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 October 1, 2000

                                       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 0-24548

                               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.)



          900 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 ____

The number of shares outstanding of the registrant's common stock as of November
9, 2000 was 11,136,167.

<PAGE>

                               Movie Gallery, Inc.

                                      Index



Part I.  Financial Information

Item 1.  Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets - October 1, 2000 and January 2, 2000..............1

Consolidated Statements of  Income - Thirteen and thirty-nine weeks
ended October 1, 2000 and October 3, 1999......................................2

Consolidated Statements of Cash Flows - Thirty-nine weeks ended
October 1, 2000 and October 3, 1999............................................3

Notes to Consolidated Financial Statements - October 1, 2000...................4

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........11

Part II.  Other Information

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


<PAGE>


<TABLE>

                               Movie Gallery, Inc.

                           Consolidated Balance Sheets
                                 (in thousands)

<CAPTION>
                                                              October 1,  January 2,
                                                                 2000        2000
                                                              ---------------------
                                                              (Unaudited)
<S>                                                           <C>         <C>
Assets
Current assets:
  Cash and cash equivalents                                   $   4,640   $   6,970
  Merchandise inventory                                           8,659      15,148
  Prepaid expenses                                                1,065         814
  Store supplies and other                                        3,380       3,395
  Deferred income taxes                                             120         229
                                                              ---------   ---------
Total current assets                                             17,864      26,556

Rental inventory, net                                            57,496      52,357
Property, furnishings and equipment, net                         51,004      44,320
Goodwill and other intangibles, net                              78,793      83,539
Deposits and other assets                                         2,468       2,543
Deferred income taxes                                              --           212
                                                              ---------   ---------
Total assets                                                  $ 207,625   $ 209,527
                                                              =========   =========

Liabilities and stockholders' equity
Current liabilities:
  Accounts payable                                            $  18,933   $  26,243
  Accrued liabilities                                            10,336      12,989
  Current portion of long-term debt                                  59         263
                                                              ---------   ---------
Total current liabilities                                        29,328      39,495

Long-term debt                                                   50,250      44,377
Other accrued liabilities                                           237         234
Deferred income taxes                                             1,691        --

Stockholders' equity:
  Preferred stock, $.10 par value; 2,000,000 shares
    authorized, no shares issued and outstanding                   --          --
  Common stock, $.001 par value; 35,000,000
    shares authorized, 11,136,167 and 12,549,667
    shares issued and outstanding                                    11          13
  Additional paid-in capital                                    121,841     127,537
  Retained earnings (deficit)                                     4,267      (2,129)
                                                              ---------   ---------
Total stockholders' equity                                      126,119     125,421
                                                              ---------   ---------
Total liabilities and stockholders' equity                    $ 207,625   $ 209,527
                                                              =========   =========
See accompanying notes.


</TABLE>
                                        1
<PAGE>

<TABLE>

                              Movie Gallery, Inc.

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


<CAPTION>
                                                     Thirteen weeks ended     Thirty-nine weeks ended
                                                    October 1,   October 3,   October 1,    October 3,
                                                       2000        1999          2000          1999
                                                    --------------------------------------------------

<S>                                                   <C>          <C>          <C>          <C>
Revenues:
  Rentals                                             $ 64,527     $ 59,056     $200,613     $174,353
  Product sales                                         10,823        8,686       33,575       28,519
                                                      --------     --------     --------     --------
                                                        75,350       67,742      234,188      202,872
Cost of sales:
  Cost of rental revenues                               20,065       18,423       60,123       51,953
  Cost of product sales                                  6,879        5,410       21,196       18,361
                                                      --------     --------     --------     --------
Gross margin                                            48,406       43,909      152,869      132,558

Operating costs and expenses:
  Store operating expenses                              38,375       34,997      114,483      101,070
  Amortization of intangibles                            1,674        1,793        5,740        5,951
  General and administrative                             6,464        5,477       19,038       15,512
                                                      --------     --------     --------     --------
Operating income                                         1,893        1,642       13,608       10,025

Interest expense, net                                     (942)        (744)      (2,767)      (2,424)
                                                      --------     --------     --------     --------
Income before income taxes, extraordinary item
  and cumulative effect of accounting change               951          898       10,841        7,601

Income taxes                                               390          352        4,445        3,014
                                                      --------     --------     --------     --------
Income before extraordinary item and
  cumulative effect of accounting change                   561          546        6,396        4,587
Extraordinary loss on early extinguishment of
  debt, net of tax                                        --           --           --           (682)
Cumulative effect of accounting change, net of tax        --           --           --           (699)
                                                      --------     --------     --------     --------
Net income                                            $    561     $    546     $  6,396     $  3,206
                                                      ========     ========     ========     ========
Basic and diluted earnings per share:
Income before extraordinary item and
  cumulative effect of accounting change              $    .05     $    .04     $    .55     $    .34
Extraordinary loss on early extinguishment of
  debt, net of tax                                        --           --           --           (.05)
Cumulative effect of accounting change, net of tax        --           --           --           (.05)
                                                      --------     --------     --------     --------
Net income                                            $    .05     $    .04     $    .55     $    .24
                                                      ========     ========     ========     ========

Weighted average shares outstanding:
  Basic                                                 11,136       13,127       11,578       13,213
  Diluted                                               11,186       13,515       11,608       13,582

See accompanying notes.



</TABLE>

                                  2
<PAGE>
<TABLE>

                              Movie Gallery, Inc.

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

<CAPTION>

                                                                    Thirty-nine weeks ended
                                                                    October 1,    October 3,
                                                                      2000           1999
                                                                    ------------------------

<S>                                                                   <C>           <C>
Operating activities
Net income                                                            $  6,396      $  3,206
Adjustments to reconcile net income to net cash
 provided by operating activities:
  Extraordinary loss on early extinguishment of debt, net of tax           --            682
  Cumulative effect of accounting change, net of tax                       --            699
  Depreciation and amortization                                         56,014        53,247
  Deferred income taxes                                                  2,012         1,302
Changes in operating assets and liabilities:
  Merchandise inventory                                                  6,489          (244)
  Other current assets                                                    (236)         (118)
  Deposits and other assets                                                 75        (1,072)
  Accounts payable                                                      (7,310)         (701)
  Accrued liabilities                                                   (2,650)       (1,062)
                                                                      --------      --------
Net cash provided by operating activities                               60,790        55,939

Investing activities
Business acquisitions                                                   (1,257)       (3,505)
Purchases of rental inventory, net                                     (44,149)      (38,577)
Purchases of property, furnishings and equipment                       (17,685)       (7,055)
                                                                      --------      --------
Net cash used in investing activities                                  (63,091)      (49,137)

Financing activities
Net proceeds from issuance of common stock                                 --             43
Purchases and retirement of common stock                                (5,698)       (2,100)
Proceeds from issuance of long-term debt                                 5,873          --
Principal payments on long-term debt                                      (204)       (6,915)
                                                                      --------      --------
Net cash used in financing activities                                      (29)       (8,972)
                                                                      --------      --------
Decrease in cash and cash equivalents                                   (2,330)       (2,170)
Cash and cash equivalents at beginning of period                         6,970         6,983
                                                                      --------      --------
Cash and cash equivalents at end of period                            $  4,640      $  4,813
                                                                      ========      ========

See accompanying notes.


</TABLE>


                                       3
<PAGE>





                               Movie Gallery, Inc.

             Notes to Consolidated Financial Statements (Unaudited)

                                 October 1, 2000

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  thirty-nine  week
period ended October 1, 2000 are not necessarily  indicative of the results that
may be expected  for the fiscal  year  ending  December  31,  2000.  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 2, 2000.

2.   Financing Obligations

On January 7, 1999, the Company entered into a Credit Agreement with First Union
National Bank of North Carolina with respect to a revolving credit facility (the
"Facility").  The Facility  provides  for  borrowings  of up to $65 million,  is
unsecured and will mature in its entirety on January 7, 2002.  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.

Concurrent  with the Facility,  the Company  amended its then existing  interest
rate swap to coincide  with the maturity of the Facility.  The amended  interest
rate swap agreement  effectively  fixes the Company's  interest rate exposure on
$37  million  of the  amount  outstanding  under  the  Facility  at 5.8% plus an
applicable  margin  percentage.  The  interest  rate  swap  reduces  the risk of
increases  in  interest  rates  during  the 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.

As a result of the Facility and the amended  interest rate swap  agreement,  the
Company recognized an extraordinary loss on the early  extinguishment of debt of
$682,000  (net of taxes of  $359,000),  or $0.05  per  share,  during  the first
quarter of 1999. The extraordinary  loss was comprised  primarily of unamortized
debt issue costs associated with the Company's  previous credit facility and the
negative value of the previous interest rate swap at January 7, 1999.


                                       4
<PAGE>

                              Movie Gallery, Inc.

       Notes to Consolidated Financial Statements (Unaudited) (continued)

3.   Earnings Per Share

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  (50,000 and 388,000 for the  thirteen  weeks ended  October 1, 2000 and
October 3, 1999,  respectively;  30,000 and  369,000 for the  thirty-nine  weeks
ended October 1, 2000 and October 3, 1999,  respectively).  No adjustments  were
made to net income in the computation of basic or diluted earnings per share.

4.   Cumulative Effect of a Change in Accounting Principle

In April 1998, the American  Institute of Certified  Public  Accountants  issued
Statement  of  Position   ("SOP")  98-5,   "Reporting   the  Costs  of  Start-Up
Activities," which requires that certain costs related to start-up activities be
expensed as incurred.  Prior to January 4, 1999, the Company capitalized certain
costs incurred in connection  with site selection for new video  specialty store
locations.  The  Company  adopted  the  provisions  of the SOP in its  financial
statements for the first quarter of 1999. The effect of the adoption of SOP 98-5
was to record a charge  for the  cumulative  effect of an  accounting  change of
$699,000  (net of taxes of  $368,000),  or  $0.05  per  share,  to  expense  the
unamortized costs that had been capitalized prior to January 4, 1999. The impact
of  adoption  on  income  from  continuing   operations  for  the  thirteen  and
thirty-nine weeks ended October 3, 1999 was not material.



                                       5
<PAGE>

                               Movie Gallery, Inc.

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


Results of Operations

The  following  table sets  forth,  for the  periods  indicated,  statements  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                  Thirty-nine weeks ended
                                                  ---------------------------------   -------------------------------------
                                                  October 1,  October 3,   Increase   October 1,   October 3,      Increase
                                                     2000       1999      (Decrease)     2000         1999        (Decrease)
                                                  ---------   ---------   ---------   ---------    ---------      ---------
<S>                                              <C>          <C>          <C>        <C>          <C>            <C>
Revenues:
  Rentals                                            85.6%        87.2%        (1.6)%      85.7%        85.9%          (0.2)%
  Product sales                                      14.4         12.8          1.6        14.3         14.1            0.2
                                                 --------     --------     --------   ---------    ---------      ---------
                                                    100.0        100.0         --         100.0        100.0           --
Cost of sales:
  Cost of rental revenues                            26.7         27.2         (0.5)       25.7         25.6            0.1
  Cost of product sales                               9.1          8.0          1.1         9.0          9.1           (0.1)
                                                 --------     --------     --------   ---------    ---------      ---------
Gross margin                                         64.2         64.8         (0.6)       65.3         65.3           --

Operating costs and expenses:
  Store operating expenses                           50.9         51.7         (0.8)       48.9         49.9           (1.0)
  Amortization of intangibles                         2.2          2.6         (0.4)        2.5          2.9           (0.4)
  General and administrative                          8.6          8.1          0.5         8.1          7.6            0.5
                                                 --------     --------     --------   ---------    ---------      ---------
Operating income                                      2.5          2.4          0.1         5.8          4.9            0.9

Interest expense, net                                (1.3)        (1.1)        (0.2)       (1.2)        (1.2)          --
                                                 --------     --------     --------   ---------    ---------      ---------
Income before income taxes, extraordinary
  item and cumulative effect of accounting
  change                                              1.2          1.3         (0.1)        4.6          3.7            0.9
Income taxes                                          0.5          0.5         --           1.9          1.5            0.4
                                                 --------     --------     --------   ---------    ---------      ---------
Income before extraordinary item and
  cumulative effect of accounting change              0.7          0.8         (0.1)        2.7          2.2            0.5
Extraordinary loss on early extinguishment
  of debt, net of tax                                --           --           --          --           (0.3)           0.3
Cumulative effect of accounting change,
  net of tax                                         --           --           --          --           (0.3)           0.3
                                                 --------     --------     --------   ---------    ---------      ---------
Net income                                            0.7%         0.8%        (0.1)%       2.7%         1.6%           1.1%
                                                 ========     ========     ========   =========    =========      =========

Adjusted EBITDA (in thousands)                   $  7,620     $  6,487     $  1,133   $  29,717    $  25,911      $   3,806
                                                 ========     ========     ========   =========    =========      =========

Cash earnings (in thousands)                     $  2,235     $  2,339     $   (104)  $  12,136    $  10,538      $   1,598
                                                 ========     ========     ========   =========    =========      =========

Number of stores open at end of period                976          906           70         976          906             70
                                                 ========     ========     ========   =========    =========      =========
</TABLE>

                                       6
<PAGE>


                               Movie Gallery, Inc.

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

Revenue.  For the thirteen  weeks and  thirty-nine  weeks ended October 1, 2000,
total revenues were $75.4 million and $234.2 million, respectively, increases of
11.2% and 15.4% over the comparable  periods in 1999. The revenue increases were
driven by an 11.0% increase in the average number of stores open for the year as
well as a 3.6%  increase in  same-store  revenues for the  year-to-date  period.
Same-store  revenues for the third quarter were  essentially  flat due to a poor
new release schedule and competition  with the Summer Olympics.  The increase in
year-to-date  same-store  revenues was the result of several positive factors in
the first and second quarters,  including (i) increased product availability for
the  customer;  (ii) a favorable new release  schedule in the second  quarter of
2000 versus the second quarter of 1999; (iii)  successful,  chain-wide  internal
marketing programs designed to generate more consumer  excitement and traffic in
the Company's base of stores; (iv) an increase in the sales of previously viewed
movies and previously  played games; and (v) increases in other ancillary sales.
The revenue  increase was partially  offset by a decline in new movie sales as a
result of fewer  titles  being  released  at  sell-through  price  points  and a
deemphasis on the sale of older sell-through titles in certain stores.

Cost of Sales.  Rental revenue costs as a percentage of rental  revenues for the
thirteen week period ended October 1, 2000 was 31.1%,  consistent with 31.2% for
the  comparable  1999  period,  and was 30.0% for the  thirty-nine  weeks  ended
October 1, 2000,  only a slight  increase from 29.8% in the prior year. The cost
of rental  revenues  includes  both the  amortization  of rental  inventory  and
revenue sharing expenses incurred by the Company.

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. The gross margin on product sales for the thirteen weeks
ended October 1, 2000 was 36.4%, a slight  decrease from 37.7% in the comparable
period of 1999. For the  year-to-date  period ended October 1, 2000, the product
sales  margin  increased  to 36.9% from 35.6% in 1999.  The overall  increase in
profitability  of  product  sales  for the year is  primarily  the  result of an
increase in  previously  viewed movie sales and a decrease in new movie sales as
discussed  above.   Previously  viewed  movies  carry  gross  margins  that  are
substantially  higher than the average gross margins for new movie sales and the
Company's  participation  in various copy depth  programs  provides  significant
resources to achieve larger levels of previously viewed movie inventory.

Operating  Costs and Expenses.  Store  operating  expenses  include  store-level
expenses such as lease payments and in-store payroll.  Store operating  expenses
as a  percentage  of revenues  were 50.9% and 48.9% for the  thirteen  weeks and
thirty-nine weeks ended October 1, 2000, respectively,  as compared to 51.7% and
49.9% in 1999.  The  decrease in store  operating  expenses as a  percentage  of
revenue  is  primarily  due  to  the  same-store   revenue   increases  for  the
year-to-date  period as well as the  centralization  of certain functions at the
general  and  administrative  level which have  resulted in store level  expense
savings.

Amortization  of  intangibles  as a percentage of total revenue for the thirteen
weeks  and  thirty-nine   weeks  ended  October  1,  2000  was  2.2%  and  2.5%,
respectively,  slight decreases from 2.6% and 2.9% for the comparable periods in
1999. This decrease is primarily due to the increase in revenue.

General and administrative expenses as a percentage of revenue increased to 8.6%
and 8.1%,  respectively,  for the third quarter and year-to-date periods of 2000
from 8.1% and 7.6% for the comparable periods in 1999. The increase is primarily
due to  increased  staffing  and  travel  costs  associated  with the  Company's
increased new store  development which began in the latter half of 1999, as well
as incremental  expenses from the operation of the Company's  e-commerce  effort
which was launched in September 1999.

As a result of the above factors,  operating  income  increased by 15.3% for the
third  quarter and 35.7%  year-to-date  in fiscal 2000 to $1.9 million and $13.6
million, respectively.


                                       7
<PAGE>

                               Movie Gallery, Inc.

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

Extraordinary  Loss.  During the first quarter of 1999, the Company  incurred an
extraordinary loss on the early extinguishment of debt of $682,000 (net of taxes
of $359,000), or $0.05 per share. The extraordinary loss was comprised primarily
of the write off of both the unamortized debt issue costs and the negative value
of an interest rate swap agreement in association with the  restructuring of the
Company's  debt  obligations  discussed  fully  in  Note  2  of  the  "Notes  to
Consolidated Financial Statements."

Cumulative  Effect  Accounting  Change.  Effective  January 4, 1999, the Company
adopted the provisions of the American Institute of Certified Public Accountants
Statement  of  Position   ("SOP")  98-5,   "Reporting   the  Costs  of  Start-up
Activities."  As a result,  the  Company  recorded a charge  for the  cumulative
effect of an accounting change of $699,000 (net of taxes of $368,000),  or $0.05
per share, to expense the unamortized portion of certain start-up costs that had
been  capitalized  prior to January 4,  1999,  discussed  fully in Note 4 of the
"Notes to Consolidated Financial Statements."

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  refurbishment,  remodeling and relocation of existing
stores,  as well as common stock  repurchases  within the past year. The Company
has funded inventory purchases,  remodeling and relocation  programs,  new store
opening costs,  acquisitions and stock repurchases primarily from cash flow from
operations,  the proceeds of two public equity offerings,  loans under revolving
credit facilities and seller financing.

During  the  thirty-nine  weeks  ended  October  1, 2000 the  Company  generated
approximately  $29.7  million in Adjusted  EBITDA,  a 14.7%  increase over $25.9
million for the comparable  period in 1999. The increase was primarily driven by
the operating earnings generated by a 15.4% increase in total revenue.  Adjusted
EBITDA  is  defined  as  earnings  before  interest,   taxes,  depreciation  and
amortization,  less the Company's  purchase of rental  inventory  which excludes
rental inventory purchases specifically for new store openings.  Adjusted EBITDA
should be considered in addition to, but not as a substitute for or superior to,
operating  income,  net  income,  cash  flow and  other  measures  of  financial
performance   prepared  in  accordance   with  generally   accepted   accounting
principles.

Cash earnings per diluted share for the thirty-nine  weeks ended October 1, 2000
increased  34.6%  to  $1.05  from  $0.78  in  the  comparable  period  of  1999.
Contributing  to this  increase was a 14.5% decline in weighted  average  shares
outstanding  as a result of share  repurchases.  Cash earnings is defined as net
income before  extraordinary  items,  cumulative effect  accounting  changes and
amortization of intangibles.  Cash earnings should be considered in addition to,
but not as a substitute for or superior to, operating income,  net income,  cash
flow and other  measures of financial  performance  prepared in accordance  with
generally accepted accounting principles.

Net cash provided by operating  activities was $60.8 million for the thirty-nine
weeks ended  October 1, 2000 as compared  to $55.9  million for the  thirty-nine
weeks ended  October 3, 1999.  The  increase in net cash  provided by  operating
activities was primarily the result of increased net income and depreciation, as
well as  decreased  levels of  merchandise  inventory  due to fewer titles being
released at sell-through price points and a deemphasis on the sale of new movies
in certain stores.  The increase was partially  offset by reductions in accounts
payable and accrued  liabilities.  Net cash  provided  by  operating  activities
continues to be sufficient to cover capital resource and debt service needs.

                                       8
<PAGE>


                              Movie Gallery, Inc.

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

Net cash used in  investing  activities  was $63.1  million for the  thirty-nine
weeks  ended  October 1, 2000 as compared  to $49.1  million for the  comparable
period  of 1999.  This  increase  in  funds  used for  investing  activities  is
primarily  the result of  increases  in capital  expenditures  related to rental
inventory  and  property,  furnishings  and  equipment  purchased to support the
Company's  increased  new store  development  plan.

Net cash used in  financing  activities  was $29,000 for the  thirty-nine  weeks
ended October 1, 2000 as compared to $9.0 million for the  comparable  period of
1999.  This  decrease  in funds used for  financing  activities  is due to a net
increase  in  long-term  debt  during  2000 to fund new store  growth  and stock
repurchases,  versus a decrease in long-term debt for the  comparable  period of
1999.

On January 7, 1999, the Company entered into a Credit Agreement with First Union
National Bank of North Carolina with respect to a revolving credit facility (the
"Facility").  The Facility  provides  for  borrowings  of up to $65 million,  is
unsecured and will mature in its entirety on January 7, 2002.  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.

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.  The Company opened 74  internally-developed  stores
during  the  first  three  quarters  of  2000  and  remains  on  target  to open
approximately  100 new  stores  during  the year.  The  Company  will  entertain
potential  acquisition  transactions;  however, the number of acquired stores in
2000 is expected to be less than the number of internally  developed  stores. 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.

During the first quarter of 2000, the Company completed its previously announced
$5  million  stock  repurchase  plan and  announced  a second $5  million  stock
repurchase plan which was completed in May 2000. During fiscal 2000, the Company
has  repurchased  1.4  million  shares for $5.7  million,  which has been funded
through cash flow from operations and borrowings under the Facility.

At October 1, 2000, the Company had a working  capital  deficit of $11.5 million
due to the accounting  treatment of its rental  inventory.  Rental  inventory is
treated as a noncurrent  asset under generally  accepted  accounting  principles
because  it is a  depreciable  asset  and 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 the remainder of fiscal year
2000,  including  its  anticipated  new store  openings  and a modest  potential
acquisition program. However, to fund a major 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.


                                       9
<PAGE>


                               Movie Gallery, Inc.

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

Other Matters

Supply  Contract.  During the third  quarter of 2000,  the  Company  made a $2.5
million  payment to a vendor pursuant to preliminary  negotiations  regarding an
agreement  that,  if  executed,  would  modify the terms of an  existing  supply
contract  with the  vendor.  The  Company  and the vendor have failed to reach a
final agreement on the terms of modification to the existing supply contract and
the Company has requested a refund of the $2.5 million  payment.  The vendor has
refused the Company's request for repayment, however, the Company believes it is
entitled  to a refund and has the right to offset  future  amounts due under the
existing supply contract with funds currently held by the vendor.

Forward  Looking  Statements.   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,  but are not  limited  to,  competitive  factors  and  weather
conditions   within  the  Company's   geographic   markets,   adequate   product
availability  from movie studios,  the Company's  ability to continue to expand,
including its ability to successfully execute its new store opening program, 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 2, 2000.


                                       10
<PAGE>



Item 3.   Quantitative and Qualitative Disclosures About Market Risks

      There have been no material changes in the Company's inherent market risks
since the disclosures  made as of January 2, 2000 in the Company's annual report
on Form 10-K.

                           Part II - Other Information

Item 6.   Exhibits and Reports on Form 8-K

          a) Exhibits

             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.
                                       --------------------------------------



Date:  November 15, 2000               /s/ J. Steven Roy
                                       --------------------------------------
                                       J. Steven Roy, Executive Vice President
                                       and Chief Financial Officer

                                       11