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

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED April 5, 1998 OR 
[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
     SECURITIES EXCHANGE ACT OF 1934 FOR  THE TRANSITION PERIOD OF
     ___________  TO  __________



                         Commission file number 0-24548

                               Movie Gallery, Inc.
             (Exact name of registrant as specified in its charter)

           Delaware                                     63-1120122
(State or other jurisdiction of                      (I.R.S. Employer
 incorporation or organization)                       Identification No.)



                   739 West Main Street, Dothan, Alabama 36301
               (Address of principal executive offices) (Zip Code)

                                 (334) 677-2108
              (Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required to file such reports),  and (2) has been subject to filing requirements
for the past 90 days.

                    YES X                        NO _______

Applicable only to corporate issuers:

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest  practicable  date:  13,420,805  shares of Common
Stock as of May 12, 1998.


                                                                               
The exhibit index to this report appears at page 10 of 10 consecutively numbered
pages.


<PAGE>


                               Movie Gallery, Inc.

                                      Index


Part I.  Financial Information

Item 1.  Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets - April 5, 1998 and January 4, 1998................1

Consolidated Statements of Income - Thirteen weeks ended
April 5, 1998 and April 6, 1997................................................2

Consolidated Statements of Cash Flows - Thirteen weeks ended
April 5, 1998 and April 6, 1997................................................3

Notes to Consolidated Financial Statements (Unaudited) - April 5, 1998.........4

Item 2.  Management's Discussion and Analysis of Results
of Operations and Financial Condition..........................................6


Part II.  Other Information

Item 1.  Legal Proceedings....................................................10

Item 6.  Exhibits and Reports on Form 8-K.....................................10

<PAGE>

                               Movie Gallery, Inc.
                      
                           Consolidated Balance Sheets
                                 (in thousands)
<TABLE>
<CAPTION>

                                                         April 5     January 4
                                                          1998          1998
                                                       ------------------------
                                                       (Unaudited)
<S>                                                     <C>            <C>
Assets
Current assets:             
   Cash and cash equivalents                            $  3,971       $  4,459
   Merchandise inventory                                  12,798         13,512
   Prepaid expenses                                        1,522          1,341
   Store supplies and other                                2,728          2,561
   Deferred income taxes                                     370            531
                                                        --------       --------
Total current assets                                      21,389         22,404

Videocassette rental inventory, net                       90,278         92,183
Property, furnishings and equipment, net                  48,673         50,321
Deferred charges, net                                      8,383          8,940
Excess of cost over net assets acquired, net              82,191         83,381
Deposits and other assets                                  1,945          1,904
                                                        --------       --------
Total assets                                            $252,859       $259,133
                                                        ========       ========

Liabilities and stockholders' equity 
Current liabilities:
   Accounts payable                                     $ 17,646       $ 21,517
   Accrued liabilities                                     6,951          7,014
   Current portion of long-term debt                       9,965          4,751
                                                        --------       --------
Total current liabilities                                 34,562         33,282

Long-term debt                                            53,301         63,479
Other accrued liabilities                                  1,641          1,899
Deferred income taxes                                     13,837         12,844

Stockholders' equity:
   Preferred stock, $.10 par value; 2,000,000 shares
    authorized, no shares issued and outstanding             --             --
   Common stock, $.001 par value; 60,000,000
    shares authorized, 13,420,685 and 13,418,885
    shares issued and outstanding, respectively               13             13
   Additional paid-in capital                            131,693        131,686
   Retained earnings                                      17,812         15,930
                                                        --------       --------
Total stockholders' equity                               149,518        147,629
                                                        --------       --------
Total liabilities and stockholders' equity              $252,859       $259,133
                                                        ========       ========
See accompanying notes.

</TABLE>


                                       1
<PAGE>

                               Movie Gallery, Inc.

                        Consolidated Statements of Income
                                   (Unaudited)
                      (in thousands, except per share data)

<TABLE>
<CAPTION>
                                                       Thirteen Weeks Ended
                                                       April 5      April 6
                                                         1998        1997
                                                      -----------------------
                                                                                                                       
<S>                                                   <C>           <C>    
Revenues:
   Rentals                                            $ 58,933      $ 55,583
   Product sales                                        11,558        10,095
                                                      --------      --------
                                                        70,491        65,678

Operating costs and expenses:
   Store operating expenses                             35,050        33,154
   Amortization of videocassette rental inventory       17,302        16,283
   Amortization of intangibles                           1,747         1,774
   Cost of  product sales                                7,519         5,705
   General and administrative                            4,260         4,046
                                                      --------      --------
                                                      
Operating income                                         4,613         4,716
Interest expense, net                                   (1,577)       (1,496)
                                                      --------      --------

Income before income taxes                               3,036         3,220
Income taxes                                             1,154         1,224
                                                      --------      --------

Net income                                            $  1,882      $  1,996
                                                      ========      ========
Basic and diluted earnings per share                  $    .14      $    .15
                                                      ========      ========

Weighted average shares outstanding (in thousands):
     Basic                                              13,419        13,421
     Diluted                                            13,818        13,421


See accompanying notes.
</TABLE>


                                       2
<PAGE>

                                                                     
                               Movie Gallery, Inc.

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (in thousands)

<TABLE>
<CAPTION>
                                                        Thirteen Weeks Ended
                                                        April 5      April 6
                                                          1998         1997
                                                      ----------------------

<S>                                                   <C>           <C>   
Operating activities
Net income                                            $  1,882      $  1,996
Adjustments to reconcile net income to  net cash
  provided by operating activities:
   Depreciation and amortization                        22,248        20,605
   Deferred income taxes                                 1,154         1,224
Changes in operating assets and liabilities:
   Merchandise inventory                                   714          (341)
   Other current assets                                   (348)          (30)
   Deposits and other assets                               (41)          209
   Accounts payable                                     (3,871)       (1,796)
   Accrued liabilities                                    (321)           29
                                                      --------      --------
Net cash provided by operating activities               21,417        21,896

Investing activities
Purchases of videocassette rental inventory, net       (15,397)      (18,536)
Purchases of property, furnishings and equipment        (1,551)       (4,291)
                                                      --------      --------
Net cash used in investing activities                  (16,948)      (22,827)

Financing activities
Net proceeds from issuance of common stock                   7          --
Payments on notes payable                                 (200)         --
Proceeds from issuance of  long-term debt                 --           2,000
Principal payments on long-term debt                    (4,764)          (79)
                                                      --------      --------
Net cash (used in) provided by financing activities     (4,957)        1,921
                                                      --------      --------
(Decrease) increase in cash and cash equivalents          (488)          990
Cash and cash equivalents at beginning of period         4,459         3,982
                                                      --------      --------
Cash and cash equivalents at end of period            $  3,971      $  4,972
                                                      ========      ========

See accompanying notes.
</TABLE>


                                       3
<PAGE>
                              

                               Movie Gallery, Inc.

             Notes to Consolidated Financial Statements (Unaudited)
                                        

                                  April 5, 1998

1.  Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly,  the financial statements do not include all of the
information and footnotes required by generally accepted  accounting  principles
for complete financial statements. In the opinion of management, all adjustments
(consisting  of  normal  recurring  accruals)  considered  necessary  for a fair
presentation have been included.  Operating results for the thirteen week period
ended April 5, 1998, are not  necessarily  indicative of the results that may be
expected  for the fiscal year ended  January 3, 1999.  For further  information,
refer to the consolidated financial statements and footnotes thereto included in
Movie  Gallery,  Inc.'s  annual  report on Form 10-K for the  fiscal  year ended
January 4, 1998.

2.   Financing Obligations

The  Company has a Credit  Agreement  with First  Union  National  Bank of North
Carolina with respect to a reducing  revolving credit facility (the "Facility").
The Facility is unsecured  and  currently  provides  borrowings  for up to $83.3
million.  The available  amount of the Facility  reduces  quarterly with a final
maturity of June 30, 2000.  The interest  rate of the Facility is based on LIBOR
plus an applicable margin  percentage,  which depends on the Company's cash flow
generation and borrowings outstanding. The Company may repay the Facility at any
time without penalty.  The more restrictive  covenants of the Facility  restrict
borrowings  based upon cash flow  levels.  At April 5, 1998,  $62.5  million was
outstanding and $20.8 million was available for borrowing under the Facility.

The Company has entered into an interest rate swap  agreement  with a commercial
bank which effectively fixes the Company's interest rate exposure on $37 million
of the amount  outstanding under the Facility at 6.22% plus an applicable margin
percentage.  The  interest  rate swap  reduces the risk of increases in interest
rates during the remaining  life of the Facility.  The Company  accounts for its
interest rate swap as a hedge of its debt  obligation.  The Company pays a fixed
rate of interest and receives payment based on a variable rate of interest.  The
difference  in amounts  paid and  received  under the  contract  is accrued  and
recognized  as an  adjustment  to  interest  expense  on the debt.  There are no
termination penalties associated with the interest rate swap agreement; however,
if the swap agreement was terminated at the Company's option,  the Company would
either pay or receive the present value of the remaining  hedge  payments at the
then  prevailing  interest rates for the time to maturity of the swap agreement.
The interest rate swap agreement terminates at the time the Facility matures.

3.   Earnings Per Share

Effective January 4, 1998, the Company adopted Statement of Financial Accounting
Standards No. 128,  Earnings per Share.  This  statement is effective for fiscal
periods  ending  after  December  15,  1997 and  requires  restatement  of prior
periods'  earnings  per share data.  Under this  Statement  the  calculation  of
primary and fully diluted  earnings per share is replaced with basic and diluted
earnings  per share and  requires  presentation  of both  amounts  on the income
statement.  Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of common stock equivalents.  Diluted earnings per share is
similar to the previously reported fully diluted earnings per share. Adoption of
this Statement had no significant  impact on earnings per share calculations for
any period presented.

                                       4
<PAGE>

                              Movie Gallery, Inc.

       Notes to Consolidated Financial Statements (Unaudited)(continued)


3.  Earnings Per Share (continued)

Basic  earnings per share is computed  based on the weighted  average  number of
shares of  common  stock  outstanding  during  the  periods  presented.  Diluted
earnings per share is computed based on the weighted average number of shares of
common stock outstanding during the periods  presented,  increased solely by the
effects  of shares to be issued  from the  exercise  of  dilutive  common  stock
options  (399,000  for the  thirteen  weeks ended April 5, 1998 and none for the
thirteen weeks ended April 6, 1997).  No adjustments  were made to net income in
the computation of basic or diluted earnings per share.



                                       5
<PAGE>

                              Movie Gallery, Inc.

         Management's Discussion and Analysis of Results of Operations
                            And Financial Condition


The  following  table  sets  forth,  for the  periods  indicated,  statement  of
operations  data  expressed as a percentage  of total  revenue,  the  percentage
increase or decrease from the comparable period and the number of stores open at
the end of each period.

<TABLE>
<CAPTION>
                                                   Thirteen weeks ended
                                          --------------------------------------
                                          April 5       April 6       Increase
                                            1998          1997       (Decrease)
                                          -------       -------      -----------
<S>                                        <C>           <C>            <C>   
Revenues:
   Rentals                                  83.6%         84.6%          (1.0)%
   Product sales                            16.4          15.4            1.0
                                           -----         -----           ----
                                           100.0         100.0            --
Operating costs and expenses:
   Store operating expenses                 49.8          50.5           (0.7)
   Amortization of rental inventory         24.5          24.8           (0.3)
   Amortization of intangibles               2.5           2.7           (0.2)
   Cost of product sales                    10.7           8.7            2.0
   General and administrative                6.0           6.1           (0.1)
                                           -----         -----           ----
Total                                       93.5          92.8            0.7
                                           -----         -----           ----
Operating income                             6.5           7.2           (0.7)
Interest expense, net                       (2.2)         (2.3)           0.1
                                           -----         -----           ----
Income before income taxes                   4.3           4.9           (0.6)
Income taxes                                 1.6           1.9           (0.3)
                                           -----         -----           ----
Net income                                   2.7%          3.0%          (0.3)%
                                           =====         =====           ====

Number of stores open at end of period       849           861            (12)
                                           =====         =====           ====

</TABLE>

For the thirteen  weeks ended April 5, 1998,  revenues  were $70.5  million,  an
increase  of 7.3% over the  comparable  period  in 1997.  The  increase  was due
primarily to an increase in same-store sales of 7.3%. The increase in same-store
sales for the first quarter of 1998 was the result of (i) the Company's increase
in depth of copies of hit titles compared to the prior year; (ii) an increase in
the game rental business due to increasing  consumer  acceptance of the Nintendo
64 and  Sony  Playstation  game  platforms;  and  (iii)  successful,  chain-wide
internal  marketing  programs designed to generate more consumer  excitement and
traffic in the Company's base of stores.

Product  sales as a percentage  of total  revenue for the  thirteen  weeks ended
April 5, 1998 was 16.4%,  an increase  from 15.4% for the  comparable  period in
1997. This increase was primarily the result of (i) the Company's  continued and
increased emphasis on the sale of previously viewed rental inventory and (ii) an
increase  in new  tape  sales  associated  primarily  with  better  merchandised
product.

Store  operating  expenses,  which reflect  direct store  expenses such as lease
payments and in-store  payroll,  decreased as a percentage  of revenues to 49.8%
for the thirteen weeks ended April 5, 1998 from 50.5% for the comparable  period
in 1997.  The decrease in store  operating  expenses as a percentage of revenues
was primarily due to the same-store  sales increase during the quarter,  offset,
in part,  by an  increase  in revenue  sharing  expense  and an increase in rent
associated  with newly built stores and renewals,  expansions and relocations of
existing stores.


                                       6
<PAGE>

                           Movie Gallery, Inc.

          Management's Discussion and Analysis of Results of Operations
                       And Financial Condition (continued)


For the first quarter of 1998,  amortization of  videocassette  rental inventory
decreased  as a  percentage  of revenue  to 24.5% from 24.8% for the  comparable
period in 1997,  but increased by  approximately  $1 million period over period.
The dollar increase in  amortization is attributable to the Company's  increased
rental  inventory  purchases,  which  began in the  fourth  quarter  of 1996 and
continued  through the first nine  months of 1997 in  response to  industry-wide
competitive  issues. The decrease in amortization as a percentage of revenues is
due primarily to the increased revenues associated with the Company's same-store
sales increase for the quarter.

Cost of product sales  includes the costs of new  videocassettes,  confectionery
items and other goods,  as well as the  unamortized  value of previously  viewed
rental inventory sold in the Company's  stores.  Cost of product sales increased
with the  increased  revenue from product sales and increased as a percentage of
revenues  from product  sales from 56.5% for the first  quarter of 1997 to 65.1%
for the first  quarter of 1998.  The  decrease in product  sales  gross  margins
resulted  primarily  from an effort by the Company to market  more  aggressively
both its new tape inventory and its stock of previously viewed tapes.

General and administrative expenses as a percentage of revenue decreased to 6.0%
for the first quarter of 1998 from 6.1% for the  comparable  period in 1997. Net
interest  expense as a  percentage  of revenues  decreased to 2.2% for the first
quarter of 1998 from 2.3% for the first quarter of 1997.  These  decreases  were
due primarily to the increasing revenues that the Company has achieved.

LIQUIDITY AND CAPITAL RESOURCES

Historically,  the  Company's  primary  capital  needs have been for opening and
acquiring  new stores and for the  purchase of  videocassette  inventory.  Other
capital  needs  include the  remodeling of existing  stores,  the  relocation of
existing  stores and the continued  upgrading and  installation of the Company's
point of sale system and management  information systems. The Company has funded
inventory purchases, remodeling and relocation programs, new store opening costs
and acquisitions  primarily from cash flow from operations,  the proceeds of two
public equity  offerings,  loans under  revolving  credit  facilities and seller
financing.

During the first  quarter of 1998,  the Company  generated  approximately  $11.7
million in  Adjusted  EBITDA  versus  approximately  $7.2  million for the first
quarter of 1997, an increase of  approximately  62.9%.  The increase in Adjusted
EBITDA is attributable  primarily to both the same-store  sales increase of 7.3%
and the Company's  leveraging of rental inventory purchases in the first quarter
of 1998  versus the  comparable  period in 1997.  "Adjusted  EBITDA" is earnings
before  interest,  taxes,  depreciation  and  amortization,  less the  Company's
purchase of videocassette  rental inventory which excludes  inventory  purchases
specifically  for new store  openings.  This  definition  differs from  previous
disclosures, because the Company now excludes new store inventory purchases from
the calculation of Adjusted  EBITDA.  Adjusted EBITDA does not take into account
capital  expenditures,  other than purchases of videocassette  rental inventory,
and does not represent cash  generated  from operating  activities in accordance
with generally accepted accounting  principles ("GAAP"), is not to be considered
as an alternative to net income or any other GAAP  measurements  as a measure of
operating  performance  and is not  indicative  of cash  available  to fund cash
needs.  The  Company's  definition  of Adjusted  EBITDA may not be  identical to
similarly  titled  measures of other  companies.  The Company  believes  that in
addition to cash flows and net  income,  Adjusted  EBITDA is a useful  financial
performance  measurement for assessing the operating  performance of the Company
because, together with net income and cash flows, Adjusted EBITDA is widely used
in the videocassette  specialty  retailing industry to provide investors with an
additional basis to evaluate the ability of the Company to incur and service its
debt and to fund growth.

                                       7
<PAGE>

                           Movie Gallery, Inc.

          Management's Discussion and Analysis of Results of Operations
                       And Financial Condition (continued)


Net cash  provided  by  operating  activities  was $21.4  million  for the first
quarter of 1998 as compared to $21.9 million for the first quarter of 1997.  The
decrease was primarily  due to a decrease in accounts  payable and other accrued
liabilities,  offset in part by an increase in depreciation and amortization, as
well as a decrease in merchandise inventory.

Net cash used in investing activities was $16.9 million for the first quarter of
1998 as compared to $22.8 million for the first quarter of 1997,  primarily as a
result of a  decrease  in the  expenditures  of capital  for both  videocassette
rental inventory and property, furnishings and equipment.

Net cash used in financing  activities was $5.0 million for the first quarter of
1998 as compared to net cash  provided by financing  activities  of $1.9 million
for the first quarter of 1997. This change resulted  directly from the Company's
improved  Adjusted  EBITDA  performance  and allowed the Company to decrease its
debt  outstanding  at quarter end versus an  increase in debt in the  comparable
quarter of the prior year.

The  Company has a Credit  Agreement  with First  Union  National  Bank of North
Carolina with respect to a reducing  revolving credit facility (the "Facility").
The Facility is unsecured  and  currently  provides  borrowings  for up to $83.3
million.  The available  amount of the Facility  reduces  quarterly with a final
maturity of June 30, 2000.  The interest  rate of the Facility is based on LIBOR
plus an applicable margin  percentage,  which depends on the Company's cash flow
generation and borrowings outstanding. The Company may repay the Facility at any
time without penalty.  The more restrictive  covenants of the Facility  restrict
borrowings  based upon cash flow  levels.  At April 5, 1998,  $62.5  million was
outstanding and $20.8 million was available for borrowing under the Facility.

The Company  grows its store base  through  internally  developed  and  acquired
stores and may require  capital in excess of internally  generated  cash flow to
achieve its desired growth. To the extent available,  future acquisitions may be
completed  using  funds  available  under the  Facility,  financing  provided by
sellers,  alternative  financing  arrangements such as funds raised in public or
private  debt or equity  offerings  or shares of the  Company's  stock issued to
sellers.  However, there can be no assurance that financing will be available to
the Company on terms which will be acceptable, if at all.

At April 5, 1998,  the Company had a working  capital  deficit of $13.2 million,
due  to  the  accounting   treatment  of  its  videocassette  rental  inventory.
Videocassette  rental inventory is treated as a noncurrent asset under generally
accepted  accounting  principles  because it is not an asset which is reasonably
expected to be completely realized in cash or sold in the normal business cycle.
Although  the  rental  of this  inventory  generates  the major  portion  of the
Company's revenue, the classification of this asset as noncurrent results in its
exclusion from working capital. The aggregate amount payable for this inventory,
however,  is reported as a current  liability  until paid and,  accordingly,  is
included in working  capital.  Consequently,  the Company  believes that working
capital is not an appropriate  measure of its liquidity and it anticipates  that
it will continue to operate with a working capital deficit.

The Company believes its projected cash flow from operations, borrowing capacity
with the  Facility,  cash on hand and trade  credit will  provide the  necessary
capital to fund its current plan of  operations  for Fiscal 1998,  including its
anticipated new store openings.  However,  to fund a resumption of the Company's
acquisition  program,  or to provide funds in the event that the Company's  need
for funds is greater  than  expected,  or if certain  of the  financing  sources
identified  above are not available to the extent  anticipated or if the Company
increases  its  growth  plan,  the  Company  will  need  to seek  additional  or
alternative  sources of financing.  This financing may not be available on terms
satisfactory to the Company.  Failure to obtain  financing to fund the Company's
expansion  plans or for other purposes  could have a material  adverse effect on
the Company.

                                       8
<PAGE>

                           Movie Gallery, Inc.

          Management's Discussion and Analysis of Results of Operations
                       And Financial Condition (continued)


OTHER MATTERS

The Company has  performed  an analysis of its  operating  systems to  determine
systems'  compatibility  with the upcoming year 2000.  Substantially  all of the
Company's  operating  systems are year 2000 compliant,  and the Company does not
believe  that  there  will  be  any  material  exposure  related  to  year  2000
compatibility.

This report contains certain  forward-looking  statements regarding the Company.
The Company  desires to take  advantage of the "safe  harbor"  provisions of the
Private  Securities  Litigation  Reform  Act of  1995  and  in  that  regard  is
cautioning  the readers of this report that a number of  important  risk factors
could affect the Company's actual results of operations and may cause changes in
the Company's strategy with the result that the Company's operations and results
may differ  materially  from those expressed in any  forward-looking  statements
made by, or on behalf of, the Company.  These risk factors  include  competitive
factors and weather conditions within the Company's geographic markets, adequate
product availability from Hollywood and the risk factors that are discussed from
time-to-time  in the Company's SEC reports,  including,  but not limited to, the
report on Form 10-K for the fiscal year ended January 4, 1998.




                                       9
<PAGE>


                           Part II - Other Information


Item 1. Legal Proceedings

In June 1997,  certain former  shareholders of Home Vision  Entertainment,  Inc.
("Home  Vision")  filed a complaint  against  the Company in the U. S.  District
Court for the  District  of Maine  asserting  a claim for breach of  contract in
connection  with the merger of the Company  and Home Vision in July 1996.  These
shareholders  ultimately  sought damages in excess of $10 million plus costs. On
March 19, 1998, the Company received a jury verdict in its favor with respect to
all claims  brought  against it and does not expect to pay any monetary  damages
associated with this case.

Item 6. Exhibits and Reports on Form 8-K

        a)  Exhibits
            
            27     Financial Data Schedule
       
            27.1   Financial Data Schedule - Restated for April 6, 1997

        b)  Reports on Form 8-K
            
            None.



                                   Signatures

     Pursuant to the  requirements  of the Securities  Exchange Act of 1934, the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                       Movie Gallery, Inc.
                                       ---------------------------------------
                                       (Registrant)



Date:   May 20, 1997                   /s/ J. Steven Roy
                                       ---------------------------------------
                                       J. Steven Roy, Executive Vice President
                                       and Chief Financial Officer



                                       10