<PAGE>   1


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

                                    FORM 10-K

 X    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---   ACT OF 1934
                    FOR THE FISCAL YEAR ENDED MARCH 25, 2000
                                       OR
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---   EXCHANGE ACT OF 1934

Commission file number: 0-22074

                           NATIONAL RECORD MART, INC.
             (Exact name of Registrant as specified in its charter)

                DELAWARE                                         11-2782687
       (State or other jurisdiction                          (I.R.S. Employer
    of incorporation or organization)                       Identification No.)

507 FOREST AVENUE, CARNEGIE, PENNSYLVANIA                          15106
 (Address of principal executive offices)                        (Zip Code)

       Registrant's telephone number, including area code: (412) 276-6200

Securities registered pursuant to Section 12(b) of the Act: none

Securities registered pursuant to Section 12(g) of the Act:
                         COMMON STOCK, $0.01 PAR VALUE.
                                (Title of Class)

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

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

The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of the Common Stock on June 21,
2000 as reported on the NASDAQ National Market System, was approximately
$8,208,959. Shares of Common Stock held by each officer and director and by
each person who owns more than 5% of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. The determination
of affiliate status is not necessarily a conclusive determination for other
purposes.

As of June 23, 2000, Registrant had outstanding 5,051,667 shares of Common
Stock.

                      DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held September 21, 2000 (the "Proxy Statement") are
incorporated by reference into Part III.


<PAGE>   2


                                     PART I

ITEM 1. BUSINESS

         National Record Mart, Inc. (the "Company"), a Delaware corporation,
founded in 1937, operates in a single industry segment as a specialty retailer
of prerecorded home entertainment products, including compact discs ("CD"),
audio cassettes, videos and related accessories. According to Billboard
magazine, the Company is the fourth largest specialty retailer of prerecorded
music in the country as measured by number of stores. The Company is a leading
specialty music retailer in its core western Pennsylvania/eastern Ohio market.

         As of March 25, 2000, the Company operated 179 stores in 33 states and
the U.S. territory of Guam with the majority of stores in the eastern part of
the United States. The Company has five distinct store concepts: National Record
Mart or NRM Music; Waves Music; Music Oasis; Vibes Music; and Music X. The
Company has redesigned the Waves Music store as a strategic mall-based growth
format for the future. The prototype Waves store ranges from 4,500 to 8,000
square feet with an expanded inventory capacity of $400,000. The Waves strategy
is to intertwine the newest customer retail technologies with one of the largest
offerings of prerecorded music and other entertainment products available in a
traditional specialty retail mall environment.

         Certain statements in this annual report on Form 10-K are
forward-looking statements concerning the future operations of the Company. Such
statements are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995, and there are many important factors
that could cause actual results to differ materially from those in the
forward-looking statements. Such factors include: the pricing and marketing
activities of large diversified retailers within the geographic area of the
Company's operations; the extent to which recording artists release "hit"
recordings; changes in sales and advertising promotion practices by the major
music distributors; weather, especially during the Christmas selling season; and
interest rates, which affect the Company's financing costs.

INDUSTRY AND COMPETITIVE ENVIRONMENT

         The US retail music industry increased by 6.3% to $14.6 billion from
$13.7 billion in the prior year according to the Recording Industry Association
of America (RIAA). Full length CD's continued to increase, accounting for 87.8%
of the total market sales, while the cassette continued its decade long decline
to 7.3% from 10.3% of total market sales.

         The Company competes with national and regional home entertainment
product chains, mass merchandisers, electronic retail chains, discount stores,
warehouse clubs, music, video and other home entertainment product stores,
e-commerce music sites and mail order clubs. Some of the Company's competitors
have substantially greater resources than the Company. The largest mail order
clubs are affiliated with major manufacturers of prerecorded music and may have
advantageous marketing arrangements with their affiliates. In addition, the
Company's products may compete with other forms of entertainment, such as
movies, concerts, sporting events, cable television and video games.

         The Company believes that its ability to compete successfully depends
on offering broad product selection, securing convenient sites, maintaining
attractive locations, managing merchandise efficiently, establishing and
maintaining name recognition, pricing its products competitively and providing
effective customer service and management.

SEASONALITY

         The Company's business is seasonal, with its highest sales and net
income levels historically occurring during the third quarter of its fiscal
year, which includes the Christmas selling season.




                                       2
<PAGE>   3


MERCHANDISING

         The Company's stores offer a full assortment of CDs, prerecorded audio
cassettes and related accessories with a more limited selection of movie and
music videos. The following table shows the percentage of the Company's total
merchandise sales attributable to each product group:

<TABLE>
<CAPTION>
Products                                                Fiscal Years
--------                                         2000       1999       1998
                                                ------     ------     ------
<S>                                             <C>        <C>        <C>
CDs                                              76.6%      73.9%      70.7%
Prerecorded audio cassettes                       8.9       11.2       13.6
Singles                                           2.8        3.8        6.3
Movie and music videos*                           3.8        3.6        2.6
Accessories and other**                           7.9        7.5        6.8
                                                ------     ------     ------
         Total                                  100.0%     100.0%     100.0%
                                                ======     ======     ======
</TABLE>

* Includes DVD
**Includes apparel, blank tapes, cleaning products, storage cases, posters,
sheet music, LPs, magazines, books and miscellaneous items.

         Prerecorded Music. The Company's stores offer a broad array of CDs and
cassettes in all music categories including rock, pop, alternative, adult
contemporary, country, easy listening, classical, jazz, religious, new age,
rhythm and blues, children's, educational, show tunes, movie soundtracks, world
music and others. The Company maintains a broad inventory base, with individual
store inventory tailored to serve the particular customer demand in each store.
The Company's stores offer from 10,000 to 50,000 titles, with an average of
18,000 titles per store. The Company also offers a selection of over 265,000
SKU's which can be ordered through the Company's special order process. The
selection of prerecorded music offered at the Company's stores includes "hits"
which are best selling newer releases, "catalog" items, which are older but
still popular releases, and seasonal and promotional items such as Christmas
music, developing artist programs, "cut-outs" (low-priced items which have been
deleted from a manufacturer's current catalog) and used CDs.

         Prerecorded Video Cassettes. The Company's stores offer for sale a
varied selection of prerecorded VHS video cassettes and DVD (digital versatile
discs). DVD sales continue to increase while the price of the hardware decreases
and more titles are offered. Titles are offered in all categories with an
emphasis on music and movies.

         Accessories and Other Products. The Company's stores carry a variety of
accessories such as blank video and audio cassette tapes, maintenance and
cleaning products, home and portable storage cases, sheet music, posters,
T-shirts, magazines, and other items.

         Tickets. To increase customer traffic, the Company offers tickets to
entertainment events in many of its stores located in certain states including
Pennsylvania, Ohio, Michigan, Wisconsin, Illinois, West Virginia, Kentucky,
Rhode Island, Kansas, Iowa, North Carolina, South Carolina and Hawaii. The
Company's ticket outlets provide customers with access to tickets offered by
Ticketmaster as well as tickets to other local concerts and sporting events.

ADVERTISING

         The Company supports its retail sales through its own and various
vendor supported marketing and advertising programs. This support is realized in
the form of price and position subsidies from vendors; store signage point of
purchase displays and print, direct mail and media broadcast. In addition, the
Company exposes its customers to new releases through its "Get Hip to It First"
program. This program features new releases, in all genre formats, with special
pricing and placement in our stores.





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<PAGE>   4


         More than 1.2 million store customers participate in the Company's
Passport program. Passport allows a customer to earn points on every CD, tape or
video purchase, which may be redeemed for a free CD, cassette, or video of
choice. The program combines the standard customer loyalty incentives of
frequent buyer programs, opportunities for discount on music and video products
and other products sold by other retailers. Passport also provides for database
marketing directly to consumers on a sophisticated, targeted basis. The Company
believes that Passport has the potential to differentiate its stores from the
competition, while creating incremental sales and increasing the average
purchase per transaction.

E-COMMERCE

         In December 1998, the Company launched its Internet commerce sites
www.nrmmusic.com and www.wavesmusic.com. These sites offer a wide variety of
music, over 275,000 titles, and video movies for purchase as well as sheet
music, magazines and music collectible merchandise. The sites also offer the
consumer the ability to create customized CD's from a library of song tracks at
a cost of 99 cents per song and the ability to download music. While on-line
music sales remain a small percentage of total music sales industry wide, the
Company believes that this will gradually increase over time and anticipates
continuing its involvement in this area.

CUSTOMER SERVICE

         Customer service continues to be a primary focus of every employee of
the Company; including the field supervisory team, corporate operations
department and the human resources area.

STORE EXPANSION STRATEGY

         The Company does not anticipate any significant new store openings
during the fiscal year 2001. The Company plans to focus on improving the
performance of its existing store base, as well as continuing to seek
opportunities to improve the operations of under performing stores or to close
those stores.

         The Company added 18 stores in fiscal 2000, and closed 13 stores, which
were performing under the Company's expectations. During fiscal 1999, the
Company opened 33 locations, and closed 7 stores.

INVENTORY MANAGEMENT

         The Company utilizes a proprietary interactive management information
and point of sale system, FOCUS 1000. This combined system permits complete
sales data and customer transactions to interact with the Company's purchasing,
inventory control and accounting functions.

         Inventory Management System. FOCUS 1000 integrates the Company's
purchasing, warehousing, distribution, pricing and sales information, enabling
the Company to set the appropriate quantity and mix of products in each of its
stores, turn over inventory more quickly, minimize returns to suppliers and
limit out-of-stock situations. Individual store sale profiles are utilized to
set overall purchase quantities and store-by-store allocations of new releases,
current hits and catalog products. These parameters are periodically updated
based on sales trends and demand patterns. In addition to utilizing FOCUS 1000,
stock levels are also monitored by the Company's product distribution group to
further assure appropriate store inventory levels. The system segments the
Company's products into over forty specific music categories and tracks sales in
each store by category, so as to optimize sales/inventory ratios in each store.

         The Company has completed its implementation of a new point of sale
(POS) system this year. The adoption of the new software and equipment along
with greatly enhanced data switching relay equipment permits the two way
transfer of significantly more information in less time and at a lower cost than
the previous POS system.

         Substantially all of the products sold by the Company are bar-coded.
Retail transactions and inventory shipped by vendors directly to stores are
captured through point-of-sale terminals at each store with data transmitted
nightly to the Company's central computer. This perpetual inventory system,
coupled with FOCUS 1000's replenishment system, determines target in-stock
levels for each store.



                                       4
<PAGE>   5


         Distribution. The Company operates one distribution center from which
store inventories are replenished and items are returned to manufacturers. FOCUS
1000 also permits inter-store transfers of inventory to achieve improved stock
balancing without requiring products to be routed through the Company's
distribution facility.

         Shipments from the distribution center and between stores are normally
made weekly, with more frequent shipments made to stores having very high
inventory turnover and to most stores during the Christmas shopping season.
Shipments are made by Company vehicles and by commercial shipping services such
as United Parcel Service. Certain new releases and other products are shipped
directly by manufacturers to the Company's stores.

         Loss Prevention. While maintaining its loss prevention efforts the
Company experienced an increase in its merchandise shrinkage to 1.39% of sales
as compared to 1.06% of sales in the prior year. The Company's geographic
expansion to the West Coast and South Pacific territories has had some impact on
the increase as well as the Company's efforts to reduce personnel costs at the
store level. The Company has been achieving positive results from its new point
of sale systems at its stores, implemented late in the third fiscal quarter, in
managing its inventory shrinkage.

SUPPLIERS AND PURCHASING

         A substantial portion of the Company's music products are purchased
directly from the five major music distributors. They include: Sony Music;
Warner/Elektra/Atlantic (subsidiary of Time Warner); BMG Music (subsidiary of
Bertelsman); UNI Distribution; and EMD (EMI Music Distribution). These five
majors account for a substantial majority of shipments to the Company. As is
typical in its industry, the Company has no material long-term purchase
agreements with its suppliers.

         Vendors generally permit the Company to return and exchange products
for other titles carried by the vendors subject to certain volume limitations
and penalties. Return and exchange privileges apply only as long as a particular
title and format is in the manufacturer's current catalog. Prior to removal of
titles and formats from their current catalog, manufacturers give customers
approximately 60 to 90 days advance notice of such deletion. Upon receipt of
such notice, the Company can use the information stored in FOCUS 1000 to
determine the number of units to be returned and from which locations.

         Major vendors generally offer some form of price protection in the
event the wholesale price of current stock is reduced. Typically, vendors will
either (i) provide product credit or advertising credit to cover the difference
between the original price and the reduced price, (ii) provide additional
discounts on new products, (iii) allow the Company to return older products for
the original (higher) cost or (iv) notify the Company in advance of price
reductions and give the Company a period of time to sell the product or return
it for full credit.

         These industry practices of return and exchange privileges, catalog
change notice and price protection permit the Company to carry a wider selection
of music titles and at the same time reduce the risk of carrying inventory. The
exchange privilege practices of manufacturers have been changed in the past and
may change in the future.

         Four of the five major music vendors offer retailers a returns
incentive/disincentives plan that has been beneficial for the Company. To
encourage retailers to buy carefully by limiting returns, an incentive payment
is issued on most purchases and a penalty restocking fee is charged on only the
product returned. If the retailer returns-to-purchases ratio with the major
vendors is below a certain point, (generally 14% to 17%) the retailer will
benefit. The Company's return percentages have been lower than the break-even
with the majority of its major vendors allowing the Company to benefit from
their returns policies.

         As part of FOCUS 1000, the Company utilizes electronic data interchange
(EDI) with its five major vendors and ten of its independent vendors. This
direct computer link enables automatic and immediate transmission of purchase
orders and, with certain vendors, return requests, expediting their execution.





                                       5
<PAGE>   6


TRADEMARKS AND SERVICE MARKS

         The Company operates its stores under various names and service marks,
including National Record Mart, NRM Music, Waves Music, Music Oasis, Vibes
Music, Waves Music and Gifts, Music X, House of Music and Tempo Music. The
Company has obtained federal registrations of its trademarks and service marks
for Waves Music, NRM Music, Oasis Music & Video, Music Oasis, Music X and has
applied for registration of its service marks in Vibes Music. The application
for registration of the service mark Vibes Music has been opposed by one party.
This opposition is currently pending before the Trademark trial and appeal
board. The trade name Tempo Music was acquired through an acquisition in
November 1998 and will eventually be changed to Waves Music.

PERSONNEL

         As of March 25, 2000, the Company employed 1,463 persons, 132 of whom
worked at the Company's headquarters (including 7 part-time employees) or were
area supervisors and 1,331 of whom worked at the Company's stores (including 607
part-time employees). The Company also adds part-time personnel during the
Christmas season. In December 1999, the Company employed approximately 325
seasonal employees. None of the Company's employees are represented by a union.
The Company believes that its employee relations are good.


ITEM 2. PROPERTIES

         Corporate Headquarters and Distribution Facility. The Company's
headquarters and distribution center is located in Carnegie, Pennsylvania, a
suburb of Pittsburgh. This leased facility consists of approximately 60,000
square feet of distribution and warehouse space and 10,000 square feet of office
space on approximately 3.5 acres of land. Management believes that its
distribution center can service up to 350 stores with a minimal increase in
personnel and fixtures. The Company's lease expires on April 30, 2005 and
provides for rental payments of an average of approximately $148,000 per year.

         Store Leases. All of the Company's stores are subject to operating
leases with various remaining terms, including renewal options, through the year
2010. The leases have initial terms ranging from 5 to 15 years, with the average
initial term being 8 years. The Company's store leases typically provide for a
fixed minimum rental, payable monthly, plus payment of a percentage of gross
receipts in excess of certain sales levels and common area maintenance, real
estate taxes and other charges. Certain of the Company's mall store leases
contain provisions permitting the landlord to relocate the Company's store or
terminate the lease upon failure to achieve specified minimum sales levels or
upon certain other conditions. In addition, many leases restrict the Company
from opening new stores within a specified mileage radius. The following table
lists the number of leases for the Company's stores due to expire in each
calendar year, including renewal options:

<TABLE>
        <S>                               <C>                 <C>                               <C>
        2000                              24                  2004                              22
        2001                              15                  2005                              10
        2002                              22                  2006                               9
        2003                              14                  2007 and thereafter               63
</TABLE>





                                       6
<PAGE>   7


ITEM 3. LEGAL PROCEEDINGS

         There are no legal proceedings pending to which the Company is a party
or to which any of its properties is subject, other than routine litigation
incidental to its business which is covered by insurance or which is not
expected to have a material adverse effect on the Company's financial condition
or results of operations. See "Item 1. Business - Trademarks and Service Marks"
for a description of certain litigation relating to one of the Company's service
marks.

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

         No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000.

SUPPLEMENTARY ITEM.

IDENTIFICATION OF EXECUTIVE OFFICERS OF THE REGISTRANT

         The following table sets forth certain information with respect to the
executive officers of the Company as of June 21, 2000.

<TABLE>
<CAPTION>
         Name                               Age                        Office with the Company
         ----                               ---                        -----------------------
         <S>                                <C>                        <C>
         William A. Teitelbaum              49                         Chairman, CEO, President and Director
         Theresa Carlise                    41                         Senior Vice President, CFO,
                                                                       Treasurer, Secretary and Director
         Scott Bargerstock                  50                         Vice President of Business Development
         James Benedetti                    37                         Vice President of Information Systems
         John Grandoni                      50                         Vice President of Purchasing
         Charles Michael Stephenson         43                         Vice President of Marketing
</TABLE>

William Teitelbaum has served as Chairman of the Company since 1986 and served
as President since 1991. In January of 1997 Mr. Teitelbaum resigned as President
while retaining the position of Chairman and Chief Executive Officer. In January
of 1998, Mr. Teitelbaum resumed the position of President. He also served as
Vice President and Treasurer from 1986 to 1991. From 1980 to 1985, he was a
partner of Bear Stearns & Co. In addition, since 1985, Mr. Teitelbaum has been
the sole shareholder and Chairman of Remsen Funding Corp., a New York investment
firm.

Theresa Carlise joined the Company in July of 1986 as a financial systems
consultant and subsequently became Controller of the Company in 1987. She served
as Vice President of Finance of the Company from April 1990 to April 1993, when
she became Senior Vice President, Chief Financial Officer and a Director of the
Company. Since January of 1991, she has also served as Treasurer of the Company.

Scott Bargerstock is Vice President of Business Development and has served the
Company since 1971 in various positions including Store Manager, District
Manager and Regional Manager. Mr. Bargerstock was promoted in February of 1998
to his current position.

James Benedetti is Vice President of Information Systems and has been with the
Company for eleven years as Manager and Director of Information Systems. In
February of 1998 Mr. Benedetti was promoted to his current position.

John Grandoni is Vice President of Purchasing and has twenty-three years of
specialty music retail experience in various positions. Prior to joining the
Company in 1996 Mr. Grandoni was Vice President of Purchasing for Cavages, a
music specialty retailer based in Buffalo, New York. In February of 1998 Mr.
Grandoni was promoted to his current position.

Charles Michael Stephenson started his career at NRM with a music retail
background of twenty years with Camelot Music in Canton, Ohio. In April of 1996
he joined NRM as Director of Marketing. In February of 1998, Mr. Stephenson
became Vice President of Marketing for the Company.

         Officers are elected annually to serve until the ensuing year or until
their successors are duly elected.




                                       7
<PAGE>   8


                                     PART II

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

MARKET INFORMATION

         The Company's common stock is traded on the NASDAQ National Market
System under the symbol NRMI. For common stock price information, see Note 9 of
Notes to Consolidated Financial Statements.

         As of June 21, 2000, the approximate number of common stockholders of
record was 95. The approximate number of total stockholders as of that date was
1,600.

DIVIDEND POLICY

         In conjunction with the Company's senior credit facility, the Company
is prohibited from paying cash dividends on its common stock.






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<PAGE>   9


ITEM 6. SELECTED FINANCIAL DATA


                           NATIONAL RECORD MART, INC.
                      SELECTED CONSOLIDATED FINANCIAL DATA
       (IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED OPERATING DATA)

<TABLE>
<CAPTION>
                                                                                    FISCAL YEAR ENDED (1)
                                                            ------------------------------------------------------------------
                                                            March 25,      March 27,      March 28,    March 29,     March 30,
                                                              2000           1999           1998         1997         1996(2)
                                                            ---------      ---------      ---------    ---------     ---------
<S>                                                         <C>            <C>            <C>          <C>           <C>
STATEMENTS OF OPERATIONS DATA:
Net sales                                                   $142,645       $129,902       $112,448      $99,439       $99,084
Gross profit                                                  54,720         48,217         42,963       37,106        36,538
Selling, general and administrative expenses                  51,189         43,743         36,859       34,385        34,542
Depreciation and amortization                                  4,664          3,540          2,801        2,725         3,117
Impairment of assets write-down                                   --             --             --           --         2,906
Interest expense, net                                          4,458          3,082          1,822        1,696         1,597
Other expense (income), net                                      338            539            104          (26)          446
(Loss) income before income tax expense (benefit)             (5,929)        (2,688)         1,378       (1,674)       (6,609)
Net (loss) income                                             (8,072)        (1,691)           893       (1,101)       (3,884)
Basic net (loss) income per share                           $  (1.60)      $   (.35)      $    .18      $  (.23)      $  (.79)
Diluted net (loss) income per share                         $  (1.60)      $   (.35)      $    .18      $  (.23)      $  (.79)
Basic weighted average number of shares outstanding            5,049          4,801          4,845        4,852         4,927
Weighted average number of common shares and
  common share equivalent shares (warrants and options)
  outstanding                                                  5,049          4,801          5,057        4,852         4,927

SELECTED OPERATING DATA:
Stores open at beginning of year                                 174            148            147          151           141
Stores opened/acquired during year                                18             33             11            8            16
Stores closed during year                                         13              7             10           12             6
Stores open at end of year                                       179            174            148          147           151
Comparable store net sales (decrease) increase (3)                (3)%            4%            13%        (0.4)%          (3)%

BALANCE SHEET DATA:
Working capital                                             $ 24,329       $ 28,058       $ 23,892      $23,964       $22,245
Total assets                                                  81,851         73,657         52,540       55,020        52,924
Long-term debt, including current maturities                  42,940         35,325         19,413       21,370        19,468
Stockholders' equity                                           7,806         15,843         16,958       16,066        17,178
</TABLE>

(1)    Each fiscal year consisted of 52 weeks except the fiscal year ended March
       30, 1996, which consisted of 53 weeks. Each fiscal year is hereafter
       referred to by the year in which it ended, e.g., the fiscal year ended
       March 25, 2000 is "fiscal 2000"

(2)    The Company adopted Financial Accounting Standards Board Statement No.
       121, "Accounting for the Impairment of Long-Lived Assets to be Disposed
       of," in fiscal 1996. In connection with this adoption, the Company wrote
       down $2,906,481 of assets, which increased its net loss by $1,860,148 or
       $0.38 per share for fiscal year ended March 30, 1996.

(3)    A store is included in comparable store sales calculations at the
       beginning of its 13th full month of operation.




                                       9
<PAGE>   10


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


RESULTS OF OPERATIONS

         The following table sets forth for the periods indicated certain items
in the Consolidated Statements of Operations as a percentage of net sales:

<TABLE>
<CAPTION>
                                                                            Fiscal Years
                                                               ----------------------------------------
                                                                2000             1999             1998
                                                               ------           ------           ------
<S>                                                            <C>              <C>              <C>
Net sales                                                      100.0%           100.0%           100.0%
Cost of sales                                                   61.6             62.9             61.8
                                                               ------           ------           ------
  Gross profit                                                  38.4             37.1             38.2
Selling, general and administrative expenses                    35.9             33.7             32.7
Depreciation and amortization                                    3.3              2.7              2.5
Interest expense, net                                            3.1              2.3              1.7
Other expense                                                    0.3               .4              0.1
                                                               ------           ------           ------
(Loss) income before income taxes expense (benefit)             (4.2)            (2.0)             1.2
Provision (benefit) for income taxes                             1.5              (.7)             (.4)
                                                               ------           ------           ------
  Net (loss) income                                             (5.7)%           (1.3)%            0.8%
                                                               ======           ======           ======
</TABLE>

         Net Sales. Net sales increased during fiscal 2000 by $12.7 million or
9.8% compared to fiscal 1999. Factors that contributed to the increase in total
sales are the opening of 18 new stores and the closing of 13 stores which was
partially offset by the decrease in comparable store sales of 3.4%. Net sales
increased during fiscal 1999 by 15.5% compared to fiscal 1998, due primarily to
the increase in comparable store sales of 4.2% compared to fiscal 1998. This
increase was primarily due to strong new releases in all genres of music and the
Company's marketing programs and the opening of 33 new stores and the closing of
7 under-performing stores.

         Gross Profit. Gross profit expressed as a percentage of net sales,
increased from 37.1% in fiscal 1999 to 38.4% in fiscal 2000. A primary reason
for the increase in gross profit was due to the Company wide increase in shelf
pricing. This was offset slightly by the continued shift in consumer preference
from higher profit margin cassettes to lower profit margin CDs. Gross profit
decreased from 38.2% in fiscal 1998 to 37.1% in fiscal 1999. A portion of the
decrease, expressed as a percentage of sales, is attributable to competitive
pricing factors and the continued shift in consumer preference from higher
profit margin cassettes to lower profit margin CDs.

         Expenses. Selling, general and administrative expenses, (SG&A)
expressed as a percentage of net sales increased from 33.7% in fiscal 1999 to
35.9% in fiscal 2000. This increase expressed as a percentage of net sales, is
largely attributable to approximately 50 non-comp stores (stores not open for
one full year) which sales have not proportionally matured to their selling,
general and administrative expenses. As a percentage of sales, SG&A increased in
fiscal 1999 to 33.7% from 32.7% in fiscal 1998. The Company's increase in SGA in
fiscal 1999 is related to the added expenses for 33 new stores and 14 store
remodels and expansions of which sales have not proportionately matured.

         Depreciation and amortization increased from $3.5 million in fiscal
1999 to $4.7 million in fiscal 2000 primarily due to the addition of 18 new
stores and the amortization of the costs associated with the private placement
of its subordinated debt. Depreciation and amortization increased from $2.8
million in fiscal 1998 to $3.5 million in fiscal 1999 due to the addition of 33
new stores.

         Interest Expense. Interest expense expressed as a percentage of net
sales was 3.2% or $4.5 million for fiscal 2000 compared to 2.4% or $3.2 million
for fiscal 1999. The increase in interest expense of approximately $1.3 million
in fiscal 2000 is due to an increase in borrowings relating to the addition of
18 new stores.

         In fiscal 1999 interest expense was 2.4% expressed as a percentage of
sales or $3.2 million as compared to 1.7% or $1.9 million in fiscal 1998. The
increase in interest expense of approximately $1.3 million in fiscal 1999 is



                                       10
<PAGE>   11


due to the accretion of approximately $445,000 of the $1.6 million of the
subordinated debt discount originating in the first month of the fiscal year and
an increase in borrowings relating to the addition of 33 new stores.

         Income Taxes. The Company's effective tax rate in fiscal 2000 and 1999
was 35% and 34%, respectively.

         The Company recorded a valuation allowance in fiscal 2000 to reduce its
deferred income tax balances of approximately $4.2 million. See Note 5 of Notes
to Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

         The Company's primary sources of liquidity are cash generated by
operations, trade credit, and amounts available under its credit facility. Net
cash provided by operating activities was $2.7 million in fiscal 2000 compared
to net cash provided by operating activities of $2.3 million in fiscal 1999 and
$3.8 million in fiscal 1998. During fiscal 2000, the $2.7 million provided by
operating activities was primarily due to increases in accounts payable,
depreciation and amortization, and the recording of deferred tax valuation
allowance, while being offset by net loss and an increase in inventory.

         In fiscal 1999 and 1998 the net cash provided by operating activities
was primarily attributable to increases in depreciation and amortization,
accounts payable, and other liabilities and accrued expenses, while being offset
by the net loss and an increase in inventory.

         During fiscal 2000, 1999 and 1998, the Company used $9.3 million, $10.3
million and $2.5 million, respectively, to purchase property and equipment. The
Company opened 18 new stores and closed 13 stores in fiscal 2000, 33 new stores
and 7 closed stores in fiscal 1999, and 11 new stores and 10 closed stores in
fiscal 1998. In fiscal 1999, the 33 new stores included two acquisitions. The
Company acquired 4 stores from Record Den Inc. and DJK Records & Video Inc. for
approximately $933,000 and 13 stores from Happy Town and Tempo for approximately
$3.6 million. The Company anticipates opening 1 store in fiscal 2001. Management
estimates that the capital cost of opening the new store will be approximately
$300,000 which will be funded through operating cash flow and its credit
facilities, excluding inventory of approximately $300,000 which is obtained
through trade credit.

         On February 17, 1998 the Company renewed its revolving line of credit
from an institutional lender through June 10, 2003. Under the line, the Company
is permitted to borrow up to $35 million, subject to a borrowing base
calculation based upon inventory levels. Between the months of October 1 and
December 31 an overadvance of $1.5 million is available to the Company in
addition to its borrowing base calculation, not to exceed in total the borrowing
limit of $35 million. As of February 1, 1999, the Company's institutional lender
reduced its interest rates. Borrowings under the amended facility bear interest
at a floating rate equal to the lender's base rate (9.0% at March 25, 2000) or,
at the Company's option, the 30-day LIBOR rate (6.12375% at March 25, 2000) plus
2.0%.

         As of March 25, 2000, the Company's outstanding credit balance on its
revolver was $28.2 million. The Company's borrowing availability at March 25,
2000 was $3.3 million. The revolver balance and the Company's cash requirements
peak in February when the Company's trade payables become due from the Christmas
selling season.

         On April 16, 1998, the Company completed a private placement of
$15,000,000 of senior subordinated notes to a group of institutional lenders.
The notes carry an interest rate of 11.75% payable semi-annually and are due on
April 16, 2001. In consideration of the placement the Company issued warrants to
purchase 400,000 shares of common stock at $.01 per share. The Company used the
funds to expand its store base, update its point of sale equipment and general
working capital purposes.

         On February 23, 1994, the Board of Directors approved a program for the
Company to purchase up to $1,000,000 in value of its common stock. On September
17, 1998 the Board of Directors approved the Company to purchase up to 500,000
additional shares of the Company's common stock. Such purchases will be made
from time to time in the marketplace at the Company's discretion. Since the
inception of the programs, the Company has purchased 446,817 shares of its
stock.

         Management believes that cash flows from operations, amounts available
under the revolving credit facility and the subordinated debt facility will be
sufficient to meet the Company's current liquidity and capital needs at least
through fiscal 2001.


                                       11
<PAGE>   12


SEASONALITY

         The Company's business is seasonal in nature, with the highest sales
and earnings occurring in the third quarter of its fiscal year, which includes
the Christmas selling season. Approximately 37% of the Company's net sales for
fiscal 2000 were generated in the third quarter. (See Note 9 of Notes to the
Consolidated Financial Statements for quarterly financial data.) Year-to-year
comparisons of quarterly results and comparable store net sales can be affected
by a variety of factors, including the success and timing of new releases by
manufacturers, the timing and duration of the holiday selling seasons and the
timing of new store openings and sales promotions.

EFFECT OF ECONOMIC PATTERNS AND INFLATION

         While the Company attempts to pass on increases in costs and expenses
from operations, its ability to do so is limited by competitive factors.
Although the Company's operations are affected by general economic trends, the
Company does not believe that inflation has had a material effect on the results
of its operations in the last three fiscal years.

YEAR 2000 COMPLIANCE

         The Company recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the year 2000 (Y2K) and
began taking corrective action in 1998. The Company's efforts included replacing
and testing Y2K affected mainframe computer code, identifying and resolving
non-mainframe computer code, identifying and resolving non-mainframe computer
hardware and software issues, assessing the Y2K readiness of the Company's
business partners and developing contingency plans. Management believes the
Company has completed all of the activities within its control to ensure that
the Company's systems are Y2K compliant.

         The Company's Y2K readiness costs were approximately $1.5 million. Of
the total costs $1.0 million was capitalized and is being amortized over the
useful lives of the applicable assets. For the remainder of the costs the
Company entered into an operating lease for approximately $471,000 for a term of
48 months of which the Company has expensed to date $50,000. The Company funded
the capital elements of resolving the Y2K issues through funds generated from
operations.

         The Company successfully completed its Y2K rollover without any major
problems or disruptions. All of the Company's stores, logistics operations and
corporate support areas were fully functional subsequent to the Y2K rollover.
The Company is not aware that any of its major business partners have
experienced significant Y2K issues. While the Company believes that it has
pursued the appropriate course of action to ensure Y2K readiness, there can be
no assurances that this objective will be achieved as it relates to its major
business partners.



                                       12
<PAGE>   13


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The Consolidated Financial Statements and related notes are included in
Item 14 of this report. See Index to Consolidated Financial Statements contained
in Item 14 herein.


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

         None.

                                    PART III

ITEM 10. (a) AND (b) DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information required by these items of Part III will be set forth
in the Company's Proxy Statement for its 2000 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission within 120 days after March
25, 2000 under similar captions and is incorporated herein by reference, except
that the information required with respect to the executive officers of the
Company under Item 10 (b) is set forth immediately following Item 4.

                                     PART IV

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

(a)      DOCUMENTS FILED AS A PART OF THIS REPORT:

         (1)      CONSOLIDATED FINANCIAL STATEMENTS

                  See Index to Consolidated Financial Statements on Page 17.

         (2)      FINANCIAL STATEMENT SCHEDULES

                  None of the schedules for which provision is made in the
                  applicable accounting regulations of the Securities and
                  Exchange Commission are required.

         (3)      EXHIBITS

                  See Exhibit Index on pages 31 through 32.

(b)      REPORTS ON FORM 8-K

                  No reports on Form 8-K were filed by the Company during the
                  last quarter of the period covered by this Report.



                                       13
<PAGE>   14


(c)      EXHIBITS:

         See Exhibit Index on pages 31 through 32.

(d)      OTHER FINANCIAL STATEMENTS

         Not applicable.








                                       14
<PAGE>   15


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.

                                            NATIONAL RECORD MART, INC.


                                            BY: /s/ William A. Teitelbaum
                                                --------------------------------
                                                William A. Teitelbaum
                                                Chairman of the Board, President
                                                and Chief Executive Officer


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

<TABLE>
<CAPTION>
Signature                                   Capacity                                      Date
---------                                   --------                                      ----
<S>                                         <C>                                           <C>
/s/ William A. Teitelbaum                   Chairman of the Board, President              June 23, 2000
---------------------------                 Chief Executive Officer and Director
William A. Teitelbaum


/s/ Theresa Carlise                         Senior Vice President                         June 23, 2000
---------------------------                 Chief Financial Officer,
Theresa Carlise                             Chief Accounting Officer,
                                            Treasurer, Secretary and Director


/s/ Samuel S. Zacharias                     Director                                      June 23, 2000
---------------------------
Samuel S. Zacharias


/s/ Irwin B. Goldstein                      Director                                      June 23, 2000
---------------------------
Irwin B. Goldstein
</TABLE>







                                       15
<PAGE>   16


                           NATIONAL RECORD MART, INC.

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                                        Page
                                                                                        ----
<S>                                                                                     <C>
Report of Independent Auditors                                                          17

Consolidated Statements of Operations for the fiscal years
ended March 25, 2000, March 27, 1999, and March 28, 1998                                18

Consolidated Balance Sheets as of March 25, 2000 and March 27, 1999                     19

Consolidated Statements of Cash Flows for the fiscal years
ended March 25, 2000, March 27, 1999, and March 28, 1998                                20

Consolidated Statements of Stockholders' Equity for the fiscal years
ended March 25, 2000, March 27, 1999, and March 28, 1998                                21

Notes to Consolidated Financial Statements                                              22
</TABLE>







                                       16
<PAGE>   17


Report of Independent Auditors


To the Board of Directors and Stockholders
of National Record Mart, Inc. and Subsidiary


We have audited the accompanying consolidated balance sheets of National Record
Mart, Inc. and subsidiary as of March 25, 2000 and March 27, 1999, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 25, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of National Record
Mart, Inc. and subsidiary at March 25, 2000 and March 27, 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 25, 2000, in conformity with accounting
principles generally accepted in the United States.



                                               ERNST & YOUNG LLP


Pittsburgh, Pennsylvania
June 2, 2000





                                       17
<PAGE>   18


                   NATIONAL RECORD MART, INC. and Subsidiary
                     CONSOLIDATED STATEMENTS OF OPERATIONS
     For the years ended March 25, 2000, March 27, 1999 and March 28, 1998


<TABLE>
<CAPTION>
                                                                              Years Ended
                                                            ------------------------------------------------
                                                              March 25,         March 27,         March 28,
                                                                2000              1999              1998
                                                            ------------      ------------      ------------
<S>                                                         <C>               <C>               <C>
Net sales                                                   $142,644,670      $129,902,083      $112,488,429
Cost of sales                                                 87,924,659        81,685,053        69,524,955
                                                            ------------      ------------      ------------
     Gross profit                                             54,720,011        48,217,030        42,963,474

Selling, general and administrative expenses                  51,189,259        43,743,424        36,858,670
Depreciation and amortization                                  4,664,260         3,540,141         2,801,248
Interest expense                                               4,494,690         3,165,988         1,859,661
Interest income                                                  (37,107)          (83,493)          (37,935)
Other expense                                                    337,770           539,173           104,321
                                                            ------------      ------------      ------------
Total expenses                                                60,648,872        50,905,233        41,585,965
                                                            ------------      ------------      ------------

(Loss) income before income tax (benefit) expense             (5,928,861)       (2,688,203)        1,377,509
Provision (benefit) for income taxes                           2,143,319          (996,862)          484,861
                                                            ------------      ------------      ------------

      Net (loss) income                                     $ (8,072,180)     $ (1,691,341)     $    892,648
                                                            ============      ============      ============

Basic net (loss) income per share                           $      (1.60)     $      (0.35)     $       0.18
Diluted net (loss) income per share                         $      (1.60)     $      (0.35)     $       0.18

Basic weighted average common shares outstanding               5,048,788         4,800,867         4,844,624
Weighted average number of common shares and common
   equivalent shares (warrants and options) outstanding        5,048,788         4,800,867         5,057,323
</TABLE>


           See accompanying notes to consolidated financial statements





                                       18
<PAGE>   19


                   NATIONAL RECORD MART, INC. and Subsidiary
                          CONSOLIDATED BALANCE SHEETS
                    As of March 25, 2000 and March 27, 1999


<TABLE>
<CAPTION>
                                                                                   March 25,         March 27,
                                                                                     2000              1999
                                                                                 ------------      ------------
<S>                                                                              <C>               <C>
Assets
  Current assets:
    Cash and cash equivalents                                                    $  1,935,092      $  2,016,310
    Merchandise inventory                                                          51,040,684        44,137,192
    Due from stockholder                                                              380,154           494,249
    Deferred income taxes                                                                  --           417,000
    Refundable income taxes                                                                --           229,860
    Other current assets                                                            2,239,753         3,358,625
                                                                                 ------------      ------------
  Total current assets                                                             55,595,683        50,653,236

  Property and equipment, at cost                                                  44,332,172        36,014,844
  Accumulated depreciation and amortization                                       (21,006,162)      (17,771,446)
                                                                                 ------------      ------------
  Property and equipment, net                                                      23,326,010        18,243,398

  Other assets:
    Deferred income taxes                                                                  --         1,726,319
    Intangibles                                                                     2,296,205         2,534,646
    Other assets                                                                      633,514           499,180
                                                                                 ------------      ------------
  Total other assets                                                                2,929,719         4,760,145
                                                                                 ------------      ------------
    Total assets                                                                 $ 81,851,412      $ 73,656,779
                                                                                 ============      ============

Liabilities and stockholders' equity
  Current liabilities:
    Accounts payable                                                             $ 25,046,213      $ 16,700,902
    Deferred income                                                                 1,012,159         1,505,954
    Other liabilities and accrued expenses                                          5,046,649         4,281,331
    Current maturities of long-term debt                                              161,770           106,695
                                                                                 ------------      ------------
Total current liabilities                                                          31,266,791        22,594,882

  Long-term debt:
    Notes payable                                                                  14,558,285        13,845,464
    Revolving credit facility                                                      28,219,850        21,373,000
                                                                                 ------------      ------------
  Total long-term debt                                                             42,778,135        35,218,464

  Commitments and contingencies

  Stockholders' equity:
    Preferred Stock, $.01 par value, 2,000,000 shares authorized, none issued              --                --
    Common Stock, $.01 par value, 9,000,000 shares authorized,
     5,498,484 and 5,494,384 shares issued, and 5,051,667 and 5,049,567 shares
     outstanding at March 25, 2000 and March 27, 1999, respectively                    54,985            54,944
    Additional paid-in capital                                                     15,902,474        15,858,922
    Retained (deficit) earnings                                                    (6,481,748)        1,590,432
                                                                                 ------------      ------------
                                                                                    9,475,711        17,504,298
    Less Treasury Stock, 446,817 and 444,817 shares at
      March 25, 2000 and March 27, 1999, respectively                              (1,669,225)       (1,660,865)
                                                                                 ------------      ------------
    Total stockholders' equity                                                      7,806,486        15,843,433
                                                                                 ------------      ------------
      Total liabilities and stockholders' equity                                 $ 81,851,412      $ 73,656,779
                                                                                 ============      ============
</TABLE>


           See accompanying notes to consolidated financial statements



                                       19
<PAGE>   20


                   NATIONAL RECORD MART, INC. and Subsidiary
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
     For the years ended March 25, 2000, March 27, 1999 and March 28, 1998


<TABLE>
<CAPTION>
                                                                               Years Ended
                                                           ---------------------------------------------------
                                                              March 25,          March 27,          March 28,
                                                                2000               1999               1998
                                                           -------------      -------------      -------------
<S>                                                        <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income                                          $  (8,072,180)     $  (1,691,341)     $     892,648
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
    Depreciation and amortization                              4,664,260          3,540,141          2,801,248
    Accretion of notes payable for value assigned
      for warrants                                               571,826            445,464                 --
    Loss from disposal of property and equipment                 197,581            144,101            185,475
    Deferred income taxes                                      2,143,319           (816,319)           185,000
    Stock option compensation                                     33,343                 --                 --
    Other                                                       (101,824)            29,835                 --

Changes in operating assets and liabilities:
    Merchandise inventory                                     (6,625,693)        (4,862,139)           466,564
    Other assets                                               1,041,497           (636,789)          (721,147)
    Refundable income taxes                                      229,860           (166,338)         1,459,617
    Accounts payable                                           8,345,311          4,373,283         (2,207,512)
    Deferred income                                              493,795            312,822            214,201
    Other liabilities and accrued expenses                      (222,272)         1,805,352            351,269
    Income taxes payable                                              --           (181,782)           181,782
                                                           -------------      -------------      -------------
      Net cash provided by operating activities                2,698,823          2,296,290          3,809,145

CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment                            (9,398,411)       (10,300,704)        (2,508,714)
Asset purchases (see Note 8)                                    (540,535)        (4,507,275)                --
Amounts received from (loaned to) stockholders                   114,095            (94,705)           (28,819)
Other long-term investments                                           --                 --            235,447
                                                           -------------      -------------      -------------

    Net cash used in investing activities                     (9,824,851)       (14,902,684)        (2,302,086)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on debt facilities                                 (160,387,046)      (164,655,790)      (130,704,676)
Net borrowings on revolving debt facilities                  167,429,966        180,122,821        128,747,032
Purchases of Treasury Stock                                       (8,360)        (1,229,881)                --
Exercise of stock options                                         10,250              1,250                 --
                                                           -------------      -------------      -------------
   Net cash provided by (used in) financing activities         7,044,810         14,238,400         (1,957,644)
                                                           -------------      -------------      -------------

Net (decrease) increase in cash and cash equivalents             (81,218)         1,632,006           (450,585)
Cash and cash equivalents, beginning of year                   2,016,310            384,304            834,889
                                                           -------------      -------------      -------------
Cash and cash equivalents, end of year                     $   1,935,092      $   2,016,310      $     384,304
                                                           =============      =============      =============
</TABLE>


           See accompanying notes to consolidated financial statements



                                       20
<PAGE>   21


                   NATIONAL RECORD MART, INC. and Subsidiary
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
     For the years ended March 25, 2000, March 27, 1999 and March 28, 1998




<TABLE>
<CAPTION>
                                                           Additional                                                     Total
                                       Common Stock         Paid-in         Retained                  Treasury Stock  Stockholders'
                                   Shares       Amount      Capital    Earnings/(Deficit)   Shares       Amount          Equity
                                 ---------     -------    -----------  ------------------  -------    --------------  -------------
<S>                              <C>           <C>        <C>          <C>                 <C>        <C>             <C>
Balance at March 29, 1997        5,037,916     $50,379    $14,057,288     $ 2,389,125      193,292     $  (430,984)    $16,065,808
  Net income                            --          --             --         892,648           --              --         892,648
                                 ---------     -------    -----------     -----------      -------     -----------     -----------

Balance at March 28, 1998        5,037,916      50,379     14,057,288       3,281,773      193,292        (430,984)     16,958,456
  Warrants issued and exercised    455,968       4,560      1,800,389              --           --              --       1,804,949
  Stock options exercised              500           5          1,245              --           --              --           1,250
  Net loss                              --          --             --      (1,691,341)          --              --      (1,691,341)
  Purchases of treasury stock           --          --             --              --      251,525      (1,229,881)     (1,229,881)
                                 ---------     -------    -----------     -----------      -------     -----------     -----------

Balance at March 27, 1999        5,494,384      54,944     15,858,922       1,590,432      444,817      (1,660,865)     15,843,433
  Stock options exercised            4,100          41         10,209              --           --              --          10,250
  Stock option compensation             --          --         33,343              --           --              --          33,343
  Net loss                              --          --             --      (8,072,180)          --              --      (8,072,180)
  Purchases of treasury stock           --          --             --              --        2,000          (8,360)         (8,360)
                                 ---------     -------    -----------     -----------      -------     -----------     -----------

Balance at March 25, 2000        5,498,484     $54,985    $15,902,474     $(6,481,748)     446,817     $(1,669,225)    $ 7,806,486
                                 =========     =======    ===========     ===========      =======     ===========     ===========
</TABLE>






          See accompanying notes to consolidated financial statements






                                       21
<PAGE>   22


                    NATIONAL RECORD MART, INC. AND SUBSIDIARY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

National Record Mart, Inc. (the "Company") is a specialty retailer of home
entertainment products, including compact discs, audio and video cassettes, and
related accessories. As of March 25, 2000, the Company operated 179 stores in 33
states and the U.S. territory of Guam. The stores are primarily in the eastern
part of the United States and operate under five distinct store concepts,
National Record Mart or NRM Music, Waves Music, Vibes Music, Music Oasis and
Music X, each of which targets a different customer base. The Company's fiscal
year is the 52 or 53 weeks ending on the Saturday in March closest to March 31.
Fiscal years 2000, 1999 and 1998 ended on March 25 (52 weeks), March 27 (52
weeks) and March 28 (52 weeks), respectively.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, National Record Mart Investments, Inc., a Delaware
holding company. All intercompany accounts and transactions have been eliminated
in consolidation.

CASH EQUIVALENTS

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

MERCHANDISE INVENTORY

Inventory is comprised of records, cassettes, compact discs, video tapes and
accessories and is stated at the lower of average cost or market. Market is net
realizable value.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Equipment and major improvements to
existing locations are capitalized. Expenditures for repairs and maintenance
which do not extend the useful life of assets are charged to expense as
incurred. Provisions for depreciation are computed using the straight-line
method for book purposes and accelerated methods for tax purposes based upon the
estimated useful lives of the assets. Leasehold improvements are amortized over
the shorter of the useful life of the improvement or the lease term which
includes anticipated renewal periods. Property and equipment of the Company
consist of the following:

<TABLE>
<CAPTION>
                                                               March  25,        March 27,
              Assets                        Asset Lives           2000             1999
              ------                        -----------       ------------     ------------
         <S>                                <C>               <C>              <C>
         Leasehold improvements              10 years         $ 19,010,167     $ 15,804,791
         Fixtures and equipment               7 years           25,250,286       20,138,334
         Vehicles                             5 years               71,719           71,719
                                                              ------------     ------------
               Total                                            44,332,172       36,014,844
         Less accumulated depreciation                         (21,006,162)     (17,771,446)
                                                              ------------     ------------
               Property and equipment, net                    $ 23,326,010     $ 18,243,398
                                                              ============     ============
</TABLE>


Depreciation expense for the years ended March 25, 2000, March 27, 1999 and
March 28, 1998 was approximately $4,209,000, $3,096,000 and $2,562,000,
respectively.

INTANGIBLE ASSETS

Intangible assets recorded by the Company are being amortized using the
straight-line method over their estimated useful lives. Goodwill represents the
excess of the purchase price over the fair value of the net assets acquired in
the original acquisition of the Company and the acquisitions of businesses in
fiscal 1994, fiscal 1999 and fiscal 2000 and is being amortized over periods of
40 years for acquisitions taking place in fiscal 1994 and 15 years for
acquisitions taking place in fiscal 1999 and fiscal 2000. The amortization
period is determined by taking into consideration the following factors: the
amortization periods generally used in the retail music business, the highly
competitive nature of the business including emerging forms of competition and
the overall history of profitability of the acquired business. The estimated
useful life of other intangible assets is five years. Accumulated amortization
as of March 25, 2000 and March 27, 1999 was approximately $1,177,000 and
$739,000, respectively. Amortization expense for the years ended March 25, 2000,
March 27, 1999 and March 28, 1998 was approximately $438,000, $444,000, and
$239,000, respectively.



                                       22
<PAGE>   23


VALUATION OF LONG-LIVED ASSETS

The Company monitors the recoverability of long-lived assets, based on factors
such as current market value, future asset utilization, business climate and
future undiscounted cash flows expected to result from the use of the related
assets. The Company's policy is to record an impairment loss in the period when
it is determined that the carrying amount of the asset may not be recoverable.
The impairment loss is calculated as the amount by which the carrying amount of
the asset exceeds the fair value of the asset.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts reported in the consolidated balance sheets for the
Company's financial instruments approximate their fair value.

STORE OPENING COSTS

The expenses associated with the opening of new stores are charged to expense as
incurred.

ADVERTISING COSTS

Advertising and sales promotional programs are charged to expense during the
periods in which they are run. Total advertising and sales promotional expenses
for the fiscal years ended March 25, 2000, March 27, 1999 and March 28, 1998
were approximately $2,202,000, $2,046,000 and $1,900,000, respectively.

STOCK OPTION PLANS

In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, "Accounting for Stock-Based Compensation," which establishes
financial accounting and reporting standards for stock-based employee
compensation plans. The Company continues to account for its stock-based
employee compensation plans using the intrinsic value method under Accounting
Principles Board Opinion No. 25. See pro forma disclosures required under FASB
Statement No. 123 in Note 4.

REVENUE RECOGNITION

Revenue from sales of merchandise is recognized at the point of sale to the
consumer, at which time payment is tendered. There are no provisions for
uncollectible amounts since payment is received at the time of sale. In
connection with gift certificates, a deferred revenue amount is established upon
purchase of the gift certificate by the customer and revenue is recognized upon
redemption and purchase of merchandise.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results may differ from those estimates.

RECENT FINANCIAL ACCOUNTING STANDARDS BOARD PRONOUNCEMENT

FAS 133, Accounting for Derivative Instruments and Hedging Activities

In 1998, the FASB issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition and measurement of derivatives and
hedging activities. The standard is effective for fiscal 2002. The Company does
not currently engage in these types of risk management or investment activities.
Based upon current business practices, the statement is not anticipated to have
any impact on the Company's financial statements.



                                       23
<PAGE>   24


EARNINGS PER SHARE

The following table shows the share amounts used in computing basic and diluted
earnings per share.

<TABLE>
<CAPTION>
                                                      March 25,        March 27,         March 28,
                                                        2000             1999              1998
                                                      ---------        ---------         ---------
<S>                                                   <C>              <C>               <C>
Weighted average common shares outstanding            5,048,788        4,800,867         4,844,624
Dilutive common stock equivalents                            --               --           442,429
Treasury stock assumed to be repurchased using
   proceeds from options and warrants                        --               --          (229,730)
                                                      ---------        ---------         ---------

Weighted average common shares and equivalents
   outstanding                                        5,048,788        4,800,867         5,057,323
                                                      =========        =========         =========
</TABLE>


RECLASSIFICATION

Certain reclassifications have been made to the Consolidated Financial
Statements for prior periods in order to conform to the March 25, 2000
presentation.


2. REVOLVING CREDIT FACILITY AND TERM DEBT

Long-term debt consisted of the following as of:

<TABLE>
<CAPTION>
                                                                        March 25,          March 27,
                                                                          2000               1999
                                                                       -----------        -----------
         <S>                                                           <C>                <C>
         REVOLVING CREDIT FACILITY -- Bears interest at
         the bank's base rate (9.00% at March 25, 2000),
         or the 30-day LIBOR rate (6.12375% at
         March 25, 2000) plus 2.0%. Secured by
         substantially all of the assets of the Company                $28,219,850        $21,373,000

         SUBORDINATED  NOTES -- $15 million notes with interest
         rate of 11.75%.  Notes net of discount of $582,710
         as of March 25, 2000                                           14,417,290         13,845,464

         OTHER                                                             302,765            106,695
                                                                       -----------        -----------
                                                                        42,939,905         35,325,159
         Less current maturities                                           161,770            106,695
                                                                       -----------        -----------
         Long-term debt                                                $42,778,135        $35,218,464
                                                                       ===========        ===========
</TABLE>

The Company has a revolving credit facility (the "Revolver") which expires on
June 10, 2003. The maximum borrowings under the Revolver are $35,000,000 and are
based upon eligible inventory levels as defined therein. During the months of
October through December 31 of each year, an overadvance is available in
addition to the borrowing base as calculated by levels of inventory in the
amount of $1.5 million. In any event, the total borrowings under this facility
shall not exceed the limit of $35 million. As of March 25, 2000, approximately
$31,500,000 was available and approximately $3,300,000 was unused under the
revolving line of credit facility. The Company is required to pay a monthly
commitment fee of .25% per annum on the unused portion of the Revolver and a
monthly collateral monitoring fee of $3,500.

The Revolver also contains various financial and other covenants that place
restrictions or limitations on the Company and its subsidiaries, the more
restrictive of which include: (i) maintenance of a number of financial ratios,
as defined, (ii) a restriction on dividends, and (iii) limitation on capital
expenditures.

On April 16, 1998, the Company secured a private placement of $15,000,000 in
senior subordinated notes. The notes carry an interest rate of 11.75% payable
semiannually and expire April 16, 2001. In consideration of the placement, the
Company issued 400,000 common stock warrants with an exercise price of $0.01.
The Company has allocated $1,600,000 of value for accounting purposes to the
warrants, which has been recorded as a reduction of the $15,000,000. This
reduction will be accreted as additional interest expense over the term of the
note. The Company has issued 39,990 warrants for an additional expense of
$205,000 in the third quarter of fiscal 1999. The additional warrants are a
settlement for the delay in the effective date of registering the 400,000
warrants noted above with the SEC. During the year ended March 27, 1999, both
the 400,000 and 39,990 warrants were exercised.




                                       24
<PAGE>   25


Future scheduled maturities of long-term debt are as follows:

<TABLE>
<CAPTION>
                          Year Ended
                            March
                          ----------
                          <S>                           <C>
                             2001                       $   161,770
                             2002                        15,010,248
                             2003                            10,709
                             2004                        28,231,913
                             2005                            13,593
                             Thereafter                      94,382
                                                        -----------
                                                         43,522,615
                             Discount to be accreted        582,710
                                                        -----------
                                  Total                 $42,939,905
                                                        ===========
</TABLE>

Interest payments of $3,874,000, $1,918,000 and $1,860,000 were made during the
fiscal years ended March 25, 2000, March 27, 1999 and March 28, 1998,
respectively.

3. EMPLOYEE BENEFIT PLANS

Profit Sharing Plan. The Company sponsors a qualified, noncontributory profit
sharing plan for eligible employees. Contributions to the plan, as determined by
the Board of Directors, are discretionary but generally may not exceed 15% of
the defined annual compensation paid to all participating employees. No
contributions were made to the plan for any of the years presented.

401(k) Plan. The Company sponsors a 401(k) plan for eligible employees.
Employees who have attained age 21 and are paid for 1,000 or more hours of
service within the twelve months from the date hired are eligible to
participate. Under provisions of the plan, participants may contribute up to 15%
of their eligible compensation to the plan. These contributions are made through
payroll deductions and are partially matched by the Company. Contributions made
by the Company to its 401(k) plan were $72,000, $64,000 and $50,000 for the
years ended March 25, 2000, March 27, 1999 and March 28, 1998, respectively.

4. STOCK OPTION PLANS

The National Record Mart, Inc. 1993 Stock Option Plan (the "Plan") provides for
the grant of 185,000 incentive or non-statutory stock options to purchase common
stock. Employees who share the responsibility for the management growth or
protection of the business of the Company are eligible to receive options which
are approved by a committee of the Board of Directors. These options primarily
vest over five years and are exercisable for a ten-year period from the date of
the grant.

Additionally, the Company's Board of Directors adopted the National Record Mart,
Inc. 1993 Non-Employee Director Stock Option Plan (the "Director Plan"). The
Director Plan provides for the grant of 15,000 stock options to purchase common
stock to all independent members of the Board of Directors who are not employees
of the Company and who are disinterested persons (as used in Rule 16b-3
promulgated under the Securities Exchange Act of 1934). These options vest over
five years and are exercisable for a ten-year period from the date of grant.

On June 10, 1996, the Company's Board of Directors granted Mr. William A.
Teitelbaum the option to purchase 200,000 shares of common stock par value $.01
per share of the Company at an option exercise price of $2.50 per share. The
right to exercise such option vests in four equal installments over a period of
four years beginning on June 15, 1997, and all options will vest automatically
upon (i) acquisition by a third party or group of a majority of the Company's
outstanding equity securities, or a sale of the Company, or all or substantially
all of its assets, (ii) termination of Mr. Teitelbaum's employment without
proper cause, (iii) a reorganization, merger or consolidation which results in a
change in control of the Company or (iv) Mr. Teitelbaum's death. If Mr.
Teitelbaum ceases to be employed by the Company for any other reason, the
unvested portion of the options will be extinguished. The option expires on June
15, 2007.

On June 30, 1997, the Company's Board of Directors approved the 1997
Non-Employee Directors Stock Option Plan. The 1997 Directors' Plan provides for
the grant of 25,000 shares to all independent members of the Board of Directors
who are not employees. The options are vested as of grant date and are
exercisable over a ten-year period from the date of grant at an exercise price
of $2.50.

The Company's Board of Directors approved on July 1, 1997 the issuance of
options to purchase 200,000 shares of the Company's common stock to William A.
Teitelbaum. The options vest over twenty years and are exercisable at $0.10,
with an expiration date of July 1, 2024. The options have a vesting event to
automatically vest in full upon termination, death, merger, acquisition or
liquidation.





                                       25
<PAGE>   26


Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, which also requires that the information be determined
as if the Company has accounted for its employee stock options granted beginning
in the fiscal year subsequent to December 31, 1994 under the fair value method
of that Statement. The fair value for these options was estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for the year ended March 25, 2000: risk free rate
of 5.25%; no dividend yield; volatility factors of the expected market price of
the Company's common stock of 1.283; and weighted-average expected life of the
option of four or five years depending on terms of grant. For the year ended
March 27, 1999: risk-free interest rate of 5.48%; no dividend yield; volatility
factors of the expected market price of the Company's common stock of 1.283; and
weighted-average expected life of the option of five years. For the year ended
March 28, 1998: risk-free interest rate of 6.38%; no dividend yield; volatility
factors of the expected market price of the Company's common stock of .805; and
weighted-average expected life of the option of five years.

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.

For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the option's vesting period. The Company's pro
forma information follows:

<TABLE>
<CAPTION>
                                                        March 25,           March 27,         March 28,
                                                          2000                1999              1998
                                                       -----------         -----------        ---------
         <S>                                           <C>                 <C>                <C>
         Pro forma net income (loss)                   $(8,130,646)        $(1,744,919)       $845,579

         Pro forma net income (loss) per share:
           Basic                                       $     (1.61)        $     (0.36)       $   0.17
           Fully diluted                               $     (1.61)        $     (0.36)       $   0.17
</TABLE>


Stock options granted prior to March 26, 1995 are excluded from the
determination of pro forma net income.






                                       26
<PAGE>   27


A summary of the Company's stock option activity follows:

<TABLE>
<CAPTION>
                                    March 25, 2000             March 27, 1999             March 28, 1998
                               ----------------------      ---------------------      ---------------------
                                            Weighted-                  Weighted-                  Weighted-
                                             Average                    Average                    Average
                                            Exercise                   Exercise                   Exercise
                               Options        Price        Options       Price        Options       Price
                               ----------------------      ---------------------      ---------------------
<S>                            <C>          <C>            <C>         <C>            <C>         <C>
Outstanding -
  beginning of year            516,950        $1.88        503,300       $1.63        268,500       $2.72

Granted                         26,000         3.86         34,350        5.90        235,900        0.47

Exercised                       (4,100)        2.50           (500)       2.50             --          --

Cancelled                      (14,850)        4.21        (20,200)       2.50         (1,100)       2.50
                               ----------------------      ---------------------      ---------------------

Outstanding - end of year      524,000        $1.91        516,950       $1.88        503,300       $1.63
                               ======================      =====================      =====================

Exercisable - end of year      207,180        $2.66        134,600       $2.77         68,860       $3.20
                               ======================      =====================      =====================
</TABLE>


5. INCOME TAXES

The provision (benefit) for income taxes, as shown in the accompanying
Consolidated Statements of Operations, includes the following components:

<TABLE>
<CAPTION>
                                                         March 25,         March 27,         March 28,
                                                           2000              1999              1998
                                                        ----------         ---------         ---------
         <S>                                            <C>                <C>               <C>
         Current provision (benefit):
              Federal                                   $       --         $(175,520)        $294,741
              State                                             --            (5,023)           5,120
                                                        ----------         ---------         --------
                                                                --          (180,543)         299,861
         Deferred provision (benefit)                           --          (816,319)         185,000
         Adjustment of the beginning of the year
           valuation allowance                           2,143,319                --               --
                                                        ----------         ---------         --------
         Total income tax provision (benefit)           $2,143,319         $(996,862)        $484,861
                                                        ==========         =========         ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                               March 25,     March 27,     March 28,
                                                                 2000          1999           1998
                                                               ---------     ---------     ---------
         <S>                                                   <C>           <C>           <C>
         Federal statutory rate                                   34%           34%            34%
         State income taxes, net of federal tax benefit           --            --              1
         Current year valuation allowance                        (34)           --             --
         Adjustment of the beginning of the year
           valuation allowance                                    35            --             --
                                                                 ----          ----           ----

                Effective income tax rate                         35%           34%            35%
                                                                 ====          ====           ====
</TABLE>


For income tax purposes, National Record Mart, Inc. and its subsidiary have
approximately $8.5 million of net operating losses available to offset against
future taxable income, subject to certain limitations. Such losses expire in
2019 and 2020.

Tax refunds of approximately $175,000, $9,300 and $1,324,000 were received
during the fiscal years ended March 25, 2000, March 27, 1999 and March 28, 1998,
respectively.




                                       27
<PAGE>   28


Significant components of the Company's deferred tax assets and liabilities as
of March 25, 2000 and March 27, 1999 are as follows:

<TABLE>
<CAPTION>
                                                                   March 25,             March 27,
                                                                     2000                  1999
                                                                  -----------           ----------
         <S>                                                      <C>                   <C>
         Deferred tax assets:
              Excess tax basis in property and equipment          $   861,000           $1,029,000
              Excess tax basis in inventory                           326,000              296,000
              Other                                                   713,000              523,000
              NOL carryforward                                      2,900,000              811,000
              Valuation allowance                                  (4,229,000)                  --
                                                                  -----------           ----------
                                                                      571,000            2,659,000
         Deferred tax liabilities:
              Excess book basis in other current assets               571,000             (515,000)
                                                                  -----------           ----------
         Net deferred tax asset                                   $        --           $2,144,000
                                                                  ===========           ==========
</TABLE>

Based on assessment of all available evidence as of March 25, 2000, including
the fact that the Company is in a cumulative loss position, management has
concluded that the deferred tax asset should be reduced by a valuation allowance
equal to the net deferred tax asset.

6. COMMITMENTS AND CONTINGENCIES

The Company leases its retail stores and distribution center under operating
leases. The lease agreements, including renewal options, expire on various dates
through 2007. Most leases provide for additional contingent rents based on a
percentage of sales and increases in real estate taxes. Future minimum annual
lease payments under noncancellable lease agreements in excess of one year at
March 25, 2000 are as follows:

<TABLE>
                  <S>                                       <C>
                  2001                                      $ 15,969,110
                  2002                                        15,000,767
                  2003                                        14,094,927
                  2004                                        13,425,227
                  2005                                        12,358,537
                  Thereafter                                  34,883,309
                                                            ------------
                  Total future minimum lease payments       $105,731,877
                                                            ============
</TABLE>

Rent expense for the years ended March 25, 2000, March 27, 1999 and March 28,
1998 was $15,884,000, $13,168,000 and $10,981,000 respectively, including
contingent rentals of $263,000, $197,000 and $161,000, respectively.

7. CONCENTRATION OF BUSINESS RISKS

The Company purchases inventory for its stores from approximately 500 suppliers,
with approximately 74% of purchases being made from five suppliers. In the past,
the Company has not experienced difficulty in obtaining satisfactory sources of
supply, and management believes that it will retain access to adequate sources
of supply. However, a loss of a major supplier could cause a possible loss of
sales, which would have an adverse effect on operating results and result in a
decrease in vendor support for the Company's advertising programs.

8. ASSET PURCHASES

On May 4, 1998, the Company purchased certain of the assets of Record Den Inc.
and DJK Records & Video Inc., totaling four stores. The acquisition was
accounted for using the purchase method of accounting for a purchase price of
approximately $933,000 resulting in $195,000 of goodwill which is being
amortized using the straight-line method over 15 years, $708,000 for purchased
assets and a $30,000 consulting and noncompete agreement for a period of three
years. The purchase price was paid in cash upon completion of the agreement.

On November 13, 1998, the Company purchased certain of the assets of Happy Town
Inc. and Tempo One Stop Records Inc., totaling twelve stores. The acquisition
was accounted for using the purchase method of accounting for a purchase price
of approximately $3,574,000 resulting in $869,000 of goodwill which is being
amortized using the straight-line method over 15 years, $2,648,000 for purchased
assets and a $57,000 consulting and noncompete agreement for a period of three
years. The purchase price was paid in cash upon completion of the agreement.

On May 5, 1999, the Company amended its asset purchase agreement with Tempo One
Stop Records Inc. and Happy Town Inc. to provide for the additional purchase of
two stores located in Guam. The acquisition was accounted for using the purchase
method of



                                       28
<PAGE>   29


accounting for a purchase price of approximately $540,000 resulting in $200,000
of goodwill, which is being amortized using the straight-line method over 15
years, and $340,000 for purchased assets. The purchase price is being paid
through monthly installments equal to 7% of sales of the store with the highest
sales for the applicable month.

9. LITIGATION

The Company is involved, from time to time, in lawsuits that arise in the normal
course of business. The Company actively and vigorously defends all lawsuits.
Management believes there are no lawsuits that will have a material effect on
the Company's financial position.

10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   BASIC        DILUTED
                                                    NET          NET (LOSS)    NET (LOSS)        COMMON STOCK
                                  GROSS           INCOME          INCOME        INCOME               PRICE
                 SALES           PROFIT           (LOSS)         PER SHARE     PER SHARE       HIGH        LOW
                --------         -------         --------        ----------    ----------     -------    -------
<S>             <C>              <C>             <C>             <C>           <C>            <C>        <C>
2000:
First           $ 30,300         $11,292         $(1,830)         $(0.36)       $(0.36)       $ 9.945    $ 5.183
Second            30,682          12,461          (1,517)          (0.30)        (0.30)         4.691      3.266
Third             48,756          18,928           2,654            0.50          0.50          4.977      3.091
Fourth            32,906          12,039          (7,379)          (1.44)        (1.44)          6.00     2.9375
                --------         -------         -------          ------        ------
  Total         $142,644         $54,720         $(8,072)         $(1.60)*      $(1.60)*
                ========         =======         =======          ======        ======


1999:
First           $ 24,435         $ 9,414         $(1,218)         $(0.25)       $(0.25)       $12.875    $ 5.625
Second            26,368          10,015          (1,080)          (0.22)        (0.22)        10.375      3.375
Third             47,716          17,207           2,442            0.51          0.44         19.125      3.875
Fourth            31,383          11,581          (1,835)          (0.38)        (0.38)         9.875      3.625
                --------         -------         -------          ------        ------
  Total         $129,902         $48,217         $(1,691)         $(0.35)*      $(0.35)*
                ========         =======         =======          ======        ======
</TABLE>


*  data rounded in quarterly calculations







                                       29
<PAGE>   30


                                INDEX TO EXHIBITS

     The following documents are filed as part of this 10K for the year ended
March 25, 2000

     Exhibit No.  Description
     -----------  -----------

         3.1      Amended and Restated Certificate of Incorporation of the
                  Company, filed as Exhibit 3.2 to the Company's Registration
                  Statement No. 33-62622 on Form S-1 and incorporated by
                  reference herein
         3.2      Amended and Restated By-Laws of the Company, filed as Exhibit
                  3.4 to the Company's Registration Statement No. 33-62622 on
                  Form S-1 and incorporated by reference herein
         3.3      Amendment to Restated Certificate of Incorporation of the
                  Company, filed as Exhibit 3.3 to the Company's Annual Report
                  on Form 10-K for the fiscal year ended March 25, 1995 and
                  incorporated by reference herein
         4.1      Loan and Security Agreement, dated June 11, 1993, between the
                  Company and Barclays Business Credit, Inc., filed as Exhibit
                  10.16 to the Company's Registration Statement No. 33-62622 on
                  Form S-1 and incorporated by reference herein
         4.2      Amendment, dated January 12, 1995, between the Company and
                  Barclays Business Credit, Inc., to the Loan and Security
                  Agreement, dated June 11, 1993, between the Company and
                  Barclays Business Credit, Inc., filed as Exhibit 4.2 to the
                  Company's Annual Report on Form 10K for the fiscal year ended
                  March 28, 1998 and incorporated by reference herein.
         4.3      Amendment, dated September 8, 1995, between the Company and
                  Shawmut Capital Corporation, successor to Barclays Credit,
                  Inc., to the Loan and Security Agreement, dated June 11, 1993,
                  between the Company and Barclays Business Credit, Inc., filed
                  as Exhibit 4.3 to the Company's Annual Report on Form 10K for
                  the fiscal year ended March 28, 1998 and incorporated by
                  reference herein.
         4.4      Amendment, dated July 19, 1996, between the Company and Fleet
                  Capital Corporation, successor to Shawmut Capital Corporation,
                  to the Loan and Security Agreement, dated June 11, 1993,
                  between the Company and Barclays Business Credit, Inc., filed
                  as Exhibit 4.4 to the Company's Annual Report on Form 10K for
                  the fiscal year ended March 28, 1998 and incorporated by
                  reference herein.
         4.5      Amendment, dated October 17, 1996, between the Company and
                  Fleet Capital Corporation, to the Loan and Security Agreement,
                  dated June 11, 1993, between the Company and Barclays Business
                  Credit, Inc., filed as Exhibit 10.10 to the Company's Annual
                  Report on Form 10-K for the fiscal year ended March 28, 1997
                  and incorporated by reference herein
         4.6      Amendment, dated June 25, 1997, between the Company and Fleet
                  Capital Corporation, to the Loan and Security Agreement, dated
                  June 11, 1993, between the Company and Barclays Business
                  Credit, Inc., filed as Exhibit 4.6 to the Company's Annual
                  Report on Form 10K for the fiscal year ended March 28, 1998
                  and incorporated by reference herein.
         4.7      Amendment, dated February 17, 1998, between the Company and
                  Fleet Capital Corporation, to the Loan and Security Agreement,
                  dated June 11, 1993, between the Company and Barclays Business
                  Credit, Inc., filed as Exhibit 4.7 to the Company's Annual
                  Report on Form 10K for the fiscal year ended March 28, 1998
                  and incorporated by reference herein.
         4.8      Amendment, dated April 16, 1998, between the Company and Fleet
                  Capital Corporation, to the Loan and Security Agreement, dated
                  June 11, 1993, between the Company and Barclays Business
                  Credit, Inc., filed as Exhibit 4.8 to the Company's Annual
                  Report on Form 10K for the fiscal year ended March 28, 1998
                  and incorporated by reference herein.
         4.9      Senior Subordinated Secured Note Purchase Agreement, dated as
                  of April 16, 1998, among the Company, the Guarantors from time
                  to time party thereto, the Purchasers from time to time party
                  thereto, and Robert Fleming, Inc., as Agent, filed as Exhibit
                  4.9 to the Company's Annual Report on Form 10K for the fiscal
                  year ended March 28, 1998 and incorporated by reference
                  herein.
         4.10     Senior Subordinated Note Purchase Agreement, dated as of April
                  16, 1998, among the Company, the Guarantors from time to time
                  party thereto, the Purchasers from time to time party thereto,
                  and Robert Fleming, Inc., as Agent, filed as Exhibit 4.10 to
                  the Company's Annual Report on Form 10K for the fiscal year
                  ended March 28, 1998 and incorporated by reference herein.
         4.11     Issuer Security and Pledge Agreement, dated as of April 16,
                  1998, between the Company and Robert Fleming, Inc., as Agent,
                  filed as Exhibit 4.11 to the Company's Annual Report on Form
                  10K for the fiscal year ended March 28, 1998 and incorporated
                  by reference herein.





                                       30
<PAGE>   31


     Exhibit No.  Description
     -----------  -----------

         4.12     Guarantor Security and Pledge Agreement, dated as of April 16,
                  1998, between NRM Investments, Inc. and Robert Fleming, Inc.,
                  as Agent, filed as Exhibit 4.12 to the Company's Annual Report
                  on Form 10K for the fiscal year ended March 28, 1998 and
                  incorporated by reference herein.
         4.13     Trademark Collateral Security Agreement, dated as of April 16,
                  1998, between the Company and Robert Fleming, Inc., as Agent,
                  filed as Exhibit 4.13 to the Company's Annual Report on Form
                  10K for the fiscal year ended March 28, 1998 and incorporated
                  by reference herein.
         4.14     Subordination Agreement, dated as of April 16, 1998, between
                  Robert Fleming, Inc., as Agent, and Fleet Capital Corporation,
                  acknowledged by the Company and NRM Investments, Inc., filed
                  as Exhibit 4.14 to the Company's Annual Report on Form 10K for
                  the fiscal year ended March 28, 1998 and incorporated by
                  reference herein.
         4.15     Junior Subordination Agreement, dated as of April 16, 1998,
                  between Robert Fleming, Inc., as Agent, and Fleet Capital
                  Corporation, acknowledged by the Company and NRM Investments,
                  Inc., filed as Exhibit 4.15 to the Company's Annual Report on
                  Form 10K for the fiscal year ended March 28, 1998 and
                  incorporated by reference herein.
         4.16     Collateral Sharing and Agency Agreement, dated as of April 16,
                  1998, among the Company, NRM Investments, Inc., Robert
                  Fleming, Inc., as Agent, and Fleet Capital Corporation, for
                  itself and as Collateral Agent, filed as Exhibit 4.16 to the
                  Company's Annual Report on Form 10K for the fiscal year ended
                  March 28, 1998 and incorporated by reference herein.
         10.1     Sublease dated July 1, 1992 between the Company and General
                  Motors Corporation, filed as Exhibit 10.12 to the Company's
                  Registration Statement No. 33-62622 on Form S-1 and
                  incorporated by reference herein.
         10.2     Employment Agreement dated April 1, 1993 between the Company
                  and William A. Teitelbaum, filed as Exhibit 10.11 to the
                  Company's Registration Statement No. 33-62622 on Form S-1 and
                  incorporated by reference herein
         10.3     Stock Option Agreement dated June 10, 1996 between the Company
                  and William A. Teitelbaum, filed as Exhibit 10.9 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  March 28, 1996 and incorporated by reference herein
         10.4     Stock Option Agreement dated July 1, 1997 between the Company
                  and William A. Teitelbaum, filed as Exhibit 10.4 to the
                  Company's Annual Report on Form 10K for the fiscal year ended
                  March 28, 1998 and incorporated by reference herein.
         10.5     Registration Rights Agreement dated July 1, 1997 between the
                  Company and William A. Teitelbaum, filed as Exhibit 10.5 to
                  the Company's Annual Report on Form 10K for the fiscal year
                  ended March 28, 1998 and incorporated by reference herein.
         10.6     Employment Agreement dated as of January 1, 1996 between the
                  Company and Theresa Carlise, filed as Exhibit 10.8 to the
                  Company's Annual Report on Form 10-K for the fiscal year ended
                  March 28, 1996 and incorporated by reference herein
         10.7     National Record Mart, Inc. 1993 Stock Option Plan, filed as
                  Exhibit 10.14 to the Company's Registration Statement No.
                  33-62622 on Form S-1 and incorporated by reference herein
         10.8     National Record Mart, Inc. Non-Employee Director Stock Option
                  Plan, filed as Exhibit 10.15 to the Company's Registration
                  Statement No. 33-62622 on Form S-1 and incorporated by
                  reference herein
         10.9     National Record Mart, Inc. 1997 Non-Employee Director Stock
                  Option Plan, filed as Exhibit 10.9 to the Company's Annual
                  Report on Form 10K for the fiscal year ended March 28, 1998
                  and incorporated by reference herein.
         10.10    Warrant Agreement, dated as of April 16, 1998, between the
                  Company, Robert Fleming, Inc. and Seneca Capital, L.P., filed
                  as Exhibit 10.10 to the Company's Annual Report on Form 10K
                  for the fiscal year ended March 28, 1998 and incorporated by
                  reference herein.
         10.11    Registration Rights Agreement, dated as of April 16, 1998,
                  between the Company and the holders of registrable securities
                  referred to therein, filed as Exhibit 10.11 to the Company's
                  Annual Report on Form 10K for the fiscal year ended March 28,
                  1998 and incorporated by reference herein.
         10.12    Tag Along Agreement, dated as of April 16, 1998, between the
                  Company, Seneca Capital, L.P., Robert Fleming, Inc. and
                  certain holders of shares of common stock of the Company,
                  filed as Exhibit 10.12 to the Company's Annual Report on Form
                  10K for the fiscal year ended March 28, 1998 and incorporated
                  by reference herein.
         23.1     Consent of Ernst & Young LLP



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