Talk to him again when you wake up. Then Tifa will guide the party into the mountains. After watching the FMV of the mountain bridge, run up and talk to Tifa. The bridge breaks in yet another FMV where you all fall to the ground. Then run up into the mountains and into the first cave. Follow the path to the other end. Here you will have the explanation about Materia.

Run up into the reactor and along the pipes to the wood board. Jump from there to the chains on the wall and climb down to the large beam, then run right into the reactor core. Run up the stairs and talk to Sephiroth. Go to the pod on the left that Sephiroth was in front of, then talk to him again.

Opt to finish the story when Barret asks. Once in the mansion, go upstairs and to the right. Talk to the soldier, then go into the room in front of him and push the bricks. Go down the stairs and then run down towards the screen. Run right and Sephiroth will talk some.

Talk to Sephiroth, then leave to room. Once the story part is over, run down to the room where Sephiroth was, then up into the study. Next you run out to the town. Go to the center of town where you talk to Zangan, and then check the burning house. Here you will read more story-line and see Sephiroth in the fire. Go down to the reactor core where you see that Tifa is there with her dying father. Tifa runs up and tries to kill Sephiroth with the Masamune, but instead, he slashes her and goes inside the Jenova Chamber. Check Tifa, then follow Sephiroth.

Pick the second option to leave. Return to the top floor of the inn, and go to the left of the stairs. Try opening the cabinet here. There is an item that Cloud has trouble reaching. Open it a total of five times before Cloud gets mad and hits the cabinet, causing the Megalixir to fall. One of your party members gives you the PHS downstairs. Buy weapons, Materia, and items as desired if you have not already done so. Go to the first house right of the Inn. In the closet under the stairs is an Ether. In the house to the right of that, there is an Ether upstairs in the wardrobe. Also, you can let the dog out of the closet on the first floor. In the house next to that one, go up the stairs to the left, and open the chest to get the Peacemaker. If you go up the staircase on the right, you can get a Guard Source from the second cabinet from the left. Go to the house on the far right side of town and open up the pantry under the stairs for yet another Ether. Remember the location of this house, it's the location of several secrets towards the end of the game. Stock up on Materia and goods, and prepare to leave.