<PAGE>
 
                      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 February 1, 1998

                                       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: 0-21943
                                    ______

                               FOUR MEDIA COMPANY
             (Exact name of Registrant as specified in its charter)

          DELAWARE                                       95-4599440
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                       Identification No.)

                  2813 WEST ALAMEDA AVENUE, BURBANK, CA 91505
              (Address of principal executive offices)  (Zip code)

                                  818-840-7000
              (Registrant's telephone number including area code)
                                    ______

                                 Not applicable
  (Former name, former address, and former fiscal year, if changed since last
                                    report)

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

                            Yes    X      No 
                                  ----        ----    

             APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

     Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

                                Yes ____ No ____

                   APPLICABLE ONLY TO CORPORATE REGISTRANTS:

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.  9,552,502 shares of
Common Stock, $.01 par value, as of March 9, 1998
<PAGE>
 
                               FOUR MEDIA COMPANY
                                     Index

                         PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
                                                                                Page
                                                                               Number
                                                                               ------
<S>          <C>                                                               <C>
 Item 1.     Financial Statements                 

             Consolidated Balance Sheets as of August 3, 1997
             and February 1, 1998...........................................        4
 
             Consolidated Statements of Operations for the
             Six Months Ended February 2, 1997 and February 1, 1998 and the
             Three Months Ended February 2, 1997 and February 1, 1998.......        5
 
             Consolidated Statements of Cash Flows for the
             Six Months Ended February 2, 1997 and February 1, 1998 and the
             Three Months Ended February 2, 1997 and February 1, 1998.......        6
 
             Notes to Consolidated Financial Statements.....................        7
 
Item 2.      Management's Discussion and Analysis of Financial Condition and
             Results of Operations
 
             Overview.......................................................       10
 
             Three Months Ended February 1, 1998 Compared to
             Three Months Ended February 2, 1997............................       12
 
             Six Months Ended February 1, 1998 Compared to
             Six Months Ended February 2, 1997..............................       13
 
             Liquidity and Capital Resources................................       15

                          PART II - OTHER INFORMATION
 
Item 1.         Legal Proceedings..................................   16
Item 2.         Changes in Securities..............................   16
Item 3.         Defaults Upon Senior Securities....................   16
Item 4.         Submission of Matters to a Vote of Security Holders   16
Item 5.         Other Information..................................   16
Item 6.         Exhibits and Reports on Form 8-K...................   16
Signatures      ...................................................   17
</TABLE>

                                       2
<PAGE>
 
                         PART I - FINANCIAL INFORMATION


                                    ITEM 1.
                              FINANCIAL STATEMENTS

                                       3
<PAGE>
 
                               FOUR MEDIA COMPANY
                          CONSOLIDATED BALANCE SHEETS
                       (In thousands, except share data)
<TABLE>
<CAPTION>
                                            AUGUST 3,    FEBRUARY 1,
                                              1997          1998
                                           ----------   ------------
<S>                                        <C>          <C>
                      ASSETS
Current assets:
 Cash...................................    $  6,089       $    727
 Restricted cash........................         680            581
 Trade accounts receivable, net of            
  allowance for doubtful accounts of
  $1,873 and $996 as of August 3, 1997
  and February 1, 1998, respectively....      18,755         25,466 
 Inventory..............................         952          1,181
 Prepaid expenses and other current            3,219          3,003
  assets................................    --------       --------
 Total current assets...................      29,695         30,958
 
Property, plant and equipment, net......      93,672        109,314
Deferred taxes..........................       2,000          2,000
Long-term receivable....................       4,067          2,972
Other assets............................       2,803          2,951
                                            --------       --------
 Total assets...........................    $132,237       $148,195
                                            ========       ========
 
  LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Current maturities of long-term debt       
  and capital lease obligations.........    $ 10,559       $ 13,826 
 Accounts payable.......................      11,080          9,793
 Accrued and other liabilities..........       6,227          3,614
                                            --------       --------
 Total current liabilities..............      27,866         27,233
Long-term debt and capital lease              54,633         71,267
 obligations............................    --------       --------
 Total liabilities......................      82,499         98,500
 
Commitments and contingencies
 
Stockholders' equity:
  Preferred stock, $.01 par value;           
   5,000,000 shares authorized, no
   shares issued and outstanding........          --             -- 
   Common stock, $.01 par value;             
    50,000,000 shares authorized,
    9,552,502 shares issued and
    outstanding as of August 3, 1997
    and February 1, 1998................          96             96 
 Additional paid-in capital.............      41,650         41,650
 Foreign currency translation adjustment        (269)        (1,230)
 Retained earnings......................       8,261          9,179
                                            --------       --------
 Total stockholders' equity.............      49,738         49,695
                                            --------       --------
 Total liabilities and stockholders'        $132,237       $148,195
  equity................................    ========       ========
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       4
<PAGE>
 
                               FOUR MEDIA COMPANY
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (In thousands, except per share data)
<TABLE>
<CAPTION>
 
 
                                               SIX MONTHS ENDED                THREE MONTHS ENDED
                                           ------------------------------------------------------------
                                            FEBRUARY 2,    FEBRUARY 1,   FEBRUARY 2,       FEBRUARY 1,
                                               1997          1998           1997              1998
                                           ------------   -----------   ------------   ----------------
<S>                                        <C>            <C>           <C>            <C>
Revenues:
 Studio.................................       $11,404        $16,607       $ 5,447           $ 8,478    
 Broadcast..............................        11,575         11,084         6,063             5,502    
 Television.............................        14,063         25,422         6,979            12,768    
 Film...................................           984          2,802           590             1,901    
                                               -------        -------       -------           -------    
 Total revenues.........................        38,025         55,915        19,078            28,649    
                                               -------        -------       -------           -------    
Cost of services:                                                                                        
 Personnel..............................        14,101         22,274         7,322            11,117    
 Material...............................         3,394          4,579         1,541             2,325    
 Facilities.............................         2,612          2,882         1,284             1,466    
 Other..................................         4,034          6,653         2,289             3,740    
                                               -------        -------       -------           -------    
 Total cost of services.................        24,141         36,388        12,436            18,648    
                                               -------        -------       -------           -------    
 Gross profit...........................        13,884         19,527         6,642            10,001    
                                               -------        -------       -------           -------    
Operating expenses:                                                                                      
 Sales, general and administrative......         6,126          7,749         3,017             3,812    
 Depreciation and amortization..........         5,617          7,983         2,822             3,967    
                                               -------        -------       -------           -------    
 Total operating expenses...............        11,743         15,732         5,839             7,779    
                                               -------        -------       -------           -------    
  Income from operations................         2,141          3,795           803             2,222    
Interest expense, net...................         2,412          2,877         1,198             1,529    
                                               -------        -------       -------           -------    
  Income (loss) before income tax.......          (271)           918          (395)              693    
Provision for income tax................            --             --            --                --    
                                               -------        -------       -------           -------    
  Net income (loss).....................       $  (271)       $   918       $  (395)          $   693    
                                               =======        =======       =======           =======    
Earnings per common share...............       $  (.04)       $  0.10       $  (.06)          $  0.07    
                                               =======        =======       =======           =======    
Earnings per common share - assuming           $  (.04)       $  0.09       $  (.06)          $  0.07    
 dilution...............................       =======        =======       =======           =======     
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.

                                       5
<PAGE>
 
                               FOUR MEDIA COMPANY
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                SIX MONTHS ENDED             THREE MONTHS ENDED
                                           ---------------------------------------------------------
                                            FEBRUARY 2,    FEBRUARY 1,    FEBRUARY 2,    FEBRUARY 1,
                                               1997           1998           1997           1998
                                           ------------   ------------   ------------   ------------
<S>                                        <C>            <C>            <C>            <C>
Cash flows from operating activities:
  Net income (loss).....................      $   (271)      $    918       $   (395)      $    693
 Adjustments to reconcile net income to
  net cash provided by operating
  activities:
  Depreciation and amortization.........         5,617          7,983          2,822          3,967
  Provision for doubtful accounts.......           199            219            102             78
 Changes in operating assets and
  liabilities:
  (Increase) in trade and long term                                                                  
   receivables..........................        (6,848)        (5,981)        (1,881)          (677) 
  (Increase) decrease in inventory......            24           (232)           (97)          (154)
  (Increase) decrease in prepaid                                                                    
   expenses and other assets............          (831)          (210)            58          1,026 
  Increase (decrease) in accounts                                                                   
   payable..............................         1,960         (1,287)        (1,241)           143 
  Increase (decrease) in accrued and                                                                  
   other liabilities....................         1,017         (2,540)           703         (3,514)  
   Net cash provided by (used in)             --------       --------       --------       -------- 
    operating activities................           867         (1,130)            71          1,562 
Cash flows from investing activities:
  Purchases of property, plant and                                                                  
   equipment ...........................       (23,632)       (16,111)       (14,879)       (11,327)
   Net cash used in investing                 --------       --------       --------       -------- 
    activities..........................       (23,632)       (16,111)       (14,879)       (11,327)
Cash flows from financing activities:
  Proceeds from term loans..............        24,400          8,100          8,400          8,100
  Proceeds from revolving credit                                                                    
   facility.............................         5,111          3,928          3,531            600 
  Proceeds from equipment notes.........         4,250          5,599            867          3,800
  Repayment of equipment notes and                                                                  
   capital lease obligations............       (13,862)        (5,321)        (1,034)        (2,709)
   Net cash provided by financing             --------       --------       --------       -------- 
    activities..........................        19,899         12,306         11,764          9,791 
Effect of exchange rate changes on cash.          (167)          (427)          (167)          (178)
                                              --------       --------       --------       --------
Net increase (decrease) in cash.........        (3,033)        (5,362)        (3,211)          (152)
Cash at beginning of period.............         5,312          6,089          5,490            879
                                              --------       --------       --------       --------
Cash at end of period...................      $  2,279       $    727       $  2,279       $    727
                                              ========       ========       ========       ========
Supplemental disclosure of cash flow
 information:
 Cash paid during the period for:
  Interest  ............................      $  1,539       $  2,877       $    542       $  1,529
 Non cash investing and financing
  activities:
  Capital lease obligations incurred  .       $  5,704       $  9,050       $     --       $     --
 
</TABLE>
  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       6
<PAGE>
 
                              FOUR MEDIA COMPANY
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1.   BUSINESS, ORGANIZATION AND BASIS OF PRESENTATION

     Business.  Four Media Company (the "Company") is a provider of technical
and creative services to owners, producers and distributors of television
programming, feature films and other entertainment content. The Company's
services integrate and apply a variety of systems and processes to enhance the
creation and distribution of entertainment content.

     While the Company believes that it operates in one business segment, which
is providing services to the entertainment industry, the Company has organized
its activities into four divisions: studio, broadcast, television and film. The
studio division, located in Burbank and Universal City, California, manages,
formats and distributes content worldwide. The broadcast division, located in
Burbank and the Republic of Singapore, assembles and distributes television
networks and programming via satellite to viewers in the United States, Canada
and Asia. The television division, located in Burbank, Universal City and Santa
Monica, California, assembles film or video principal photography into a form
suitable for network, syndicated, cable or foreign television. The film
division, located in Santa Monica, digitally creates and manipulates images in
high-resolution formats for use in feature films.

     Organization.  On February 7, 1997, the Company completed an initial public
offering of 5,000,000 shares of Common Stock, of which 3,077,502 shares were
sold by the Company and 1,922,498 shares were sold by TSP (defined below), as
the selling stockholder. The offering generated approximately $26.7 million of
proceeds to the Company, net of underwriting discounts and related expenses.

     On March 10, 1997, AV Acquisition Corp., a wholly owned subsidiary of the
Company, acquired substantially all of the assets of Anderson Film Industries
Corp and Anderson Graphics, LLC. (collectively, "Anderson").  The acquisition
was accounted for under the purchase method of accounting.  The purchase price
was allocated at a fair value to current assets of $1.8 million and property,
plant and equipment of $8.7 million.  The total transaction cost was $10.5
million, comprised of $7.7 million in payments to secured and unsecured
creditors, $.9 million in assumed capital lease obligations and $1.9 million in
transaction costs. Subsequent to this transaction, AV Acquisition Corp. changed
its name to Anderson Video Company ("AVC").

     In August, 1997, the Company's wholly owned subsidiary Dignet Acquisition
Corp. d/b/a Company 3 ("Co3") began operations providing technical and creative
services to the television advertising production segment of the entertainment
industry.

     Basis of Presentation.   The accompanying consolidated financial statements
of Four Media Company and its subsidiaries for the six and three month periods
ended February 2, 1997 and February 1, 1998 have been prepared in accordance
with generally accepted accounting principles and with the instructions to Form
10-Q and Article 10 of Regulation S-X.  These financial statements have not been
audited by independent accountants, but include all adjustments (consisting of
normal recurring adjustments) which are, in management's opinion, necessary for
a fair presentation of the financial condition, results of operations and cash
flows 

                                       7
<PAGE>
 
for such periods. However, these results are not necessarily indicative of
results for any other interim period or for the full year. The August 3, 1997
balance sheet is derived from audited financial statements included in the
Company's Form 10-K.

     Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
omitted pursuant to requirements of the Securities and Exchange Commission.
Management believes that the disclosures included in the accompanying interim
financial statements and footnotes are adequate to make the information not
misleading, but should be read in conjunction with the consolidated financial
statements and notes thereto included in the Form 10-K dated August 3, 1997.

     The accompanying financial statements for the three and six months ended
February 2, 1997 and February 1, 1998 are presented on a consolidated basis and
include the accounts of Four Media Company and its wholly owned subsidiaries
4MC-Burbank, Inc., Digital Magic Company, Four Media Company Asia PTE Ltd., AVC
and Co3.  All material inter-company accounts and transactions have been
eliminated in consolidation.


2.  EARNINGS PER SHARE

     Effective with the period ended February 1, 1998, the Company adopted the
earnings per share calculation and disclosure requirements of Financial
Accounting Standards Statement 128.  The tables below demonstrate the earnings
per share calculations for the periods presented (in thousands except per share
data):

<TABLE>
<CAPTION>
                                                       SIX MONTHS ENDED                               SIX MONTHS ENDED
                                                       FEBRUARY 1, 1998                               FEBRUARY 2, 1997
                                      --------------------------------------------------------------------------------------------
                                        Income         Shares          Per Share        Income         Shares       Per Share
                                      (Numerator)   (Denominator)       Amount        (Numerator)   (Denominator)     Amount
                                      -------------------------------------------------------------------------------------------- 
<S>                                     <C>           <C>                   <C>          <C>           <C>               <C>
Net income(loss)...............          $918               -                            ($271)              -   
Basic EPS......................           918           9,553              $0.10          (271)          6,475         ($0.04)
                                                                       =========                                    =========
Effects of Dilutive Securities:                                                                                 
Options........................             -             630                                -               -   
                                         ----          ------                            -----           -----   
Diluted EPS....................          $918          10,183              $0.09         ($271)          6,475         ($0.04)
                                         ====          ======          =========         =====           =====      =========
                                                                                    
Options omitted................                           700                                              715
                                                       ======                                            =====
 
<CAPTION>  
                                                      THREE MONTHS ENDED                               THREE MONTHS ENDED
                                                       FEBRUARY 1, 1998                                 FEBRUARY 2, 1997
                                     ----------------------------------------------------------------------------------------------
                                        Income          Shares        Per Share         Income         Shares       Per Share
                                     (Numerator)    (Denominator)      Amount         (Numerator)   (Denominator)    Amount
                                     ----------------------------------------------------------------------------------------------
<S>                                     <C>           <C>                   <C>          <C>           <C>               <C>
Net income (loss)..............          $693                -                           ($395)              -   
Basic EPS......................           693            9,553            $0.07           (395)          6,475         ($0.06)
                                                                      =========                                     =========
Effects of Dilutive Securities:                                                                                
Options........................             -              643                               -               -   
                                         ----           ------                           -----           -----   
Diluted EPS....................          $693           10,196            $0.07          ($395)          6,475         ($0.06)
                                         ====           ======        =========          =====           =====      =========
                                                                                                               
Options omitted................                            885                                             715   
                                                        ======                                           =====   
</TABLE>

                                       8
<PAGE>
 
     Options were omitted in 1997 because they would be anti-dilutive.  Certain
options were omitted in 1998 because the exercise prices (either $9 or $10)
exceeded the average price during the periods.


3.  SUBSEQUENT EVENTS

     On February 2, 1998, the Company acquired all the outstanding shares of
capital stock of Visualize, a California corporation d/b/a Pacific Ocean Post
("POP").  The purchase price of the shares was $27,140,000, of which $24,000,000
was paid in cash, and $3,140,000 is represented by promissory notes.  Additional
consideration contingent on and related to the amounts of tax refunds or tax
savings may become due upon realization of such benefits.  Substantially all of
the cash was provided by 4MC's new $200,000,000 credit facility.  In addition,
the Company incurred approximately $3,000,000 in loan fees (on the entire credit
facility) and other costs associated with this acquisition.

     The acquisition is accounted for using the purchase accounting method and,
accordingly, the purchase price will be allocated to the assets acquired and
liabilities assumed based on the fair market value of such assets and
liabilities at the date of acquisition.

     The following unaudited pro forma summary combines the consolidated results
of operations of the Company and POP as if the acquisition had occurred at the
beginning of fiscal 1997 and 1998 after giving effect to certain adjustments,
including amortization of goodwill, revised depreciation based on estimated fair
market values, utilization of net operating losses, and revised interest expense
based on the terms of the acquisition debt.  The pro forma summary does not
necessarily reflect the results of operations as they would have been if the
Company and POP had constituted a single entity during such periods (in
thousands):
<TABLE>
<CAPTION>
 
                                             YEAR ENDED     SIX MONTHS ENDED
                                           AUGUST 3, 1997   FEBRUARY 1, 1998
                                           --------------   ----------------
<S>                                        <C>              <C>
Revenues................................         $122,559            $74,533
Net income..............................            3,971                 48
Earnings per common share...............         $    .50            $   .01
Earnings per common share - assuming                                         
 dilution...............................         $    .46            $   .00 
</TABLE>

     On February 27, 1998, the Company entered into a financing agreement
representing $200 million in credit facilities from a group of banks.  The
facilities include two $75 million term loans and a $50 million revolver.  The
facility matures in 2004 and bears interest at LIBOR plus a margin ranging from
1.25% to 2.75%, based upon the Company's leverage ratios.  At closing, the
Company borrowed $104 million to refinance most of its then outstanding debt,
fund the POP acquisition (including the refinancing of most of POP's then
outstanding debt) and pay loan fees and other transaction costs.  The Company
will incur an extraordinary charge in the third quarter of fiscal 1998 of
approximately $2 million resulting form the early extinguishment of the
Company's and POP's debt.

     Also on February 27, 1998, the Company completed a $15 million preferred
equity private placement.  The preferred stock does not have any cumulative
preferred dividend requirements and is convertible into the Company's common
stock at $10 per share.  These funds were also used by the Company to retire
existing debt.

                                       9
<PAGE>
 
                         PART I - FINANCIAL INFORMATION


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

                                       10
<PAGE>
 
                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


     The following should be read in conjunction with the Consolidated Financial
Statements and Notes thereto appearing elsewhere in this Form 10-Q and within
the Company's Form 10-K dated August 3, 1997.  When used in the following
discussion, the words "believes", "anticipates", "intends", "expects" and
similar expressions are intended to identify forward-looking statements.  Such
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from those projected.  Readers are cautioned
not to place undue reliance on forward-looking statements, which speak only as
of the date hereof.


OVERVIEW

     The Company is a leading provider of technical and creative services to
owners, producers and distributors of television programming, feature films and
other entertainment content. The Company's services integrate and apply a
variety of systems and processes to enhance the creation and distribution of
entertainment content. The Company seeks to capitalize on domestic and
international growth in demand for original entertainment content as well as
from the exploitation of existing television and film libraries without taking
production or ownership risk with respect to any specific television program,
feature film or other content.

     The Company's business is divided into studio, broadcast, television and
film divisions. In each of its four business divisions, the Company offers most
of the systems and technical solutions that constitute the processes that are
integral to the creation, enhancement and distribution of entertainment content.
The studio division, located in Burbank and Universal City, California manages,
formats and distributes existing content libraries to end users in the United
States and internationally. The broadcast division, located in Burbank and the
Republic of Singapore, assembles and distributes cable television channels and
programming via satellite to viewers in the United States, Canada and Asia. The
television division, located in Burbank, Universal City and Santa Monica,
California assembles film or video principal photography into a form suitable
for domestic network, syndicated, cable or foreign television. The film
division, located in Santa Monica, digitally creates and manipulates images in
high resolution formats for use in feature films.

     The Company believes that EBITDA is an important measure of its financial
performance. "EBITDA" is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
nonrecurring charges. The Company's investments in new infrastructure, machine
capacity and technology have produced a relatively high depreciation expense and
will remain a significant non-cash charge to earnings. It is the Company's
policy to depreciate equipment and other capitalized items over a period of
three to seven years. EBITDA is calculated before depreciation and amortization
charges and, in businesses with significant non-cash expenses, is widely used as
a measure of cash flow available to pay interest, repay debt, make acquisitions
or invest in capital equipment and new technologies. As a result, the Company
intends to report EBITDA as a measure of financial performance. EBITDA does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles ("GAAP") and should not be considered in

                                       11
<PAGE>
 
isolation or as a substitute for other measures of performance prepared in
accordance with GAAP. EBITDA does not reflect that portion of the Company's
capital expenditures which may be required to maintain the Company's market
share, revenues and leadership position in its industry. Moreover, not all
EBITDA will be available to pay interest or repay debt. The Company's
presentation of EBITDA may not be comparable to similarly titled measures
reported by other companies.


THREE MONTHS ENDED FEBRUARY 1, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 2,
1997.

     Revenues.   Total revenues for the three months ended February 1, 1998
increased 50.2% to $28.6 million compared to $19.1 million for the three months
ended February 2, 1997.  The revenue increase was attributable primarily to the
factors set forth below.

     Studio division revenues for the three months ended February 1, 1998
increased 55.6% to $8.5 million compared to $5.4 million for the three months
ended February 2, 1997.  The major component of this increase was the
acquisition of the business of Anderson ($1.3 million) together with increased
professional duplication revenues ($1.0 million) and film-to-tape transfer
revenues ($0.5 million).

     Broadcast division revenues for the three months ended February 1, 1998
decreased 9.3% to $5.5 million compared to $6.1 million for the three months
ended February 2, 1997.  Revenues from the Company's Singapore operations
decreased 27.7% during the second quarter of fiscal 1998 as a result of the
completion in 1997 of a one year contract with MGM Gold and translation losses
caused by the devaluation of the Singapore dollar.  The decrease in revenues
from the Singapore operations was partially offset by a 17.4% increase in
revenues from the Company's domestic broadcast operations, which was the result
of expanded service relationships.  Syndication revenue increased 33.2% as a
result of the expansion of capacity resulting from expanded relationships with
certain major studios.

     Television division revenues for the three months ended February 1, 1998
increased 82.9% to $12.8 million compared to $7.0 million for the three months
ended February 2, 1997.  The revenue increase was primarily the result of the
start-up of the Company's commercial operation ($2.3 million) in the first
quarter of fiscal 1998, the acquisition of Anderson ($1.7 million) and the
completion of the Company's new digital television services facility in Burbank
($1.8 million).  The new facility replaces existing analog infrastructure and
equipment, thereby enhancing the competitiveness of the Company's television
operations.

     Film revenues for the three months ended February 1, 1998 increased 222.2%
to $1.9 million compared to $.6 million for the three months ended February 2,
1997.  The revenue increase was attributable to increased capacity resulting
from several new feature film projects obtained during the period..

     Gross Profit.   Gross profit for the three months ended February 1, 1998
increased 50.6% to $10.0 million  compared to $6.7 million in the three months
ended February 2, 1997 and, as a percentage of revenues, remained constant at
34.9% of revenues.

                                       12
<PAGE>
 
     Sales, General and Administrative Expenses.   Sales, general and
administrative expenses for the three months ended February 1, 1998 increased
26.4% to $3.8 million (13.3% of revenues) compared to $3.0 million (15.8% of
revenues) for the three months ended February 2, 1997.  The improvement of 2.5%
in sales, general and administrative expenses as a percentage of revenues is a
result of the Company's ability to leverage its existing corporate overhead to
manage expanded domestic operations.

     Depreciation and Amortization Expenses.   Depreciation and amortization
expenses for the three months ended February 1, 1998 increased 40.9% to $4.0
million (13.8% of revenues) compared to $2.8 million (14.8% of revenues) in the
three months ended February 2, 1997.  The increase in depreciation and
amortization expense is attributable primarily to the $27.7 million of capital
expenditures for equipment made during fiscal 1997.

     Interest Expense.   Interest expense for the three months ended February 1,
1998 increased 27.6% to $1.5 million (5.3% of revenues) compared to $1.2 million
(6.3% of revenues) in the three months ended February 2, 1997.  The increase was
attributable to additional long-term borrowings incurred by the Company to fund
capital expenditures in fiscal 1997 and the first half of fiscal 1998.

     Earnings Before Interest, Taxes, Depreciation and Amortization.   EBITDA
for the three months ended February 1, 1998 increased 70.7% to $6.2 million
compared to $3.6 million in the three months ended February 2, 1997. The
increase in EBITDA of $2.6 million was the result of contributions from the
television services expansion, Co3 and AVC.  See "Liquidity and Capital
Resources" for a discussion of net cash provided by operating activities for the
period.


SIX MONTHS ENDED FEBRUARY 1, 1998 COMPARED TO SIX MONTHS ENDED FEBRUARY 2, 1997.

     Revenues.   Total revenues for the six months ended February 1, 1998
increased 47.0% to $55.9 million compared to $38.0 million for the six months
ended February 2, 1997.  The revenue increase was attributable primarily to the
factors set forth below.

     Studio division revenues for the six months ended February 1, 1998
increased 45.6% to $16.6 million compared to $11.4 million for the six months
ended February 2, 1997.  The components of the increase were the acquisition of
Anderson ($2.9 million) together with increased film-to-tape transfer ($1.1
million) as a result of the deployment of additional telecine capacity in
response to an increase in demand for film-to-tape transfer services and
increased professional duplication revenues ($1.0 million).

     Broadcast division revenues for the six months ended February 1, 1998
decreased 4.2% to $11.1 million compared to $11.6 million for the six months
ended February 2, 1997.  Revenues from the Company's domestic broadcast
operations increased 23.8% during the first half of fiscal 1998.  This increase
was attributable to commencement of an expanded service relationship with  TVN
Entertainment, Inc.  Syndication revenue increased 41% as a result of the
expansion of capacity resulting from expanded relationships with certain major
studios.  The increase in revenues from domestic broadcast operations was offset
by a reduction in revenues from the Company's Singapore operation, which was the
result of the completion in 1997 of a 

                                       13
<PAGE>
 
one year contract with MGM Gold and translation losses caused by the devaluation
of the Singapore dollar.

     Television division revenues for the six months ended February 1, 1998
increased 80.8% to $25.4 million compared to $14.1 million for the six months
ended February 2, 1997.  The revenue increase was primarily the result of the
acquisition of Anderson ($4.0 million), the start-up of the Company's commercial
services operation ($4.0 million) in the first quarter of fiscal 1998, and the
completion of the Company's new digital television services facility in Burbank
($2.7 million).  The new facility replaces existing analog infrastructure and
equipment, thereby enhancing the competitiveness of the Company's television
operations.

     Film division revenues for the six months ended February 1, 1998 increased
184.8% to $2.8 million compared to $1.0 million for the six months ended
February 2, 1997.  The revenue increase was attributable to increased resulting
from several new feature film projects obtained during the period.

     Gross Profit.  Gross profit for the six months ended February 1, 1998
increased 40.6% to $19.5 million (34.9% of revenues) compared to $13.9 million
(36.5% of revenues) in the six months ended February 2, 1997.  The reduction of
1.6% in the Company's gross profit as a percent of revenues was attributable
primarily to a 2.8% increase in labor costs mostly in the first quarter of
fiscal 1998, offset by a 1.7% reduction in facility costs.

     Sales, General and Administrative Expenses.  Sales, general and
administrative expenses for the six months ended February 1, 1998 increased
26.5% to $7.7 million (13.9% of revenues) compared to $6.1 million (16.1% of
revenues) for the six months ended February 2, 1997.  The improvement of 2.2% in
sales, general and administrative expenses as a percentage of revenues is a
result of the Company's ability to leverage its existing corporate overhead to
manage expanded domestic and international operations.

     Depreciation and Amortization Expenses.  Depreciation and amortization
expenses for the six months ended February 1, 1998 increased 42.1% to $8.0
million (14.3% of revenues) compared to $5.6 million (14.8% of revenues) in the
six months ended February 2, 1997.  The increase in depreciation and
amortization expense is attributable primarily to the $27.7 million of capital
expenditures for equipment made during fiscal 1997.

     Interest Expense.  Interest expense for the six months ended February 1,
1998 increased 19.3% to $2.9 million compared to $2.4 million in the six months
ended February 2, 1997.  The increase was attributable to additional long-term
borrowings incurred by the Company to fund capital expenditures in fiscal 1997
and the first half of fiscal 1998.

     Earnings Before Interest, Taxes, Depreciation and Amortization.  EBITDA for
the six months ended February 1, 1998 increased 51.8% to $11.8 million compared
to $7.8 million in the six months ended February 2, 1997. The increase in EBITDA
of $4.0 million was the result of contributions from AVC, Co3 and the television
services expansion.  See "Liquidity and Capital Resources" for a discussion of
net cash provided by operating activities for the period.

                                       14
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES

     Net Cash Provided By (Used In) Operating Activities.  The Company's net
cash provided by (used in) operating activities was $1.6 million and ($1.1
million) for the three and six month periods ended February 1, 1998 compared to
$.1 million and $.9 million for the three and six month periods ended February
2, 1997.  The increase for the three months ended February 1, 1998 resulted
primarily from increased net income as adjusted for depreciation and
amortization and provision for doubtful accounts, offset by reductions in
accrued and other liabilities.  While similar conditions also existed in the six
months ended February 1, 1998, the decrease in accounts payable and accrued and
other liabilities of approximately $3.8 million resulted in net cash used in
operating activities.  In the prior six month period ended February 2, 1997,
accounts payable and accrued and other liabilities increased approximately $3.0
million.

     Net Cash Provided by (Used In) Financing Activities.  The Company's net
cash provided by financing activities was $9.8 million and $12.3 million for the
three and six month periods ended February 1, 1998 compared to $11.8 million and
$19.9 million for the three and six month periods ended February 2, 1997.  The
Company obtained $16.0 million in proceeds from a new term loan in the first
quarter of fiscal 1997.  The Company obtained a $8.4 million real property
(mortgage) term loan in the second quarter of fiscal 1997 and $8.1 million real
property (mortgage) term loan in the first quarter of fiscal 1998.  The Company
obtained additional financing in the form of equipment notes and leases of $4.3
million and $6.0 million in the first six months of 1997 and 1998 respectively,
while repaying $13.9 million and $5.3 million respectively.

     On February 27, 1998, the Company entered into a financing agreement
representing $200 million in credit facilities from a group of banks. The
facilities include two $75 million term loans and a $50 million revolver. The
facility matures in 2004 and bears interest at LIBOR plus a margin ranging from
1.25% to 2.75%, based upon the Company's leverage ratios. At closing, the
Company borrowed $104 million to refinance most of its then outstanding debt,
fund the POP acquisition (including the refinancing of most of POP's then
outstanding debt) and pay loan fees and other transaction costs. The Company
will incur an extraordinary charge in the third quarter of fiscal 1998 of
approximately $2 million resulting form the early extinguishment of the
Company's and POP's debt. 

     Also on February 27, 1998, the Company completed a $15 million preferred
equity private placement. The preferred stock does not have any cumulative
preferred dividend requirements and is convertible into the Company's common
stock at $10 per share. These funds were also used by the Company to retire
existing debt. 

     The Company believes that anticipated cash flow from operations and amounts
available from the new facility and other financing sources will be sufficient
to meet anticipated working capital and capital expenditure requirements for
several years.

                                   15
<PAGE>
 
                                    PART II.

                               OTHER INFORMATION
 
Item 1.      Legal Proceedings..................................       No change
 
             Previously reported in the Company's Annual Report
             on Form 10-K (File No. [333-13721]).
 
Item 2.      Changes in Securities..............................       None
                                                                       
Item 3.      Defaults Upon Senior Securities....................       None
                                                                       
Item 4.      Submission of Matters to a Vote of Security Holders       None
                                                                       
Item 5.      Other Information..................................       None

Item 6.      Exhibits and Reports on Form 8-K

             a.   Exhibits

                  3.   Certificate of Designations of Series A Convertible
                       Preferred Stock filed with the Delaware Secretary of
                       State on February 26, 1998.

                  4.1  Credit Agreement among Four Media Company, the several
                       lenders from time to time parties thereto, Bank of
                       America NT&SA, as Syndication Agent, Union Bank of
                       California, N.A., as Documentation Agent, Societe
                       Generale, as Co-Agent, and Canadian Imperial Bank of
                       Commerce as Administrative Agent, dated as of February
                       27, 1998.

                  4.2  Preferred Stock Purchase Agreement dated February 5, 1998
                       between Four Media Company and Fleming US Discovery Fund
                       III, L.P.

                  4.3  Stockholders' Agreement dated February 27, 1998 among
                       Four Media Company, Fleming US Discovery Fund III, L.P.,
                       Fleming U.S. Discovery Offshore Fund III, L.P., Robert T.
                       Walston, John Donlon, Gavin Schutz and Robert Bailey.

                  4.4  Registration Rights Agreement dated February 27, 1998
                       among Four Media Company, Fleming U.S. Discovery Fund
                       III, L.P. and Fleming U.S, Discovery Offshore Fund III,
                       L.P.

                  27.  Financial Data Schedule

             b.   Reports of Form 8-K...........................       None

                                       16
<PAGE>
 
                                   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.

                              FOUR MEDIA COMPANY



Date: March 17, 1998          By:  /s/ Robert T. Walston
                                  --------------------------
                                   Robert T. Walston,
                                   Chief Executive Officer and
                                   Chairman of the Board



                              By:  /s/ Alan S. Unger
                                  ----------------------
                                   Alan S. Unger,
                                   Vice President, Chief Financial Officer

                                       17