<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 July 31, 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


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                                     Page 1

<PAGE>

         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.

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                                     Page 2

<PAGE>

PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

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

<TABLE>
<CAPTION>
                                                   July 31,        January 31,
                                                     2001             2001
                                                 -------------     ------------
                                                 (Unaudited)        (Audited)
<S>                                              <C>               <C>
ASSETS
Current assets:
  Cash. .......................................    $  211,432      $ 1,046,164
  Customer receivables ........................       427,559          433,024
  Other receivable ............................            --          946,655
  Merchandise inventory. ......................       699,861          965,025
  Other .......................................        19,099               --
                                                 -------------     ------------
     Total current assets .....................     1,357,951        3,390,868

Rental library, net ...........................     2,628,454        3,012,387
Property and equipment, net ...................     1,365,387        1,525,409
Goodwill ......................................     1,850,037        1,912,713
Other assets ..................................       285,114          256,011
                                                 -------------     ------------
     Total assets .............................    $7,486,943      $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>
                                                                                   July 31,          January 31,
                                                                                     2001               2001
                                                                                 --------------     -------------
                                                                                   (Unaudited)        (Audited)
<S>                                                                              <C>                <C>
LIABILITIES NOT SUBJECT TO COMPROMISE
Current liabilities:
  Accounts payable ............................................................. $     727,949      $    215,724
  Accrued Expenses .............................................................     1,412,133         1,041,134

                                                                                 --------------     -------------
     Total current liabilities .................................................     2,140,082         1,256,858
  Other liabilities ............................................................        37,546            45,526
                                                                                 --------------     -------------
Total liabilities Not Subject to Compromise ....................................     2,177,628         1,302,384
                                                                                 --------------     -------------

LIABILITIES SUBJECT TO COMPROMISE
Accounts payable ...............................................................    26,421,793        26,443,937
Senior secured revolving credit facility .......................................            --        10,451,429
Notes payable ..................................................................     6,691,655         6,790,454
Accrued interest ...............................................................       998,770         1,004,342
Other liabilities ..............................................................     1,622,829         1,628,690
                                                                                 --------------     -------------
     Total Liabilities Subject to Compromise ...................................    35,735,047        46,318,852
                                                                                 --------------     -------------
Total Liabilities ..............................................................    37,912,675        47,621,236
STOCK HOLDERS' 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 July 31, 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 ..........................................................   (50,459,262)      (57,557,378)
                                                                                 --------------     -------------
     Total stockholders' deficit ...............................................   (30,425,732)      (37,523,848)
                                                                                 --------------     -------------
Total liabilities and stockholders' deficit .................................... $   7,486,943      $ 10,097,388
                                                                                 ==============     =============
</TABLE>

           See accompanying notes to consolidated financial statements


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                                     Page 4

<PAGE>

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

<TABLE>
<CAPTION>
                                                                 Three Months Ended               Six Months Ended
                                                              July 31,        July 31,        July 31,         July 31,
                                                                2001            2000            2001             2000
                                                            -------------   -------------   --------------   -------------
REVENUES:
<S>                                                          <C>            <C>               <C>            <C>
  Rental revenues and product sales .......................  $ 4,448,342    $  7,677,944    $   9,118,461    $ 15,864,025
  Management fee income ...................................           --       1,207,830            7,143       2,523,830
                                                            -------------   -------------   --------------   -------------
TOTAL REVENUES ............................................    4,448,342       8,885,774        9,125,604      18,387,855
                                                            -------------   -------------   --------------   -------------

OPERATING COSTS AND EXPENSES:
  Store operating expenses ................................    2,729,954       4,638,515        5,281,305       9,156,946
  Amortization of rental library ..........................    1,366,253       3,039,823        2,793,734       5,031,947
  Cost of product sales ...................................      516,287       1,171,130        1,008,703       2,695,506
  Cost of leased product ..................................       18,022         384,351           41,442         848,528
  Restructuring. ..........................................           --              --               --       1,564,000
  General and administrative expenses .....................      723,924       2,265,441        1,510,227       4,511,635
                                                            -------------   -------------   --------------   -------------
TOTAL OPERATING COSTS AND EXPENSES ........................    5,354,440      11,499,260       10,635,411      23,808,562

Loss from operations before reorganization items ..........     (906,098)     (2,613,486)      (1,509,807)     (5,420,707)
Other (Income) expense
  Loss on sale of assets ..................................           --         199,373               --         199,373
  Interest expense, net (contractual interest
  $398,000 and $905,000) ..................................       12,500         626,710           12,500       1,206,117
  Other ...................................................       22,484         (10,571)        (109,896)        (10,571)
                                                            -------------   -------------   --------------   -------------
Loss before reorganization items ..........................     (941,082)     (3,428,998)      (1,412,411)     (6,815,626)
Reorganization items ......................................
  Professional fees .......................................      178,566              --          417,577              --
  (Gain) Loss on sale of assets ...........................      (34,600)             --          (34,600)             --
  Relocation of Corporate Office ..........................        5,329              --           57,925              --
                                                            -------------   -------------   --------------   -------------
Net Loss before extraordinary item ........................   (1,090,377)     (3,428,998)      (1,853,313)     (6,815,626)
Extraordinary item - Troubled debt restructuring
gain, net of tax of $0 (Note 6) ...........................    8,951,429             ---        8,951,429             ---
                                                            -------------   -------------   --------------   -------------
Net income (loss) before dividends ........................    7,861,052      (3,428,998)       7,098,116      (6,815,626)
Dividends on preferred stock ..............................          ---        (170,142)             ---        (322,142)
                                                            -------------   -------------   --------------   -------------
Net Income (loss) attributable to common shareholders .....  $ 7,861,052    $ (3,599,140)   $   7,098,116    $ (7,137,768)
                                                            =============   =============   ==============   =============

Basic and diluted loss per common share before
extraordinary item ........................................  $     (0.07)   $      (0.22)   $       (0.11)   $      (0.44)
Basic and diluted income per common share from
extraordinary item ........................................  $      0.54    $        ---    $        0.54    $        ---
Basic and diluted net income (loss) per common share ......  $      0.48    $      (0.22)   $        0.43    $      (0.44)
Weighted average number of common shares outstanding
basic and diluted .........................................   16,442,662      16,378,359       16,442,662      16,159,038
</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>
                                                                                    Six Months Ended
                                                                                July 31,         July 31,
                                                                                  2001             2000
<S>                                                                            <C>             <C>
Increase (Decrease) in cash
Cash flows from operating activities:
Net Income (loss) before dividends .........................................   $ 7,098,116     $ (6,815,626)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:

  Depreciation and amortization ............................................     3,088,274        6,141,861
  Forgiveness of bank debt .................................................    (8,951,429)              --
  Satisfaction of debt through sale of store ...............................      (104,371)              --
  Issuance of stock for services and inventory .............................            --          187,500
  (Gain) Loss on sale of asset .............................................       (34,600)         199,373

Changes in assets and liabilities, net of effects of acquisitions:
  Decrease (increase) in customer receivables ..............................         5,465          365,819
  Decrease in other receivables ............................................       946,655               --
  Decrease (increase) in merchandise inventories ...........................       265,164          594,805
  Increase in other assets .................................................       (55,202)      (1,241,859)
  Increase in accounts payable and liabilities subject to compromise .......       588,373        2,577,029
  Increase (decrease) in accrued expenses and liabilities subject
   to compromise ...........................................................       370,999        1,320,363
  Decrease in other liabilities and liabilities subject to compromise ......       (13,841)              --
                                                                              -------------    -------------
Net cash provided by operating activities ..................................     3,203,603        3,329,265
                                                                              -------------    -------------
Cash flows from investing activities:
  Purchases of videocassette rental library ................................    (2,506,636)      (4,423,265)
  Purchases of fixed assets ................................................       (67,777)        (158,513)
  Proceeds from sale of assets .............................................       134,370           28,434
                                                                              -------------    -------------
Net cash used in investing activities ......................................    (2,440,043)      (4,553,344)
                                                                              -------------    -------------
  Cash flows from financing activities:
  Repayment of long-term debt ..............................................            --           (6,531)
  Proceeds from borrowings (repayments) under credit facility ..............            --        2,087,275
  Repayment of notes payable liability subject to compromise ...............    (1,598,292)              --
                                                                              -------------    -------------
Net cash provided by (used in) financing activities ........................    (1,598,292)       2,080,744
                                                                              -------------    -------------
Net increase (decrease) in cash ............................................      (834,732)         856,665
Cash at beginning of period ................................................     1,046,164           24,316
                                                                              -------------    -------------
Cash at end of period ......................................................    $  211,432     $    880,981
                                                                              =============    =============
</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>
                                                                                           Six Months Ended
                                                                                       July 31,         July 31,
                                                                                         2001             2000
                                                                                      -----------      ----------
                   <S>                                                                <C>              <C>

                   Supplementary disclosures of cash flow information
                   Cash Paid For:
                     Interest .....................................................    $   12,500       $ 651,225
                     Reorganization items .........................................       228,061              --

                   Non-cash investing and financing activities:
                     Troubled debt restructuring ..................................     8,951,429              --
                     Satisfaction of debt through sale of store ...................       104,371              --
                     Common Stock issued for professional services ................            --         112,500
                     Preferred stock issued in satisfaction of liabilities ........            --          75,000
                     Preferred stock dividends ....................................            --         322,142
</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 July 31, 2001, the consolidated statement
of operations for the three and six months ended July 31, 2001 and 2000, and the
consolidated statement of cash flows for the six months ended July 31, 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 July 31, 2001, the results of operations for the
three and six months ended July 31, 2001 and 2000, and cash flows for the six
months ended July 31, 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.
Certain reclassifications have been made to the prior year financial statements
to conform with the current year presentation. 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 July 31,
2001 segregates liabilities subject to compromise, such as unsecured claims,
from liabilities not subject to compromise, such as fully secured liabilities
and 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 July 31, 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. 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

________________________________________________________________________________
                                     Page 9

<PAGE>

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.

4. Earnings Per Share

________________________________________________________________________________
                                    Page 10

<PAGE>

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 they have been cancelled as a
result of the Bankruptcy filing on August 24, 2000 and the subsequent Plan of
Reorganization.

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
recognized a 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 and additional 11 stores and recorded a loss of approximately $1.3 million,
which included approximately $1.25 million of unamortized goodwill.

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.

________________________________________________________________________________
                                    Page 11

<PAGE>

In February 2001, the Company relocated its corporate offices from 9998 Global
Road, 2nd Floor, Philadelphia, Pennsylvania, 19115 to 4800 Easton Drive, Suite
108, Bakersfield, California, 93309.

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 has recorded an extraordinary gain from troubled debt restructuring
during the six months ended July 31, 2001. In addition, both parties jointly
dismissed the State Court Action with prejudice and Fleet Retail finance and
Company simultaneously executed a mutual release of any and all claims against
the directors, officers, employees, and other representatives of each company.

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 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

________________________________________________________________________________
                                    Page 12

<PAGE>

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 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 filings 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 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.

________________________________________________________________________________
                                    Page 13

<PAGE>

Results of Operations

Three months and six months ended July 31, 2001 compared to the three months and
six months ended July 31, 2000.

Revenues

Rental revenue and product sales for the three months and six months ended July
31, 2001 totaled $4.4 million and $9.1 million compared to $7.7 million and
$15.9 million for the three and six months ended July 31, 2000. Revenue
decreased by $3.3 million or 43% and $6.8 million or 43% for the three months
and six months ended July 31, 2001 as compared to the corresponding periods of
the previous year. The decrease in revenues was primarily attributable to the
reduced number of stores operating during the three and six month periods ending
July 31, 2001 as compared to the prior year periods. As of July 31, 2001, the
Company was operating 41 stores in 7 states compared to 75 stores in 10 states
at July 31, 2000. In addition, the Company was operating in Chapter 11
Bankruptcy for nearly the entire quarter, which reduced the working capital
available for product purchases. The Company had no management fee income and
$7,143 for the three and six months ending July 31, 2001 compared to $1.2
million and $2.5 million of income in the prior period. The Company entered the
"Management Agreement" with West Coast Entertainment Corporation on March 3,
2000 and West Coast Entertainment terminated the agreement on February 13, 2001.

Store Operating Expenses

Store operating expenses for the three months and six months ended July 31, 2001
totaled $2.7 million and $5.3 million, as compared to $4.7 million and $9.2
million for the three months and six months ended July 31, 2000. Store operating
expenses decreased by $2.0 million or 43% and $3.9 million or 42% for the three
months and six months ended July 31, 2001 as compared to the corresponding
periods of the previous year. The decrease in store operating expenses was
primarily due to the to reduced number of stores operating during the three and
six month periods ending July 31, 2001 as compared to the prior year periods. As
of July 31, 2001, the Company was operating 41 stores in 7 states compared to 75
stores in 10 states at July 31, 2000. Store operating expenses as a percentage
of

________________________________________________________________________________
                                    Page 14

<PAGE>

rental revenues and product sales were 61% and 58% for the three months and six
months ended July 31, 2001 compared to 60% and 58% for the corresponding periods
of 2000.

Amortization of Videocassette Rental Inventory

Amortization of videocassette rental inventory for the three months and six
months ended July 31, 2001 totaled $1.4 million and $2.8 million, compared to
$3.0 million and $5.0 million for the three months and six months ended July 31,
2000. Amortization decreased by $1.6 million or 53% and $2.2 million or 44% for
the three months and six months ended July 31, 2001 as compared to the
corresponding periods of the previous year. The decrease in store amortization
was primarily due to the reduced number of stores operating during the three and
six month periods ending July 31, 2001 as compared to the prior year periods.
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. As of July 31, 2001, the Company was
operating 41 stores in 7 states compared to 75 stores in 10 states at July 31,
2000. Amortization of videocassette rental inventory as a percentage of rental
revenues and product sales were 32% and 31% for the three months and six months
ended July 31, 2001 compared to 40% and 32% for the corresponding period, of
2000.

Cost of Product Sales

Cost of product sales for the three months and six months ended July 31, 2001
totaled $0.5 million and $1.0 million, compared to $1.2 million and $2.7 million
for the three months and six months ended July 31, 2000. Cost of product sales
decreased by $0.7 million or 58% and $1.7 million or 63% for the three months
and six months ended July 31, 2001 as compared to the corresponding periods of
the previous year. The decrease in the cost of product sales for the three
months and six months ended July 31, 2001 was primarily due to the reduced
number of stores operating during the three and six month periods ending July
31, 2001 as compared to the prior year periods. In addition, the Company lacked
proper working capital to purchase adequate sell thru products during the three
and six month periods ending July 31, 2001 due to the Chapter 11 Bankruptcy.
Cost of product sales as a percentage of rental revenues and product sales, was
11% and 11% for the three months and six months ended July 31, 2001, compared to
15% and 17% for the same period of 2000.

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<PAGE>

Cost of Leased Product

Cost of leased product for the three months and six months ended July 31, 2001
totaled $18,022 and $41,442, compared to $384,351 and $848,528 for the three
months and six months ended July 31, 2000. Cost of leased products decreased by
$366,329 or 95% and $807,086 or 95% for the three months and six months ended
July 31, 2001 as compared to the corresponding periods of the previous year.
Cost of leased product as a percentage of rental revenues and product sales was
 .004% and .005% for the three months and six months ended July 31, 2001,
compared to 5% and 5% 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 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 and six months ended
July 31, 2001 totaled $0.7 million and $1.5 million, compared to $2.3 million
and $4.5 million for the three months and six months ended July 31, 2000.
General and administrative expenses decreased by $1.6 million or 70% and $3.0
million or 67% for the three months and six months ended July 31, 2001 as
compared to the corresponding periods of the previous year. The decrease in
general and administrative expenses was primarily attributable to the reduction
in executive and staff

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<PAGE>

employee salaries, professional fees, travel and entertainment, utilities and
related cost savings that resulted from the moving of the Company's corporate
headquarters 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
and six months ended July 31, 2000, that were not incurred in the current
periods. General and administrative expenses as a percentage of total revenues
were 16% and 16% for the three months and six months ended July 31, 2001,
compared to 30% and 28% for the same period in 2000.

Loss on Sale of Assets

Loss on sale of assets was $0 for the three and six months ended July 31, 2001,
compared to $199,373 for the three and six months ended July 31, 2000. The
decrease of approximately $199,000 for the three months and six months ended
July 31, 2000 was due to the store closures in the three and six months ended
July 31, 2000 being prior to the bankruptcy filing. Store closures during
bankruptcy are reported as Reorganization items

Interest Expense

Interest Expense for the three months and six months ended July 31, 2001 totaled
$12,500 and $12,500, compared to $0.6 million and $1.2 million for the three and
six months ended July 31, 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. The $12,500 interest expense was
interest charged on the balance of the $500,000 payable to Fleet Retail Finance
on June 29, 2001, per the ("the Fleet Compromise") agreement, which was approved
by the Bankruptcy Court on March 28, 2001.

Other (income) expense

The Company incurred $22,484 in other expenses for the period ending July 31,
2001 compared to $10,571 in other income in the prior period ending July 31,
2000.

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                                    Page 17

<PAGE>

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 July
31, 2001.

Reorganization Items

Reorganization items expense was $149,295 and $440,902 for the three and six
months ended July 31, 2001. It consisted of professional fees, corporate
relocation expenses and a gain on the sale of assets 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.

Extraordinary Gain on Trouble Debt Restructuring

During the Quarter ended July 31, 2001 the Company recorded a gain on troubled
debt restructuring of $8,951,429 relating to the loan agreement with Fleet
Retail Finance (See item 1 Legal Proceedings below).

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,

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                                     Page 18

<PAGE>

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 of 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.

On August 24, 2000, as a result of 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 substantially altered and, as to some
classes, eliminated. The Company believes that the sources of capital

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                                     Page 19

<PAGE>

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 only 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 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 chains
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 chains. VPD will
provide all videocassettes, DVDs and accessories for rental and sale with the
exception of Warner Brothers Home 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 chose to reduce their claim to that amount. The total amount for all
class 4A creditors who opted for the cash payout was less

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                                     Page 20

<PAGE>

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

Six months Ended July 31, 2001 Compared to the Six months Ended July 31, 2000

Cash Provided by Operating Activities

Net cash provided by operating activities for the six months ended July 31,
2001, decreased by approximately $126,000 or 4%, compared to the six months
ended July 31, 2000. This change was caused by the increase in net income of
$13.9 million over the comparable prior year period, offset by the non-cash gain
of $8,851,429 recorded as a result of the forgiveness of debt by Fleet. The
decrease was also attributable to a decrease in depreciation and amortization as
a result of the divestiture of 19 stores in the second and third quarter of
fiscal 2001 and the divestiture and sale of 11 stores in the fourth quarter of
fiscal 2001. All of these stores were closed for the six months ended July 31,
2001 and this has also caused a decrease in merchandise inventories. The
decrease was also due to a smaller increase in accounts payable and accrued
expenses as a result of the bankruptcy filing.

Cash Used in Investing Activities

Net cash used in investing activities during the six months ended July 31, 2001
decreased by approximately $2.1 million or 46%, compared to the six months ended
July 31, 2000. The change was mainly attributable to the decrease in the
purchase of videocassettes for the rental library as a result of the bankruptcy
and the conserving of cash during this period.

Cash Provided by (Used in) Financing Activities

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                                     Page 21

<PAGE>

Net cash used in financing activities during the six months ended July 31, 2001,
increased by approximately $3.7 million or 177%, compared to the six months
ended July 31, 2000. The change was mainly attributable to the repayment of $1.5
million, approved by the Bankruptcy Court, the debt to Fleet was forgiven and
the Company recorded a non-cash item of $8,951,429.

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.

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                                     Page 22

<PAGE>

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
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
July 31, 2001 and were not in compliance with the financial performance
covenants as set forth in the forbearance agreements. As of June 29, 2001, the
Company made the second and final payment under the Fleet Compromise agreement
as noted under Item 1. above, which 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.

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                                     Page 23

<PAGE>

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
        None

(b)     Reports on Form 8-K
        None

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                                     Page 24

<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 25