U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                ----------------

                                   FORM 10-QSB
(Mark One)

|X| Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
    of 1934

    For the quarterly period ended  March 31, 1997

|_| Transition report under Section 13 or  15 (d) of the Exchange Act

    For the transition period from  _____________ to _____________

    Commission file number 0-17001


                        Choices Entertainment Corporation
--------------------------------------------------------------------------------
        (Exact Name of Small Business Issuer as Specified in Its Charter)

           Delaware                                       52-1529536
-------------------------------             ------------------------------------
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
  Incorporation or Organization)

836 W. Trenton Avenue, Morrisville, Pennsylvania                        19067
-------------------------------------------------                     ----------
   (Address of Principal Executive Offices)                           (Zip code)

Issuer's Telephone Number, Including Area Code                (215) 428-1000


--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since last
Report)

     Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or15 (d) of the Exchange Act during the past 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 |_|

     State the number of shares outstanding of the issuer's Common Stock, as of
     May 12, 1997: 22,004,395

     Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
<PAGE>

Part I:  FINANCIAL INFORMATION

Item 1.   Financial Statements


                        CHOICES ENTERTAINMENT CORPORATION
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                March 31, 1997            December 31, 1996
                                                             ----------------------     ----------------------
                                                                  (Unaudited)                 (Audited)
<S>                                                                 <C>                        <C>
ASSETS

Current assets:
   Cash                                                             $       54,586             $       66,739
    Accounts receivable                                                     26,304                     12,790
    Merchandise inventories                                                149,486                    181,280
    Prepaid expenses                                                         9,040                     41,683
    Other deferred costs                                                    20,661                     30,453
                                                             ----------------------     ----------------------
        Total current assets                                               260,077                    332,945

Videocassette rental inventory, net                                        693,327                    704,616
Equipment, net (Note 2)                                                    102,301                    110,403
Intangible assets, net                                                     168,394                    172,603
Other assets                                                                72,441                     74,203
                                                             ----------------------     ----------------------
                                                                    $    1,296,540             $    1,394,770
                                                             ======================     ======================
LIABILITIES AND STOCKHOLDERS' DEFICIT
--------------------------------------------

Current liabilities:
    Notes payable                                                   $    1,070,467             $    1,004,000
    Accounts payable                                                       806,293                    699,838
    Accrued merger and acquisition expenses                                370,357                    425,299
    Accrued professional fees                                              243,998                    268,199
     Deferred revenue                                                       16,552                     27,797
    Accrual for lease cancellation and litigation reserves                   1,250                      1,250
    Accrued salaries                                                        68,362                     55,734
    Other accrued expenses                                                 214,035                    239,200
                                                             ----------------------     ----------------------
        Total current liabilities                                        2,791,314                  2,721,317
                                                             ----------------------     ----------------------

Stockholders' deficit:
    Preferred stock, par value $.01 per share:
        Authorized 5,000 shares: 37.4 shares issued
        and outstanding in 1997 and 1996
    Common stock, par value $.01 per share:
        Authorized 50,000,000 shares: issued and
         outstanding 22,004,395 shares in 1997 and 1996                    220,044                    220,044
    Additional paid-in-capital                                          20,519,203                 20,519,203
    Accumulated deficit                                               (22,234,021)               (22,065,794)
                                                             ----------------------     ----------------------
        Total stockholders' deficit                                    (1,494,774)                (1,326,547)
                                                             ----------------------     ----------------------
                                                                    $    1,296,540             $    1,394,770
                                                             ======================     ======================

See accompanying notes to financial statements.
</TABLE>
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                               STATEMENTS OF LOSS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                            For the Three Months Ended March 31,
                                                                            ------------------------------------
Revenues:                                                                1997                                 1996
                                                               -------------------------               --------------------
<S>                                                                   <C>                                  <C>
   Movie rentals                                                      $       1,011,315                    $     1,107,481
   Merchandise sales                                                            244,908                            251,624
                                                               -------------------------               --------------------
                                                                              1,256,223                          1,359,105
                                                               -------------------------               --------------------
Operating costs and expenses:

    Cost of goods sold                                                          183,367                            224,795
    Cost of movie rentals                                                       105,865
    Store payroll                                                               246,044                            252,854
    Store rents                                                                 230,440                            228,853
    Other store operating expenses                                              110,641                            111,098
    Selling and administrative expenses                                         148,817                            137,513
    Professional and consulting expenses                                         87,992                             40,200
    Loss on disposal of videocassette
        rental inventory                                                         45,644                             52,557
    Merger and acquisition expenses
    Depreciation and amortization                                               248,579                            298,157
                                                               -------------------------               --------------------
                                                                              1,407,389                          1,346,027
                                                               -------------------------               --------------------
Other expenses:
    Interest expense, net                                                        17,061                             14,279
                                                               -------------------------               --------------------
Net loss                                                               $       (168,227)                    $       (1,201)
                                                               =========================               ====================
Net loss per share of common stock
    (Note 3)                                                           $         (0.01)                     $       (0.00)
                                                               =========================               ====================
</TABLE>

See accompanying notes to financial statements.
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                        STATEMENTOF STOCKHOLDERS' DEFICIT
                    For the Three Months Ended March 31, 1997
                                   (Unaudited)

<TABLE>
<CAPTION>

                                 Preferred             Common Stock              Additional
                                   Stock               ------------                Paid-in        Accumulated
                                   Shares         Shares           Amount          Capital          Deficit               Total
                                   ------         ------           ------          -------          -------               -----
<S>                                <C>          <C>               <C>             <C>              <C>                 <C>
Balance at December 31, 1996       37.4         22,004,395        $220,044        $20,519,203      $(22,065,794)       $(1,326,547)


Net loss for the three months
  ended March 31, 1997                                                                                 (168,227)          (168,227)
                                  ------     --------------    ------------    ---------------   ----------------    ---------------
                                   37.4         22,004,395        $220,044        $20,519,203      $(22,234,021)       $(1,494,774)
                                  ======     ==============    ============    ===============   ================    ===============
</TABLE>

See accompanying notes to financial statements.
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                            STATEMENTS OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                     For the Three Months
                                                                                             Ended
                                                                                            March 31,
                                                                                            ---------
                                                                                 1997                      1996
                                                                                 ----                      ----
<S>                                                                          <C>                       <C>
Cash flows from operating activities:
Net loss                                                                     $   (168,227)             $      (1,201)
                                                                           ---------------           ---------------
Adjustments to reconcile net loss
  to net cash provided by (used in) operating activities:
    Depreciation and amortization                                                 248,579                    288,365
    Cost of rental films sold                                                      86,027                    100,005
    Loss on disposal of rental films                                               45,644                     52,557
    Videocassette and inventory reserves                                            4,844                      5,847
     Amortization and write-off of other deferred costs, net                                                   9,792
Change in assets and liabilities:
  (Increase) Decrease in accounts receivable                                     (13,514)                      2,085
  Decrease in merchandise inventories                                              31,794                      1,008
  Decrease in prepaid expenses                                                     32,643                      9,935
  Decrease in other assets                                                          1,762
  Increase in accounts payable                                                     89,860                      3,649
  Decrease in deferred revenue                                                   (11,245)
  Decrease in accrued merger and acquisition
    expenses                                                                     (33,992)                    (5,121)
  Decrease in accrued professional fees                                          (24,201)                   (35,325)
  Increase in accrued salaries                                                     12,627                     16,472
  Decrease in accrual for lease cancellation and
    litigation reserves                                                                                      (3,750)
  Increase (decrease) in other accrued expenses                                  (25,166)                     10,734
                                                                           ---------------           ---------------
Total adjustments                                                                 462,259                    456,253
                                                                           ---------------           ---------------
Net cash provided by (used in) operating activities                               294,033                    455,052
                                                                           ---------------           ---------------

Cash flows from investing activities:
    Purchase of equipment, net                                                    (5,997)                    (2,206)
    Purchase of videocassette rental films                                      (345,706)                  (408,606)
                                                                           ---------------           ---------------
  Net cash used in investing activities                                         (351,703)                  (410,812)
                                                                           ---------------           ---------------

Cash flows from financing activities:
    Proceeds from notes payable                                                    49,000
    Repayment of notes payable                                                     (3,483)
                                                                           ---------------
Net cash provided by financing activities                                          45,517
                                                                           ---------------

Net increase (decrease) in cash                                                   (12,153)                    44,240
Cash at beginning of period                                                        66,739                     86,391
                                                                           ---------------           ---------------
Cash at end of period                                                       $      54,586              $     130,631
                                                                           ===============           ================
Supplementary disclosure of cash flow information:
   Cash paid during the year for interest                                   $       3,187              $      2,833
                                                                           ===============           ================
</TABLE>


See accompanying notes to financial statements.
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                          NOTES TO FINANCIAL STATEMENTS
                                   (Unaudited)

Note 1 - Basis of Presentation And Significant Accounting Policies

         The financial information included herein for the three-month periods
ended March 31, 1997 and 1996 and as of March 31,1997 are unaudited. In
addition, the financial information does not include all disclosures required
under generally accepted accounting principles because certain note information
has been omitted; however, such information reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of the results of
the interim periods and such adjustments are of a normal recurring nature. The
results of operations for the three-month period ended March 31, 1997 are not
necessarily indicative of the results to be expected for the full year.

Note 2 - Equipment

         Equipment at March 31, 1997 is primarily comprised of furnishings,
leaseholds, and computers related to the Company's retail stores.

Note 3 - Loss Per Common Share

         Loss per common share for the three-month period ended March 31, 1997
and 1996 was computed by dividing the net loss by the weighted average number of
common shares outstanding during the period.

<TABLE>
<CAPTION>
                                                                                Three Months Ended
                                                                                    March 31,
                                                                                    ---------
                                                                       1997                            1996
                                                             -------------------------     -----------------------------

         <S>                                                          <C>                           <C>
         Number of shares used in calculations                        22,004,000                    22,004,000
</TABLE>

Note 4 - Liquidity

         The financial statements have been presented on the basis that the
Company is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred net losses in each year of its existence, aggregating $22,234,021 from
inception through March 31, 1997, including a net loss of $168,227 for the three
months ended March 31, 1997.

         The Company is currently operating in a severely distressed financial
condition. As of March 31, 1997, the Company had a net working capital
deficiency of approximately $2,531,000. The Company is currently funding its
business on a day-to-day basis from revenues generated from its nine store
operations. Because of the timing of the payment of certain obligations and an
increase in the amount of credit extended by its primary supplier of
videocassettes, the Company has reported positive cash flow from operations for
the three months ended March 31, 1997. However, as the revenues from the
Company's existing nine stores are insufficient to insure timely payment of its
obligations, the Company continues to be in immediate need of financing to fund
its short-term working capital needs.

         The Company's 5% unsecured promissory notes, in the principal amount of
$680,000, provide, by their terms, that the sole remedy of the holders thereof
upon default is to convert the principal and all accrued interest owing thereon,
into shares of Series C Preferred Stock (valued at $.25 per share of Common
Stock). The notes are not presently in default in the payment of principal or
interest. However, the Board of Directors does not presently intend to make any
payment on such notes upon their maturity in September 1997, leaving the holders
thereof with the sole remedy of converting such notes into Series C Preferred
Stock. The notes are not presently convertible.

         The Company is in default under the terms of three 10% promissory notes
in the aggregate principal amount of $150,000 plus accrued interest. These notes
are held by Carl Shaifer and Max Scheuerer, two members
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

Note 4 - Liquidity (Continued)

of the Shareholder Committee. The aggregate principal amount owing by the
Company on said promissory notes was reduced to $150,000 from $180,000 as a
result of a $30,000 payment made by the Company during 1995, to Mr. Scheuerer,
the holder of two such notes in the then total principal amount of $150,000.
This payment was made following the filing of a lawsuit against the Company by
Mr. Scheuerer in which a judgment was sought in the principal amount of $150,000
plus accrued interest of $15,548. The lawsuit was withdrawn following said
$30,000 payment without prejudice to its being reinstated if the balance owing
on said notes was not paid in full prior to March 15, 1996. No further payments
were made on such notes and Mr. Scheuerer filed a new lawsuit on September 18,
seeking a judgment in the amount of $146,298, representing principal and
interest owing to Mr. Scheuerer by the Company on said notes (plus future
interest, costs and any other appropriate damages). Since that time, the Company
has made payments to Mr. Scheuerer totaling $6,989 and subsequently entered into
a settlement agreement with Mr. Scheuerer, providing for $3,000 monthly payments
to him with the unpaid balance to be paid at closing of the proposed sale of
substantially all of the Company's assets and business to West Coast
Entertainment Corporation. Notwithstanding the settlement agreement, Mr.
Scheuerer has proceeded with the litigation, and the Company has made no monthly
payments. If the West Coast Transaction is not consummated, the Company would be
unable to satisfy the balance owing.

         Additionally, the Company is in default under the terms of a 10%
promissory note in the principal amount of $30,000, which note is held by Harold
E. Hamburg, a member of the Shareholder Committee. The Company has paid all
interest due to date on said note.

         The Company is also delinquent and presently unable to satisfy various
other liabilities, including amounts owing to vendors and landlords, as well as
substantial professional fees owing in connection with, among other things, its
now discontinued acquisition program and with respect to ongoing litigation. 
(See PART II, Item 1.)

         In connection with its now discontinued acquisition program, the
Company incurred substantial professional fees. Of the amount billed, $353,799
remains unpaid to law firm retained in that connection . Previously, in 1994, JD
Store Equipment, Inc. ("JD Store Equipment") agreed that, in the event its
merger with the Company (the "JD Merger") was not consummated, JD Store
Equipment would pay to the Company legal fees billed to the Company by the above
law firm. That law firm resigned as counsel to the Company shortly after JD
Store Equipment notified the Company that it was terminating the JD Merger.
Subsequently, the Company made a demand for payment upon JD Store Equipment for
all fees and disbursements in the amount of $793,281 billed to it by the law
firm, of which $439,482 has to date been paid by the Company. To avoid the
uncertainties associated with litigation and with collecting any judgment that
may be obtained, the Company attempted to reach a settlement with JD Store
Equipment, pursuant to which, among other things, JD Store Equipment would
assume any obligation of the Company for the above professional fees which have
been billed but not paid to such firm, and the Company would release JD Store
Equipment from any obligation to pay the $793,281 of legal fees billed to the
Company. As part of such settlement, the Company would be released by the law
firm. There are no ongoing discussions at present regarding such a settlement
and there is no assurance that any such settlement will be concluded.

         On April 9, 1996, a lawsuit was filed against the Company and certain
others, including the members of the then Board of Directors, in the Superior
Court of California, by certain individuals who allegedly purchased or purchased
and sold securities of the Company, entitled Gary N. Gibbs et al. v. Choices
Entertainment Corporation et al.,. in which plaintiffs seek monetary damages
against the Company and other defendants in the amount of $303,470, plus
attorney's fees, costs of suit and such other relief as the Court deems just.
Discovery is proceeding and the Company intends to contest the lawsuit
vigorously. However, if the Company is unsuccessful in defending the lawsuit,
the Company would not be able to satisfy an award of damages in the amount
claimed. Furthermore, even if the Company is successful in defending this
lawsuit, the cost alone in professional fees will be substantial.

         As previously reported, the Company has entered into an Asset Purchase
Agreement (the "Purchase Agreement") with West Coast Entertainment Corporation,
a Delaware corporation ("West Coast") , dated December 16, 1996, as amended,
providing for the sale, transfer and assignment of substantially all of the
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

Note 4 - Liquidity (Continued)

Company's assets and business to West Coast (the "West Coast Transaction"). At
the time of the signing of the Purchase Agreement, and in anticipation of the
sale of assets, West Coast loaned the Company $150,000. Additionally, in
connection with the Purchase Agreement, West Coast loaned the Company $20,000 on
March 3, 1997 and $29,000 on March 19, 1997. All three of these loans are
evidenced by 12% promissory notes, which are required to be paid at the closing
of the West Coast Transaction or, if applicable at the closing of the sale of
the assets of the Company's Newtown, Pennsylvania store (the "Newtown Store")
or, in any event, on demand at any tine from and after May 31, 1997, as provided
for under the Purchase Agreement, as amended on April 23, 1997 (See Note 5). All
three notes are secured by a security interest in all of the assets of the
Newtown Store. The proceeds of the notes were used to pay certain costs
previously incurred.

         If an event occurs which entitles West Coast to receive a breakup fee
under the Purchase Agreement, West Coast has been granted an option to purchase
all of the Company's assets relating to the Newtown Store for the purchase price
of $250,000 payable in cash.

         Under the Purchase Agreement, consummation of the West Coast
Transaction remains contingent upon a number of conditions, the satisfaction of
which cannot be assured, including, among others, obtaining all necessary
consents and West Coast obtaining financing in an amount sufficient to
consummate the West Coast Transaction and certain additional acquisitions. If
the West Coast Transaction is successfully consummated, as to which no
assurances can be given, the Company intends to use a substantial portion of the
proceeds to reduce a portion of its debt, including all amounts owing on the10%
promissory notes discussed above, held by Messrs. Shaifer, Scheuerer and
Hamburg, but exclusive of $680,000 (plus accrued interest) owing on its 5%
promissory notes (discussed above) and exclusive of $353,000 of professional
fees billed in connection with its discontinued acquisition program (also
discussed above). Thereafter, assuming that sufficient cash proceeds remain, as
to which no assurance can be given, the Company's Board of Directors will
consider various alternatives including (without limitation) seeking and
considering other business opportunities that may be presented to the Company or
making a partial distribution of the net cash proceeds to the Company's
stockholders. However, as noted above, following a closing of the West Coast
Transaction, certain liabilities will remain which, if paid, and, in addition,
certain claims against the Company will exist which, if successfully asserted,
could result in there being no cash proceeds with which to seek further business
opportunities or to make any cash distribution to stockholders. Available
proceeds following a closing will also be reduced by related transaction
expenses and taxes, and by certain continuing costs, including professional
fees, as well as by the $243,000 required to be escrowed pursuant to the terms
of the Purchase Agreement with West Coast. Moreover, because the Company
continues to operate at a net loss, the longer it takes to consummate the West
Coast Transaction, the greater the Company's net loss, thereby reducing the
proceeds available at closing.

         Absent consummation of the West Coast Transaction, the Company's future
viability is doubtful, given its inability to secure needed capital, to extend
further the due dates of liabilities, or to otherwise conclude or settle
existing liabilities and claims on a satisfactory basis, and, possibly, to
conclude existing litigation on a successful basis. Furthermore in such event,
the Company would be required to repay all amounts loaned to it by West Coast,
which loans are secured by the assets of the Company's Newtown Store, the
Company's most profitable and valuable store. In the event the Company is not
successful in consummating the West Coast Transaction, as to which no assurance
can be given, the Company's Board of Directors believes, due to the Company's
severely distressed financial condition, and the expectation that its financial
condition will continue to deteriorate, that the Company will be ultimately
forced to seek protection under the bankruptcy laws. Because the decision to
file for bankruptcy is likely to be based upon the actions of third parties,
primarily the landlords for the Company's stores and certain major creditors of
the Company, it is not possible to predict at what point the Company would be
forced to do so. In the event the Company is forced to file for bankruptcy, the
Company's ability to conduct its business would likely be severely hampered and
it is unlikely that the stockholders would receive any value.
<PAGE>

                        CHOICES ENTERTAINMENT CORPORATION
                   NOTES TO FINANCIAL STATEMENTS - (Continued)

Note 5 - Subsequent Events

         On April 23, 1997, the Company and West Coast amended the Purchase
Agreement to extend the termination date thereunder from a date no later than
April 30, 1997 to a date no later than May 31, 1997.
<PAGE>

Item 2.  Management's Discussion and Analysis or Plan of Operation

         The following is Management's discussion and analysis of certain
significant factors which have affected the Company's financial condition,
changes in financial condition, and results of operations. It also includes a
discussion of the Company's liquidity and capital resources at March 31, 1997,
and later dated information, where practicable. This discussion should be read
together with the Company's Financial Statements and the Notes thereto,
beginning on Page 2.

Financial Condition, Liquidity and Capital Resources

         The Company is currently operating in a severely distressed financial
condition. As of March 31, 1997, the Company had a net working capital
deficiency of approximately $2,531,000. The Company is currently funding its
business on a day-to-day basis from revenues generated from its nine store
operations. Because of the timing of the payment of certain obligations, the
Company has reported positive cash flow from operations for the three months
ended March 31, 1997. However, as the revenues from the Company's existing nine
stores are insufficient to insure timely payment of its obligations, the Company
continues to be in immediate need of financing to fund its short-term working
capital needs.

         The Company's 5% unsecured promissory notes in the principal amount of
$680,000, provide, by their terms, that the sole remedy of the holders thereof
upon default is to convert the principal and all accrued interest owing thereon,
into shares of Series C Preferred Stock (valued at $.25 per share of Common
Stock). The notes are not presently in default in the payment of principal or
interest. However, the Board of Directors does not presently intend to make any
payment on such notes upon their maturity in September 1997, leaving the holders
thereof with the sole remedy of converting such notes into Series C Preferred
Stock. The notes are not presently convertible.

         The Company is in default under the terms of three 10% promissory notes
in the aggregate principal amount of $150,000 plus accrued interest. These notes
are held by Carl Shaifer and Max Scheuerer, two members of the Shareholder
Committee ( See Part II Item 1. Legal Proceedings). The aggregate principal
amount owing by the Company on said promissory notes was reduced to $120,000
from $150,000 as a result of a $30,000 payment made by the Company during 1995
to Mr. Scheuerer, the holder of two such notes in the then principal amount of
$150,000. This payment was made following the filing of a lawsuit against the
Company by Mr. Scheuerer seeking collection of said notes. The lawsuit was
withdrawn following said $30,000 payment without prejudice to its being
reinstated if the balance owing on the notes was not paid in full prior to March
15, 1996. No further payments were made on such notes and, on September 18,
1996, Mr. Scheuerer filed a new lawsuit ( see Part II Item 1. Legal
Proceedings), seeking a judgment in the amount of $146,298, (plus future
interest, costs and any other appropriate damages), which amount allegedly
represents $120,000 of principal and $26,298 of interest then owed by the
Company to Mr. Scheuerer under the two 10% promissory notes. Since that time,
the Company has made payments to Mr. Scheuerer totaling $6,989, and subsequently
entered into a settlement agreement with Mr. Scheuerer, providing for $3,000
monthly payments to Mr. Scheuerer, with the unpaid balance to be paid upon the
closing of the proposed sale of substantially all of the Company's assets and
business to West Coast Entertainment Corporation. Notwithstanding the settlement
agreement, Mr. Scheuerer has proceeded with the litigation, and the Company has
made no monthly payments to Mr. Scheuerer.

         Additionally, the Company is in default under the terms of a 10%
promissory note in the principal amount of $30,000, which note is held by Harold
E. Hamburg, a member of the Shareholder Committee. The Company has paid all
interest due to date on said note.

         The Company is also delinquent and presently unable to satisfy various
other liabilities, including amounts owing to vendors and landlords, as well as
substantial professional fees owing in connection with, among other things, its
now discontinued acquisition program and with respect to ongoing litigation.

         In connection with its now discontinued acquisition program, the
Company incurred substantial professional fees. Of the amount billed, $353,799
remains unpaid to law firm retained in that connection . Previously, in 1994, JD
Store Equipment, Inc. ("JD Store Equipment") agreed that, in the event its
merger with the Company (the "JD Merger") was not consummated, JD Store
Equipment would pay to the Company legal fees billed to the Company by the above
law firm. That law firm resigned as counsel to the Company shortly after JD
Store Equipment notified the Company that it was terminating the JD Merger.
Subsequently, the Company made a
<PAGE>

demand for payment upon JD Store Equipment for all fees and disbursements in the
amount of $793,281 billed to it by the law firm, of which $439,482 has to date
been paid by the Company. To avoid the uncertainties associated with litigation
and with collecting any judgment that may be obtained, the Company attempted to
reach a settlement with JD Store Equipment, pursuant to which, among other
things, JD Store Equipment would assume any obligation of the Company for the
above professional fees which have been billed but not paid to such firm, and
the Company would release JD Store Equipment from any obligation to pay the
$793,281 of legal fees billed to the Company. As part of such settlement, the
Company would be released by the law firm. There are no ongoing discussions at
present regarding such a settlement and there is no assurance that any such
settlement will be concluded.

         On April 9, 1996, a lawsuit was filed against the Company and certain
others, including the members of the then Board of Directors, in the Superior
Court of California, by certain individuals who allegedly purchased or purchased
and sold securities of the Company, entitled Gary N. Gibbs et al. v. Choices
Entertainment Corporation et al.,. in which plaintiffs seek monetary damages
against the Company and other defendants in the amount of $303,470, plus
attorney's fees, costs of suit and such other relief as the Court deems just.
Discovery is proceeding and the Company intends to contest the lawsuit
vigorously. However, if the Company is unsuccessful in defending the lawsuit,
the Company would not be able to satisfy an award of damages in the amount
claimed. Furthermore, even if the Company is successful in defending this
lawsuit, the cost alone in professional fees will be substantial.

         As previously reported, the Company has entered into an Asset Purchase
Agreement (the " Purchase Agreement") with West Coast Entertainment Corporation,
a Delaware corporation ("West Coast") , dated December 16, 1996, as amended,
providing for the sale, transfer and assignment of substantially all of the
Company's assets and business to West Coast (the "West Coast Transaction"). At
the time of the signing of the Purchase Agreement, and in anticipation of the
sale of assets, West Coast loaned the Company $150,000. Additionally, in
connection with the Purchase Agreement, West Coast loaned the Company $20,000 on
March 3, 1997 and $29,000 on March 19,1997. All three of these loans are
evidenced by 12 % promissory notes, which are required to be paid at the closing
of the West Coast Transaction or, if applicable, at the closing of the sale of
the assets of the Company's Newtown, Pennsylvania Store (the "Newtown Store")
or, in any event, on demand at any time from and after May 31, 1997, as provided
for by the Purchase Agreement, as amended on April 23, 1997. All three notes are
secured by a security interest in all of the assets of the Newtown Store. The
proceeds of the notes were used to pay certain costs previously incurred.

         If an event occurs which entitles West Coast to receive a breakup fee
under the Purchase Agreement, West Coast has been granted an option to purchase
all of the Company's assets relating to the Newtown Store for the purchase price
of $250,000 payable in cash.

         Under the Purchase Agreement, consummation of the West Coast
Transaction remains contingent upon a number of conditions, the satisfaction of
which cannot be assured, including, among others, obtaining all necessary
consents and West Coast obtaining financing in an amount sufficient to
consummate the West Coast Transaction and certain additional acquisitions. If
the West Coast Transaction is successfully consummated, as to which no
assurances can be given, the Company intends to use a substantial portion of the
proceeds to reduce a portion of its debt, including all amounts owing on the10%
promissory notes discussed above, held by Messrs. Shaifer, Scheuerer and
Hamburg, but exclusive of $680,000 (plus accrued interest) owing on its 5%
promissory notes (discussed above) and exclusive of $353,000 of professional
fees billed in connection with its discontinued acquisition program (also
discussed above). Thereafter, assuming that sufficient cash proceeds remain, as
to which no assurance can be given, the Company's Board of Directors will
consider various alternatives including (without limitation) seeking and
considering other business opportunities that may be presented to the Company or
making a partial distribution of the net cash proceeds to the Company's
stockholders. However, as noted above, following a closing of the West Coast
Transaction, certain liabilities will remain which, if paid, and, in addition,
certain claims against the Company will exist which, if successfully asserted,
could result in there being no cash proceeds with which to seek further business
opportunities or to make any cash distribution to stockholders. Available
proceeds following a closing will also be reduced by related transaction
expenses and taxes, and by certain continuing costs, including professional
fees, as well as by the $243,000 required to be escrowed pursuant to the terms
of the Purchase Agreement with West Coast. Moreover, because the Company
continues to operate at a net loss, the longer it takes to consummate the West
Coast Transaction, the greater the Company's net loss, thereby reducing the
proceeds available at closing.
<PAGE>

         Absent consummation of the West Coast Transaction, the Company's future
viability is doubtful, given its inability to secure needed capital, to extend
further the due dates of liabilities, or to otherwise conclude or settle
existing liabilities and claims on a satisfactory basis, and, possibly, to
conclude existing litigation on a successful basis. Furthermore in such event,
the Company would be required to repay all amounts loaned to it by West Coast,
which loans are secured by the assets of the Company's Newtown Store, the
Company's most profitable and valuable store. In the event the Company is not
successful in consummating the West Coast Transaction, as to which no assurance
can be given, the Company's Board of Directors believes, due to the Company's
severely distressed financial condition, and the expectation that its financial
condition will continue to deteriorate, that the Company will be ultimately
forced to seek protection under the bankruptcy laws. Because the decision to
file for bankruptcy is likely to be based upon the actions of third parties,
primarily the landlords for the Company's stores and certain major creditors of
the Company, it is not possible to predict at what point the Company would be
forced to do so. In the event the Company is forced to file for bankruptcy, the
Company's ability to conduct its business would likely be severely hampered and
it is unlikely that the stockholders would receive any value.

         This Quarterly Report on Form 10-QSB contains forward looking
information with respect to, among other things, plans, future events or future
performance of the Company, the occurrence of which involve certain risks and
uncertainties that could cause actual results or future events to differ
materially from those expressed in any forward looking statements. These risks
and uncertainties include, but are not limited to, the risks and uncertainties
associated with consummation of the West Coast Transaction, adverse litigation,
the effects of competition, the ability to make timely payment to vendors, the
inability to satisfy obligations to certain landlords and creditors, the risk of
being unable to finance videocassette inventory acquisitions due to its severely
distressed financial condition, and those risks and uncertainties detailed in
the Company's filings with the Securities and Exchange Commission. Where any
forward looking statement includes a statement of the assumptions or bases
underlying such forward looking statement, the Company cautions that, while such
assumptions or bases are believed to be reasonable and are made in good faith,
assumed facts or bases almost always vary from actual results, and the
differences between assumed facts or bases and actual results can be material,
depending upon the circumstances. Where, in any forward looking statement, the
Company expresses an expectation or belief as to plans or future results or
events, such expectation or belief is expressed in good faith and believed to
have a reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect" and "anticipate" and similar expressions identify forward
looking statements.


Capital Expenditures

         During the three-month period ended March 31, 1997, the Company's
capital expenditures, relating to the purchase of videocassette rental films and
furniture and fixtures, were approximately $346,000 and $6,000, respectively,
compared to $409,000 for the purchase of videocassette rental films and $2,000
for the purchase of furniture and fixtures during the same period in 1996. The
Company does not anticipate a significant increase in capital expenditures for
the remainder of the current year other than the replenishment of videocassette
rental films during the normal course of business.

Material Changes in Financial Condition

Assets:

         Total assets decreased by approximately $98,000 between December 31,
1996 and March 31, 1997, primarily due to decreases in prepaid expenses,
merchandise inventory and cash used to fund the Company's operations, and to the
amortization of intangible assets and other deferred costs. The decrease in
merchandise inventory is primarily due to the Company operating nine stores
during the 1997 period when compared to ten stores in operation during the 1996
period.

Liabilities:

         Total liabilities increased by approximately $70,000 between December
31, 1996 and March 31, 1997, primarily due to the increases in accrued expenses
and accounts payable as a result of the timing of payment of certain
obligations, and to the increase in notes payable (See Part 1, Item 1. Note 3.)
<PAGE>

Stockholders' Deficit:

         Between December 31, 1996 and March 31, 1997, the increase in
stockholders' deficit was due to the loss of approximately $168,000 for the
three-month period ended March 31, 1997.

Material Changes in Results of Operations

         Rental revenues decreased approximately $96,000, or 9%, during the
comparative three-month period ended March 31, 1997. The decrease is primarily
due to the Company operating nine stores during the 1997 period compared to ten
stores in operation during the 1996 period, to less favorable rental-weather
conditions, and to a lesser extent, competition during the 1997 period. Same
store rental revenue increased approximately $14,000, or 1%, during the 1997 
period.

         Merchandise sales decreased approximately $7,000, or 3%, during the
comparative three-month period ended March 31, 1997. The decrease is primarily
due to the Company operating nine stores during the 1997 period compared to ten
stores in operation during the 1996 period.

         Cost of goods sold decreased approximately $41,000, or 15% as a
percentage of merchandise sales, during the three-month comparative period. The
decrease, as a percentage of merchandise sales, is primarily related to higher
margins on rental films sold during 1997 when compared to 1996. Also included in
merchandise revenue during the three-month period ended 1997 is approximately
$18,000 of customer membership revenue which has no corresponding cost of sales.

         Cost of movie rentals was approximately $106,000 during the three-month
comparative period primarily due to the usage of a pay per transaction
arrangement with a supplier of videocassette rental films.

         Store payroll decreased approximately $7,000 during the three-month
comparative period . The decrease is primarily related to there being only nine
stores in operation during 1997 compared to ten stores in operation during the
1996 comparative periods, and to the Company's continuing efforts to reduce
operating costs in its stores. Store rents increased approximately $2,000 during
the three comparative period. Other store operating expenses remained relatively
constant during the three-month comparative period.

         Selling and administrative expenses increased approximately $11,000, or
8% during the 1997 comparative period primarily due to costs related to the West
Coast Transaction.

         Professional and consulting fee expenses increased approximately
$48,000 during the 1997 comparative period primarily due to costs associated
with certain litigation (See Part II Item 1. Legal Proceedings) and to costs
associated with the West Coast Transaction.

         Loss on disposal of videocassette rental inventory decreased
approximately $7,000, but remained relatively constant as percentage of rental
revenue during the 1997 comparative period.

         Depreciation and amortization expense decreased approximately $50,000,
or 2% during the 1997 comparative period, primarily due to having only nine
stores in operation during 1997 compared to ten stores in operation during the
1996 period.. Approximately $20,000 of the decrease related to a reduction in
depreciation expense for property and equipment and approximately $30,000 of the
decrease related to depreciation of videocassette rental films during the period
ended March 31, 1997.

         Interest expense increased approximately $3,000 during the 1997
comparative period primarily due to the interest expense relating to the
increase in notes payable outstanding at March 31, 1997 when compared to the
same period in 1996.

         As a result of the foregoing, the Company incurred a net loss of
approximately $168,000 during the three-month period ended March 31, 1997.
<PAGE>

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

         The Company has recently been involved in certain legal proceedings
concerning control of the Company's Board of Directors. The following is a
description of these proceedings and certain other material legal proceedings,
which are pending:

         Shareholder Committee Litigation. On July 26, 1996, the Company filed a
lawsuit in the United States District Court for the District of Columbia (the
"Washington Proceedings"), entitled Choices Entertainment Corporation v. Carl
Shaifer et al., Civil Action No. 1:96-CV-01753, seeking declaratory and
injunctive relief against the following group of stockholders: Carl Shaifer,
Joseph DeSaye, Max Scheuerer, Maureen and Lawrence Feeney, William and Evelyn
Goatley, P.L. Anderson, Jr. , Harold E. Hamburg, David F. Beckman, Mark and
Barbara Raifman and Frank Harvey (collectively, the "Shareholder Committee") for
alleged violations of the federal securities laws. The Shareholder Committee had
previously filed a Solicitation Statement ( the "Solicitation Statement") with
the Securities and Exchange Commission on June 28, 1996, in connection with the
Shareholder Committee's solicitation of written consents from other shareholders
for the purpose of removing and replacing the then Board of Directors of the
Company without the holding of a meeting. The Company believes that the
Solicitation Statement contains material misleading statements and omissions of
material facts, including the failure to disclose serious conflicts of interests
of the Shareholder Committee and of certain of its director nominees to the
Board, that the Shareholder Committee had failed to file a Schedule 13D in
accordance with the requirements of the Securities Exchange Act of 1934, and
that any consents obtained by the Shareholder Committee had been obtained in
violation of the federal securities laws and were invalid.

         On July 29, 1996, the Shareholder Committee delivered written consents
to the Company, which the Shareholder Committee asserted were sufficient to
remove and replace the Company's then Board of Directors with the nominees of
the Shareholder Committee without the holding of a meeting, and such nominees
attempted to assert control and to terminate the employment of existing
management. The Company did not recognize the action purported to have been
taken by the Shareholder Committee, having concluded that the Shareholder
Committee had not delivered sufficient consents to remove and replace the
Company's then Board and, in any event, that such consents were otherwise
invalid as having been obtained in violation of the federal securities laws.

         On August 2, 1996, a lawsuit was filed in the Court of Common Pleas of
Bucks County, Pennsylvania, against the then existing Directors of the Company
by the director nominees to the Board of the Shareholder Committee, Carl
Shaifer, Joseph DeSaye and Max Scheuerer, as well as on behalf of the Company,
entitled Choices Entertainment Corporation et al., v. Ronald W. Martignoni et
al., No. 96005737-18-5. The lawsuit requested that the Court grant a preliminary
injunction requiring that the defendants cease acting as corporate officers or
directors and otherwise relinquish control of the Company. On August 9, 1996,
the lawsuit was discontinued by plaintiffs.

         On August 16, 1996, the Shareholder Committee's nominees, Carl Shaifer,
Joseph DeSaye and Max Scheuerer, filed a lawsuit in the Delaware Court of
Chancery for New Castle County (the "Delaware Proceedings"), C.A. No. 15170,
entitled Carl Shaifer, et al. v. Ronald W. Martignoni, et al., against the
Company and the then existing Board of Directors, seeking: (i) a declaration
that the Board had been duly and validly removed and that plaintiffs were
validly elected as the Company's Board, (ii) an order directing the holding of
an annual meeting of stockholders on a date, to be fixed by the Court, not more
than 30 days from August 16, 1996 (the date of the filing of the complaint),
(iii) costs and expenses, including attorneys fees, and (iv) such other relief
as the Court deemed just and proper.

         On September 4, 1996, after two summary hearings, and prior to the
filing of an answer by defendants in the Delaware Proceedings, the Delaware
Court of Chancery, without ruling on the merits, ordered, inter alia: (i) that
the annual meeting of stockholders be held on December 20, 1996, as previously
announced by the Company, (ii) that the then existing Board, consisting of
Ronald W. Martignoni, John A. Boylan and Fred E. Portner, constituted the
Company's Board of Directors, until the earlier of the election of directors at
the meeting or the resolution of plaintiffs claims in the lawsuit, and that
Joseph DeSaye, except with respect to certain matters, be permitted to attend
Board meetings, and (iii) that, until the earlier of the election of directors
at the annual meeting or the resolution of plaintiffs claims in the lawsuit, the
Company could not issue any voting securities in certain
<PAGE>

specified transactions except upon Court order and that the Company could not,
except upon five business days notice, take any "action out of the ordinary
course, " as defined in the order. The order also provides that the restrictions
contained therein could be waived by written agreement of the parties and that
the order may be modified by the Court. On September 6, 1996, defendants filed
an answer to the complaint in the Delaware Proceedings, denying plaintiffs
allegations with regard to all claims.

         On September 12, 1996, counsel for the Company and the Shareholder
Committee notified the Court in the Washington Proceedings that they were
engaged in settlement discussions and requested postponement of the hearing
previously scheduled for September 13, 1996, which postponement was granted.

         The annual meeting was held, in accordance with the Chancery Court
order, on December 20, 1996, at which a new Board of Directors was elected.

         On February 10, 1997, the parties filed a stipulation of dismissal
without prejudice in the Washington Proceedings, and on February 12, 1997, the
parties filed a stipulation of dismissal without prejudice in the Delaware
Proceedings.

         Scheuerer Litigation. On September 18, 1996, a lawsuit was filed
against the Company in the Court of Common Pleas of Bucks County, Pennsylvania,
captioned Max Scheuerer v. Choices Entertainment Corporation, Civil Action No.
96006871, in which plaintiff, Max Scheuerer, a member of the Shareholder
Committee, is seeking a judgment in the amount of $146,298 (plus future
interest, costs and any other appropriate damages), which amount allegedly
represents $120,000 of principal and $26,298 of interest owed by the Company to
plaintiff under two 10% promissory notes. The Company has entered into a
settlement agreement with Mr. Scheuerer, providing for $3,000 monthly payments
to Mr. Scheuerer with the unpaid balance to be paid upon the closing of the
proposed sale of substantially all of the Company's assets and business to West
Coast Entertainment Corporation. Notwithstanding the settlement agreement, Mr.
Scheuerer has proceeded with the litigation, and the Company has made no monthly
payments to Mr. Scheuerer. (See Part I Item 1. Management's Discussion and
Analysis or Plan of Operation).

         Gibbs Litigation. On April 9, 1996, a lawsuit was filed against the
Company in the Superior Court of California, entitled Gary N. Gibbs et al. v.
Choices Entertainment Corporation et al., No. BC147815, by certain individuals
who allegedly purchased or purchased and sold securities of the Company. Also
named as defendants in the lawsuit were the members of the then Board of
Directors, a former director and certain others. It is alleged that the Company
made false and misleading statements and omitted to state certain material facts
in public communications and in reports filed with the Securities and Exchange
Commission with regard to a possible merger with JD Store Equipment, Inc. ("JD
Store"), which was terminated by JD Store in September 1995, and with regard to
the Company's related acquisition program. On July 12, 1996, Demurers to the
Complaint filed on behalf of the Company and the other defendants were
sustained. On July 29, 1996, a Second Amended Complaint was filed, in which
plaintiffs seek monetary damages against the Company and the other defendants in
the amount of $303,470, plus attorney's fees, costs of suit and such other
relief as the court deems just. The plaintiffs are principally the same
individuals who filed the prior Complaint, which contains substantially the same
allegations as now set forth in the Second Amended Complaint. On August 28,
1996, the Company filed an answer to the complaint, denying plaintiffs
allegations with regard to all claims. On October 22, 1996 the Company also
filed a motion for summary judgment, which was denied on November 26, 1996.
Discovery is proceeding. The Company intends to contest the lawsuit vigorously.

Item 3. Defaults Upon Senior Securities.

         The Company is in default under the terms of three 10% promissory notes
in the aggregate principal amount of $150,000 plus accrued interest. These notes
are held by Carl Shaifer and Max Scheuerer, two members of the Shareholder
Committee ( See Part II Item 1. Legal Proceedings). The aggregate principal
amount owing by the Company to Mr. Scheuerer on said promissory notes was
reduced to $120,000 from $150,000 as a result of a $30,000 payment made by the
Company, to Mr. Scheuerer on November 30, 1995,following the filing of a lawsuit
against the Company by Mr. Scheuerer seeking collection of said notes. The
lawsuit was withdrawn following said $30,000 payment without prejudice to its
being reinstated if the balance owing on the notes was not paid in full prior to
March 15, 1996. No further payments were made on such notes and, on September
18, 1996, Mr. Scheuerer filed a new lawsuit ( see Part II Item 1. Legal
Proceedings), seeking a judgment in the amount of
<PAGE>

$146,298, (plus future interest, costs and any other appropriate damages), which
amount allegedly represents $120,000 of principal and $26,298 of interest then
owed by the Company to Mr. Scheuerer under the two 10% promissory notes. Since
that time, the Company has made payments to Mr. Scheuerer totaling $6,989, and
subsequently entered into a settlement agreement with Mr. Scheuerer, providing
for $3,000 montly payments to Mr. Scheuerer, with the unpaid balance to be paid
upon the closing of the proposed sale of substantially all of the Company's
assets and business to West Coast Entertainment Corporation. Nothwithstanding
the settlement agreement, Mr. Scheuerer has proceeded with the litigation, and
the Company has made no monthly payments to Mr. Scheuerer.

         Additionally, the Company is in default under the terms of a 10%
promissory note in the principal amount of $30,000, which note is held by Harold
E. Hamburg, a member of the Shareholder Committee. The Company has paid all
interest due to date on said note.

Item 4. Submission of Matters to a Vote of Security-Holders.

         A special Meeting of Stockholders was held on March 12, 1997, to
consider and vote upon a proposal to approve the sale, transfer and assignment
of substantially all of the Company's assets and business to West Coast
Entertainment Corporation ("West Coast") (the "West Coast Transaction"). The
proposal was approved by the following combined vote of the Company's Common and
Preferred Stock voting together as a single class:

               For                Against               Abstain
         ----------------      ---------------      -----------------
           12,439,223  (1)       2,361,808               13,850

----------
(1) Represents 53% of the combined number of votes attributable to the
    outstanding shares of the Company's Common and Preferred Stock.

         Under the Purchase Agreement, consummation of the West Coast
Transaction remains contingent upon a number of other conditions, the
satisfaction of which cannot be assured, including, among others, obtaining all
necessary consents and West Coast obtaining financing in an amount sufficient to
enable it to consummate the West Coast Transaction and certain additional
acquisitions.

Item 6.  Exhibits and Reports on Form 8-K

(a)  Exhibits

         The exhibits listed in the Index to Exhibits appearing on Page E-1 are
included as part of this report.

(b)   Reports on Form 8-K

         None
<PAGE>

                                   SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                            CHOICES ENTERTAINMENT CORPORATION


Date:    May 12, 1997              By:       /s/ Ronald W. Martignoni
                                       ------------------------------
                                            Ronald W. Martignoni
                                            Chief Executive Officer


Date:    May 12, 1997              By:      /s/ Lorraine E. Cannon
                                       ------------------------------
                                            Lorraine E. Cannon
                                            Chief Financial Officer
<PAGE>

                                INDEX TO EXHIBITS
Exhibit
    No.          Description of Exhibit
    ---          ----------------------
3  (a)           Certificate of Incorporation, as amended (1)
   (b)           Certificate of Designations of Series C Preferred Stock, as
                 amended (2)
   (c)           By-Laws, as amended (3)
4  (a)            Form of Certificate Evidencing Shares of Common Stock (4)
   (b)            Form of 5% Promissory Note (5)
10(a)            Non-Employee Director Stock Option Agreement between Registrant
                 and Fred E. Portner (6)
10(b)            Non-Employee Director Stock Option Agreement between Registrant
                 and James D. Sink (6)
27(a)            Financial Data Schedule (6)

================================================================================

(1)      Filed as an Exhibit to Registrant's Registration Statement on Form S-8
         (File No. 33-87016) and incorporated herein by reference.
(2)      Filed as an Exhibit to Registrant's Annual Report on Form 10-KSB, for
         the year ended December 31,1996 and incorporated herein by reference.
(3)      Filed as an Exhibit to Registrant's Annual Report on Form 10-K for the
         year ended December 31, 1992 and incorporated herein by reference.
(4)      Filed as an Exhibit to Registrant's Registration Statement on Form S-1,
         inclusive of Post-Effective Amendment No.1 thereto (File No.:
         33-198983) and incorporated herein by reference.
(5)      Filed as an Exhibit to Registrant's Quarterly Report on Form 10-QSB for
         the quarter ended September 30, 1995 and incorporated herein by
         reference. 
(6)      Filed herewith.


                                       E-1