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

                                    FORM 10-Q
(MARK ONE)
 [X]            QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
                  For the quarterly period ended June 30, 1997
                                       OR
[   ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

            For the transition period from ___________ to ___________

                         Commission file number 0-26526


                                  MOOVIES, INC.
             (Exact name of registrant as specified in its charter)

         Delaware                                           57-1012733
(State or other jurisdiction of                          (I.R.S. Employer
incorporation or organization)                           Identification No.)


                        201 BROOKFIELD PARKWAY, SUITE 200
                        GREENVILLE, SOUTH CAROLINA 29607
                     (Address of principal executive offices)
                                   (Zip code)

                                 (864) 213-1700
              (Registrant's telephone number, including area code)

                                 NOT APPLICABLE
              (Former name, former address and formal fiscal year,
                        if changed since last report)

         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 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. [ X ] Yes [ ] No


The number of shares of common stock, par value $0.001 per share, outstanding at
August 14, 1997 is 12,359,800.


<PAGE>


                         PART I - FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

                                  MOOVIES, INC.
                           Consolidated Balance Sheets
                                 (in thousands)

                                             June 30,        December 31,
                            Assets            1997               1996
                            ------            ----               ----
                                            (unaudited)

Current assets:
     Cash and cash equivalents           $         2,942   $         4,196
     Receivables                                   1,404               927
     Merchandise inventory                         7,748             8,265
     Deferred income tax benefit                   2,941             1,517
     Other                                         5,422             2,276
                                           -------------     -------------
         Total current assets                     20,457            17,181

Videocassette rental inventory, net               30,874            24,885
Furnishings and equipment, net                    39,209            30,903
Goodwill                                          46,947             39,718
Deposits and other assets                          3,434             1,099
                                           -------------     -------------

                                         $       140,921   $       113,786
                                           =============     =============

              Liabilities and Stockholders' Equity

Current liabilities:   
     Line of credit                      $        15,000   $        19,000
     Notes payable                                     -             2,600
     Current portion of long-term debt             3,000               168
     Accounts payable                             20,169            18,864
     Accrued liabilities                           2,924             3,165
                                           -------------     -------------
         Total current liabilities                41,093            43,797

Long-term debt, less current portion              27,833               101
Deferred income tax payable                        7,954             7,677
                                           -------------     -------------
                                                  76,880            51,575

Commitments

Stockholders' equity:
     Preferred stock, $.001 par value;
         1,000,000 shares authorized; no 
         shares issued and outstanding                 -                 -
     Common stock, $.001 par value; 
         25,000,000 shares authorized; 
         issued and outstanding 12,359,800
         shares at June 30, 1997 and 
         11,926,620 shares at 
         December 31, 1996                            12                12
     Additional paid-in capital                   61,885            58,336
     Retained earnings                             2,144             3,863
                                           -------------     -------------
         Total stockholders' equity               64,041            62,211
                                           -------------     -------------

                                         $       140,921   $       113,786
                                           =============     =============

See accompanying notes to consolidated financial statements.
<PAGE>

                                  MOOVIES, INC.

                      Consolidated Statements of Operations
                            (unaudited, in thousands)


                        Three months ended June 30,   Six months ended June 30,
                                  1997      1996      1997       1996
Revenues:
     Rental revenues         $  22,809  $ 15,676  $ 45,458  $  32,634
     Product sales               4,753     2,609     8,693      4,967
                               -------   -------   -------   --------
                                27,562    18,285    54,151     37,601

Operating costs and expenses:
     Operating expenses         21,521    12,609    41,003     26,338
     Cost of product sales       3,329     1,631     6,481      3,168
     Selling, general and 
     administrative              3,919     2,281     6,533      4,610
     Amortization of goodwill      622       393     1,140        754
                               -------   -------   -------   --------
                                29,391    16,914    55,157     34,870
                               -------   -------   -------   --------

Operating income                (1,829)    1,371    (1,006)     2,731

Interest expense, net             (907)     (399)   (1,378)      (701)
Other, net                         (83)        6      (101)       (14)
                                -------   -------   -------  ---------

Income (loss) before income 
     taxes and extinguishment 
     of debt                    (2,819)      978    (2,485)     2,016


Income tax expense (benefit)    (1,128)      387      (994)       802
                                -------    ------    -------  --------

Income (loss) before 
     extraordinary item         (1,691)      591    (1,491)     1,214

Extraordinary item - loss on 
     early extinguishment of debt    -         -      (229)         -
                                -------    -------   -------   -------

Net income (loss)              $ (1,691)  $   591  $(1,720)  $  1,214
                                ========   =======   =======   =======

Net income (loss) per share:
     Income (loss) before 
        extraordinary item     $  (0.13)  $  0.07  $ (0.12)  $   0.14
     Extraordinary item               -         -    (0.02)         -
                                --------   -------   -------  --------
     Net income (loss) 
        per share:             $  (0.13)  $  0.07  $ (0.14)   $   0.14
                                ========   =======  ========   =======

Weighted average shares 
    outstanding                  12,532     8,887    12,362       8,931
                                ========   =======  ========   ========








See accompanying notes to consolidated financial statements.


<PAGE>


                                  MOOVIES, INC.

                      Consolidated Statements of Cash Flows
                                   (unaudited)

                                                       Six months ended June 30,
                                                              1997         1996
                                                               (in thousands)
Operating activities:
     Net income (loss)                                       $ (1,720) $  1,214
     Adjustments to reconcile net income (loss) to net cash
         provided by operating activities:
              Depreciation and amortization                    13,330     9,938
              Changes in operating assets and liabilities:
                  Receivables                                    (477)      796
                  Merchandise inventory                           580       (89)
                  Other current assets                         (3,146)   (1,343)
                  Deposits and other assets                    (2,666)     (367)
                  Accounts payable                              1,266      (779)
                  Accrued liabilities                            (741)      (27)
                  Deferred income taxes                        (1,147)      801
                                                              --------  -------

                  Net cash provided by operating activities     5,279    10,144
                                                              -------   -------

Investing activities:
     Purchases of videocassette rental inventory, net         (14,211)  (10,765)
     Purchases of furnishings and equipment, net              (10,449)   (7,085)
     Proceeds from the sale of the grocery division                 -       746
     Business acquisitions                                     (5,004)   (2,434)
                                                              --------  -------

                  Net cash used in investing activities       (29,664)  (19,539)
                                                              --------  -------

Financing activities:
     Proceeds from line of credit borrowings                   15,000    10,296
     Proceeds from issuance of long-term debt                  30,000     2,000
     Principal payments on line of credit borrowings          (19,000)        -
     Principal payments on long-term debt                      (2,869)   (6,274)
                                                              --------  --------

                  Net cash provided by financing activities    23,131     6,022
                                                              -------   -------

Decrease in cash and cash equivalents                          (1,254)   (3,373)

Cash and cash equivalents at beginning of period                4,196     3,564
                                                              -------   -------

Cash and cash equivalents at end of period                   $  2,942  $    191
                                                              =======   =======

Supplemental disclosure of cash flow information:

     Cash paid for interest                                  $  1,333  $    176
                                                              =======   =======



See accompanying notes to consolidated financial statements.


<PAGE>



                                  MOOVIES, INC.
                    NOTES TO CONDENSED FINANCIAL INFORMATION

(1)      Basis of Presentation

         Moovies,  Inc. (the "Company")  currently  operates 270 video specialty
         superstores  located  in  Georgia,  South  Carolina,   North  Carolina,
         Tennessee,  Virginia,  Pennsylvania, New Jersey, New York, Connecticut,
         Ohio, Iowa, Colorado, Minnesota,  Wisconsin, South Dakota, Nebraska and
         Michigan. In addition,  the Company is the franchisor for an additional
         43 stores located in Florida,  Texas, Louisiana and Kentucky.  Moovies'
         superstores rent and sell a wide range of videos and video games,  rent
         video players and video game equipment, and sell video accessories such
         as blank cassettes,  cleaning  equipment and a variety of confectionery
         items.

         The interim financial information included herein is unaudited. Certain
         information and footnote disclosures normally included in the financial
         statements  have been  condensed  or omitted  pursuant to the rules and
         regulations of the Securities and Exchange Commission ("SEC"), although
         the Company believes that the disclosures made are adequate to make the
         information presented not misleading. This financial information should
         be read in conjunction with the consolidated  financial  statements and
         related  notes  contained in the  Company's  Annual Report on Form 10-K
         which  was  previously  filed  with the SEC.  Other  than as  indicated
         herein,  there have been no significant changes from the financial data
         published in that report. In the opinion of management,  such unaudited
         information  reflects  all  adjustments,   consisting  only  of  normal
         recurring accruals and other adjustments as disclosed herein, necessary
         for a fair  presentation of the unaudited  information.  The results of
         operations for interim  periods are not  necessarily  indicative of the
         results expected for the full year.

(2)       Senior Credit Facility

         In March 1997,  the Company  signed a new senior  credit  facility (the
         "Senior  Facility")  for  up to  $75.0  million.  The  Senior  Facility
         consists of (i) a five year $30.0 million long-term note with quarterly
         repayments  beginning  on  September  30,  1997;  (ii) a $41.0  million
         capital  facilities line and (iii) a $4.0 million revolver.  The Senior
         Facility replaced the Company's  existing credit facility.  The Company
         may borrow  amounts under the capital  facilities  line until March 31,
         1999 at  which  time it will  begin  repaying  any  amount  outstanding
         quarterly  over the next three years.  The interest  rate of the Senior
         Facility  is  variable  based on LIBOR  and the  Company  may repay the
         Senior  Facility at any time without  penalty.  At June 30,  1997,  the
         Company had  outstanding  borrowings  of $45.0 million under the Senior
         Facility  which  consisted of a $30.0  million  long-term  note,  $11.0
         million  under the capital  facilities  line and $4.0 million under the
         revolver.  During June 1997,  certain  covenants of the Senior Facility
         were amended.  At June 30, 1997, the Company was in compliance with all
         covenants.

         In connection with the Senior Facility,  the syndication agent received
         a warrant  to  purchase  up to  500,000  shares of common  stock of the
         Company at an exercise price of $6.35 which was the average stock price
         over the 30 days prior to  signing  the  commitment.  The  warrant  was
         valued at  $1,250,000  and is included in  additional  paid-in-capital,
         with the  resulting  original  issue  discount  (OID) on the loan being
         amortized  using a method which  approximates  the interest method over
         the term of the note.


(3)      General and Administrative Expenses

         In May 1997,  the Company  announced  it would reduce the number of new
         stores to be  developed  in 1997 and as a result of the reduced  growth
         plans it would make immediate  reductions in general and administrative
         expenses.  The cost of  implementing  these  reductions  resulted  in a
         one-time charge of $1.5 million or $0.07 per share,  which was recorded
         in the second quarter.

(4)      Extraordinary item

         In connection with the repayment and replacement of its previous credit
         facility,  the Company wrote off the remaining unamortized  capitalized
         costs  associated with that credit facility.  Accordingly,  the Company
         recorded an extraordinary item of approximately $229,000, net of income
         taxes, in the first quarter of 1997.

(5)      Movie Warehouse Acquisition

         Concurrently  with the  closing of the  Senior  Facility,  the  Company
         acquired  certain  assets and  business of Movie  Warehouse,  Inc.  and
         affiliates ("Movie  Warehouse") in an asset purchase  transaction.  The
         Company  acquired  21  video  specialty  stores  and  the  franchiser's
         interest with respect to an additional 43 video specialty  stores which
         will continue to operate under the Movie  Warehouse name. The aggregate
         consideration  for the  acquisition  was  approximately  $9.6  million,
         consisting of $5.0 million in cash,  $2.0 million in  promissory  notes
         due in March 1999 and $2.6 million in common stock (427,672 shares).

(6)      Video Update Acquisition

         In  July  1997,  the  Company  announced  that it had  entered  into an
         agreement with Video Update,  Inc. ("Video  Update")  pursuant to which
         Video  Update  would  acquire  Moovies  in  a  stock-for-stock   merger
         transaction.  Terms  of the  agreement  call for  each  stockholder  of
         Moovies to receive 1.1 shares of Video  Update Class A Common Stock for
         each share of  Moovies  Common  Stock.  The  transaction  is subject to
         stockholder  approval  of  both  companies,  and is  anticipated  to be
         completed some time in late calendar 1997.




<PAGE>


ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

Results of Operations

The Company's  results of operations for the three and six months ended June 30,
1997 and 1996,  reflect the operations of the Company and include the results of
various acquisitions from and after their acquisition date.

Revenues.  Revenues  for the  three  and six  months  ended  June 30,  1997 were
$27,562,000 and $54,151,000,  respectively,  compared to revenues of $18,285,000
and  $37,601,000  for the same periods in 1996.  The  increased  revenues were a
result of the additional 65 stores opened and 46 stores  acquired by the Company
subsequent to June 30, 1996.  Product  sales as a percentage  of total  revenues
increased  to 17.2% and 16.1% for the three and six months  ended June 30, 1997,
respectively,  compared  to 14.3% and 13.2% for the same  periods in 1996.  This
increase is the result of several special  sell-through  promotions conducted by
the  Company  during 1997 in addition  to same store  rental  revenue  decreases
compared  to the prior year which  resulted in a higher  percentage  for product
sales.

During the second quarter of 1997, same store revenues declined by approximately
5.5% principally due to (i) a lack of consumer  acceptance of a weaker selection
of new release  product  during 1997,  (ii) an increased  number of  competitive
openings in several of the Company's major markets,  and (iii) overall  industry
softness that began in the first quarter of 1997. The Company  anticipates  that
same store revenues will continue to decline in the quarter ended  September 30,
1997 due to the same factors discussed above.

Operating  Costs  and  Expenses.   Operating   expenses  were   $21,521,000  and
$41,003,000  for the  three and six  months  ended  June 30,  1997  compared  to
$12,609,000  and  $26,338,000  for  comparable  prior  year  periods.  Operating
expenses  as a  percentage  of total  revenues  were  78.1%  and  75.7% for 1997
compared  to 69.0% and  70.0% for 1996.  The  increases  reflect  the  effect of
substantially  fixed  operating  expenses on a per store basis being compared to
revenue levels that were less than the previous year on a per store basis.

Cost of product  sales  increased  $1,698,000 to  $3,329,000  and  $3,313,000 to
$6,481,000 for the three and six months ended June 30, 1997. These increases are
directly  related to the increase in product  sales.  Cost of product sales as a
percentage  of  product  sales were 70.0% and 74.6% for the three and six months
ended  June 30,  1997  compared  to 62.5% and 63.8%  for  1996.  The  percentage
increases  are  due  to  the  lower  margins  accepted  by  the  Company  on the
sell-through  promotions and sales of previously  viewed tapes conducted  during
the respective periods.

General and  administrative  expenses increased to $3,919,000 and $6,533,000 for
the three and six months ended June 30, 1997, respectively,  from $2,281,000 and
$4,610,000 for the comparable  prior year periods,  reflecting the  acquisitions
and additional store openings.  In addition,  in May 1997, the Company announced
it would reduce the number of new stores to be developed in 1997 and as a result
of the  reduced  growth  it would  make  immediate  reductions  in  general  and
administrative  expense. The cost of implementing these reductions resulted in a
one-time  charge of $1.5 million in second quarter of 1997 which was recorded as
additional general and administrative  expense.  Excluding this one-time charge,
general and administrative expense would have been $2,419,000 and $5,033,000, or
8.8%  and  9.3%  of  total  revenues  for  the  three  and  six  month  periods,
respectively,  compared to 12.5% and 12.3%, respectively, for the same period in
1996. The percentage decrease, despite the increase in the amount of general and
administrative  expenses,  reflects the effect of spreading  these expenses over
significantly greater revenues.

Interest Expense, net. Interest expense increased to $907,000 and $1,378,000 for
the three and six months ended June 30, 1997 from  $399,000 and $701,000 for the
comparable  prior year  periods.  The  increases  are related  primarily  to the
increased borrowings under the Company's Senior Facility which were used to fund
acquisitions and additional new store development.

Income Tax  Expense.  Income tax benefit for the three and six months ended June
30,  1997 was  $1,128,000  and  $994,000,  respectively,  compared to income tax
expense  for the  three and six  months  ended  June 30,  1996 of  $387,000  and
$802,000,  respectively,  representing  an effective  income tax rate of 40% for
each period presented.


<PAGE>


Liquidity and Capital Resources

The Company's  primary long-term capital needs are for opening and acquiring new
stores.  The  Company  expects  to fund  such  needs  through  cash  flows  from
operations,  borrowing under credit facilities,  operating  equipment leases and
the net proceeds from the sale of debt and equity securities.

In March 1997,  the Company  signed a new senior  credit  facility  (the "Senior
Facility") for up to $75.0 million.  The Senior Facility  consists of (i) a five
year  $30.0  million  long-term  note with  quarterly  repayments  beginning  on
September 30, 1997;  (ii) a $41.0 million  capital  facilities  line and (iii) a
$4.0 million Revolver and replaced the Company's  existing credit facility.  The
Company may borrow  amounts  under the capital  facilities  line until March 31,
1999 at which time it will begin repaying any amount outstanding  quarterly over
the next three years. The interest rate of the Senior Facility is variable based
on LIBOR and the  Company  may repay the  Senior  Facility  at any time  without
penalty.  At June 30,  1997,  the Company had  outstanding  borrowings  of $45.0
million under the Senior Facility which consisted of the $30.0 million long-term
note,  $11.0 million under the capital  facilities line and $4.0 million under a
revolving  line of credit.  During  June 1997  certain  covenants  of the Senior
Facility were amended.  At June 30, 1997 the Company was in compliance  with all
covenants.

Concurrently  with the  closing of the Senior  Facility,  the  Company  acquired
certain  assets and business of Movie  Warehouse,  Inc. and  affiliates  ("Movie
Warehouse")  in an asset  purchase  transaction,  including  21 video  specialty
stores and the franchiser's  interest with respect to an additional 43 specialty
stores  which will  continue  to operate  under the Movie  Warehouse  name.  The
aggregate  consideration  for the  acquisition was  approximately  $9.6 million,
consisting  of $5.0  million in cash,  $2.0 million in  promissory  notes due in
March 1999, and $2.55 million in common stock (427,672 shares).

The  Company  funds  its  short-term   working  capital  needs,   including  the
acquisition  of  videos  and  other  inventory,   primarily  through  cash  from
operations.  The Company expects that cash from operations will be sufficient to
fund future video and other inventory purchases and other working capital needs,
although  unanticipated  expenses or revenue shortfalls may cause the Company to
require  additional  financing  to fund  operations.  Under  generally  accepted
accounting  principles,  rental  inventories  are treated as non-current  assets
because  they are not  assets  that are  reasonably  expected  to be  completely
realized in cash or sold in the normal  business  cycle.  Although the rental of
this inventory  generates a substantial  portion of the Company's  revenue,  the
classification of these assets as noncurrent  excludes them from the computation
of working capital. The cost of video inventory purchases,  however, is reported
as a  current  liability  until  paid,  and  accordingly,  is  included  in  the
computation  of working  capital.  Consequently,  the Company  believes  working
capital is not an appropriate  measure of its liquidity and it anticipates  that
it will operate with a working capital deficit during 1997.

In July 1997,  the Company  announced it had entered into an agreement  ("Merger
Agreement")  with Video  Update Inc.  ("Video  Update")  pursuant to which Video
Update would  acquire  Moovies in a  stock-for-stock  merger  transaction.  (the
"Merger") Terms of the agreement call for each stockholder of Moovies to receive
1.1 shares of Video Update Class A Common Stock for each share of Moovies Common
Stock. The transaction is subject to stockholder approval of both companies, and
is anticipated to be completed some time in late calendar 1997.

The  obligations  of Video Update and the Company to  consummate  the Merger are
subject to the satisfaction of certain  conditions,  including,  but not limited
to,  obtaining  requisite  approvals of the stockholders of Video Update and the
Company, obtaining consents under the respective bank credit agreements of Video
Update  and the  Company  (which in  respect to the  Company's  Senior  Facility
agreement  requires payoff of all amounts  outstanding at the time the Merger is
consummated (the "Effective  Time")),  obtaining adequate  financing,  obtaining
requisite regulatory approvals (including under the Hart-Scott-Rodino  Antitrust
Improvements Act of 1976, as amended (the "HSR Act")), the continuing  accuracy,
in all material respects,  as of the Effective Time of the  representations  and
warranties made by Video Update and the Company in the Merger Agreement, and the
receipt of a certain legal  opinion with respect to tax matters.  Each party has
the right to waive certain of the closing  conditions  referred to above.  There
can be no assurance that these  conditions  will be met and that the Merger will
be consummated.

The Company's  capital  expenditures  during the remainder of 1997 will focus on
opening new stores and relocating or upgrading  certain existing stores.  In May
1997, the Company  reassessed its new store development  program and reduced the
number of new stores  expected to be opened during 1997.  The Company  opened 12
new stores during the second  quarter of 1997 and 29 during the first six months
of 1997.  Because of reduced revenues and related cash flows from operations and
the recently announced Merger Agreement, the Company has further reduced its new
store  development  plans  and  currently  expects  that it will  only open four
additional video superstores during the remainder of 1997.


The  Company  estimates  that  the  net  cash  required  to  open a new  Moovies
superstore,  including store fixtures and equipment,  leasehold improvements and
rental and sale  inventory,  typically  ranges from  $275,000  to  $325,000  per
superstore.

Although  the  Company   believes  that  cash  from   operations  and  borrowing
availability  under  the  Senior  Credit  Facility  will be  sufficient  to fund
existing operations through December 31, 1997, unanticipated expenses or revenue
shortfalls  may  cause the  Company  to  require  additional  financing  to fund
operations.  To the extent that such sources are not  adequate to fund  existing
operations,  other sources of funds will be required.  There can be no assurance
that any such sources of funds will be available or, if available,  that it will
be on terms and conditions satisfactory or favorable to the Company.



<PAGE>


Note regarding Private Securities  Litigation Reform Act: Statements made by the
Company  which are not  historical  facts are forward  looking  statements  that
involve risks and  uncertainties.  Actual results could differ  materially  from
those  expressed  or implied in forward  looking  statements.  All such  forward
looking  statements  are  subject  to the safe  harbor  created  by the  Private
Securities  Litigation  Reform Act of 1995.  Important  factors that could cause
financial  performance  to differ  materially  from past  results and from those
expressed or implied in this document include, without limitation,  the risks of
acquisition  of  businesses  (including  limited  knowledge  of  the  businesses
acquired and  misrepresentations  by sellers),  changes in business  strategy or
development plans, new store openings,  availability of financing,  competition,
management,  ability to manage growth,  loss of customers,  the  availability of
products,  the difficulty of managing leased  inventory,  and a variety of other
factors.  The  obligations  of Video  Update and the Company to  consummate  the
Merger are subject to the satisfaction of certain conditions, including, but not
limited to,  obtaining  requisite  approvals of the stockholders of Video Update
and the Company,  obtaining  consents under the respective bank credit agreement
of Video Update and the Company  (which in respect to the Company  Senior Credit
Facility agreement requires payoff at of all an outstanding  thereon at the time
the Merger is consummated (the "Effective Time")), obtaining adequate financing,
obtaining  requisite  regulatory  approvals  (including  under the HSR Act), the
continuing accuracy,  in all material respects,  as of the Effective Time of the
representations  and  warranties  made by Video  Update  and the  Company in the
Merger Agreement, and the receipt of a certain legal opinion with respect to tax
matters.  There can be no assurance that these  conditions  will be met and that
the Merger  will be  consummated.  For  further  information  on these and other
risks,  see the "Risk Factors"  section of Item 1 of the Company's Annual Report
on Form 10-K for the year ended  December  31,  1996,  as well as the  Company's
other filings with the Securities and Exchange Commission.




ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.


<PAGE>


PART II-OTHER INFORMATION

Item 1.  Legal Proceedings.

         None

Item 2.  Changes in Securities.

     (a) None

     (b)  None
     (c)  Recent Sales of  Unregistered Securities

         The following information relates to securities to Moovies, Inc. issued
         or sold  during  the  quarter  ended  June  30,  1997  which  were  not
         registered   under  the   Securities  Act  in  1933,  as  amended  (the
         "Securities Act"):

                From April 1997 through  June 1997,  an aggregate of 1,692
                shares of Common  Stock were  purchased  on the Nasdaq Stock
                Market and credited to participant's accounts pursuant to the
                Moovies, Inc. 401(k) Plan.  The Company  believes  that these
                issuances  were exempt from  registration  under the Securities
                Act by virtue of Section 4(2) as transactions not involving a
                public offering.

Item 3.  Defaults Upon Senior Securities.

         Not Applicable

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

         During the period  covered by this report,  the Company  filed with the
Securities and Exchange (the "Commission") and delivered to its stockholders the
Company's  Proxy  Statement for Annual Meeting of Stockholder  held May 15, 1997
(the "Proxy Statement").

        (a) The Company's  Annual  Meeting of  Stockholders  was held on May 15,
1997.

        (b)  Management's  nominees to the Board of  Directors of the Company as
previously  reported  to the  Commission  were  elected by the holders of common
stock.  The  election  was  uncontested.  (c) With  respect to the  election  of
directors  (as more fully  described in the Proxy  Statement)  voted upon at the
meeting, the inspector of election tabulated the following votes:

                               Number of       Number Votes     Abstentions
                                 Votes           Withheld        and Broker
                                  For                             Non-Votes
                             ------------     ---------------  ----------------
       Nominee for Office

           Arthur F. Greeder    9,740,706            -0-            12,625
                             
           Charles D. Way       9,741,531            -0-            11,800
                             

        (d) There was no  solicitation  subject to Rule 14a-11 of Regulation 14A
under the Securities Exchange Act of 1934.

Item 5.  Other Information.

         None

Item 6.  Exhibits and Reports on Form 8-K

        (a) See the Index to Exhibits.

        (b) Current Reports on Form 8-K

                The  Registrant  filed a  Current  Report  on Form  8-K with the
                Commission on July 9, 1997 with respect to the Company's  Merger
                Agreement with Video Update
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                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has caused  this  quarterly  report on Form 10-Q to be signed on its
behalf by the undersigned thereunto duly authorized on August 14, 1997.

                           MOOVIES, INC.

                           By:      /s/ John L. Taylor
                                    John L. Taylor
                                    President and Chief Executive Officer
                                    (principal executive officer)

                           By:      /s/ F. Andrew Mitchell
                                    F. Andrew Mitchell
                                    Chief Financial Officer and Director
                                    (principal financial officer)







<PAGE>


                                  EXHIBIT INDEX

(a) The following  exhibits,  which are furnished with this Form 10-Q, are filed
as part of this Form 10-Q:

EXHIBIT NO. EXHIBIT DESCRIPTION
2           --Agreement and Plan of Merger by and among Video Update,  Inc., VUI
            Merger Corp. and Moovies,  Inc., dated July 9, 1997 (incorporated by
            reference to Exhibit 2Current Report on Form 8-K dated July 9, 1997)

3.1*        --Restated   Certificate  of  Incorporation  of  Moovies,  Inc. 

3.2         --Restated  Bylaws of Moovies,  Inc.  (Incorporated  by reference to
            Exhibit 3.2 in the  Registrant's  Quarterly  Report on Form 10-Q for
            the quarter ended March 31, 1996).

3.3**       --Certificate   of   Designation,    Preferences   and   Rights   of
            Participating Preferred Stock.

10.1.1**    * --First  Amendment to Credit  Agreement  dated June 17, 1997 among
            Moovies,  Inc.,  various banks party thereto from time to time,  and
            Banque Paribas as agent.

10.2***     --Agreement  dated  July 9, 1997 by and among  Rentrak  Corporation,
            Video Update, Inc. and Moovies, Inc.

10.3***     --Agreement dated June 18, 1997 by and among Moovies, Inc., and John
            L. Taylor

10.4***     --Agreement  dated June 18, 1997 by and among Moovies,  Inc., and F.
            Andrew Mitchell

10.5***     --Agreement  dated  April 1, 1997 by and among  Moovies,  Inc.,  and
            Robert J. Klein

10.6***     --Non-Qualified Stock Option Agreement dated as of April 17, 1997 by
            and between Moovies, Inc. and Robert J. Klein.

11.1***     --Statement Re Computation of Per Share Earnings

27.1***     --Financial Data Schedule

*           Incorporated  by  reference  to  the  same  Exhibit  number  in  the
            Registrant's Registration Statement on Form S-1 (No. 33-93562).

**          Incorporated  by  reference  to  the  same  Exhibit  number  in  the
            Registrant's  quarterly  Report on Form 10-Q for the  Quarter  ended
            March 31, 1997.

***         Filed herewith.


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