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 3, 1999

                                       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.)



                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 ____

The number of shares outstanding of the registrant's common stock as of November
11, 1999 was 12,883,265.




<PAGE>



                               Movie Gallery, Inc.

                                      Index



Part I.  Financial Information

Item 1.  Consolidated Financial Statements (Unaudited)

Consolidated Balance Sheets - October 3, 1999 and January 3, 1999......... ....1

Consolidated Statements of  Operations - Thirteen and thirty-nine weeks
ended October 3, 1999 and October 4, 1998......................................2

Consolidated Statements of Cash Flows - Thirty-nine weeks ended
October 3, 1999 and October 4, 1998............................................3

Notes to Consolidated Financial Statements - October 3, 1999.................. 4

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk...........12

Part II.  Other Information

Item 6.  Exhibits and Reports on Form 8-K.....................................12



<PAGE>



<TABLE>

                               Movie Gallery, Inc.

                           Consolidated Balance Sheets
                                 (in thousands)


<CAPTION>
                                                          October 3,  January 3,
                                                             1999        1999
                                                          ----------  ----------
                                                         (Unaudited)
<S>                                                      <C>          <C>
Assets
Current assets:
   Cash and cash equivalents                             $   4,813    $   6,983
   Merchandise inventory                                    12,338       11,824
   Prepaid expenses                                            943          779
   Store supplies and other                                  3,726        3,772
   Deferred income taxes                                        88          312
                                                         ---------    ---------
Total current assets                                        21,908       23,670

Rental inventory, net                                       48,084       44,998
Property, furnishings and equipment, net                    41,137       43,920
Goodwill and other intangibles, net                         80,428       85,743
Deposits and other assets                                    2,504        1,799
Deferred income taxes                                        1,888        2,239
                                                         ---------    ---------
Total assets                                             $ 195,949    $ 202,369
                                                         =========    =========


Liabilities and stockholders' equity
Current liabilities:
   Accounts payable                                      $  22,695    $  23,396
   Accrued liabilities                                       7,668        7,426
   Current portion of long-term debt                           260          442
                                                         ---------    ---------
Total current liabilities                                   30,623       31,264

Long-term debt                                              39,479       46,212
Other accrued liabilities                                      583          778

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, 12,941,915 and 13,315,915
       shares issued and outstanding                            13           13
   Additional paid-in capital                              129,191      131,248
   Retained earnings (deficit)                              (3,940)      (7,146)
                                                         ---------    ---------
Total stockholders' equity                                 125,264      124,115
                                                         ---------    ---------
Total liabilities and stockholders' equity               $ 195,949    $ 202,369
                                                         =========    =========

See accompanying notes.

</TABLE>

                                       1
<PAGE>


<TABLE>
                               Movie Gallery, Inc.

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



<CAPTION>
                                                           Thirteen weeks ended     Thirty-nine weeks ended
                                                           October 3, October 4,    October 3,    October 4,
                                                             1999       1998          1999          1998
                                                          ----------------------    ------------------------
<S>                                                       <C>          <C>          <C>           <C>
Revenues:
   Rentals                                                $  59,056    $  53,104    $ 174,353     $ 166,127
   Product sales                                              8,686       11,293       28,519        32,423
                                                          ---------    ---------    ---------     ---------
                                                             67,742       64,397      202,872       198,550
Cost of sales:
   Cost of rental revenues                                   18,423       60,089       51,953        97,932
   Cost of product sales                                      5,410        7,790       18,361        21,987
                                                          ---------    ---------    ---------     ---------
Gross margin                                                 43,909       (3,482)     132,558        78,631

Operating costs and expenses:
   Store operating expenses                                  34,997       33,167      101,070        98,111
   Amortization of intangibles                                1,793        1,741        5,951         5,235
   General and administrative                                 5,477        4,579       15,512        13,146
                                                          ---------    ---------    ---------     ---------
Operating income (loss)                                       1,642      (42,969)      10,025       (37,861)

Interest expense, net                                          (744)      (1,211)      (2,424)       (4,179)
                                                          ---------    ---------    ---------     ---------
Income (loss) before income taxes, extraordinary item
    and cumulative effect of accounting change                  898      (44,180)       7,601       (42,040)

Income taxes                                                    352      (16,134)       3,014       (15,321)
                                                          ---------    ---------    ---------     ---------
Income (loss) before extraordinary item and
  cumulative effect of accounting change                        546      (28,046)       4,587       (26,719)
Extraordinary loss on early extinguishment of debt             --           --           (682)         --
Cumulative effect of accounting change                         --           --           (699)         --
                                                          ---------    ---------    ---------     ---------
Net income (loss)                                         $     546    $ (28,046)   $   3,206     $ (26,719)
                                                          =========    =========    =========     =========

Basic and diluted earnings (loss) per share:
Income (loss) before extraordinary item and
  cumulative effect of accounting change                  $     .04    $   (2.09)   $     .34    $   (1.99)
Extraordinary loss on early extinguishment of debt             --           --           (.05)        --
Cumulative effect of accounting change                         --           --           (.05)        --
                                                          ---------    ---------    ---------    ---------
Net income (loss)                                         $     .04    $   (2.09)   $     .24    $   (1.99)
                                                          =========    =========    =========    =========
Weighted average shares outstanding:
   Basic                                                     13,127       13,424       13,213       13,421
   Diluted                                                   13,515       13,424       13,582       13,421

See accompanying notes.
</TABLE>

                                        2
<PAGE>

<TABLE>
                               Movie Gallery, Inc.

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


<CAPTION>
                                                         Thirty-nine weeks ended
                                                         October 3,   October 4,
                                                           1999         1998
                                                         -----------------------
<S>                                                      <C>          <C>
Operating activities
Net income (loss)                                        $   3,206    $ (26,719)
Adjustments to reconcile net income (loss) to net cash
 provided by operating activities:
   Extraordinary loss on early extinguishment of debt          682         --
   Cumulative effect of accounting change                      699         --
   Depreciation and amortization                            53,247      107,207
   Deferred income taxes                                     1,302      (15,321)
Changes in operating assets and liabilities:
   Merchandise inventory                                      (244)       2,502
   Other current assets                                       (118)        (803)
   Deposits and other assets                                (1,072)         (13)
   Accounts payable                                           (701)      (2,623)
   Accrued liabilities                                      (1,062)      (1,630)
                                                         ---------    ---------
Net cash provided by operating activities                   55,939       62,600

Investing activities
Business acquisitions                                       (3,505)        --
Purchases of rental inventory, net                         (38,577)     (44,702)
Purchases of property, furnishings and equipment            (7,055)      (4,162)
                                                         ---------    ---------
Net cash used in investing activities                      (49,137)     (48,864)

Financing activities
Net proceeds from issuance of common stock                      43           26
Purchases of treasury stock                                 (2,100)        (495)
Payments on notes payable                                     --           (200)
Principal payments on long-term debt                        (6,915)     (16,325)
                                                         ---------    ---------
Net cash used in financing activities                       (8,972)     (16,994)
                                                         ---------    ---------
Decrease in cash and cash equivalents                       (2,170)      (3,258)
Cash and cash equivalents at beginning of period             6,983        4,459
                                                         ---------    ---------
Cash and cash equivalents at end of period               $   4,813    $   1,201
                                                         =========    =========

See accompanying notes.
</TABLE>


                                      3
<PAGE>

                              Movie Gallery, Inc.


             Notes to Consolidated Financial Statements (Unaudited)

                                 October 3, 1999

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 3, 1999 are not necessarily  indicative of the results that
may be  expected  for the  fiscal  year  ending  January 2,  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 3, 1999.

Certain  reclassifications have been made to the prior year financial statements
to conform to the current  year  presentation.  These  reclassifications  had no
impact on stockholders'  equity or net income.  Amortization of rental inventory
and revenue  sharing  expenses  have been  combined and are presented as cost of
rental revenues on the statement of operations.

2.  Rental Inventory

Effective  July  6,  1998,   the  Company   changed  its  method  of  amortizing
videocassette and video game rental inventory.  This new method  accelerates the
rate of  amortization  and has been  adopted  as a result of an  industry  trend
towards  significant  increases in copy-depth  availability  from movie studios,
which have  resulted  in  earlier  satisfaction  of  consumer  demand,  thereby,
accelerating the rate of revenue recognition.  Under the new method, the cost of
base stock videocassettes, consisting of two copies per title for each store, is
amortized on an accelerated  basis to a net book value of $8 over six months and
to a $4 salvage value over the next thirty  months.  The cost of non-base  stock
videocassettes,  consisting of the third and succeeding copies of each title per
store, is amortized on an accelerated  basis over six months to a net book value
of $4 which is then amortized on a  straight-line  basis over the next 30 months
or until the  videocassette is sold, at which time the unamortized book value is
charged to cost of sales. Video games are amortized on a straight-line  basis to
a $10 salvage value over eighteen months.

The new method of amortization  has been applied to all rental inventory held at
July 6, 1998. The adoption of the new method of amortization  has been accounted
for as a change  in  accounting  estimate  effected  by a change  in  accounting
principle.  The  application of the new method of amortizing  videocassette  and
video  game  rental   inventory   decreased   rental   inventory  and  increased
depreciation  expense for the  quarter  ended  October 4, 1998 by  approximately
$43.6 million and increased the net loss and the loss per diluted share by $27.7
million and $2.06, respectively.

Prior to July 6, 1998,  videocassettes  and video  games  considered  to be base
stock were amortized over  thirty-six  months on a  straight-line  basis to a $5
salvage  value.  New release  videocassettes  and video games were  amortized as
follows:  (i) the fourth and any succeeding  copies of each title per store were
amortized on a straight-line  basis over six months to an average net book value
of $5 which was then  amortized  on a  straight-line  basis over the next thirty
months or until the  videocassette  or video  game was sold,  at which  time the
unamortized  book value was charged to cost of sales and (ii) copies one through
three of each title per store were amortized as base stock.


                                       4
<PAGE>


                               Movie Gallery, Inc.

       Notes to Consolidated Financial Statements (Unaudited) (continued)


3.  Financing Obligations

On January 7, 1999, the Company  entered into a new Credit  Agreement with First
Union  National  Bank of  North  Carolina  ("First  Union")  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 Company  may  increase  the amount of the  Facility to $85 million if
existing banks  increase their  commitments or if any new banks enter the Credit
Agreement.  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.  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  (388,000  and none for the  thirteen  weeks  ended  October 3, 1999 and
October 4, 1998, respectively;  369,000 and none for the thirty-nine weeks ended
October 3, 1999 and October 4, 1998, respectively).  No adjustments were made to
net income in the computation of basic or diluted earnings per share.

5.  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 Results of Operations
                            and Financial Condition


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 3,   October 4,   Increase    October 3,   October 4,   Increase
                                          1999         1998     (Decrease)     1999         1998      (Decrease)
                                       ---------    ---------    --------    ---------    ---------    --------
<S>                                     <C>          <C>          <C>        <C>          <C>           <C>
Revenues:
   Rentals                                  87.2%        82.5%       4.7%         85.9%        83.7%       2.2%
   Product sales                            12.8         17.5       (4.7)         14.1         16.3       (2.2)
                                        --------     --------     ------     ---------    ---------     ------
                                           100.0        100.0         --         100.0        100.0         --
Cost of sales:
   Cost of rental revenues:
      Recurring                             27.2         25.6        1.6          25.6         27.3       (1.7)
      Policy change                           --         67.7      (67.7)           --         22.0      (22.0)
   Cost of product sales                     8.0         12.1       (4.1)          9.1         11.1       (2.0)
                                        --------     --------     ------     ---------    ---------     ------
Gross margin                                64.8         (5.4)      70.2          65.3         39.6       25.7

Operating costs and expenses:
   Store operating expenses                 51.7         51.5        0.2          49.9         49.5        0.4
   Amortization of intangibles               2.6          2.7       (0.1)          2.9          2.6        0.3
   General and administrative                8.1          7.1        1.0           7.6          6.6        1.0
                                        --------     --------     ------     ---------    ---------     ------
Operating income  (loss)                     2.4        (66.7)      69.1           4.9        (19.1)      24.0

Interest expense, net                       (1.1)        (1.9)       0.8          (1.2)        (2.1)       0.9
                                        --------     --------     ------     ---------    ---------     ------
Income (loss) before income taxes,
  extraordinary item and cumulative
  effect of accounting change                1.3        (68.6)      69.9           3.7        (21.2)      24.9

Income taxes                                 0.5        (25.0)      25.5           1.5         (7.7)       9.2
                                        --------     --------     ------     ---------    ---------     ------
Income (loss) before extraordinary
  item and cumulative effect of
  accounting change                          0.8        (43.6)      44.4           2.2        (13.5)      15.7
Extraordinary loss on early
  extinguishment of debt                      --           --         --          (0.3)          --       (0.3)
Cumulative effect of accounting
  change                                      --           --         --          (0.3)          --       (0.3)
                                        --------     --------     ------     ---------    ---------     ------
Net income (loss)                            0.8%       (43.6)%     44.4%          1.6%       (13.5)%     15.1%
                                        ========     ========     ======     =========    =========     ======

Adjusted EBITDA (in thousands)          $  6,487     $  5,979     $  508     $  25,911    $  25,376     $  535
                                        ========     ========     ======     =========    =========     ======

Number of stores open at
   end of period                             906          834         72           906          834         72
                                        ========     ========     ======     =========    =========     ======
</TABLE>


                                        6
<PAGE>

                               Movie Gallery, Inc.

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

For the  thirteen  weeks and  thirty-nine  weeks  ended  October 3, 1999,  total
revenues were $67.7 million and $202.9 million, respectively,  increases of 5.2%
and 2.2% over the comparable periods in 1998.  Revenues for the third quarter of
1999 were driven by an approximate 7% increase in same-store  revenues.  Overall
same-store revenues for the third quarter of 1999 increased approximately 1% due
to the rental revenue  growth,  offset  partially by a decrease in product sales
revenue.  For the fiscal year-to-date  period,  same-store revenues increased by
approximately 1%. The increase in same-store  revenues for the third quarter and
year-to-date  period of 1999 was the result of (i) an  increase in the number of
copies of new release  videocassettes  available to customers as a result of the
Company's  continuing  focus  on the use of  copy-depth  initiatives,  including
revenue sharing  programs and other depth of copy programs  available from movie
studios;  (ii) an increase in the game rental  business  due to both  increasing
consumer  acceptance of the Nintendo 64 and Sony  Playstation game platforms and
an increase  in the number of game titles  available  for these  platforms;  and
(iii) chain-wide  internal marketing programs designed to generate more consumer
excitement and traffic in the Company's base of stores.  The decrease in product
sales for the third quarter of 1999 as compared to the third quarter of 1998 was
primarily  due to the  release of "Titanic" in the third quarter of 1998,  which
generated  significant  sales,  and a decrease  in titles  released  directly to
sell-through by movie studios in 1999, offset in part by increases in previously
viewed movie sales in 1999.

Effective July 6, 1998, the Company changed its  amortization  policy for rental
inventory.  The change resulted in a nonrecurring,  non-cash,  pre-tax charge of
approximately  $43.6 million in the third quarter of 1998. The major impetus for
the change in amortization  policy is the changing  purchasing  economics within
the  industry,  which have  resulted  in a  significant  increase in new release
videos  available  for  rental.  While  revenue  sharing  agreements  and  other
copy-depth initiatives have increased customer satisfaction and driven increased
rental revenue,  the overall demand for each new release is satisfied sooner. In
order to match more accurately the valuation of tape inventory with  accelerated
consumer  demand,  the Company has  changed its  amortization  policy for rental
inventory  as  described  in  Note 2 of the  "Notes  to  Consolidated  Financial
Statements."

The  cost  of  rental  revenues  as a  percentage  of  rental  revenues  for the
thirty-nine  week period ended October 3, 1999 was 29.8%,  a decrease from 32.7%
in the prior year,  excluding the  nonrecurring  charge related to the change in
amortization  policy.  The third  quarter 1999 rental cost  percentage  of 31.2%
represents  essentially no change from the prior year's third quarter.  The cost
of rental  revenues  includes  both the  amortization  of rental  inventory  and
revenue sharing  expenses  incurred by the Company.  The decreases are primarily
due to the Company's  change in amortization  policy during the third quarter of
1998, the Company's  reduced per unit costs of acquiring  rental product through
the various copy-depth programs available from the movie studios, as well as the
more efficient allocation of product to our store base.

Product  sales costs as a percentage  of product sales for the thirteen week and
thirty-nine   week  periods   ended  October  3,  1999  were  62.3%  and  64.4%,
respectively,  compared to 69.0% and 67.8% for the  comparable  periods in 1998.
The increased gross margin from product sales is primarily due to the low profit
margins  associated  with the sale of "Titanic" in the third quarter of 1998, an
increase  in  previously  viewed  movie  sales and a decrease in new movie sales
during 1999. Previously viewed movies carry gross margins that are substantially
higher than the average gross margins for new movie sales.

As a result of the improved  margins on both rental  revenues and product sales,
total gross profit  margins for the thirteen week and  thirty-nine  week periods
ended October 3, 1999 increased to 64.8% and 65.3%, respectively, from 62.3% and
61.6% for the comparable periods in 1998,  excluding the impact of the change in
amortization policy for videocassette inventory mentioned above.

                                        7
<PAGE>

                               Movie Gallery, Inc.

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

Store operating expenses as a percentage of revenues was 51.7% and 49.9% for the
thirteen weeks and  thirty-nine  weeks ended October 3, 1999,  respectively,  as
compared to 51.5% and 49.5% in 1998. The slight  increase in operating  expenses
in the third  quarter of 1999  versus 1998  relates  mostly to the fact that the
stores  acquired from Blowout  Entertainment,  Inc.  ("Blowout")  operate with a
higher  percentage of salaries and wages as a percentage of total  revenues than
the Company's  other stores.  The Blowout stores  generate less average  revenue
than the Company's  overall  average revenue level.  Also, for the  year-to-date
period,  the Company  incurred some incremental  training and other  operational
expenses during the integration of the Blowout acquisition.

Amortization  of  intangibles  as a percentage of total revenue for the thirteen
weeks  and  thirty-nine   weeks  ended  October  3,  1999  was  2.6%  and  2.9%,
respectively.  For the third quarter of 1999,  this percentage was slightly less
than the prior year quarter of 2.7%.  However,  for the  year-to-date  period of
1999,  intangibles  amortization  as a percentage of total revenue  increased to
2.9% of  revenue  from 2.6% for the  comparable  period in 1998.  The  increased
year-to-date  amortization  of intangibles was primarily the result of the write
off of certain  intangible  assets as a part of the Company's  ongoing review of
its  intangible  assets for  impairment,  as prescribed by Financial  Accounting
Standards Board Statement No. 121,  "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of."

General and administrative expenses as a percentage of revenue increased to 8.1%
and 7.6%,  respectively,  for the third quarter and year-to-date periods of 1999
from  7.1%  and 6.6% for the  comparable  periods  in  1998.  The  increase  was
primarily the result of increased  staffing and travel costs associated with the
Company's  ramp  up in new  store  development,  as well  as  expense  increases
resulting from the acquisition of stores from Blowout in May of 1999.

Net  interest  expense as a percentage  of revenues  decreased to 1.1% and 1.2%,
respectively,  for the third quarter and year-to-date period of fiscal 1999 from
1.9% and 2.1% for the  comparable  periods  in 1998.  These  decreases  were due
primarily to reductions in total debt outstanding from 1998 to 1999.

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 below in "Liquidity and Capital Resources."

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 5 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.  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.

                                       8
<PAGE>

                              Movie Gallery, Inc.

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


During  the  thirty-nine  weeks  ended  October  3, 1999 the  Company  generated
approximately  $25.9  million  in  Adjusted  EBITDA,  a 2.1%  increase  over the
comparable period in 1998. "Adjusted EBITDA" is 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 for the third quarter and year-to-date period in 1999 totaled $2.3
million,  or $0.17 per diluted share,  and $10.5  million,  or $0.78 per diluted
share,  respectively.  This was a 70%  increase  for both time periods over 1998
cash  earnings  performance.  Cash  earnings  is defined  as net  income  before
amortization of intangibles.

Net cash provided by operating  activities was $55.9 million for the thirty-nine
weeks ended  October 3, 1999 as compared  to $62.6  million for the  thirty-nine
weeks ended  October 4, 1998.  The  decrease in net cash  provided by  operating
activities  was primarily the result of a change in mix of rental  product costs
that are capitalized and amortized  versus directly  expensed as variable rental
product  costs.  In 1999,  the Company has expensed more rental product costs as
variable  rental  product cost than in 1998,  which has resulted in less overall
depreciation and  amortization  within the operating  activities  section of the
cash flow statement.  A corresponding decrease in net rental inventory purchases
in the investing  activities section of the cash flow statement offsets in large
part the difference in total  depreciation and  amortization.  The other primary
reason for the decrease in net cash provided by operating  activities is the net
increase in merchandise  inventory in 1999 of $0.2 million versus a net decrease
in merchandise inventory in 1998 of $2.5 million. Net cash provided by operating
activities continues to be sufficient to cover capital resource and debt service
needs.

Net cash used in investing  activities  was $49.1  million for the  year-to-date
period of fiscal 1999 as compared to $48.9 million for the comparable  period of
1998. The overall slight increase in funds used for investing  activities is the
result  of the  Company's  acquisition  activity  during  the  year,  as well as
increases in capital expenditures related to property, furnishings and equipment
in 1999 versus 1998,  offset in large part by an overall  decrease in net rental
inventory purchases in 1999 versus 1998, as mentioned above.

Net cash used in  financing  activities  was $9.0  million for the  year-to-date
period of 1999 as compared to $17.0 million for the  comparable  period of 1998.
The decrease in net cash used in financing  activities relates primarily to less
paydowns of long-term debt in 1999 versus 1998, offset in part by an increase in
the amount of cash used by the  Company to  repurchase  its common  stock on the
open market.

On January 7, 1999, the Company  entered into a new 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
Company may increase the amount of the Facility to $85 million if existing banks
increase their commitments or if any new banks enter the Credit  Agreement.  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 plans to grow its store base by over 100
units per year,  beginning  in the year 2000.  This unit growth is planned to be
accomplished  both  through  opening  internally  developed  stores  and  making
selective,  accretive and strategically consistent acquisitions, if available to
the Company on reasonable  terms. To the extent available,  future  acquisitions
may be completed using funds available under the Facility, financing provided by


                                        9
<PAGE>
                              Movie Gallery, Inc.

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


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 October 3, 1999, the Company had a working  capital  deficit of $8.7 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 1999
and the fiscal year 2000, including its anticipated new store openings. However,
if the Company  increases its growth plan, 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,
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.

Other Matters

The   Company   launched   an   e-commerce   sales  and   information   site  at
www.moviegallery.com during September of this year. The site primarily sells new
videocassette and DVD movies, previously viewed movies and games to its customer
base.  The Company  anticipates  early  stage  losses  related to this  venture.
However,  the Company does not  currently  believe that these losses will exceed
$800,000 during 1999.

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, including its point-of-sale
system. While the Company has actively replaced or modified certain software and
hardware so that they will properly  function on January 1, 2000 and thereafter,
the costs  associated with these  modifications  or  replacements  have not been
material  to the  Company  nor does the  Company  believe  these  costs  will be
material in the future.

The Company is  currently  not aware of any major  vendor  that is not  actively
managing the process of being year 2000  compliant  by December 31, 1999.  Thus,
the Company  does not believe  that there are any vendors with a year 2000 issue
that would  materially  impact the results of operations or the liquidity of the
Company.  However,  the Company has no means of ensuring  that  vendors  will be
adequately prepared for the year 2000.

The Company is developing  contingency plans in the event it experiences  system
failure  related to the year 2000.  The Company  plans to evaluate the status of
year 2000 compliance throughout 1999 to determine whether such contingency plans
are  adequate,  although  at this  time  the  Company  knows  of no  reason  its
modifications  and  replacements of operating  systems will not be effective and
completed in a timely manner.



                                       10
<PAGE>

                              Movie Gallery, Inc.

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


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 movie studios,  the Company's 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 3, 1999.



                                       11
<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 3, 1999 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.
                                        ---------------------------------------
                                                     (Registrant)



Date: November 16, 1999                 /s/ J. Steven Roy
                                        ---------------------------------------
                                        J. Steven Roy, Executive Vice President
                                        and Chief Financial Officer





                                       12