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Director of regulatory services and public protection at Newcastle City Council, Stephen Savage, said: "The premises wish to show restricted 18 films to their clientele.
He was caught in possession for the purpose of supplying 17 restricted 18 DVD films.
Only a licensed sex shop is allowed to sell restricted 18 category videos, but most of these videos were unclassified and certainly not material which should be on sale in a public market.
Mr Calvert said the shop would sell restricted 18 videos.
Among the first films to receive the new Restricted 18 classification were Batbabe and Ladies Behaving Badly.