reduce operating costs such as the reduction of headcount at the home office ~~the closing of a distribution in center in Carson, CA.~~ and the elimination or curtailment of certain other general and administrative expenses. Also, during the fourth quarter of Fiscal ~~2010,~~2011, management closed 7350 stores. Management has continued many of the initiatives begun in 2011, as part of the execution of its operating plan for ~~2011;~~2012; including a focus on the operation of a core base of stores, improved product selection based on customer

preferences and industry changes, as well as further streamlining of its operations. An additional 2411 stores closed in the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011.~~April 28, 2012. The Company will continue its evaluation of its remaining stores profitability in consideration of lease terms, conditions and expirations.

Management anticipates that any cash requirements due to a shortfall in cash from operations ~~will~~would be funded by the Company’s revolving credit facility, discussed hereafter. Cash flows from investing and financing activities during Fiscal ~~2011~~2012 are not expected to be ~~comparable~~materially different with Fiscal ~~2010.~~2011. The Company does not expect any material changes in the mix (between equity and debt) or the relative cost of capital resources.

The following table sets forth a summary of key components of cash flow and working capital for each of the ~~thirty-nine~~thirteen weeks ended ~~October 29,~~April 28, 2012 and April 30, 2011, ~~and October 30, 2010,~~ or at those dates:


	Thirty-nine weeks ended						Change			Thirteen weeks ended						Change

(in thousands)	October 29, 2011			October 30, 2010			$			April 28, 2012			April 30, 2011			$

Operating Cash Flows	$	(53,547	)	$	(68,126	)	$	14,579		$	(24,048	)	$	(44,821	)	$	20,773
Investing Cash Flows		(1,638	)		(4,195	)		2,557			(180	)		(389	)		209
Financing Cash Flows		(1,010	)		6,934			(7,944	)		(1,944	)		(328	)		(1,616	)
Capital Expenditures		(1,638	)		(2,347	)		709			(180	)		(389	)		209

Cash and Cash Equivalents		19,017			6,127			12,890			62,343			29,674			32,669
Merchandise Inventory		223,528			270,800			(47,272	)		176,227			217,785			(41,558	)
Working Capital		146,816			141,735			5,081			166,380			155,925			10,455

The Company had cash and cash equivalents of ~~$19.0~~$62.3 million at ~~October 29, 2011,~~April 28, 2012, compared to ~~$75.2~~$88.5 million at January ~~29, 2011~~28, 2012 and ~~$6.1~~$29.7 million at ~~October~~April 30, ~~2010.~~2011. Merchandise inventory was ~~$77~~$74 per square foot at ~~October 29, 2011, compared to $76 per square foot at October~~April 28, 2012, the same level as April 30, ~~2010.~~2011.

Cash used by operating activities was ~~$53.5~~$24.0 million for the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011.~~April 28, 2012. The primary use of cash was a ~~$51.5~~$41.0 million seasonal reduction of accounts ~~payable.~~payable, partially offset by a $15.1 million reduction in inventory. The Company’s merchandise inventory and accounts payable are influenced by the seasonality of its business. A significant reduction of accounts payable occurs annually in the fiscal first half, reflecting payments for merchandise inventory sold during the prior year’s holiday season.

Cash used by investing activities, which was constituted entirely of capital expenditures, was ~~$1.6 million~~$180,000 for the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011.~~April 28, 2012.

Cash used by financing activities was ~~$1.0~~$1.9 million for the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011~~April 28, 2012 for the payment on long term debt and capital lease obligations. The Company paid off the remaining obligation of $1.7 million related to a mortgage loan on real estate during the quarter.

The availability under the Amended Credit Facility is subject to limitations based on sufficient inventory levels. Based on inventory levels at the end of the quarter, the availability under the credit facility was ~~$88.8~~$61.7 million as of ~~October 29, 2011.~~April 28, 2012. As of ~~October 29, 2011,~~April 28, 2012, the Company didn’t have any borrowings outstanding under the Amended Credit Facility and had ~~$1.2~~$626,000 in outstanding letter of credit obligations. The Company did not have any borrowings during the first quarter.

The Second Amended Credit Facility includes customary provisions, including affirmative and ~~$80.3 million was available for borrowing.~~negative covenants, which include representations, warranties and restrictions on additional indebtedness and acquisitions. The ~~weighted average interest rate on outstanding borrowings~~Company is compliant with all covenants. The Second Amended Credit Facility also includes customary events of default, including, among other things, material adverse effect, bankruptcy, and certain changes of control. The Second Amended Credit Facility also contains other terms and conditions, covenants around the number of store closings and allows for the ~~thirteen weeks ended October 30, 2010 was 5.42%~~payment of dividends with certain restrictions. It also changed the formula for interest rates.

Capital ~~Expenditures~~Expenditures..During the ~~thirty-nine~~thirteen weeks ended ~~October 29, 2011,~~April 28, 2012, the Company made capital expenditures of ~~$1.6 million.~~$180,000. The Company plans to spend ~~under $3.0~~$7.5 million for capital expenditures in fiscal ~~2011.~~2012.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires that management apply accounting policies and make estimates and assumptions that affect results of operations and the reported amounts of assets and liabilities in the financial statements. Management continually evaluates its estimates and judgments including those related to merchandise inventory and return costs, valuation of long-lived assets, income taxes and accounting for gift card liability. Management bases its estimates and judgments on historical experience and other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Form 10-K for the year ended January ~~29, 2011~~28, 2012 includes a summary of the critical accounting policies and methods used by the Company in the preparation of its condensed consolidated financial statements. There have been no material changes or modifications to the policies since January ~~29, 2011.~~28, 2012.

Recently Issued Accounting Pronouncements:

There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART I – FINANCIAL INFORMATION

Item 3 - Quantitative and Qualitative Disclosures about Market Risk

To the extent the Company borrows under its Second Amended Credit Facility, the Company is subject to risk resulting from interest rate fluctuations since interest on the Company’s borrowings under its Second Amended Credit Facility can be ~~variable~~variable. Interest under the Second Amended Credit Facility will accrue, at the election of the Company, at a Base Rate or LIBO Rate, plus, in each case, an Applicable Margin, which is determined by reference to the level of ~~Availability~~availability as defined in the Second Amended Credit Agreement, with the Applicable Margin for LIBO Rate loans ranging from ~~4.00%~~2.25% to ~~4.50%~~2.75% and the Applicable Margin for Base Rate loans ranging from ~~3.00%~~0.75% to ~~3.50%~~1.25%. If interest rates on the Company’s Second Amended Credit Facility were to increase by 25 basis points, and to the extent borrowings were outstanding, for every $1,000,000 outstanding on the facility, income before income taxes would be reduced by $2,500 per year. For a discussion of the Company’s accounting policies for financial instruments and further disclosures relating to financial instruments, see “Nature of Operations and Summary of Significant Accounting Policies” in the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended January ~~29, 2011.~~28, 2012. The Company does not currently hold any derivative instruments.

Item 4 – Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The Company’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of ~~October 29, 2011,~~April 28, 2012, have concluded that as of such date the Company’s disclosure controls and procedures were effective and designed to ensure that (i) information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in internal controls. There have been no changes in the Company’s internal controls over financial reporting that occurred during the fiscal quarter covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

TRANS WORLD ENTERTAINMENT CORPORATION AND SUBSIDIARIES

PART II - OTHER INFORMATION

Item 1 – Legal Proceedings

The Company is subject to legal proceedings and claims that have arisen in the ordinary course of its business and have not been finally adjudicated. Although there can be no assurance as to the ultimate disposition of these matters, it is management’s opinion, based upon the information available at this time, that the expected outcome of these matters, individually and in the aggregate, will not have a material adverse effect on the results of operations and financial condition of the Company.

Item 1A – Risk Factors

Risks relating to the Company’s business and Common Stock are described in detail in Item 1A of the Company’s most recently filed Annual Report on Form 10-K for the year ended January ~~30, 2011.~~28, 2012.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – ~~Submissions of Matters to a Vote of Security Holders~~Mine Safety Disclosure

~~None.~~Not Applicable.

Item 5 – Other Information

None.

Item 6 - Exhibits

~~(A) Exhibits -~~


(A) Exhibits - Exhibit No.			Description


31.1		Chief Executive Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	31.2		Chief Financial Officer certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

	32		Certification pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	101.INS		XBRL Instance Document (furnished herewith)

	101.SCH		XBRL Taxonomy Extension Schema (furnished herewith)

	101.CAL		XBRL Taxonomy Extension Calculation Linkbase (furnished herewith)

	101.DEF		XBRL Taxonomy Extension Definition Linkbase (furnished herewith)

	101.LAB		XBRL Taxonomy Extension Label Linkbase (furnished herewith)

	101.PRE		XBRL Taxonomy Extension Presentation Linkbase (furnished herewith)

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TRANS WORLD ENTERTAINMENT CORPORATION


~~TRANS WORLD ENTERTAINMENT CORPORATION~~

~~December 9, 2011~~June 7, 2012	By: /s/ Robert J. Higgins

	Robert J. Higgins
	Chairman and Chief Executive Officer
	(Principal Executive Officer)

~~December 9, 2011~~June 7, 2012	By: /s/ ~~John J. Sullivan~~Tom G. Seaver

	~~John J. Sullivan~~Tom G. Seaver
	Chief Financial Officer
	(Principal ~~Accounting Officer (Chief~~and Chief Accounting Officer)


	Employee and Director Stock Award Plans

	Number of Shares Subject To Award			Weighted Average Exercise Price ⁽¹⁾		Weighted Average Remaining Contractual Term

Balance January 29, 2011		6,880,955		$	6.80		3.9
Granted		439,898			1.74		9.3
Exercised⁽²⁾		(30,000	)		—		—
Forfeited		(11,425	)		3.23		—
Expired		(858,357	)		8.82		—

Balance October 29, 2011		6,421,071		$	5.94		4.0

Exercisable at October 29, 2011		4,986,897		$	7.22		2.6