|                                  
|----------------------------------
|UNITED STATES                     
|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 APRIL 30,
 2011
|   |                                                                                                                                        
|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 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. Yes x No o

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 filer o   | Accelerated
 filer o | Non-accelerated
 filer o
|Smaller
 reporting company x |                     

Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes o No x

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 shares outstanding as of May 28, 2011

---



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 April 30, 2011, January 29,
 2011 and May 1, 2010             |  |                     | 3 
|                                                                                                       |  |                     |   
|Condensed Consolidated Statements of Operations  Thirteen Weeks
 Ended April 30, 2011 and May 1, 2010 |  |                     | 4 
|                                                                                                       |  |                     |   
|Condensed Consolidated Statements of Cash Flows  Thirteen Weeks
 Ended April 30, 2011 and May 1, 2010 |  |                     | 5 
|                                                                                                       |  |                     |   
|Notes to Condensed Consolidated Financial Statements                                                   |  |                     | 6 
|                                                                                                       |  |                     |   
|Item 2 - Managements Discussion and Analysis of Financial Condition
 and Results of Operations        |  |                     | 14
|                                                                                                       |  |                     |   
|Item 3  Quantitative and Qualitative Disclosures about Market Risk                                    |  |                     | 22
|                                                                                                       |  |                     |   
|Item 4  Controls and Procedures                                                                       |  |                     | 22
|                                                                                                       |  |                     |   
|PART II. OTHER INFORMATION                                                                             |  |                     |   
|                                                                                                       |  |                     |   
|Item 1  Legal Proceedings                                                                             |  |                     | 23
|                                                                                                       |  |                     |   
|Item 1A- Risk Factors                                                                                  |  |                     | 23
|                                                                                                       |  |                     |   
|Item 2  Unregistered Sales of Equity Securities and Use of Proceeds                                   |  |                     | 23
|                                                                                                       |  |                     |   
|Item 3  Defaults Upon Senior Securities                                                               |  |                     | 23
|                                                                                                       |  |                     |   
|Item 4  Submission of Matters to a Vote of Security Holders                                           |  |                     | 23
|                                                                                                       |  |                     |   
|Item 5  Other Information                                                                             |  |                     | 23
|                                                                                                       |  |                     |   
|Item 6  Exhibits                                                                                      |  |                     | 23
|                                                                                                       |  |                     |   
|Signatures                                                                                             |  |                     | 24

2

---



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

|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | --------------- | -------- | ----------------- | - | ------------ | - | - | -------- | -
|                                                                                                                                   |  | April 30,
 2011 |          | January 29,
 2011 |   | May 1,
 2010 |  
|                                                                                                                                   |  |                 |          |                   |   |              |  
|ASSETS                                                                                                                             |  |                 |          |                   |   |              |   |   |          |  
|CURRENT ASSETS:                                                                                                                    |  |                 |          |                   |   |              |   |   |          |  
|Cash and cash equivalents                                                                                                          |  | $               | 29,674   |                   | $ | 75,212       |   | $ | 21,275   |  
|Merchandise inventory                                                                                                              |  |                 | 217,785  |                   |   | 234,164      |   |   | 251,279  |  
|Other current assets                                                                                                               |  |                 | 6,868    |                   |   | 8,385        |   |   | 7,718    |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|Total current assets                                                                                                               |  |                 | 254,327  |                   |   | 317,761      |   |   | 280,272  |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|NET FIXED ASSETS                                                                                                                   |  |                 | 20,047   |                   |   | 21,478       |   |   | 31,398   |  
|OTHER ASSETS                                                                                                                       |  |                 | 9,399    |                   |   | 9,485        |   |   | 9,790    |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|TOTAL ASSETS                                                                                                                       |  | $               | 283,773  |                   | $ | 348,724      |   | $ | 321,460  |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|LIABILITIES                                                                                                                        |  |                 |          |                   |   |              |   |   |          |  
|CURRENT LIABILITIES:                                                                                                               |  |                 |          |                   |   |              |   |   |          |  
|Accounts payable                                                                                                                   |  | $               | 71,021   |                   | $ | 130,007      |   | $ | 74,746   |  
|Borrowings under line of credit                                                                                                    |  |                 |         |                   |   |             |   |   |         |  
|Accrued expenses and other current
 liabilities                                                                                    |  |                 | 25,985   |                   |   | 28,025       |   |   | 34,411   |  
|Current portion of long-term debt                                                                                                  |  |                 | 650      |                   |   | 640          |   |   | 611      |  
|Current portion of capital lease
 obligations                                                                                      |  |                 | 746      |                   |   | 723          |   |   | 828      |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|Total current liabilities                                                                                                          |  |                 | 98,402   |                   |   | 159,395      |   |   | 110,596  |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|LONG-TERM DEBT, less current portion                                                                                               |  |                 | 1,582    |                   |   | 1,748        |   |   | 2,231    |  
|CAPITAL LEASE OBLIGATIONS, less current
 portion                                                                                   |  |                 | 3,568    |                   |   | 3,763        |   |   | 4,314    |  
|OTHER LONG-TERM LIABILITIES                                                                                                        |  |                 | 20,861   |                   |   | 22,020       |   |   | 22,129   |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|TOTAL LIABILITIES                                                                                                                  |  |                 | 124,413  |                   |   | 186,926      |   |   | 139,270  |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|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; 56,527,519, 56,527,519 and 56,498,429 shares issued,
 respectively) |  |                 | 565      |                   |   | 565          |   |   | 565      |  
|Additional paid-in capital                                                                                                         |  |                 | 308,442  |                   |   | 308,333      |   |   | 308,074  |  
|Treasury stock at cost (25,102,990,
 25,102,990 and 25,102,990 shares, respectively)                                               |  |                 | (217,555 | )                 |   | (217,555     | ) |   | (217,555 | )
|Accumulated other comprehensive income                                                                                             |  |                 | 416      |                   |   | 416          |   |   | 1,518    |  
|Retained earnings                                                                                                                  |  |                 | 67,492   |                   |   | 70,039       |   |   | 89,588   |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|TOTAL SHAREHOLDERS EQUITY                                                                                                         |  |                 | 159,360  |                   |   | 161,798      |   |   | 182,190  |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                         |  | $               | 283,773  |                   | $ | 348,724      |   | $ | 321,460  |  
|                                                                                                                                   |  |                 |          |                   |   |              |   |   |          |  

See Accompanying Notes to Condensed
Consolidated Financial Statements.

3

---



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

|                                                              |  |                      |         |              |   |         |  
|------------------------------------------------------------- |  | -------------------- | ------- | ------------ | - | ------- | -
|                                                              |  | Thirteen Weeks Ended |        
|                                                              |  |                      |        
|                                                              |  | April 30,
 2011      |         | May 1,
 2010 |  
|                                                              |  |                      |         |              |  
|                                                             
|Net sales                                                     |  | $                    | 131,496 |              | $ | 156,539 |  
|Cost of sales                                                 |  |                      | 83,207  |              |   | 105,014 |  
|                                                              |  |                      |         |              |   |         |  
|Gross profit                                                  |  |                      | 48,289  |              |   | 51,525  |  
|Selling, general and administrative
 expenses                 |  |                      | 49,968  |              |   | 62,178  |  
|                                                              |  |                      |         |              |   |         |  
|Loss from operations                                          |  |                      | (1,679  | )            |   | (10,653 | )
|Interest expense, net                                         |  |                      | 832     |              |   | 688     |  
|                                                              |  |                      |         |              |   |         |  
|Loss before income tax expense                                |  |                      | (2,511  | )            |   | (11,341 | )
|Income tax expense                                            |  |                      | 36      |              |   | 74      |  
|                                                              |  |                      |         |              |   |         |  
|Net loss                                                      |  | $                    | (2,547  | )            | $ | (11,415 | )
|                                                              |  |                      |         |              |   |         |  
|                                                              |  |                      |         |              |   |         |  
|LOSS PER SHARE:                                               |  |                      |         |              |   |         |  
|Basic and diluted loss per share                              |  | $                    | (0.08   | )            | $ | (0.36   | )
|                                                              |  |                      |         |              |   |         |  
|                                                              |  |                      |         |              |   |         |  
|Weighted average number of common shares 
 basic and diluted |  |                      | 31,425  |              |   | 31,395  |  
|                                                              |  |                      |         |              |   |         |  

See Accompanying Notes to
Condensed Consolidated Financial Statements.

4

---



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

|                                                |  |                      |         |              |   |         |  
|----------------------------------------------- |  | -------------------- | ------- | ------------ | - | ------- | -
|                                                |  | Thirteen Weeks Ended |        
|                                                |  |                      |        
|                                                |  | April 30,
 2011      |         | May 1,
 2010 |  
|                                                |  |                      |         |              |  
|Net cash used by operating
 activities          |  | $                    | (44,821 | )            | $ | (46,779 | )
|                                                |  |                      |         |              |   |         |  
|Cash flows from investing
 activities:          |  |                      |         |              |   |         |  
|Purchases of fixed assets                       |  |                      | (389    | )            |   | (747    | )
|Acquisition of business, net of cash received   |  |                      |        |              |   | (1,849  | )
|                                                |  |                      |         |              |   |         |  
|Net cash used by investing
 activities          |  |                      | (389    | )            |   | (2,596  | )
|                                                |  |                      |         |              |   |         |  
|Cash flows from financing
 activities:          |  |                      |         |              |   |         |  
|Proceeds from line of credit                    |  |                      |        |              |   |        |  
|Payments of long-term debt                      |  |                      | (156    | )            |   | (148    | )
|Payments of capital lease obligations           |  |                      | (172    | )            |   | (716    | )
|                                                |  |                      |         |              |   |         |  
|Net cash used by financing
 activities          |  |                      | (328    | )            |   | (864    | )
|                                                |  |                      |         |              |   |         |  
|Net decrease in cash and
 cash equivalents      |  |                      | (45,538 | )            |   | (50,239 | )
|Cash and cash equivalents,
 beginning of period |  |                      | 75,212  |              |   | 71,514  |  
|                                                |  |                      |         |              |   |         |  
|Cash and cash equivalents,
 end of period       |  | $                    | 29,674  |              | $ | 21,275  |  
|                                                |  |                      |         |              |   |         |  

See Accompanying Notes to Condensed
Consolidated Financial Statements.

5

---



TRANS WORLD ENTERTAINMENT CORPORATION AND
SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (unaudited)
April 30, 2011 and May 1, 2010

Note 1. Nature of Operations

Trans World Entertainment Corporation and subsidiaries (the Company)
is one of the largest specialty retailers of entertainment software, including
music, video, video games 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 April 30, 2011, the Company operated 444 stores
totaling approximately 3.0 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 7 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, including its capital spending, its seasonal increase in
merchandise inventory and other operating cash requirements and commitments.
Management has considered many initiatives as part of the development of its
operating plan for 2011 and beyond; 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. During
Fiscal 2010, management carried out certain strategic initiatives in its
efforts to reduce certain 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, management closed 73
stores. An additional 17 stores closed in the first quarter of 2011. The
Company plans to continue its careful evaluation of store profitability of its
remaining stores in consideration of lease terms, conditions and expirations.

The Company recently received notice from a service provider to the
Company that such service provider is being audited by a number of states, the
District of Columbia, and Puerto Rico regarding compliance with such
jurisdictions unclaimed property laws (the escheat laws). The issue centers
around the retention of funds associated with uncashed rebate checks. State
escheat laws generally require entities to report and remit to the state
abandoned and unclaimed property. While the Company has not received any
requests directly from any jurisdiction, the Company intends, through the
service provider, to cooperate fully with any such audit. The Company is
reviewing its legal and contractual positions relating to the relevant escheat
laws and its arrangements with such service provider, however, the Company does
not believe that any resulting obligations will have a material effect on its
results of operations or financial condition of the Company.

Seasonality:The Companys business is seasonal in nature, with
the fourth fiscal quarter constituting the Companys peak selling period. In
2010, the fourth fiscal quarter accounted for approximately 35% of annual
sales. 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

6

---



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.

7

---



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 has been derived from the Companys
January 29, 2011 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 weeks ended April
30, 2011 and May 1, 2010. 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.

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.

Note 3. Recently Adopted Accounting
Pronouncements

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

Note 4. Acquisition

On March 29, 2010 (Acquisition Date), the Company acquired certain
assets and assumed certain liabilities of the Value Music Concepts, Inc.,
(Value Music) a Georgia Corporation. The purchase included substantially all
of the ongoing business of Value Music, which included five store leases and
equipment, inventory and all related trade names and trademarks (the
Acquisition). The purchase price consideration was $1.8 million.

The total purchase price has been allocated to assets acquired and net
liabilities assumed in connection with the Acquisition based on their estimated
fair values as of the completion of the Acquisition.

The fair value of the net assets acquired was approximately $1.9
million, which exceeds the preliminary estimated purchase price of $1.8
million. Accordingly, the Company recognized the excess of the fair

8

---



value of the net assets over the purchase price of approximately $0.1
million as a gain on bargain purchase. The gain on bargain purchase of $0.1
million was included as a reduction of SG&A expenses within income from
operations in the Consolidated Statements of Operations in Fiscal 2010.

The Company believes that it was able to acquire Value Music for less
than the fair value of its assets because of (i) the sellers intent to exit
its Value Music operations through bankruptcy liquidation and (ii) the
Companys unique position as a market leader in this industry segment.

The following table summarizes the provisional amounts recognized for
assets acquired and liabilities assumed as of the Acquisition Date. A single
estimate of fair value results from a series of judgments about future events
and uncertainties and relies heavily on estimates and assumptions. The
Companys judgments used to determine the estimated fair value assigned to each
class of assets acquired and liabilities assumed are not expected to materially
impact the Companys results of operations. The following are estimated fair
value of assets acquired and liabilities assumed as of the Acquisition date (in
thousands):

|                          |  |   |       |  
|------------------------- |  | - | ----- | -
|Cash                      |  | $ | 11    |  
|Inventory                 |  |   | 2,487 |  
|Other assets              |  |   | 9     |  
|Other
 liabilities        |  |   | (552  | )
|                          |  |   |       |  
|Net assets acquired       |  |   | 1,955 |  
|Less: Purchase price      |  |   | 1,860 |  
|                          |  |   |       |  
|Gain on
 bargain purchase |  | $ | 95    |  
|                          |  |   |       |  

Acquisition related costs (i.e., advisory, legal, valuation and other
professional fees) are not included as a component of consideration
transferred, but are accounted for as expenses in the periods in which the
costs are incurred. The Company incurred $274,000 of acquisition related costs,
which are included in Selling, General and Administrative expenses in the
Statement of Operations.

9

---



Note 5. Stock Based Compensation

Total stock-based compensation expense recognized in the condensed
consolidated statements of operations for the thirteen weeks ended April 30,
2011 and May 1, 2010 was $0.1 million and $0.5 million, respectively, before income
taxes. No deferred tax benefit was recorded against stock-based compensation
expense for the thirteen weeks ended April 30, 2011 and May 1, 2010.

As of April 30, 2011, there was approximately $0.9 million of
unrecognized compensation cost related to stock award awards that is expected
to be recognized as expense over a weighted average period of 3.2 years.

As of April 30, 2011, stock awards authorized for issuance under the
Companys plans total 20.6 million. Of these awards authorized for issuance, 7.3
million were granted and are outstanding, 5.6 million of which were vested and
exercisable. Awards available for future grants at April 30, 2011 were 2.3
million.

The table below outlines the assumptions that the Company used to
estimate the fair value of stock based awards granted during the thirteen weeks
ended April 30, 2011:

|                                                                           |  |                                     
|-------------------------------------------------------------------------- |  | ------------------------------------
|                                                                           |  |                                     
|                                                                           |  | Thirteen weeks ended
 April 30, 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 thirteen
weeks ended April 30, 2011:

|                              |  |                                          |           |                                       |   |                                              |  |  |     | 
|----------------------------- |  | ---------------------------------------- | --------- | ------------------------------------- | - | -------------------------------------------- |  |  | --- | 
|                              |  | Employee
 and Director Stock Award Plans |          
|                              |  |                                          |          
|                              |  | Number
 of
 Shares Subject
 To Award     |           | Weighted
 Average
 Exercise Price (1) |   | Weighted
 AverageRemaining
 Contractual Term | 
|                              |  |                                          |           |                                       |   |                                              | 
|Balance January 29, 2011      |  |                                          | 6,880,955 |                                       | $ | 6.80                                         |  |  | 3.9 | 
|Granted                       |  |                                          | 439,898   |                                       |   | 1.74                                         |  |  | 9.8 | 
|Exercised                     |  |                                          |          |                                       |   |                                             |  |  |    | 
|Forfeited                     |  |                                          | (11,425   | )                                     |   | 3.23                                         |  |  |    | 
|Expired                       |  |                                          | (12,645   | )                                     |   | 8.87                                         |  |  |    | 
|                              |  |                                          |           |                                       |   |                                              |  |  |     | 
|Balance April 30, 2011        |  |                                          | 7,296,783 |                                       | $ | 6.68                                         |  |  | 4.0 | 
|                              |  |                                          |           |                                       |   |                                              |  |  |     | 
|Exercisable at April 30, 2011 |  |                                          | 5,586,007 |                                       | $ | 7.71                                         |  |  | 2.5 | 
|                              |  |                                          |           |                                       |   |                                              |  |  |     | 

|    |                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Exercise price ranges
 exclude the impact of deferred or restricted stock units that were granted at
 an exercise price of $0. During the thirteen weeks ended April 30, 2011,
 279,898 restricted stock units were granted.
|(2) | Deferred shares are
 exchangeable for common shares on a 1:1 basis and therefore have an exercise
 price of $0.                                                                                                             

As of April 30, 2011, the intrinsic value of stock awards outstanding
was $802,000 and exercisable was $111,351.

10

---



Note 6. 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.

11

---



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 |     
|                                    |  |                      |     
|                                    |  | April 30,
 2011      |      | May 1,
 2010 |  
|                                    |  |                      |      |              |  
|                                    |  | ($ in
 thousands)    |     
|Service cost                        |  | $                    | 37   |              | $ | 33   |  
|Interest
 cost                      |  |                      | 168  |              |   | 163  |  
|Amortization
 of prior service cost |  |                      | 86   |              |   | 86   |  
|Amortization
 of net gain           |  |                      | (112 | )            |   | (171 | )
|                                    |  |                      |      |              |   |      |  
|Net periodic
 pension cost          |  | $                    | 179  |              | $ | 111  |  
|                                    |  |                      |      |              |   |      |  

During the thirteen weeks ended April 30, 2011, 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 in benefits relating to the Director Retirement Plan during
Fiscal 2011.

Note 7. 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 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 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 as
defined in the 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.

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 $78.8
million as of April 30, 2011. As of April 30, 2011, the Company didnt
have any borrowings under the revolving credit facility and had $0.8
million in outstanding letter of credit obligations. The Company did not have
any borrowings during the quarter.

12

---



As of May 1, 2010, the Company didnt have any borrowings under
the revolving credit facility and had $1.8 million in outstanding letter
of credit obligations. The weighted average interest rate on outstanding
borrowings for the thirteen weeks ended May 1, 2010 was 3.25%.


Note 8. Comprehensive Loss


Other accumulated comprehensive 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 was equal to net loss for
the thirteen weeks ended April 30, 2011 and May 1, 2010.

Note 9. 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 |      
|                                              |  |                      |      
|                                              |  | April 30, 
 2011     |       | May 1, 
 2010 |  
|                                              |  |                      |       |               |  
|                                              |  | (in thousands)       |      
|Cost of
 sales                                |  | $                    | 138   |               | $ | 316   | 
|Selling,
 general and administrative expenses |  |                      | 1,715 |               |   | 2,863 | 
|                                              |  |                      |       |               |   |       | 
|Total                                         |  | $                    | 1,853 |               | $ | 3,179 | 
|                                              |  |                      |       |               |   |       | 

Note 10. Loss Per Share

Basic loss per share is calculated by dividing net loss by the weighted
average common shares outstanding for the period. Diluted earnings 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 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.

For the thirteen week periods ended April 30, 2011, and May 1, 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 April 30, 2011 and May 1, 2010 were approximately 4.8
million and 5.1 million, respectively.

13

---



TRANS WORLD
ENTERTAINMENT CORPORATION AND SUBSIDIARIES
PART 1. FINANCIAL INFORMATION
Item 2 - Managements Discussion and Analysis of Financial Condition and
Results of Operations
April 30, 2011 and May 1, 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, home 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.


At April 30, 2011, the Company operated 444 stores totaling
approximately 3.0 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 software, including music
and video. In total, these categories represented 79% of the Companys sales in
the thirteen weeks ended April 30, 2011. The balance of categories, including
games, electronics and trend products represented 21% of the Companys sales in
the thirteen weeks ended April 30, 2011.

14

---



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

Sales and comparable store sales:
The Company measures 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 purchasing, 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 9 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 Weeks Ended April 30, 2011
Compared to the Thirteen Weeks Ended May 1, 2010

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

|                               |  |                                  |         |               |   |         |   |   |         |                                |  |        |   |  |      |   
|------------------------------ |  | -------------------------------- | ------- | ------------- | - | ------- | - | - | ------- | ------------------------------ |  | ------ | - |  | ---- | --
|                               |  | Thirteen weeks ended             |         |               |   |         |   |   |        
|                               |  |                                  |         |               |   |         |  
|                               |  | April 30, 
 2011                 |         | May 1, 
 2010 |   | Change  |   | % |         | Comparable 
 Store Net 
 Sales | 
|                               |  | (in thousands except store data) |         |               |   |         |  
|                               |  |                                  |         |               |   |         |  
|                              
|Net
 sales:                    |  | $                                | 131,496 |               | $ | 156,539 |   | $ | (25,043 | )                              |  | (16.0% | ) |  | (1.8 | %)
|As a percentage of net
 sales: |  |                                  |         |               |   |         |   |   |         |                                |  |        |   |  |      |   
|Video                          |  |                                  | 42.3    | %             |   | 44.4    | % |   |         |                                |  |        |   |  | (4.5 | %)
|Music                          |  |                                  | 36.7    | %             |   | 36.2    | % |   |         |                                |  |        |   |  | (2.7 | %)
|Electronics                    |  |                                  | 8.8     | %             |   | 7.4     | % |   |         |                                |  |        |   |  | 14.6 | % 
|Trend                          |  |                                  | 7.0     | %             |   | 6.4     | % |   |         |                                |  |        |   |  | 8.1  | % 
|Video Games                    |  |                                  | 5.2     | %             |   | 5.6     | % |   |         |                                |  |        |   |  | (9.5 | %)
|                               |  |                                  |         |               |   |         |   |   |         |                                |  |        |   |  |      |   
|Store
 Count:                  |  |                                  | 444     |               |   | 544     |   |   | (100    | )                              |  | (18.4% | ) |  |      |   

15

---



Net sales. The 16%
decrease in net sales during the thirteen weeks ended April 30, 2011, as
compared to the same period last year, resulted from a comparable store net
sales decline of 1.8% along with the decrease in store count of 18%. While the
Company believes a meaningful amount of sales was transferred to ongoing
stores, there was a reduction of sales from store closings.

Video:


Comparable store net sales in the video category decreased 4.5% during
the first quarter. Comp sales in the top 50 skus decreased 39% during the quarter,
primarily due to the strength of new releases last year, including Avatar and
New Moon. Our comp sales excluding the top 50 increased 3%. According to Warner
Brothers Home Video, industry sales were down 20% for the quarter. The video
category represented 42.3% of total net sales for the thirteen weeks ended
April 30, 2011 compared to 44.4% in the comparable quarter last year.


Music:


Comparable store net sales in the music category decreased 2.7% during
the thirteen weeks ended April 30, 2011. Comp sales in top 50 skus decreased
13% during the quarter. Comp sales excluding the top 50 increased 3%. According
to Soundscan, total CD unit sales industry-wide were down 6% during the period
corresponding to the Companys first fiscal quarter. The music category
represented 36.7% of total net sales for the thirteen weeks ended April 30,
2011 compared to 36.2% in the comparable quarter last year.


Electronics:


Comparable store sales for electronics increased 14.6%, driven by
expanded product lines and improved selection. Electronics sales represent 8.8%
of total net sales for the thirteen weeks ended April 30, 2011 compared to 7.4%
in the comparable quarter last year.


Trend:


For the thirteen weeks ended April 30, 2011, comparable store net sales
increased 8.1% for these categories, driven by expanded product lines and
improved selection. Trend product represented 7.0% of total net sales for the
thirteen weeks ended April 30, 2011 compared to 6.4% in the comparable quarter
last year.


Video Games:


Comparable store sales for video games decreased 9.5%. The comp decline
in games is due to the liquidation of games in stores in which games were
removed. 121 stores currently carry games. Comp sales for games in the go
forward stores were flat for the quarter. Games sales represent 5.2% of total
net sales for the thirteen weeks ended April 30, 2011 compared to 5.6% 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      |  
|                              |  |                                     |        |             |  
|                              |  | April 30, 2011                      |        | May 1, 2010 |   | $      |   | % |       
|                              |  |                                     |        |             |   |        |   |   |       
|Gross Profit                  |  | $                                   | 48,289 |             | $ | 51,525 |   | $ | (3,236 | ) |  | (6.3 | %)
|As a
 percentage of net sales |  |                                     | 36.7   | %           |   | 32.9   | % |   |        |   |  |      |   

16

---



The increase
in gross profit as a percentage of sales was due to higher margin rates in all
our product categories and the leveraging of our distribution and freight
costs.

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      |  
|                              |  |                                     |        |             |  
|                              |  | April 30, 2011                      |        | May 1, 2010 |   | $      |   | % |        
|                              |  |                                     |        |             |   |        |   |   |        
|SG&A Expenses                 |  | $                                   | 49,968 |             | $ | 62,178 |   | $ | (12,210 | ) |  | (19.6 | %)
|As a percentage of net
 sales |  |                                     | 38.0   | %           |   | 39.7   | % |   |         |   |  |       |   

SG&A
expenses decreased $12.2 million, or 19.6% on the net sales decline of 16.0%.
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 and lower occupancy expenses in ongoing stores.

Interest Expense, Net. Net interest
expense was $0.8 million during the thirteen weeks ended April 30, 2011
compared to $0.7 million during the thirteen weeks ended May 1, 2010. The
increase is primarily due to the amortization of loan commitment fees related
to the three year extension we signed in April 2010. In addition, interest
expense also increased due to a 55 basis point increase in our unused loan
commitment fee.

Income Tax Expense (Benefit). As
of January 29, 2011 and January 30, 2010, the Company had incurred cumulative
three-year losses. Based on the 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 to
the recognition of a full valuation allowance as of January 29, 2011, the
projected net loss for the year ending January 28, 2012 and the net loss
incurred for the thirteen weeks ended April 30, 2011, the Company did not
provide a current tax benefit for the net loss incurred for this thirteen week
period.

For the
thirteen weeks ended April 30, 2011 and May 1, 2010, 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.

Net Loss. The following table sets forth a
period over period comparison of the Companys net loss:

|                                          |  |                                     |        |             |   |         |  
|----------------------------------------- |  | ----------------------------------- | ------ | ----------- | - | ------- | -
|                                          |  | Thirteen weeks ended(in
 thousands) |       
|                                          |  |                                     |       
|                                          |  | April 30, 2011                      |        | May 1, 2010 |  
|                                          |  |                                     |        |             |  
|Loss before income tax
 expense (benefit) |  | $                                   | (2,511 | )           | $ | (11,341 | )
|Income tax expense (benefit)              |  |                                     | 36     |             |   | 74      |  
|                                          |  |                                     |        |             |   |         |  
|                                          |  |                                     |        |             |   |         |  
|Net loss                                  |  | $                                   | (2,547 | )           | $ | (11,415 | )
|                                          |  |                                     |        |             |   |         |  

For the thirteen weeks ended April 30, 2011, the Companys net loss
decreased $8.9 million to $2.5 million from $11.4 million for the thirteen
weeks ended May 1, 2010. The decreased loss was due to a

17

---



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

18

---



LIQUIDITY AND CAPITAL RESOURCES

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 7 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, including its capital spending, its seasonal increase
in merchandise inventory and other operating cash requirements and commitments.
Management has considered many initiatives as part of the development of its
operating plan for 2011 and beyond; 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. During
Fiscal 2010, management carried out certain strategic initiatives in its efforts
to reduce certain 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, management closed 73
stores. An additional 17 stores closed in the first quarter of 2011. The
Company plans to continue its careful evaluation of store profitability of its
remaining stores in consideration of lease terms, conditions and expirations.

Management anticipates any cash requirements due to a shortfall in cash
from operations will be funded by the Companys revolving credit facility,
discussed hereafter. Cash flows from investing and financing activities during
Fiscal 2011 are expected to be comparable with Fiscal 2010. 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 thirteen weeks ended April 30, 2011 and May
1, 2010, or at those dates:

|                           |  |                      |         |              |   |         |   |   |       | 
|-------------------------- |  | -------------------- | ------- | ------------ | - | ------- | - | - | ----- | 
|                           |  | Thirteen weeks ended |         | Change       |  
|                           |  |                      |         |              |  
|(in thousands)             |  | April 30,
 2011      |         | May 1,
 2010 |   | $       |  
|                           |  |                      |         |              |   |         |  
|Operating
 Cash Flows      |  | $                    | (44,821 | )            | $ | (46,779 | ) | $ | 1,958 | 
|Investing
 Cash Flows      |  |                      | (389    | )            |   | (2,596  | ) |   | 2,207 | 
|Financing
 Cash Flows      |  |                      | (328    | )            |   | (864    | ) |   | 536   | 
|Capital
 Expenditures      |  |                      | (389    | )            |   | (747    | ) |   | 358   | 
|                           |  |                      |         |              |   |         |   |   |       | 
|Cash
 and Cash Equivalents |  |                      | 29,674  |              |   | 21,275  |   |   |       | 
|Merchandise
 Inventory     |  |                      | 217,785 |              |   | 251,279 |   |   |       | 
|Working
 Capital           |  |                      | 155,925 |              |   | 169,676 |   |   |       | 

The Company had cash and cash equivalents of $29.7 million at April 30,
2011, compared to $75.2 million at January 29, 2011 and $21.3 million at May 1,
2010. Merchandise inventory was $74 per square foot at April 30, 2011, compared
to $69 per square foot at May 1, 2010.

Cash used by operating activities was $44.8 million for the thirteen
weeks ended April 30, 2011. The primary use of cash was a $59.0 million
seasonal reduction of accounts payable. 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
quarter, reflecting payments for merchandise inventory sold during the prior
years holiday season.

19

---



Cash used by investing activities, which was constituted entirely of
capital expenditures, was $0.4 million for the thirteen weeks ended April 30,
2011.

Cash used by financing activities was $0.3 million for the thirteen
weeks ended April 30, 2011 for the payment on long term debt and capital lease
obligations.

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 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 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 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 as
defined in the 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.

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 $78.8
million as of April 30, 2011. As of April 30, 2011, the Company didnt have any
borrowings under the revolving credit facility and had $0.8 million in
outstanding letter of credit obligations. The Company did not have any
outstanding borrowings on its line of credit during the first quarter.

As of May 1, 2010, the Company didnt have any borrowings under the
revolving credit facility and had $1.8 million in outstanding letter of credit
obligations. The weighted average interest rate on outstanding borrowings for
the thirteen weeks ended April 30, 2011 was 3.25%. The weighted average
interest rate on outstanding borrowings for the thirteen weeks ended May 1,
2010 was 3.25%.

We believe that cash provided by sales of merchandise inventory and
available borrowing capacity under our credit facility, which expires on April,
2013, will provide us with sufficient liquidity through the expiration of this
credit facility.

Capital Resources.During
the thirteen weeks ended April 30, 2011, the Company made capital expenditures
of $0.3 million. The Company plans to spend approximately $7.5 million for
capital expenditures in fiscal 2011.

20

---



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 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.

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.

21

---



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 Credit Facility, the
Company is subject to risk resulting from interest rate fluctuations since
interest on the Companys borrowings under its Credit Facility can be variable 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 as defined in the 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%. If interest rates on
the Companys 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 30, 2010. 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 April 30, 2011, 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.

22

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TRANS WORLD ENTERTAINMENT CORPORATION AND
SUBSIDIARIES

PART II - OTHER
INFORMATION

Item 1  Legal
ProceedingsThe 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.

The Company recently received notice from a service provider to the
Company that such service provider is being audited by a number of states, the
District of Columbia, and Puerto Rico regarding compliance with such
jurisdictions unclaimed property laws (the escheat laws). The issue centers
around the retention of funds associated with uncashed rebate checks. State
escheat laws generally require entities to report and remit to the state
abandoned and unclaimed property. While the Company has not received any
requests directly from any jurisdiction, the Company intends, through the
service provider, to cooperate fully with any such audit. The Company is
reviewing its legal and contractual positions relating to the relevant escheat
laws and its arrangements with such service provider, however, the Company does
not believe that any resulting obligations will have a material effect on its
results of operations or 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.

Item 2 
Unregistered Sales of Equity Securities and Use of ProceedsNone.

Item 3  Defaults
Upon Senior SecuritiesNone.

Item 4 
Submissions of Matters to a Vote of Security HoldersNone.

Item 5  Other
InformationNone.

Item 6 - 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.

23

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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

|             |  |     |                                                                                                           | 
|------------ |  | --- | --------------------------------------------------------------------------------------------------------- | 
|             |  |     |                                                                                                           | 
|June 9, 2011 |  | By: | /s/ Robert J. Higgins                                                                                     | 
|             |  |     |                                                                                                           | 
|             |  |     | Robert J.
 Higgins                                                                                        | 
|             |  |     | Chairman and
 Chief Executive Officer                                                                     | 
|             |  |     | (Principal
 Executive Officer)                                                                            | 
|             |  |     |                                                                                                           | 
|June 9, 2011 |  | By: | /s/ John J. Sullivan                                                                                      | 
|             |  |     |                                                                                                           | 
|             |  |     | John J.
 Sullivan                                                                                         | 
|             |  |     | Executive
 Vice President and Chief Financial Officer (Principal Financial and Chief
 Accounting Officer)

24

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