<PAGE>

================================================================================
                                  United States

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                             _______________________

                                    Form 10-Q

                             _______________________

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

                  For the quarterly period ended April 30, 2001
                                                 --------------

[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

              For the transition period from ________ to ________.

                           Commission File No. 0-14023

                                VIDEO CITY, INC.

             (Exact name of registrant as specified in its charter)

                 Delaware                           95-3897052

     (State or other jurisdiction of    (I.R.S. Employer Identification Number)
      incorporation or organization)

           4800 Easton Drive, Suite 108, Bakersfield, California    93309

           (Address of principal executive offices)               (Zip Code)

                              _______________________

       Registrant's telephone number, including area code: (661) 634-9171

________________________________________________________________________________
                                     Page 1

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         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 ---

         Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 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 ----

         Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.

         The number of shares of Common Stock outstanding as of January 20, 2002
was 16,442,662.

________________________________________________________________________________
                                     Page 2

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

                                VIDEO CITY, INC.
                              DEBTOR-IN-POSSESSION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 April 30,        January 31,
                                                                                    2001             2001
                                                                                -------------     ------------
                                                                                (Unaudited)        (Audited)
          <S>                                                                   <C>               <C>
          ASSETS
          Current assets:

           Cash ...............................................................   $  534,880      $ 1,046,164
           Customer receivables ...............................................      433,478          433,024
           Other receivable ...................................................       38,941          946,655
           Merchandise inventory. .............................................      871,712          965,025
           Other ..............................................................       61,228               --
                                                                                -------------     ------------
               Total current assets ...........................................    1,940,239        3,390,868

          Rental library, net .................................................    2,674,225        3,012,387
          Property and equipment, net .........................................    1,406,248        1,525,409
          Goodwill ............................................................    1,881,375        1,912,713
          Other assets ........................................................      258,468          256,011
                                                                                -------------     ------------
               Total assets ...................................................   $8,160,555      $10,097,388
                                                                                =============     ============
</TABLE>

           See accompanying notes to consolidated financial statements

________________________________________________________________________________
                                     Page 3

<PAGE>

                                VIDEO CITY, INC.
                              DEBTOR-IN-POSSESSION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                             April 30,        January 31,
                                                                                               2001               2001
                                                                                           --------------    -------------
                                                                                             (Unaudited)       (Audited)
<S>                                                                                        <C>               <C>
          LIABILITIES NOT SUBJECT TO COMPROMISE
          Current liabilities:
            Accounts payable.............................................................  $      55,046     $     215,724
            Accrued Expenses ............................................................      1,056,979         1,041,134
            Current portion of long-term debt ...........................................             --                --
                                                                                           --------------    --------------
               Total current liabilities. ...............................................      1,112,025         1,256,858
            Other liabilities ...........................................................         41,537            45,526
                                                                                           --------------    --------------
          Total liabilities Not Subject to Compromise ...................................      1,153,562         1,302,384
                                                                                           --------------    --------------

          LIABILITIES SUBJECT TO COMPROMISE
          Accounts payable ..............................................................     26,421,793        26,443,937
          Senior secured revolving credit facility ......................................      9,451,429        10,451,429
          Notes payable .................................................................      6,790,454         6,790,454
          Accrued interest ..............................................................      1,004,342         1,004,342
          Other liabilities .............................................................      1,625,759         1,628,690
                                                                                           --------------    --------------
               Total Liabilities Subject to Compromise ..................................     45,293,777        46,318,852
                                                                                           --------------    --------------
          Total Liabilities .............................................................     46,447,339        47,621,236
          STOCKHOLDERS' DEFICIT:
            Preferred stock .............................................................      6,292,135         6,292,135
            Common stock, $.01 par value per share, 30,000,000 shares authorized;
             16,442,662  shares issued and outstanding at April 30, 2001 and 16,442,662
             shares issued and outstanding at January 31, 2001 ..........................        164,427           164,427
            Additional paid-in capital ..................................................     13,576,968        13,576,968
            Accumulated deficit .........................................................    (58,320,314)      (57,557,378)
                                                                                           --------------    --------------
               Total stockholders' deficit...............................................    (38,286,784)      (37,523,848)
                                                                                           --------------    --------------
          Total liabilities and stockholders' deficit ...................................  $   8,160,555     $  10,097,388
                                                                                           ==============    ==============
</TABLE>

           See accompanying notes to consolidated financial statements

________________________________________________________________________________
                                     Page 4

<PAGE>

                                VIDEO CITY, INC.
                            DEBTOR - IN - POSSESSION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                   Three Months Ended
                                                                                               April 30,        April 30,
                                                                                                 2001             2000
                                                                                            ------------      ------------
          <S>                                                                               <C>               <C>
          REVENUES:
            Rental revenues and product sales ........................................      $  4,670,119      $  8,186,084
            Management fee income ....................................................             7,143         1,316,000
                                                                                            ------------      ------------
          TOTAL REVENUES .............................................................         4,677,262         9,502,084
                                                                                            ------------      ------------

          OPERATING COSTS AND EXPENSES:
            Store operating expenses .................................................         2,551,351         4,518,435
            Amortization of rental library ...........................................         1,427,481         1,992,125
            Cost of product sales ....................................................           492,416         1,524,372
            Cost of leased product ...................................................            23,420           464,177
            Restructuring ............................................................                --         1,564,000
            General and administrative expenses ......................................           786,303         2,246,196
                                                                                            ------------      ------------
          TOTAL OPERATING COSTS AND EXPENSES .........................................         5,280,971        12,309,305

          Loss from operations before reorganization items ...........................          (603,709)       (2,807,221)
          Other (Income) expense
            Interest expense, net (contractual interest $507,000) ....................                --           579,407
            Other ....................................................................          (132,380)               --
                                                                                            ------------      ------------
          Loss before reorganization items ...........................................          (471,329)       (3,386,628)
          Reorganization items
            Professional fees ........................................................           239,011                --
            Relocation of Corporate Office ...........................................            52,596                --
                                                                                            ------------      ------------
          Net Loss before Dividends ..................................................          (762,936)       (3,386,628)
                                                                                            ============      ============
          Dividends on preferred stock ...............................................                --          (152,000)
                                                                                            ------------      ------------
          Net loss applicable to common shareholders .................................          (762,936)       (3,538,628)
                                                                                            ============      ============

          Loss per common share data:
             Basic and Diluted Loss Per Share ........................................      $      (0.05)     $      (0.22)
          Weighted average number of common shares outstanding
             Basic and Diluted .......................................................        16,442,662        15,979,313
</TABLE>

           See accompanying notes to consolidated financial statements

________________________________________________________________________________
                                     Page 5

<PAGE>

                                VIDEO CITY, INC.

                            DEBTOR - IN - POSSESSION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                                             Three Months Ended
                                                                                                         April 30,        April 30,
                                                                                                           2001             2000
          <S>                                                                                      <C>                 <C>
          Increase (Decrease) in cash
          Cash flows from operating activities:
          Net Loss before Dividends ...........................................................          (762,936)       (3,386,628)
          Adjustments to reconcile net loss to net cash provided by (used in) operating
          activities:

            Depreciation and amortization .....................................................         1,587,150         2,557,968
            Issuance of stock for services and inventory ......................................                --            75,000
            Preferred stock issued in satisfaction of Liabilities .............................                             112,500
          Changes in assets and liabilities, net of effects of acquisitions:
            Decrease (increase) in customer receivables .......................................              (454)          106,711
            Decrease in other receivables .....................................................           907,714                --
            Decrease in merchandise inventories ...............................................            93,313           667,982
            Increase in other assets ..........................................................           (67,185)         (981,713)
            Increase (decrease) in accounts payable and liabilities subject to compromise......          (182,822)        1,253,362
            Increase in accrued expenses and liabilities subject to compromise ................            15,845         1,526,785
            Decrease in other liabilities and liabilities subject to compromise ...............            (6,920)               --
                                                                                                   --------------      ------------
          Net cash provided by operating activities ...........................................         1,583,705         1,931,967
                                                                                                   --------------      ------------
          Cash flows from investing activities:
            Purchases of videocassette rental library, ........................................        (1,089,199)       (1,884,456)
            Purchases of fixed assets .........................................................            (5,790)         (143,968)
                                                                                                   --------------      ------------
          Net cash (used in) investing activities .............................................        (1,094,989)       (2,028,424)
                                                                                                   --------------      ------------
            Cash flows from financing activities:
            Repayment of pre-petition long-term debt ..........................................                --            (6,531)
            Repayment of notes payable ........................................................                --                --
            Proceeds from borrowings (repayments) under credit facility .......................        (1,000,000)          347,931
                                                                                                   --------------      ------------
          Net cash provided by (used in) financing activities .................................        (1,000,000)          341,400
                                                                                                   --------------      ------------
          Net increase (decrease) in cash .....................................................          (511,284)          244,943
          Cash at beginning of  period ........................................................         1,046,164            24,316
                                                                                                   --------------      ------------

          Cash at end of period ...............................................................    $      534,880      $    269,259
                                                                                                   ==============      ============
</TABLE>

           See accompanying notes to consolidated financial statements

________________________________________________________________________________
                                     Page 6

<PAGE>

                                VIDEO CITY, INC.
                            DEBTOR - IN - POSSESSION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                              Three Months Ended
                                                                           April 30,       April 30,
                                                                             2001            2000
                                                                          ----------      ----------
<S>                                                                       <C>             <C>
    Supplementary disclosures of cash flow information
    Cash Paid For:
      Interest........................................................  $       --      $  356,467
      Reorganization items ...........................................     160,886              --

    Non-cash investing and financing activities:
      Common Stock issued for professional services ..................          --          75,000
      Preferred stock issued in satisfaction of liabilities ..........          --         112,500
</TABLE>

        See accompanying notes to consolidated financial statements.

________________________________________________________________________________
                                     Page 7

<PAGE>

                                VIDEO CITY, INC.
                            DEBTOR - IN - POSSESSION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Financial Statement Presentation

The accompanying consolidated financial statements include the accounts of Video
City, Inc. ("the Company") and all of its wholly owned subsidiaries. These
subsidiaries include Old Republic Entertainment, Inc., Sulpizio One, Inc., Video
Tyme, Inc., Videoland, Inc., and Video Galaxy, Inc. All material intercompany
transactions have been eliminated. The financial statements include the
operations of companies acquired from the dates of acquisition.

The consolidated balance sheet as of April 30, 2001, the consolidated statement
of operations for the three months ended April 30, 2001 and 2000, and the
consolidated statement of cash flows for the three months ended April 30, 2001
are unaudited and have been prepared in accordance with the American Institute
of Certified Public Accountants Statement of Position 90-7, Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code. The financial
statements have been prepared using accounting principles applicable to a going
concern, which assumes realization of assets and settlement of liabilities in
the normal course of business. The appropriateness of using the going concern
basis is dependent upon, among other things, the ability to comply with
debtor-in-possession financing agreements, confirmation of a plan of
reorganization, the ability to achieve profitable operations, and the ability to
generate sufficient cash flow from operations to meet its obligations.

The accompanying interim consolidated financial statements reflect all
adjustments that are, in the opinion of management, necessary to present fairly
the financial position as of April 30, 2001, the results of operations for the
three months ended April 30, 2001 and 2000, and cash flows for the three months
ended April 30, 2001 and 2000. All such adjustments are of a normal and
recurring nature. The results of operations for the interim periods presented
are not necessarily indicative of the results to be expected for the full year.
It is recommended that these financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the fiscal year ended January 31, 2001.

________________________________________________________________________________
                                     Page 8

<PAGE>

The accompanying consolidated balance sheets as of January 31, 2001 and April
30, 2001 segregates liabilities subject to compromise, such as unsecured claims,
from liabilities not subject to compromise, such as liabilities arising
subsequent to filing bankruptcy. A plan of reorganization could materially
change the amounts currently recorded in the consolidated financial statements.
The consolidated statements that might result from the outcome of this
uncertainty may be materially different that those presented herein.

Reorganization items represent expenses incurred by the Company as a result of
the bankruptcy filing and proceedings, which are required to be expensed as
incurred.

2. Restructuring Costs

The Company incurred $1.6 million in restructuring costs during the period
ending April 30, 2000, consisting of severance obligations to employees of
approximately $950,000, lease liability for the former executive offices in
Torrance, California of approximately $100,000, moving expenses of the corporate
office of approximately $80,000 and non-cash write down of the related leasehold
improvements of approximately $430,000. These costs are related to the Company's
effort to improve the performance of its operations and streamline its corporate
expenses after entering into the Management Agreement and in anticipation of the
proposed merger between the Company and West Coast Entertainment Corporation.
The merger agreement was subsequently terminated and the merger did not occur.

3. Bankruptcy

On August 17, 2000, Fleet Retail Finance purported to accelerate the outstanding
indebtedness under the Company's secured credit facility with Fleet Retail
Finance. Fleet Retail Finance also initiated an action in the Massachusetts
State Court to recover the sums allegedly due under the credit facility and
obtained a temporary order requiring that the Company deposit its cash receipts
into designated Fleet Retail Finance accounts. Additionally, the Company filed a
complaint against Fleet Retail Finance and certain other defendants seeking
damages in excess of $25,000,000 million. The Complaint alleges fraud, breach of
contract, breach of the covenant of good faith and fair

________________________________________________________________________________
                                     Page 9

<PAGE>

dealing, intentional interference with contractual relations, intentional
interference with advantageous relations, violation of the Racketeer Influenced
and Corrupt Organizations Act and violation of applicable provisions of
Massachusetts state law.

The Company also filed a motion to vacate the temporary order obtained by Fleet
Retail Finance and to restrain Fleet Retail Finance from sweeping the cash from
the Company's depository accounts, which are used to fund operations and
payroll. On August 22, 2000 the Massachusetts court directed Fleet Retail
Finance to release enough funds to cover payroll.

On August 24, 2000, primarily in response to the Fleet Retail Finance action to
accelerate payment of the outstanding indebtedness under the Company's secured
credit facility, the Company and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
Company retained possession of its properties and assets and continued to
operate with its existing directors and officers as a Debtor-in-Possession
("DIP"). As Debtors-in-Possession, the Company is authorized to operate its
business, but may not engage in transactions outside of the normal course of
business without approval, after notice and hearing, of the Bankruptcy Court.

Pursuant to the provisions of the Bankruptcy Code, as of the petition date
actions to collect pre-petition indebtedness owed by the Company are stayed and
other pre-petition contractual obligations may not be enforced against the
Company. In addition, as debtors-in-possession, the Company has the right,
subject to the Bankruptcy Court's approval and certain other conditions, to
assume or reject any pre-petition executory contracts and unexpired leases.
Parties affected by these rejections may file claims with the Bankruptcy Court
in accordance with the reorganization process. Accordingly, these obligations
have been included as liabilities subject to compromise.

The Bankruptcy Court approved payment of certain pre-petition liabilities such
as employee expenses and benefits. The Bankruptcy Court also allowed for the
retention of legal and financial professionals. The items are recorded as
accounts payable and accrued expenses not subject to compromise.

________________________________________________________________________________
                                     Page 10

<PAGE>

4. Earnings Per Share

Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted from issuance of common stock that then share in
earnings.

Common stock options, warrants, and preferred stock were not included in the
computations of diluted earnings per share because the effect of exercise and/or
conversion would have an antidilutive effect on earnings per share.

5. Use of Estimates

In addition to the uncertainties related to the Chapter 11 proceedings, the
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

6. Significant Developments

In July 2000, the Company sold 2 stores and recorded a loss of approximately
$199,000. On September 27, 2000 the Company obtained approval from the United
States Bankruptcy Court to reject the leases on 17 under performing store
locations and liquidate the assets. The Assets were sold to Video One
Liquidators at the aggregate net liquidation price of $508,760. The Company
reorganized loss on sale of approximately $2.2 million during the third quarter
ended October 31, 2000. During the fourth quarter of fiscal 2001, the Company
sold an additional 14 stores and recorded a loss of approximately $1.3 million,
which included approximately $1.25 million of unamortized goodwill.

________________________________________________________________________________
                                     Page 11

<PAGE>

Effective February 13, 2001, West Coast Entertainment director's informed the
Company that they were terminating the "Management Agreement" effective
immediately, due to the sale of substantially all West Coast Entertainment's
remaining 56 Stores and various other assets to Video One Liquidators.

In February 2001, the Company relocated its corporate offices from 9998 Global
Road, 2/nd/ Floor, Philadelphia, Pennsylvania, 19115 to 4800 Easton Drive, Suite
108, Bakersfield, California.

The Company and Fleet Retail Finance entered into an agreement ("the Fleet
Compromise"), which was approved by the Court on March 28, 2001. The salient
terms of the agreement granted Fleet Retail Finance an allowed claim in the
amount of $10,000,000. In full satisfaction of the claim, the Company agreed to
make two payments consisting of $1,500,000. The first payment of $1,000,000 was
paid on March 28, 2001 and the second payment of $500,000 was made on June 29,
2001 resulting in the full satisfaction of the Allowed Fleet Claim. As a result,
the Company will record an extraordinary gain from trouble debt restructuring of
$8,951,429 during the second quarter of fiscal 2002. In addition, both parties
jointly dismissed the State Court Action with prejudice and Fleet Retail Finance
and the Company simultaneously executed a mutual release of any and all claims
against the directors, officers, employees and other representatives of each
company.

7. Subsequent Events

In June of 2001, the Company entered into a purchase money security agreement
directly with Warner Brothers Home Video. The agreement provides the company
with a line of trade credit and 60 day terms for repayment. The company
purchases all Warner Brothers product directly from Warner Brothers Home Video,
which is then distributed to all Video City's home entertainment retail chain
through a third party distributor.

In July 2001 the Company entered into an agreement with Video Products
Distributors ("VPD") under which VPD agreed to become the exclusive video
distributor for all of Video City's home entertainment retail chain. VPD will
provide all videocassettes, DVDs and accessories for rental and sale with the
exception of Warner Brothers Home

________________________________________________________________________________
                                     Page 12

<PAGE>

Video product in all locations. As part of this agreement, Video City is
receiving a line of trade credit and 90 day terms for repayment to VPD.

On July 30, 2001, the Bankruptcy Court entered an Order confirming Video City's
First Amended Chapter 11 Plan of Reorganization (the "Plan"). The Plan became
effective on August 29, 2001. Pursuant to the Plan, the existing common
shareholders of Video City are to receive 700,000 shares of common stock of
Reorganized Video City in cancellation of all shares of common stock outstanding
prior to such distribution, for pro rata distribution; 700,000 shares of common
stock are to be issued in cancellation of all shares of preferred stock
outstanding prior to such distribution to preferred shareholders; and 5,600,000
shares of common stock are to be issued to Video City's creditors. The Company
anticipates that all liabilities subject to compromise will receive shares of
common stock of Video City in full satisfaction of their claims based on the
Plan of Reorganization. As part of the plan certain class 4A creditors had the
option to receive 20% of their claim in cash if their claim was under $1,000 or
if they choose to reduce their claim to that amount. The total amount for all
class 4A creditors who opted for the cash payout was less than $22,000. In
addition, certain liabilities subject to compromise consist of tax obligations
of approximately $1.3 million that are to be paid in cash over five years from
date of assessment.

The Company will issue the 7,000,000 shares of new common stock of reorganized
Video City upon completion of the Company's past SEC filing on forms 10Q and 10K
and completion of the audit and reviews of the Company's financial statements by
its independent certified public accountants.

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

Special Note Regarding Forward Looking Statements

Certain statements in this Quarterly Report on Form 10-Q, may constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Such forward-looking
statements involve known and unknown risks, uncertainties, and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or

________________________________________________________________________________
                                    Page 13

<PAGE>

achievements, expressed or implied by such forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed herein and in the Company's Annual Report on Form 10-K for
the fiscal year ended January 31, 2001.

As described in Note 1 to the unaudited consolidated financial statements, the
Company filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code on August 24, 2000.

Results of Operations

Three months ended April 30, 2001 compared to the three months ended April 30,
2000.

Revenues

Rental revenue and product sales for the three months ended April 30, 2001
totaled $4.7 million compared to $8.2 million for the three months ended April
30, 2000. Revenue decreased by $3.5 million or 43% for the three months ended
April 30, 2001 as compared to the three months ended April 30, 2000. The
decreased revenues were primarily attributable to the sale, liquidation and
closing of 30 stores during the previous nine months, including 28 stores which
were sold or closed as part of the Company's Chapter 11 reorganization plan. In
addition, the Company was operating in Chapter 11 Bankruptcy for the entire
quarter, which reduced the working capital available for product purchases. The
Company had management fee income of $7,000 for the three months ended April 30,
2001 as compared to $1.3 million for the 3 months ended April 30, 2000, related
to the "Management Agreement" entered into with West Coast Entertainment
Corporation on March 3, 2000 and terminated on February 13, 2001.

Store Operating Expenses

Store operating expenses for the three months ended April 30, 2001 totaled $2.6
million compared to $4.5 million for the three months ended April 30, 2000.
Store operating expenses decreased by $1.9 million or 42% for the three

________________________________________________________________________________
                                    Page 14

<PAGE>

months ended April 30, 2001 as compared to the corresponding period of the
previous year. The decreased store expenses were primarily attributable to the
sale, liquidation and closing of 30 stores during the previous nine months,
including 28 stores which were sold or closed as part of the Company's Chapter
11 reorganization plan. Store operating expenses as a percentage of rental
revenues and product sales were 55% for the three months ended April 30, 2001
compared to 55% for the corresponding period of 2000.

Amortization of Videocassette Rental Inventory

Amortization of videocassette rental inventory for the three months ended April
30, 2001 totaled $1.4 million compared to $2.0 million for the three months
ended April 30, 2000. Amortization decreased by $0.6 million or 25% for the
three months ended April 30, 2001 as compared to the corresponding period of the
previous year. The decreased amortization was primarily attributable to the
sale, liquidation and closing of 30 stores during the previous nine months,
including 28 stores which were sold or closed as part of the Company's Chapter
11 reorganization plan. This was partially offset due to the Company purchasing
product at a higher cost, due to the Company not leasing product under studio
revenue sharing agreements due to the Chapter 11 filing. Amortization of
videocassette rental inventory as a percentage of rental revenue and product
sales were 30% for the three months ended April 30, 2001 compared to 24% for the
corresponding period of 2000.

Cost of Product Sales

Cost of product sales for the three months ended April 30, 2001 totaled $0.5
million, compared to $1.5 million for the three months ended April 30, 2000.
Cost of product sales decreased by $1.0 million or 67% for the three months
ended April 30, 2001 as compared to the corresponding periods of the previous
year. The decrease in cost of product sales was primarily attributable to the
sale, liquidation and closing of 30 stores during the previous nine months,
including 28 stores which were sold or closed as part of the Company's Chapter
11 reorganization plan. In addition, the Company lacked adequate working capital
during the fiscal year to purchase adequate sell thru products. Cost of product
sales as a percentage of rental revenues and product sales, was 11% for the
three months ended April 30, 2001, compared to 19% for the same period of 2000.

________________________________________________________________________________
                                    Page 15

<PAGE>

Cost of Leased Product

Cost of leased product for the three months ended April 30, 2001 totaled $23,000
compared to $500,000 for the three months ended April 30, 2000. Cost of leased
product decreased by $477,000 or 95% for the three months ended April 30, 2001
as compared to the corresponding period of the previous year. Cost of leased
product as a percentage of rental revenues and product sales, was 1% for the
three months ended April 30, 2001, compared to 6% for the same period of 2000.
The decrease was primarily due to the Company not leasing product under studio
revenue sharing agreements beginning August 24, 2000 due to the Chapter 11
Bankruptcy filing.

Restructuring Costs

The Company incurred $1.6 million in restructuring costs during the fiscal year
ending 2001, consisting of severance obligations to employees of approximately
$950,000, lease liability for the former executive offices in Torrance,
California of approximately $100,000, moving expenses of the corporate office of
approximately $80,000 and non-cash write down of the related leasehold
improvements of approximately $430,000. These costs were related to the
Company's effort to improve the performance of its operations and streamline its
corporate expenses after entering into the Management Agreement and in
anticipation of the proposed merger between the Company and West Coast
Entertainment Corporation. During fiscal 2001 the company paid $703,472 in cash
for restructuring expenses.

General and Administrative Expenses

General and administrative expenses for the three months ended April 30, 2001
totaled $0.8 million compared to $2.2 million for the three months ended April
30, 2000. General and administrative expenses decreased by $1.4 million or 64%
for the three months ended April 30, 2001 as compared to the corresponding
period of the previous year. The decrease in general and administrative expenses
was primarily attributable to the company reduction in employee salaries and
related cost savings that resulted from the moving of the Company's corporate
headquarters

________________________________________________________________________________
                                    Page 16

<PAGE>

from Philadelphia, Pennsylvania to Bakersfield, California in February 2001 and
the monitoring of costs during the bankruptcy period. In addition, the Company
incurred additional costs for professional services and travel expenses in
connection with the "Management Agreement" during the three months ended April
30, 2000, that were not incurred in the current period.

Interest Expense

The Company incurred no Interest Expense for the three months ended April 30,
2001 compared to $0.6 million for the three months ended April 30, 2000. The
decrease in interest expense is reflective of the discontinuance of recording
interest expense on unsecured and partially secured prepetition debt subject to
compromise.

Other Income

The Company had other income of $132,380 for the three months ended April 30,
2001, compared to $0 for the three months ended April 30, 2000. Other income was
composed mainly of miscellaneous vendor royalty payments and collection of
previous period late fees.

Reorganization items

Reorganization items expense was $291,607 for the period ended April 30, 2001.
It consisted of professional fees and corporate relocation expenses directly
related the Company's Chapter 11 reorganization plan. The company had no
reorganization items expense in the prior year due to the Company did not file
for Chapter 11 Bankruptcy until August 24, 2000.

Income Taxes

Statement of Financial Accounting Standards No. 109 requires a valuation
allowance to be recorded when it is more likely than not that some or all of the
deferred tax assets of a Company will not be realized. Accordingly, a full
valuation allowance has been established against the deferred tax asset at April
30, 2001.

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<PAGE>

Liquidity and Capital Resource

The Company funds its short-term working capital needs, including the purchase
of videocassettes and other inventory, primarily through cash from operations.
The Company expects that cash from operations will be sufficient to fund future
videocassette and other inventory purchases and other working capital needs for
its existing stores.

Videocassette rental inventories are accounted for as noncurrent assets under
generally accepted accounting principles because they are not assets which are
reasonably expected to be completely realized in cash or sold in the normal
business cycle. Although the rental of this inventory generates a substantial
portion of the Company's revenue, the classification of these assets as
noncurrent excludes them from the computation of working capital. The
acquisition cost of videocassette rental inventories, however, is reported as a
current liability until paid and, accordingly, included in the computation of
working capital. Consequently, the Company believes working capital is not as
significant a measure of financial condition for companies in the video retail
industry as it is for companies in other industries. Because of the accounting
treatment of videocassette rental inventory as a noncurrent asset, the Company
anticipates that it will operate with a working capital deficit during the
fiscal year ended January 31, 2002.

On December 29,1998, the Company entered into a Senior Secured Revolving Credit
Facility agreement (the "Credit Facility") with BankBoston/Fleet Retail Finance
to be used for working capital purposes and capital expenditures. The Credit
facility was scheduled to mature on December 29, 2001. On September 23, 1999,
the Company entered into a forbearance agreement with BankBoston/Fleet Retail
Finance that amended the terms if the Loan Agreement, revised the financial
performance covenants of the Loan Agreement and contained weekly covenant
requirements. In November 1999, the Company did not meet the financial
performance covenants as set forth in the forbearance agreement. During the
fiscal year ended January 31, 2000, the Company did not meet certain of the
financial covenants as required by the credit facility. On March 9, 2000, the
Company entered into a second forbearance agreement that limited the Credit
Facility to $10,750,000 and revised the financial covenant requirements.

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<PAGE>

On August 24, 2000, as a result if the Fleet retail Finance action to accelerate
payment of the outstanding indebtedness under the Company's secured credit
facility, the Company filed a voluntary petition in the United States Bankruptcy
Court seeking to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

The Company and Fleet Retail Finance entered into a compromise agreement which
was approved by the Bankruptcy Court on March 28, 2001 under which the
outstanding debt to Fleet Retail Finance was settled in full satisfaction by the
payment of $1,500,000.

Inherent in a successful plan of reorganization is a capital structure which
permits the Company to generate sufficient cash flow after reorganization to
meet its restructured obligations and fund the current obligations of the
reorganized Company. Under the Bankruptcy Code, the rights of and ultimate
payment to prepetition creditors may be subsequently altered and, as to some
classes, eliminated. The Company believes that the sources of capital described
above and internally generated funds will be adequate to meet the Company's
anticipated needs through fiscal 2002; however, no assurance can be given with
respect to the Company's liquidity.

During the Debtor-in-Possession period the Company's supply vendors require all
purchases of inventory be made by cash in advance. There can be no assurance
however, that future cash from operations will be sufficient to fund future
videocassette, DVD and inventory purchases.

In June of 2001, the Company also entered into a purchase money security
agreement directly with Warner Brothers Home Video. The agreement provides the
company with a line of trade credit and 60 day terms for repayment. The company
purchases all Warner Brothers product directly from Warner Brothers Home Video,
which is then distributed to all Video City's home entertainment retail chain
through a third party distributor.

In July 2001 the Company entered into an agreement with Video Products
Distributors ("VPD") under which VPD agreed to become the exclusive video
distributor for all of Video City's home entertainment retail chain. VPD will
provide all videocassettes, DVDs and accessories for rental and sale with the
exception of Warner Brothers Home

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<PAGE>

Video product in all locations. As part of this agreement, Video City is
receiving a line of trade credit and 90 day terms for repayment to VPD.

On July 30, 2001, the Bankruptcy Court entered an Order confirming Video City's
First Amended Chapter 11 Plan of Reorganization (the "Plan"). The Plan became
effective on August 29, 2001. Pursuant to the Plan, the existing common
shareholders of Video City are to receive 700,000 shares of common stock of
Reorganized Video City in cancellation of all shares of common stock outstanding
prior to such distribution, for pro rata distribution; 700,000 shares of common
stock are to be issued in cancellation of all shares of preferred stock
outstanding prior to such distribution to preferred shareholders; and 5,600,000
shares of common stock are to be issued to Video City's creditors. The Company
anticipates that all liabilities subject to compromise will receive shares of
common stock of Video City in full satisfaction of their claims based on the
Plan of Reorganization. As part of the plan certain class 4A creditors had the
option to receive 20% of their claim in cash if their claim was under $1,000 or
if they choose to reduce their claim to that amount. The total amount for all
class 4A creditors who opted for the cash payout was less than $22,000. In
addition, certain liabilities subject to compromise consist of tax obligations
of approximately 1.3 million that are to be paid in cash over five years from
date of assessment

Cash Flows

Three months Ended April 30, 2001 Compared to the Three months Ended April 30,
2000

The decrease in net cash provided by operating activities of $0.3 million for
the three months ended April 30, 2001 compared to the three months ended April
30, 2000 was primarily due to an decrease in other receivables and merchandise
inventories, partially offset by an increase in other assets and a decrease in
accounts payable. Net cash used in investing activities decreased by $0.9
million for the three months ended April 30, 2001 compared to the three months
ended April 30, 2000 primarily due to a decrease in purchases of videocassette
rental inventory and fixed assets resulting from the reduction in the number of
stores. Net cash provided by and used in financing activities decreased $1.3
million for the three months ended April 30, 2001 compared to the three months
ended April 30, 2000 primarily due to the repayment to Fleet Retail Finance of
$1.0 million per the Fleet Compromise agreement.

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                                     Page 20

<PAGE>

Item 3. Quantitative and Qualitative Disclosure About Market Risk

The Company's market risk sensitive instruments do not subject it to material
market risk exposures, except for such risks related to interest rate
fluctuations. The Company discontinued recording interest expense on unsecured
and partially secured prepetition debt subject to compromise.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

On August 17, 2000, Fleet Retail Finance purported to accelerate the outstanding
indebtedness under the Company's secured credit facility with Fleet Retail
Finance. Fleet Retail Finance also initiated an action in the Massachusetts
State Court to recover the sums allegedly due under the credit facility and
obtained a temporary order requiring that the Company deposit its cash receipts
into designated Fleet Retail Finance accounts. Additionally, the Company filed a
complaint against Fleet Retail Finance and certain other defendants seeking
damages in excess of $25,000,000. The Complaint alleges fraud, breach of
contract, breach of the covenant of good faith and fair dealing, intentional
interference with contractual relations, intentional interference with
advantageous relations, violation of the Racketeer Influenced and Corrupt
Organizations Act and violation of applicable provisions of Massachusetts state
law.

The Company also filed a motion in the Massachusetts State Court to vacate the
temporary order obtained by Fleet Retail Finance and to restrain Fleet Retail
Finance from sweeping the cash from the Company's depository accounts, which are
used to fund operations and payroll. On August 22, 2000 the Massachusetts court
directed Fleet Retail Finance to release enough funds to cover payroll.

On August 24, 2000, as a result of Fleet Retail Finance Retail action to
accelerate payment of the outstanding indebtedness under the Company's secured
credit facility, the Company and its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
company is in possession of its properties and assets and continues to operate
with its existing directors and officers as a Debtor-in-Possession. As

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                                     Page 21

<PAGE>

debtors-in-possession, the Company is authorized to operate its business, but
may not engage in transactions outside of the normal course of business without
approval, after notice and hearing, of the Bankruptcy Court.

The Company and Fleet Retail Finance entered into an agreement ("the Fleet
Compromise"), which was approved by the Court on March 28, 2001. The salient
terms of the agreement granted Fleet Retail Finance an allowed claim in the
amount of $10.0 million. In full satisfaction of the claim, the Company agreed
to make two payments consisting of $1.5 million. The first payment of $1.0
million was paid on March 28, 2001, which resulted in partial satisfaction of
the Allowed Fleet Claim and the second payment of $0.5 million on June 29, 2001
resulted in the full satisfaction of the Allowed Fleet Claim. In addition, both
parties jointly dismissed the State Court Action with prejudice and Fleet Retail
Finance and the Company simultaneously executed a mutual release of any and all
claims against the directors, officers, employees and other representatives of
each company.

Item 2. Changes in Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

The Company operated under certain forbearance agreements with their Senior
Lender, Fleet Retail Finance (formerly BankBoston), during the quarter ended
April 30, 2001 and was not in compliance with the financial performance
covenants as set forth in the forbearance agreements.

Pursuant to the provisions of the Bankruptcy Code, as of the petition date
actions to collect pre-petition indebtedness owed by the Company are stayed and
other pre-petition contractual obligations may not be enforced against the
Company.

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

(a) Exhibits

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                                     Page 22

<PAGE>

    None

(b) Reports on Form 8-K

    None

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                                     Page 23

<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.

                                                     Video City, Inc
                                                     ---------------
                                                       (Registrant)

                   February 15, 2002                /S/ Timothy L. Ford
                                                    -------------------
                                                      Timothy L. Ford
                                                  Chief Executive Officer
                                               (Principal Executive Officer)
                                               -----------------------------

                   February 15, 2002
                                                   /S/ Rudolph R. Patino
                                                   ---------------------
                                                     Rudolph R. Patino
                                                  Chief Financial Officer
                                               (Principal Financial Officer)
                                               -----------------------------

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                                     Page 24