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 6, 1997 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:  13,420,791  shares of Common
Stock as of May 14, 1997.


 
The exhibit index to this report appears at page 11 of 13 consecutively numbered
pages.



<PAGE>



                               Movie Gallery, Inc.

                                      Index



Part I.  Financial Information

Item 1.  Financial Statements (Unaudited)

Consolidated Balance Sheets - April 6, 1997 and January 5, 1997................1

Consolidated Statements of Income - Thirteen weeks ended
April 6, 1997 and March 31, 1996...............................................2

Consolidated Statements of Cash Flows - Thirteen weeks ended
April 6, 1997 and March 31, 1996...............................................3

Notes to Consolidated Financial Statements - April 6, 1997.....................4

Item 2.  Management's Discussion and Analysis of Results
of Operations and Financial Condition..........................................7


Part II.  Other Information

Item 6.  Exhibits and Reports on Form 8-K.....................................11


<PAGE>

                               Movie Gallery, Inc.
 
                           Consolidated Balance Sheets
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                April 6    January 5
                                                                 1997        1997
                                                               --------    ---------
                                                             (Unaudited)
<S>                                                           <C>         <C> 
Assets
Current assets:
   Cash and cash equivalents                                   $  4,972    $  3,982
   Recoverable income tax                                           393         224
   Merchandise inventory                                         11,078      10,737
   Store supplies and other                                       3,746       3,885
   Deferred income taxes                                            785         913
                                                               --------    --------
Total current assets                                             20,974      19,741

Videocassette rental inventory, net                              92,182      89,929
Property, furnishings and equipment, net                         51,941      50,196
Deferred charges, net                                            10,560      11,151
Excess of cost over net assets acquired, net                     86,637      87,822
Deposits and other assets                                         2,529       2,738
                                                               --------    --------
Total assets                                                   $264,823    $261,577
                                                               ========    ========

Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                            $ 22,525    $ 24,321
   Accrued liabilities                                            7,651       7,622
   Current portion of long-term debt                                376         374
                                                               --------    --------
Total current liabilities                                        30,552      32,317

Long-term debt                                                   69,802      67,883
Other accrued liabilities                                         2,425       2,425
Deferred income taxes                                            13,324      12,228

Stockholders' equity:
   Preferred stock, $.10 par value; 2,000,000 shares
    authorized, no shares issued and outstanding                   --          --
   Common stock, $.001 par value; 30,000,000
    shares authorized, 13,420,791 shares issued
    and outstanding                                                  13          13
   Additional paid-in capital                                   131,686     131,686
   Retained earnings                                             17,021      15,025
                                                               --------    --------
Total stockholders' equity                                      148,720     146,724
                                                               --------    --------
Total liabilities and stockholders' equity                     $264,823    $261,577
                                                               ========    ========

See accompanying notes. 

</TABLE>
                                        1
<PAGE>



                               Movie Gallery, Inc.

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

<TABLE>
<CAPTION>
                                                         Thirteen weeks ended
                                                        April 6       March 31
                                                          1997          1996
                                                      ----------    -----------

<S>                                                 <C>            <C>
Revenues:
   Rentals                                           $    55,583    $    54,376
   Product sales                                          10,095          8,124
                                                     -----------    -----------
                                                          65,678         62,500

Operating costs and expenses:
   Store operating expenses                               33,154         29,379
   Amortization of videocassette rental inventory         16,283         12,098
   Amortization of intangibles                             1,774          1,626
   Cost of sales                                           5,705          4,821
   General and administrative                              4,046          5,101
                                                     -----------    -----------
Operating income                                           4,716          9,475
Interest expense, net                                     (1,496)        (1,176)
                                                     -----------    -----------
Income before income taxes                                 3,220          8,299
Income taxes                                               1,224          3,218
                                                     -----------    -----------
Net income                                           $     1,996    $     5,081
                                                     ===========    ===========
Net income per share                                 $       .15    $       .39
                                                     ===========    ===========

Pro forma net income per share:
Income before income taxes                                          $     8,299
Pro forma income taxes                                                    3,139
                                                                    -----------
Pro forma net income                                                $     5,160
                                                                    ===========
Pro forma net income per share                                      $       .39
                                                                    ===========
Weighted average shares outstanding                   13,420,791     13,104,857
                                                     ===========    ===========

See accompanying notes. 
</TABLE>



                                       2
<PAGE>
 

                               Movie Gallery, Inc.

                      Consolidated Statements of Cash Flows
                                   (Unaudited)
                                 (in thousands)
<TABLE>
<CAPTION>

                                                          Thirteen Weeks Ended
                                                          April 6     March 31
                                                            1997         1996
                                                         ----------------------
<S>                                                      <C>         <C>  
Operating activities
Net income                                                $  1,996    $  5,081
Adjustments to reconcile net income to  net cash
  provided by operating activities:
   Depreciation and amortization                            20,605      15,669
   Deferred income taxes                                     1,224       2,675
Changes in operating assets and liabilities:
   Recoverable income tax                                     (169)        355
   Merchandise inventory                                      (341)      2,453
   Other current assets                                        139         107
   Deposits and other assets                                   209        (548)
   Accounts payable                                         (1,796)     (5,560)
   Accrued liabilities                                          29         193
                                                          --------    --------
Net cash provided by operating activities                   21,896      20,425

Investing activities
Business acquisitions                                         --        (5,166)
Purchases of videocassette rental inventory, net           (18,536)    (19,040)
Purchases of property, furnishings and equipment            (4,291)     (5,193)
                                                          --------    --------
Net cash used in investing activities                      (22,827)    (29,399)
   
Financing activities
Net proceeds from issuance of common stock                    --            24
Net proceeds from issuance of notes payable                   --         6,848
Proceeds from issuance of  long-term debt                    2,000       2,986
Principal payments on long-term debt                           (79)     (5,688)
                                                          --------    --------
Net cash provided by financing activities                    1,921       4,170
                                                          --------    --------
Increase (decrease) in cash and cash equivalents               990      (4,804)
Cash and cash equivalents at beginning of period             3,982       6,255
                                                          --------    --------
Cash and cash equivalents at end of period                $  4,972    $  1,451
                                                          ========    ========

See accompanying notes.

</TABLE>


                                       3
<PAGE>


                               Movie Gallery, Inc.


             Notes to Consolidated Financial Statements (Unaudited)

                                  April 6, 1997


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 6, 1997, are not  necessarily  indicative of the results that may be
expected  for the fiscal year ended  January 4, 1998.  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 5, 1997.

The Company's  historical  financial  statements for all periods  presented have
been restated to include the results of operations of Home Vision Entertainment,
Inc. and Hollywood Video, Inc. (see note 5).


2.  Videocassette Rental Inventory

Effective   April  1,  1996,  the  Company  changed  its  method  of  amortizing
videocassette  rental  inventory  (which  includes video games and audio books).
Under the new method,  videocassettes  considered to be base stock are amortized
over  thirty-six  months on a  straight-line  basis to a $5 salvage  value.  New
release  videocassettes  are  amortized  as  follows:  (i)  the  fourth  and any
succeeding copies of each title per store are amortized on a straight-line basis
over six months to an average net book value of $5 which is then  amortized on a
straight-line  basis over the next thirty months or until the  videocassette  is
sold, at which time the unamortized  book value is charged to cost of sales; and
(ii)  copies one  through  three of each title per store are  amortized  as base
stock.  Management  believes  the new  method  results in a better  matching  of
expenses with revenues in the Company's current  operating  environment and that
it is compatible with changes made by its primary competitors.

The new method of  amortization  was applied to all  inventory  held at April 1,
1996.  The adoption of the new method of  amortization  was  accounted  for as a
change in accounting estimate effected by a change in accounting principle.


3.  Provision for Business Restructuring

During the third  quarter of 1996 the Company  began and  completed an extensive
analysis of both its store base  performance  and  organizational  structure and
adopted a business  restructuring  plan to close  approximately 50 of its stores
and reduce the  corporate  organizational  staff by  approximately  15  percent.
Management  concluded that certain stores were  under-performing  and it was not
prudent to continue to operate  these  locations.  These store  closings are not
concentrated in a particular  geographic area. The principal factors  considered
in  identifying  stores for  closure  included:  (i)  whether a store  generated
sufficient  cash flow at the store  level to  provide  an  acceptable  return on
current  investment;  (ii) whether the latest  sales  trends  indicated a likely
improvement in the historical store results; (iii) whether the current or future
 


                                       4
<PAGE>
                               Movie Gallery, Inc.


        Notes to Consolidated Financial Statements (Unaudited)(continued)


3.  Provision for Business Restructuring (continued)

competitive  climate had made sales improvements less likely; and (iv) whether a
store's  performance  warranted  lease  renewal where the lease was scheduled to
expire within the next year.

This  analysis   resulted  in  the  Company  recording  a  $9.6  million  pretax
restructuring  charge  in the  third  quarter  of 1996.  The  components  of the
restructuring  charge include  approximately $5.4 million in reserves for future
cash outlays for lease terminations,  miscellaneous  closing costs and legal and
accounting  costs,  as well as  approximately  $4.2 million in asset write downs
(see below). In some situations, the timing of store closures will depend on the
Company's  ability to negotiate  reasonable lease  termination  agreements.  The
lease commitments associated with the closing stores will be retired entirely or
materially diminished by one of three methods: (i) through the normal expiration
of the lease within the next year;  (ii) through the  subletting of the property
to  another  entity;  or  (iii)  through  a  negotiated  lease  buyout  with the
individual landlord.  The store closures are expected to be completed by the end
of fiscal year 1997. Approximately $1.2 million of restructuring costs were paid
and charged against the liability as of April 6, 1997. The stores identified for
closure  had  revenues  and  operating  losses  of  approximately  $628,000  and
$175,000,  respectively,  for the  thirteen  weeks  ended  April  6,  1997,  and
$1,819,000  and $246,000,  respectively,  for the thirteen weeks ended March 31,
1996.  Results for the first quarter of 1996 include all stores  identified  for
closure under the restructuring plan while results for the first quarter of 1997
include  only those  stores  under the plan which had not been  closed as of the
beginning of the quarter.

In  conjunction  with the  business  restructuring,  an  estimated  $4.2 million
impairment  loss was  incurred  for  those  stores  identified  to  close  where
projected operating  performance  indicated an impairment.  This impairment loss
related  primarily  to the  write-off of  leasehold  improvements,  fixtures and
intangible assets and a valuation allowance for videocassette rental inventory.


4.  Financing Obligations

On July 10, 1996, the Company  entered into 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, provides borrowings for up
to $125 million and replaced the  Company's  previously  existing line of credit
agreement.

The available  amount of the Facility will reduce  quarterly  beginning on March
31,  1998 with a final  maturity  of June 30,  2000.  The  interest  rate of the
Facility  is  LIBOR-based  and 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 6,  1997,  $69  million  was
outstanding  and  approximately $9.6 million of the $125 million  commitment was
available for borrowing under the Facility.

5.  Acquisitions

On July 1, 1996, the Company  acquired Home Vision  Entertainment,  Inc.  ("Home
Vision")  in a  merger  transaction  accounted  for  as a  pooling-of-interests,
pursuant to which the Company issued approximately  731,000 shares of its common
stock to Home Vision  shareholders  and assumed  approximately  $12.5 million in
liabilities.  At the time of the merger, Home Vision operated 55 video specialty
stores in Maine, New Hampshire and Massachusetts.


                                       5
<PAGE>

                               Movie Gallery, Inc.


        Notes to Consolidated Financial Statements (Unaudited)(continued)


5.  Acquisitions (continued)

On July 1, 1996, the Company acquired Hollywood Video, Inc.  ("Hollywood Video")
in a merger  transaction  accounted for as a  pooling-of-interests,  pursuant to
which the Company  issued  approximately  38,000  shares of its common  stock to
Hollywood  Video  shareholders  and  assumed   approximately  $11.5  million  in
liabilities.  At the  time of the  merger,  Hollywood  Video  operated  43 video
specialty stores in Iowa, Wisconsin and Illinois.

6.  Pro Forma Earnings Per Share

Pro forma  income  taxes  reflect  income  tax  expense  which  would  have been
recognized by the Company as a C  corporation  if the  acquisition  of Hollywood
Video  had  been  consummated  prior  to  January  1,  1996.  Hollywood  Video's
historical  operating  results do not include any  provision for income taxes as
Hollywood  Video  was taxed as an S  corporation  for all  periods  prior to the
merger.

7.    Recently Issued Accounting Standard

In February  1997, the Financial  Accounting  Standards  Board issued  Statement
No.128,  Earnings  per Share,  which  revises the  disclosure  requirements  and
increases the comparability of EPS data on an international basis by simplifying
the existing computational  guidelines in APB Opinion No. 15. The pronouncement,
effective for the final quarter of the fiscal year ending January 4, 1998,  will
require the Company to change the method  currently used to compute earnings per
share  and to  restate  all  prior  periods.  Under  the  new  requirements  for
calculating  primary  earnings per share,  the dilutive  effect of stock options
will be  excluded.  The  impact  of  adopting  the  pronouncement  has not  been
determined,  however, the Company believes it will not have a material impact on
its primary or fully diluted earnings per share.

                                       6
<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 6         March 31        Increase
                                           1997             1996         (Decrease)
                                         --------         --------       ----------
<S>                                      <C>               <C>              <C>                                 
Revenues:
   Rentals                                84.6%             87.0%            (2.4)%
   Product sales                          15.4              13.0              2.4
                                         -----             -----           ------
                                         100.0             100.0               --
Operating costs and expenses:
   Store operating expenses               50.5              47.0              3.5
   Amortization of rental inventory       24.8              19.4              5.4
   Amortization of intangibles             2.7               2.6              0.1
   Cost of sales                           8.7               7.7              1.0
   General and administrative              6.1               8.1             (2.0)
                                         -----             -----           ------
Total                                     92.8              84.8              8.0
                                         -----             -----           ------
Operating income                           7.2              15.2             (8.0)
Interest expense, net                     (2.3)             (1.9)            (0.4)
                                         -----             -----           ------
Income before income taxes                 4.9              13.3             (8.4)
Income taxes                               1.9               5.0             (3.1)
                                         -----             -----           ------
Net income                                 3.0%              8.3%            (5.3)%
                                         =====             =====           ======

Number of stores open at end of period     861               801               60
                                         =====             =====           ======
</TABLE>


The results of operations for the periods presented include the combined results
of the Company,  Home Vision  Entertainment,  Inc. and  Hollywood  Video,  Inc.,
acquisitions    consummated   on   July   1,   1996   and   accounted   for   as
poolings-of-interests. For the thirteen weeks ended April 6, 1997, revenues were
$65.7  million,  an increase  of 5.1% over the  comparable  period in 1996.  The
increase was a result  primarily of an increase in the number of stores operated
by the Company,  partially  offset by a decrease in same-store  revenues of 5.7%
for the first quarter at stores  operated by the Company for at least 13 months.
The same-store  revenue  decrease for the first quarter was primarily the result
of: (i) a significant  level of  competitive  openings over the past year in the
Company's urban  locations;  (ii)  unseasonably  warm weather within most of the
Company's  store base; and (iii) a  higher-than-expected  level of product sales
relative to rental revenue.

Product  sales as a percentage  of total  revenue for the  thirteen  weeks ended
April 6, 1997 were 15.4%,  an increase from 13.0% for the  comparable  period in
1996.  This increase was  primarily  the result of both a general  effort by the
Company to increase the sale of previously  viewed  videocassettes  and multiple
promotional  programs during the quarter that targeted the sale of hit sell-thru
titles.


                                       7
<PAGE>
              
                        
                              Movie Gallery, Inc.


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


Store  operating  expenses,  which reflect  direct store  expenses such as lease
payments and in-store  payroll,  increased as a percentage  of revenues to 50.5%
for the thirteen weeks ended April 6, 1997 from 47.0% for the comparable  period
in 1996.  The increase in store  operating  expenses as a percentage of revenues
was primarily due to the shortfall in same-store revenues described above. Store
operating  expenses  were also  negatively  impacted  by an increase in rent and
other expenses in connection with the  integration of developed  stores into the
Company's store base.

For the first quarter of 1997,  amortization of  videocassette  rental inventory
increased  as a  percentage  of revenue  to 24.8% from 19.4% for the  comparable
period in 1996.  During the second  quarter of 1996,  the Company  adopted a new
policy for amortizing  videocassette  rental  inventory  which has the effect of
accelerating the Company's rate of amortization of its inventory.

Cost of sales  increased  with the  increased  revenue  from  product  sales and
decreased as a  percentage  of revenues  from  product  sales from 59.3% for the
thirteen  weeks ended March 31, 1996 to 56.5% for the thirteen weeks ended April
6, 1997. The increase in product sales gross margins resulted  primarily from an
increase in the sale of previously  viewed  rental  inventory,  the  unamortized
value of which is  expensed  to cost of sales  and  generally  generates  higher
margins than other product categories.

General and administrative expenses as a percentage of revenue decreased to 6.1%
for the thirteen weeks ended April 6, 1997 versus 8.1% for the comparable period
in 1996.  The decrease was  primarily  due to  operating  efficiencies  attained
through a larger  revenue base as well as the third  quarter 1996  restructuring
plan, which included the reduction of the corporate staff by approximately 15%.

Net interest expense as a percentage of revenues increased to 2.3% for the first
quarter of 1997 from 1.9% for the first quarter of 1996. The increase was due to
the increased  amount of debt financing that has been used to fund the Company's
growth in the past year.


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,  relocation of existing
stores,   and  the  continued   upgrading  and  installation  of  the  Company's
point-of-sale  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 offerings, loans under revolving credit facilities and seller financing.

During the first quarter of 1997, the Company generated $6.8 million in Adjusted
EBITDA versus $6.1 million for the first quarter of 1996.  "Adjusted  EBITDA" is
earnings  before  interest,  taxes,  depreciation  and  amortization,  excluding
non-recurring  charges and less the Company's  purchase of videocassette  rental
inventory.  Included in the Company's  videocassette  rental inventory purchases
for the first quarter of 1997 is $424,000  associated  with inventory  purchases
specifically for new store openings.  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


                                       8
<PAGE>

                               Movie Gallery, Inc.


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


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.

Net cash  provided by operating  activities  was $21.9  million for the thirteen
weeks ended April 6, 1997 as compared to $20.4 million for the comparable period
in 1996.  The increase was  primarily  due to a relatively  smaller  decrease in
accounts  payable  from  fiscal  year end 1996 to the end of the  first  quarter
versus the  comparable  period in fiscal  1996,  as well as an  increase  in net
income before depreciation and amortization for the first quarter of 1997 versus
the first quarter of 1996. The impact of the above changes was offset  partially
by a slight net increase in  merchandise  inventory  during the first quarter of
1997 versus a large decrease in  merchandise  inventory for the first quarter of
1996.

Net cash used in investing activities was $22.8 million for the first quarter of
1997 as compared to $29.4 million for the first quarter of 1996,  primarily as a
result of the lack of acquisition activity during the first quarter of 1997. The
Company expended $5.2 million for acquisitions in the first quarter of 1996.

Net cash  provided by financing  activities  decreased  from $4.2 million in the
first quarter of 1996 to $1.9 million for the  comparable  period in 1997.  This
decrease  was  primarily  the  result of a  diminished  level of debt  financing
activity during the first thirteen weeks of 1997 versus the comparable period in
1996.

The Company  grows its store base  through  internally  developed  and  acquired
stores and  requires  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, or alternative financing arrangements such as funds raised in public or
private  debt or  equity  offerings.  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 6, 1997, the Company had a working capital deficit of $9.6 million, due
to the  accounting  treatment  of its  inventory.  Videocassette  and video game
rental  inventory are treated as  non-current  assets under  generally  accepted
accounting  principles because they are not assets which are 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 these  assets as  noncurrent  results in their
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 1997,  including its
anticipated new store openings.  However,  to fund a resumption of the Company's
acquisition  program  (which was  temporarily  suspended  in the latter  half of
1996),  to  provide  funds in the  event  that the  Company's  need for funds is


                                       9
<PAGE>


                               Movie Gallery, Inc.


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


greater than expected,  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.

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 5, 1997.



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                          Part II - Other Information

Item 6. Exhibits and Reports on Form 8-K

       a)  Exhibits
                11  Computation of Earnings Per Share
                27  Financial Data Schedule

       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 21, 1997                /s/ J. Steven Roy
                                     ____________________________________   
                                     J. Steven Roy, Senior Vice President
                                     and Chief Financial Officer






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