SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   -----------

                                   FORM 10-Q/A


             (Mark One)

             X  Quarterly  report  pursuant  to  Section  13  or  15(d)  of  the
                Securities Exchange Act - of 1934.

             For the quarterly period ended September 30, 2000 or

             __ Transition  report  pursuant  to  Section  13 or  15(d)  of  the
                Securities Exchange Act of 1934.

                       For the transition period from to
                               ------------------

                         Commission file number 0-21917
                                  -------------

                                 VDI MultiMedia
              ---------------------------------------------------
                     (Exact Name of Registrant as Specified)

                                   California
              -----------------------------------------------------
                         (State or Other Jurisdiction of
                         Incorporation or Organization)

                                   95-4272619
                     -------------------------------------
                   (IRS Employer Identification Number)

                                   California
                         (State or Other Jurisdiction of
                         Incorporation or Organization)

                                   95-4272619
                      (IRS Employer Identification Number)

            7083 Hollywood Boulevard, Suite 200, Hollywood, CA 90028
               (Address of principal executive offices) (Zip Code)

                                 (323) 957-7990
                     -------------------------------------
              (Registrant's Telephone Number, Including Area Code)

                     -------------------------------------
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)


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

             Yes     X     No ____
                 --------


As of April 20, 2001,  there were 9,046,004  shares of the  registrant's  common
stock outstanding.

VDI MultiMedia is filing this Amendment to its Quarterly Report on Form 10-Q for
the period  ending  September  30,  2000 in order to reflect  and  describe  the
restatement  of its financial  statements  and adoption of SAB 101 as of and for
the  three-month  and nine-month  periods ended September 30, 2000 and September
30, 1999 and as of the fiscal year ended December 31, 1999. See Notes 2 and 3.


<PAGE>

                                 VDI MULTIMEDIA
                           CONSOLIDATED BALANCE SHEET

<TABLE>
                                   ASSETS
                                                             DECEMBER 31,           SEPTEMBER 30,
                                                                1999                    2000
                                                            -------------           -------------
<S>                                                             <C>                     <C>
                                                            (as restated)           (as restated)
Current assets:
Cash and cash equivalents                                   $   3,030,000           $   1,453,000
Accounts receivable, net of allowances for doubtful
   accounts of $971,000 and $1,095,000, respectively           19,836,000              17,293,000
Inventories                                                     1,122,000               1,041,000
Prepaid expenses and other current assets                         948,000               2,251,000
Income tax receivable                                                   -                 529,000
Deferred income taxes                                           1,259,000               1,086,000
                                                            -------------           -------------
Total current assets                                           26,195,000              23,653,000

Property and equipment, net                                    19,564,000              23,681,000
Other assets, net                                                 662,000                 906,000
Goodwill and other intangibles, net                            26,510,000              26,310,000
                                                            -------------           -------------
Total assets                                                $  72,931,000           $  74,550,000
                                                            =============           =============

                    LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                            $   6,998,000           $   7,579,000
Accrued expenses                                                2,989,000               2,933,000
Income taxes payable                                              599,000                       -
Borrowings under revolving credit agreement                     5,888,000                       -
Current portion of notes payable                                8,309,000                       -
Current portion of capital lease obligations                      217,000                 102,000
                                                            -------------           -------------
Total current liabilities                                      25,000,000              10,614,000
                                                            -------------            ------------
Deferred income taxes                                             489,000                 746,000
Notes payable, less current portion                            16,433,000              30,024,000
Capital lease obligations, less current portion                    68,000                  26,000

Shareholders' equity
Preferred stock - no par value; 5,000,000 authorized;
   none outstanding Common stock - no par value;
   50,000,000 authorized; 9,210,697 and 9,201,995 shares,
   respectively, issued and outstanding                        17,935,000              17,859,000

Retained earnings                                              13,006,000              15,281,000
                                                             ------------            ------------
Total shareholders' equity                                     30,941,000              33,140,000
                                                             ------------            ------------
Total liabilities and shareholders' equity                   $ 72,931,000            $ 74,550,000
                                                             ============            ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>


                                 VDI MULTIMEDIA
                        CONSOLIDATED STATEMENT OF INCOME
                                   (Unaudited)


                                                            THREE MONTHS ENDED                  NINE MONTHS ENDED
                                                               SEPTEMBER 30,                       SEPTEMBER 30,
                                                               -------------                       -------------
                                                          1999              2000              1999              2000
                                                          ----              ----              ----              ----
                                                      (as restated)    (as restated)     (as restated)     (as restated)

<S>                                                   <C>              <C>                <C>              <C>
Revenues                                              $ 20,366,000     $ 18,121,000       $ 58,808,000     $ 55,691,000
Cost of goods sold                                      12,912,000       11,413,000         35,906,000       33,618,000
                                                      ------------    -------------       ------------    -------------

Gross profit                                             7,454,000        6,708,000         22,902,000       22,073,000
Selling, general and administrative expense              4,242,000        4,694,000         13,474,000       15,034,000
                                                      ------------    -------------      -------------    -------------
Operating income                                         3,212,000        2,014,000          9,428,000        7,039,000
Interest expense, net                                      560,000          717,000          1,623,000        2,106,000
                                                      ------------    -------------      -------------    -------------
Income before income taxes                               2,652,000        1,297,000          7,805,000        4,933,000
Provision for income taxes                               1,157,000          485,000          3,407,000        2,049,000
                                                      ------------    -------------      -------------    -------------
Income before extraordinary item and
   adoption of SAB 101 (Note 3)                          1,495,000          812,000          4,398,000        2,884,000
Extraordinary item (net of tax benefit
   of $168,000) (Note 6)                                         -         (232,000)                 -        (232,000)
Cumulative effect of adopting SAB 101 (Note 3)                   -                -                  -        (322,000)
                                                      ------------    -------------      -------------    -------------
Net income                                            $  1,495,000     $    580,000      $   4,398,000     $  2,330,000
                                                      ============    ==============     =============    =============

Earnings per share:
   Basic:
     Income per share before extraordinary item and
       adoption of SAB 101                            $       0.16     $       0.09      $        0.47     $       0.31
     Extraordinary item                                          -            (0.03)                 -            (0.03)
     Cumulative effect of adopting SAB 101                       -                -                  -            (0.03)
                                                      ------------    -------------      -------------    -------------
     Net income                                       $       0.16     $       0.06      $        0.47     $       0.25
                                                      ============    ==============     =============    =============
     Weighted average number of shares                   9,205,785        9,211,157          9,360,384        9,221,565
   Diluted:
     Income per share before extraordinary item and
       adoption of SAB 101                            $       0.16     $       0.09      $        0.46     $       0.30
     Extraordinary item                                          -                -                  -            (0.03)
     Cumulative effect of adopting SAB 101                       -            (0.03)                 -            (0.03)
                                                      ------------    -------------      -------------    -------------
     Net income                                       $       0.16     $       0.06      $        0.46     $       0.24
                                                      ============    ==============     =============    =============

     Weighted average number of shares including
       the dilutive effect of stock options              9,540,863        9,327,983          9,543,127        9,549,921

</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

<TABLE>
<CAPTION>

                                 VDI MULTIMEDIA
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)

                                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                                    1999                   2000
                                                                               ---------------         -------------
                                                                                (as restated)          (as restated)

          Cash flows from operating activities:
<S>                                                                            <C>                   <C>
               Net income                                                      $    4,398,000        $    2,330,000
             Adjustments to reconcile net income
               to net cash provided by operating activities:
               Depreciation and amortization                                        3,513,000             4,198,000
               Provision for doubtful accounts                                        600,000               124,000
               Abandonment of leasehold improvements                                  190,000                 7,000
               Deferred income taxes                                                  571,000               429,000
               Cumulative effect of adopting SAB 101                                        -               322,000
               Extraordinary item                                                           -               232,000

          Changes in assets and liabilities:
               (Increase) decrease in accounts receivable                          (1,613,000)            2,419,000
               (Increase) decrease in inventories                                    (177,000)               81,000
               Increase in prepaid expenses and other current assets                 (353,000)           (1,303,000)
               Increase in other assets                                               (24,000)               (6,000)

               Increase in accounts payable.                                          620,000               581,000
               Increase (decrease) in accrued expenses                                870,000               (55,000)

               Decrease in income taxes payable                                    (1,238,000)           (1,681,000)
                                                                               ---------------         -------------

          Net cash provided by operating activities                                 7,357,000             7,678,000
                                                                               ---------------         -------------

          Cash used in investing activities:
               Capital expenditures                                                (4,661,000)           (7,087,000)
               Net cash paid for acquisitions                                      (1,801,000)           (1,035,000)
                                                                               ---------------         -------------
          Net cash used in investing activities                                    (6,462,000)           (8,122,000)
                                                                               ---------------         -------------

          Cash flows from financing activities:
               S Corporation distributions to shareholders                                  -               (55,000)

               Change in revolving credit agreement                                 5,655,000                     -
               Repurchase of common stock                                          (3,064,000)             (332,000
               Proceeds from exercise of stock options                                 35,000               256,000
               Deferred financing costs                                              (261,000)             (239,000)
               Proceeds from notes payable                                                  -            31,174,000
               Repayment of notes payable                                          (4,369,000)          (25,892,000)
               Repayment of capital lease obligations                                (431,000)             (157,000)
               Repayment of revolving credit agreement                                      -            (5,888,000)
                                                                               ---------------         -------------
          Net cash used in financing activities                                    (2,435,000)           (1,133,000)
                                                                               ---------------         -------------

          Net decrease in cash                                                     (1,540,000)          (1,577,000)
          Cash at beginning of period                                               2,048,000            3,030,000
                                                                               ---------------         -------------

          Cash at end of period                                                $      508,000       $   1,453,000
                                                                               ==============       ================

          Supplemental disclosure of cash flow information - Cash paid for:
          Interest                                                             $    1,626,000        $   2,505,000
                                                                               ==============       ================

          Income tax                                                           $    4,074,000        $   2,415,000
                                                                               ==============       ================


           See accompanying notes to consolidated financial statements

</TABLE>
                                       4
<PAGE>


                                 VDI MULTIMEDIA
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 2000


NOTE 1   -        THE COMPANY

        VDI MultiMedia  ("VDI" or the "Company") is a leading  provider of video
and film asset  management  services to owners,  producers and  distributors  of
entertainment  and  advertising  content.  The  Company  provides  the  services
necessary to edit, master, reformat, digitize, archive and ultimately distribute
its clients' video content.

        The Company  provides  physical and electronic  delivery of commercials,
movie trailers,  electronic press kits,  infomercials and syndicated programming
to  thousands  of  broadcast  outlets  worldwide.  The  Company  operates in one
reportable  segment.  The Company provides  worldwide  electronic  distribution,
using fiber optics and satellites.  Additionally,  the Company  provides a broad
range of video  services,  including  the  duplication  of video in all formats,
element storage,  standards  conversions,  closed  captioning and  transcription
services and video encoding for air play verification purposes. The Company also
provides its customers  value-added post  production,  editing and digital media
services.

        The Company  seeks to  capitalize  on growth in demand for the  services
related to the  distribution  of  entertainment  content,  without  assuming the
production or ownership risk of any specific television program, feature film or
other  form  of  content.  The  primary  users  of the  Company's  services  are
entertainment   studios  and  advertising  agencies  that  generally  choose  to
outsource  such services due to the sporadic  demand of any single  customer for
such services and the fixed costs of maintaining a high-volume physical plant.

        Since  January 1, 1997,  the Company has  successfully  completed  eight
acquisitions  of  companies  providing  similar  services.  The  latest of these
acquisitions occurred in November 2000, as described in Note 7. The Company will
continue to evaluate  acquisition  opportunities  to enhance its  operations and
profitability.  As a result of these acquisitions, VDI believes it is one of the
largest and most diversified providers of technical and distribution services to
the entertainment and advertising industries, and is therefore able to offer its
customers a single source for such services at prices that reflect the Company's
scale economies.

        The  accompanying  restated  unaudited  financial  statements  have been
prepared in accordance  with generally  accepted  accounting  principles and the
Securities and Exchange Commission's rules and regulations for reporting interim
financial  footnotes  required by generally accepted  accounting  principles for
complete  financial  statements.  In the opinion of management,  all adjustments
(consisting of normal  recurring  adjustments)  considered  necessary for a fair
presentation  have been  included.  Operating  results for the nine months ended
September  30, 2000 are not  necessarily  indicative  of the results that may be
expected  for the year ending  December  31, 2000.  These  financial  statements
should be read in  conjunction  with the financial  statements and related notes
contained in the Company's Form 10-K for the year ended December 31, 2000.

NOTE 2  -  ADJUSTMENTS TO PRIOR PERIOD FINANCIAL STATEMENTS

        During 2000, the Company restated  financial results of 1999 and 2000 to
reflect (i) expensing  repairs and maintenance  costs on equipment when incurred
rather than  capitalizing  such costs and depreciating them over future periods;
(ii)  depreciating  leasehold  improvements  over the  shorter of the  estimated
useful asset life or the remaining  lease term rather than ten years;  (iii) the
retroactive write off of undepreciated  leasehold  improvements to correspond to
certain  lease  termination  dates;  (iv) accrual of legal costs  incurred for a
failed merger in the period in which the expenses were incurred;  (v) reflecting
unrecorded invoices;  and (vi) increase of tax provision for nondeductible items
and taxes related to the above restatements.  In addition, the schedule reflects
the adoption of SAB 101 (see Note 3). These  adjustments  for the periods  ended
September 30, 1999 and 2000 are summarized as follows:


                                       5
<PAGE>
<TABLE>
<CAPTION>

                                                                            (INCREASE) DECREASE INCOME
                                                                       1999                            2000
                                                                       ----                            ----
                                                           THREE MONTHS    NINE MONTHS     THREE MONTHS   NINE MONTHS
                                                          --------------- -------------   -------------  -------------
ADJUSTMENTS TO PREVIOUSLY ISSUED FINANCIAL
    STATEMENTS:
To expense repairs and maintenance costs that were
<S>                                                       <C>             <C>             <C>            <C>
   previously capitalized (1)                             $     357,000    $   927,000    $    371,000   $     797,000
To depreciate leasehold improvements over the
     proper period and to write off any undepreciated
   amounts at the lease termination date (2)                    129,000        215,000          40,000         112,000
To recognize merger expenses in the period incurred (3)               -             -                -        (408,000)
To reflect unrecorded invoices (1)                                    -             -           35,000         129,000
To revise tax provision for nondeductible items and
   taxes related to above adjustments                          (129,000)      (261,000)       (187,000)       (264,000)
                                                          --------------- -------------   -------------  -------------
   Subtotal                                                     357,000        881,000         259,000         366,000
                                                          -------------   -------------   -------------  -------------
Cumulative impact of adopting SAB 101 (4)                             -               -       (117,000)        480,000
   Tax effect of adopting SAB 101                                     -               -         49,000        (202,000)
                                                          --------------------------------------------   -------------
       Subtotal                                                       -               -        (68,000)        278,000
                                                          ---------------------------------------------- ------------
Total                                                     $     357,000   $    881,000    $    191,000   $     644,000
                                                          =============   =============   =============  =============

REDUCTION IN PREVIOUSLY REPORTED NET INCOME AFTER TAX
   BENEFIT, AND EARNINGS PER SHARE:
Reduction in net income:
   Adjustments                                            $     357,000   $     881,000   $    259,000   $     366,000
   SAB 101                                                                                     (68,000)        278,000
                                                          -------------   -------------   -------------  -------------
   Total                                                  $     357,000   $     881,000   $    191,000   $     644,000
                                                          =============   =============   ============   =============
Basic earnings per share
   Adjustments                                            $         0.04  $       0.09    $        0.03  $       0.04
   SAB 101                                                             -             -            (0.01)         0.03
                                                          --------------  ------------    -------------  ------------
   Total                                                  $         0.04  $       0.09    $        0.02          0.07
                                                          ==============  ============    =============  ============
Diluted earnings per share
   Adjustments                                            $         0.04  $       0.09    $        0.03  $       0.04
   SAB 101                                                             -             -            (0.01)         0.03
                                                          --------------  ------------    -------------  ------------
   Total                                                  $         0.04  $       0.09    $        0.02  $       0.07
                                                          ==============  ============    =============  ============

</TABLE>
(1) Charged to cost of goods sold
(2) Charged to cost of goods sold and selling, general and administrative
    expense
(3) Credited to selling, general and administrative expense
(4) Charged to revenues

NOTE 3  -  ACCOUNTING PRONOUNCEMENTS

        Effective January 1, 2000, the Company adopted Staff Accounting Bulletin
No. 101 ("SAB 101"), Revenue Recognition in Financial Statements.  The effect of
applying this Staff  Accounting  Bulletin has been  accounted for as a change in
accounting principle,  with a cumulative charge of $322,000, or $0.03 per share,
being recorded on that date.  Previously,  the Company had  recognized  revenues
from certain post production services as work was performed.  Under SAB 101, the
Company now recognizes these revenues when all services have been completed.  As
a result of  adopting  SAB 101,  revenue  recognized  in the nine  months  ended
September 30, 2000, which was included in the cumulative effect adjustment,  was
$555,000.


                                       6
<PAGE>



        The table below sets forth pro forma net income and  earnings  per share
data for the three and nine month  periods  ended  September  30, 1999 as if the
change in accounting policy had been adopted at the beginning of each period.

<TABLE>
<CAPTION>
                                                     Three Months               Nine Months
                                                    -------------               ------------
<S>                                                 <C>                         <C>
   Previously reported (A)                          $ 1,495,000                 $ 4,398,000
   Adjustment                                           (44,000)                     41,000
                                                    -------------               ------------
   Pro forma                                        $ 1,451,000                 $ 4,439,000
                                                    =============               ============
   Adjustment to earnings per share:
   Basic -
   Previously reported (A)                                $0.16                       $0.47
   Adjustment                                                 -                           -
                                                    -------------               ------------
   Pro forma                                              $0.16                       $0.47
                                                    =============               ============
   Diluted -
   Previously reported (A)                                $0.16                       $0.46
   Adjustment                                             (0.01)                          -
                                                    -------------               ------------
   Pro forma                                              $0.15                       $0.46
                                                    =============               ============

</TABLE>
       (A) After retroactive adjustments described above.

NOTE 4  -  STOCK REPURCHASE

        In February 1999, the Company commenced a stock repurchase program.  The
board of  directors  authorized  the  Company to allocate  up to  $4,000,000  to
purchase its common stock at suitable  market  prices.  As of November 10, 2000,
the Company had  repurchased  638,500  shares of the  Company's  common stock in
connection with this program.

        In  September  2000,  the board of directors  authorized  the Company to
allocate an additional $5,000,000 to purchase its common stock.

NOTE 5  -  EMPLOYEE LOAN

        On September 30, 2000,  the Company had a $600,000 loan  outstanding  to
its Chief  Executive  Officer.  The loan is  collateralized  by a trust deed and
bears interest at a rate of 6.19%. The loan is due on or before August 20, 2001.

NOTE 6  -  LONG TERM DEBT AND NOTES PAYABLE

        In November 1998, the Company borrowed $29,000,000 on a term loan with a
bank,  payable in 60 monthly  installments  of $483,000 plus interest.  The term
loan was repaid in 2000 with the proceeds of a new borrowing  arrangement with a
group  of  banks.   Deferred  financing  costs  related  to  the  term  loan  of
approximately  $232,000,  net of tax  benefits of  $168,000,  were  concurrently
written  off and  treated as an  extraordinary  item  during the  quarter  ended
September 30, 2000.

        In  September  2000,  the  Company  entered  into  a  credit   agreement
("Agreement")  with a group of banks providing a revolving credit facility of up
to $45,000,000.  The purpose of the facility was to repay previously outstanding
amounts under a prior  agreement with a bank,  fund working  capital and capital
expenditures and for general  corporate  purposes  including up to $5,000,000 of
stock repurchases under the Company's repurchase program. The Agreement provides
for interest at the banks' reference rate, the federal funds effective rate plus
0.5%,  or  a  LIBOR   adjusted   rate.   Loans  made  under  the  Agreement  are
collateralized by substantially all of the Company's assets.  The borrowing base
under the Agreement is limited to 90% of eligible  accounts  receivable,  50% of
inventory  and 100% of operating  machinery  and  equipment,  which  percentages
decline after 2001 for  receivables and equipment.  The Agreement  provides that
the  aggregate  commitment  will  decline  by  $5,000,000  on each  December  31
beginning  in 2002 until  expiration  of the entire  commitment  on December 31,
2005.

        The Agreement also contains covenants requiring certain levels of annual
earnings before interest,  taxes, depreciation and amortization (EBITDA) and net
worth, and limits the amount of capital expenditures. By September 30, 2000, the
Company had borrowed  $30,024,000  under the Agreement and was not in compliance
with certain financial covenants due to adjustments recorded to prior years' and
2000 results (see Note 2). The bank has waived compliance with the covenants and
the Company has renegotiated the breached financial covenants.


                                       7
<PAGE>

NOTE 7  -  SUBSEQUENT EVENT

        On  November  3,  2000.  VDI  acquired  all of the  assets  and  certain
liabilities of Creative  Digital,  Inc.  Creative Digital provides  creative and
editorial services for national commercials,  promos, film trailers,  television
shows,  music  videos and feature  films.  As  consideration,  the Company  paid
Creative  Digital  $500,000 in cash and assumed certain  liabilities in November
2000.  Additionally,  the Company  issued  Creative  Digital  $350,000 in stock.
Creative Digital may also earn up to $3,000,000 in earn-out payments, subject to
certain earn-out provisions which are predicated upon Creative Digital attaining
certain  earnings  goals, as set forth in the purchase  agreement,  in each year
through December 31, 2005.

                                       8
<PAGE>


                                 VDI MULTIMEDIA
                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

The following  discussion is based on restated financial statements appearing in
this Form 10-Q.  Reference is made to Note 2 of notes to consolidated  financial
statements for an itemization of adjustments.

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1999.

        REVENUES. Revenues decreased by $2.2 million or 11% to $18.1 million for
the three-month  period ended September 30, 2000,  compared to $20.4 million for
the three-month  period ended September 30, 1999.  Revenue for the third quarter
of 1999  included  approximately  $1.5 million for the  completion  of a special
project not related to the Company's core  operations in the  entertainment  and
advertising  industries.  Additionally,  revenues decreased due to a decrease in
the use of the Company's  services in 2000 by certain  customers  resulting from
service  failures  that  occurred  during  the  integration  of its two  largest
facilities  in 1999,  and the loss of certain key sales  personnel.  Advertising
revenues  were also  negatively  impacted by an on-going  actor's  strike in the
advertising industry.

        GROSS PROFIT. Gross profit decreased $0.8 million or 10% to $6.7 million
for the three-month  period ended  September 30, 2000,  compared to $7.5 million
for the  three-month  period ended September 30, 1999. As a percent of revenues,
gross profit  increased  from 36.6% to 37%.  The increase in gross  profits as a
percentage of revenues was due to lower outsourcing  costs, which were partially
offset by higher wages and depreciation  related to the build out of the digital
television services department.

        SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general  and
administrative  expense increased $0.5 million, or 10.7% to $4.7 million for the
three-month  period ended  September 30, 2000,  compared to $4.2 million for the
three-month  period  ended  September  30, 1999.  As a  percentage  of revenues,
selling,   general  and  administrative  expense  increased  to  25.9%  for  the
three-month  period  ended  September  30,  2000,  compared  to  20.8%  for  the
three-month  period ended  September  30, 1999.  This increase was due to higher
administrative  wages  in  the  digital,   television  and  information  systems
departments;   increased  legal,  consulting  and  public  relations  fees;  and
increased depreciation.

        OPERATING INCOME. Operating income decreased $1.2 million or 37.3% to $2
million for the three-month  period ended  September 30, 2000,  compared to $3.2
million for the  three-month  period ended  September  30, 1999 due to the lower
gross profit and increased selling, general and administrative expenses.

        INTEREST EXPENSE.  Interest expense  increased $0.2 million,  or 28%, to
$0.7 million for the three-month  period ended  September 30, 2000,  compared to
$0.6 million for the three-month  period ended September 30, 1999. This increase
was due to increased borrowing under credit facilities.

        INCOME TAXES.  The Company's  effective tax rate was 37.4% for the third
quarter of 2000 and 43.6% for the third quarter of 1999.

        EXTRAORDINARY  ITEM.  During the quarter ended  September 30, 2000,  the
Company  wrote off $0.4  million of deferred  financing  costs  related to prior
credit   facilities  that  were   terminated.   This  item  was  treated  as  an
extraordinary item and is reported net of income taxes.

        NET INCOME.  Net income for the  three-month  period ended September 30,
2000 decreased  $0.9 million or 61.2% to $0.6 million,  compared to $1.5 million
for the three-month period ended September 30, 1999.

NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1999.

        REVENUES.  Revenues  decreased by $3.1 million or 5.3% to $55.7  million
for the nine-month  period ended  September 30, 2000,  compared to $58.8 million
for the nine-month  period ended September 30, 1999.  Revenue decreased due to a
decrease  in the use of the  Company's  services  in 2000 by certain  customers,
resulting from service  failures that occurred during the integration of its two
largest facilities in 1999, and the loss of certain key sales personnel in 2000.
Additionally,  revenue for the third quarter of 1999 included approximately $1.5
million for the  completion  of a special  project not related to the  Company's
core operations in the  entertainment  and advertising  industries.  Advertising
revenues  were also  negatively  impacted by an on-going  actor's  strike in the
advertising industry.

                                       9
<PAGE>

        GROSS  PROFIT.  Gross profit  decreased by $0.8 million or 3.6% to $22.1
million for the nine-month  period ended  September 30, 2000,  compared to $22.9
million for the  nine-month  period ended  September  30, 1999.  As a percent of
revenues,  gross  profit  increased  from 38.9% to 39.6%.  The increase in gross
profit as a percentage of revenues was due primarily to lower  outsourcing costs
and  the  lower  cost of  direct  materials  resulting  from  volume  purchasing
discounts.

        SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general  and
administrative  expense  increased $1.6 million,  or 11.6%, to $15.1 million for
the nine-month  period ended  September 30, 2000,  compared to $13.5 million for
the  nine-month  period ended  September  30, 1999. As a percentage of revenues,
selling,  general and administrative expense increased to 27% for the nine-month
period ended  September 30, 2000,  compared to 22.9% for the  nine-month  period
ended September 30, 1999. This increase was due to an increase in administrative
salaries  related to the digital  television  services and  information  systems
departments;  accrued  severance  costs of $0.4 million in the second quarter of
2000;  increased  legal,  consulting  and public  relations  fees; and increased
depreciation  and $0.8  million in expenses  related to the  termination  of the
proposed merger with an affiliate of Bain Capital.

        OPERATING INCOME. Operating income decreased $2.4 million or 25.3% to $7
million for the  nine-month  period ended  September 30, 2000,  compared to $9.4
million for the  nine-month  period  ended  September  30, 1999 due to the lower
gross  profit  and  increased  selling,  general  and  administrative  expenses,
including expenses related to the terminated merger.

        INTEREST EXPENSE.  Interest expense  increased $0.5 million,  or 30%, to
$2.1 million for the  nine-month  period ended  September 30, 2000,  compared to
$1.6 million for the nine-month  period ended  September 30, 1999. This increase
was due to increased borrowings under the Company's debt agreements.

        INCOME TAXES.  The Company's  effective tax rate was 41.5% for the first
nine months of 2000 and 43.7% for the first nine months of 1999.

        EXTRAORDINARY  ITEM.  During the quarter ended  September 30, 2000,  the
Company  wrote off $0.4  million of deferred  financing  costs  related to prior
credit   facilities  that  were   terminated.   This  item  was  treated  as  an
extraordinary item and is reported net of income taxes.

        CUMULATIVE  EFFECT OF ADOPTING SAB 101.  During Fiscal 2000, the company
adopted SAB 101. The effect of applying this change in accounting principle is a
cumulative charge, after tax, of $322,000, or $0.03 per share.  Previously,  the
Company had recognized revenues from certain  post-production  processes as work
was performed. Under SAB 101, the Company now recognizes these revenues when the
entire project is completed.

        NET INCOME.  Net income for the  nine-month  period ended  September 30,
2000 decreased $2.1 million or 47% to $2.3 million, compared to $4.4 million for
the nine-month period ended September 30, 1999.

LIQUIDITY AND CAPITAL RESOURCES

        This  discussion  should  be read in  conjunction  with the notes to the
financial  statements and the corresponding  information more fully described in
the Company's Form 10-K for the year ended December 31, 2000.

        On  September  30,  2000,  the  Company's  cash  and  cash   equivalents
aggregated $1.5 million.  The Company's  operating  activities  provided cash of
$7.7 million for the nine months ended September 30, 2000.

        The  Company's  investing  activities  used cash of $8.1 million for the
nine months ended  September  30, 2000.  The Company  spent  approximately  $7.1
million  for  the  addition  and  replacement  of  capital   equipment  and  for
investments in digital television services equipment and management  information
systems.  The  Company's  business is equipment  intensive,  requiring  periodic
expenditures of cash or the incurrence of additional debt to acquire  additional
fixed assets in order to increase  capacity or replace existing  equipment.  The
Company expects to spend approximately $3 million on capital expenditures during
the last three  months of 2000 to upgrade  and  replace  equipment,  upgrade the
Company's management information systems and invest in high definition and other
digital equipment.

        The Company's financing activities used cash of $1.1 million in the nine
months ended September 30, 2000. Cash flows from financing  activities  included
the repayment of $31.8 million related to the Company's prior credit  facilities
and the draw down of $31.2  million  under a new credit  facility,  as described
below.

        In September, the Company signed a $45 million revolving credit facility
agented by Union Bank of California.  The new facility provides the Company with
funding  for capital  expenditures,  working  capital  needs and support for its
acquisition  strategies.  The amount available under the facility reduces to $40
million on December  31,  2002,  to $35 million on December  31, 2003 and to $30
million on December 31, 2004.  The facility  expires on December 31, 2005. As of
September 30, 2000, there was $30 million outstanding under the facility.

                                       10
<PAGE>

        Management  believes that cash generated from its ongoing operations and
its  credit  facility  will fund  necessary  capital  expenditures  and  provide
adequate working capital for at least the next twelve months.

        The Company,  from time to time, considers the acquisition of businesses
complementary to its current operations. Consummation of any such acquisition or
other  expansion of the business  conducted by the Company may be subject to the
Company securing additional financing.


CAUTIONARY STATEMENTS AND RISK FACTORS

        In our  capacity  as Company  management,  we may from time to time make
written  or  oral  forward-looking  statements  with  respect  to our  long-term
objectives  or  expectations  which  may be  included  in our  filings  with the
Securities and Exchange  Commission,  reports to  stockholders  and  information
provided in our web site.

        The words or phrases "will likely," "are expected to," "is anticipated,"
"is  predicted,"   "forecast,"   "estimate,"  "project,"  "plans  to  continue,"
"believes," or similar expressions identify "forward-looking  statements" within
the  meaning of the  Private  Securities  Litigation  Reform  Act of 1995.  Such
forward-looking  statements are subject to certain risks and uncertainties  that
could cause actual results to differ  materially  from  historical  earnings and
those  presently  anticipated or projected.  We wish to caution you not to place
undue reliance on any such  forward-looking  statements,  which speak only as of
the date made.  In connection  with the "Safe Harbor"  provisions on the Private
Securities  Litigation  Reform Act of 1995,  we are  calling  to your  attention
important  factors that could affect our financial  performance  and could cause
actual  results for future  periods to differ  materially  from any  opinions or
statements expressed with respect to future periods in any current statements.

        The following list of important factors may not be all-inclusive, and we
specifically   decline  to  undertake  an  obligation  to  publicly  revise  any
forward-looking   statements   that  have  been  made  to   reflect   events  or
circumstances  after the date of such statements or to reflect the occurrence of
anticipated or unanticipated events. Among the factors that could have an impact
on our  ability to achieve  expected  operating  results  and growth  plan goals
and/or  affect  the market  price of our stock  are:

    o   Our highly competitive marketplace.
    o   The risks associated with dependence upon significant customers.
    o   Our ability to execute our expansion strategy.
    o   The uncertain ability to manage growth.
    o   Our  dependence  upon  and  our  ability  to  adapt  to   technological
        developments.
    o   Dependence on key personnel.
    o   Our ability to maintain and improve service quality.
    o   Fluctuation in quarterly  operating  results and seasonality in certain
        of our markets.
    o   Possible  significant  influence over corporate  affairs by significant
        shareholders.
    o   The potential  impact of a possible  labor action  affecting our studio
        and television customers.

These risk factors are discussed further below.

COMPETITION.  Our broadcast video post production,  duplication and distribution
industry is a highly competitive,  service-oriented  business. In general, we do
not have long-term or exclusive service agreements with our customers.  Business
is  acquired  on a  purchase  order  basis and is based  primarily  on  customer
satisfaction with reliability, timeliness, quality and price.

We  compete  with a variety of post  production,  duplication  and  distribution
firms,  some of which  have a national  presence,  and to a lesser  extent,  the
in-house post  production  and  distribution  operations of major motion picture
studios and advertising  agencies.  Some of these firms, and all of the studios,
have greater financial, distribution and marketing resources and have achieved a
higher level of brand recognition than the Company. In the future, we may not be
able to compete  effectively  against these  competitors  merely on the basis of
reliability, timeliness quality and price or otherwise.

We may also face competition from companies in related markets which could offer
similar or  superior  services to those  offered by the  Company.  For  example,
telecommunications   providers  could  enter  the  market  as  competitors  with
materially lower electronic  delivery  transportation  costs. We believe that an
increasingly  competitive  environment  could lead to a loss of market  share or
price  reductions,  which could have a material  adverse effect on our financial
condition, results of operations and prospects.

                                       11
<PAGE>
CUSTOMER AND INDUSTRY  CONCENTRATION.  Although we have an active client list of
over 2,500 customers,  seven motion picture studios  accounted for approximately
38% of the Company's  revenues  during the nine months ended September 30, 2000.
If one or more of these companies were to stop using our services,  our business
could be adversely affected.  Because we derive substantially all of our revenue
from clients in the  entertainment  and  advertising  industries,  the financial
condition,  results of  operations  and  prospects of the Company  could also be
adversely  affected  by an  adverse  change in  conditions  which  impact  those
industries.

EXPANSION STRATEGY.  Our growth strategy involves both internal  development and
expansion through  acquisitions.  We currently have no agreements or commitments
to  acquire  any  company  or  business.  Even  though we have  completed  eight
acquisitions  in the last  three  fiscal  years,  we cannot  be sure  additional
acceptable  acquisitions  will be  available  or  that we will be able to  reach
mutually  agreeable terms to purchase  acquisition  targets,  or that we will be
able to profitably manage additional  businesses or successfully  integrate such
additional  businesses into the Company  without  substantial  costs,  delays or
other problems.

Certain of the businesses previously acquired by the Company reported net losses
for their most  recent  fiscal  years  prior to being  acquired,  and our future
financial  performance  will be in  part  depend  on our  ability  to  implement
operational improvements in, or exploit potential synergies with, these acquired
businesses.

Acquisitions may involve a number of special risks including: adverse effects on
our  reported   operating  results   (including  the  amortization  of  acquired
goodwill),  diversion of management's  attention and  unanticipated  problems or
legal  liabilities.  In addition,  we may require  additional funding to finance
future  acquisitions.  We  cannot  be sure  that  we  will  be  able  to  secure
acquisition  financing  on  acceptable  terms or at all. We may also use working
capital or equity, or raise financing through equity offerings or the incurrence
of debt, in connection with the funding of any acquisition. Some or all of these
risks could negatively affect our financial condition, results of operations and
prospects  or  could  result  in  dilution  to the  Company's  shareholders.  In
addition,  to the  extent  that  consolidation  becomes  more  prevalent  in the
industry,  the prices  for  attractive  acquisition  candidates  could  increase
substantially. We may not be able to effect any such transactions. Additionally,
if we are able to complete such transactions they may prove to be unprofitable.

The  geographic  expansion of the  Company's  customers  may result in increased
demand for services in certain  regions  where it  currently  does not have post
production, duplication and distribution facilities. To meet this demand, we may
subcontract.  However,  we have not  entered  into any  formal  negotiations  or
definitive agreements for this purpose.  Furthermore,  we cannot assure you that
we will be able to effect such  transactions or that any such  transactions will
prove to be profitable.

MANAGEMENT  OF GROWTH.  During the last four years  (except  for 2000),  we have
experienced rapid growth that has resulted in new and increased responsibilities
for management personnel and has placed and continues to place increased demands
on  our  management,   operational  and  financial  systems  and  resources.  To
accommodate this growth,  compete  effectively and manage future growth, we will
be required to continue to implement and improve our operational,  financial and
management  information systems, and to expand,  train,  motivate and manage our
work force. We cannot be sure that the Company's personnel,  systems, procedures
and controls will be adequate to support our future  operations.  Any failure to
do so could have a material adverse effect on our financial  condition,  results
of operations and prospects.

DEPENDENCE ON TECHNOLOGICAL DEVELOPMENTS. Although we intend to utilize the most
efficient  and  cost-effective   technologies   available  for  telecine,   high
definition  formatting,  editing,  coloration  and  delivery  of video  content,
including digital  satellite  transmission,  as they develop,  we cannot be sure
that we will be able to adapt to such  standards in a timely  fashion or at all.
We believe our future growth will depend in part, on our ability to add to these
services and to add customers in a timely and  cost-effective  manner. We cannot
be sure we will be successful in offering such services to existing customers or
in obtaining new customers for these  services,  including the Company's  recent
significant investment in high definition technology. We intend to rely on third
part vendors for the development of these technologies and there is no assurance
that such  vendors will be able to develop  such  technologies  in a manner that
meets the needs of the Company and its customers.  Any material  interruption in
the supply of such services could  materially and adversely affect the Company's
financial condition, results of operations and prospects.

DEPENDENCE  ON KEY  PERSONNEL.  The  Company is  dependent  on the  efforts  and
abilities  of certain of its senior  management,  particularly  those of R. Luke
Stefanko,  Chairman of the Board of Directors and Chief Executive  Officer.  The
loss or interruption  of the services of key members of management  could have a
material  adverse effect on our financial  condition,  results of operations and
prospects if a suitable  replacement is not promptly obtained.  Although we have
employment  agreements with Mr. Stefanko and certain of our other key executives
and technical personnel, we cannot be sure that such executives will remain with

                                     12
<PAGE>
the  Company  during  or  after  the  term of their  employment  agreements.  In
addition,  our  success  depends to a  significant  degree  upon the  continuing
contributions  of,  and  on  our  ability  to  attract  and  retain,   qualified
management,   sales,   operations,   marketing  and  technical  personnel.   The
competition for qualified personnel is intense and the loss of any such persons,
as well as the failure to recruit  additional  key personnel in a timely manner,
could have a material  adverse  effect on our  financial  condition,  results of
operations and prospects. There is no assurance that we will be able to continue
to  attract  and  retain  qualified  management  and  other  personnel  for  the
development of our business.

ABILITY TO MAINTAIN AND IMPROVE  SERVICE  QUALITY.  Our business is dependent on
our  ability to meet the  current  and future  demands of our  customers,  which
demands include  reliability,  timeliness,  quality and price. Any failure to do
so,  whether or not caused by factors  within our control could result in losses
to such clients. Although we disclaim any liability for such losses, there is no
assurance that claims would not be asserted or that dissatisfied customers would
refuse  to make  further  deliveries  through  the  Company  in the  event  of a
significant  occurrence of lost deliveries,  either of which could have material
adverse effect on our financial condition,  results of operations and prospects.
Although we maintain insurance against business interruption, such insurance may
not  be  adequate  to  protect  the  Company  from  significant  loss  in  these
circumstances  or that a major  catastrophe  (such  as an  earthquake  or  other
natural disaster) would not result in a prolonged  interruption of our business.
In addition, our ability to make deliveries within the time periods requested by
customers  depends  on a number of  factors,  some of which are  outside  of our
control, including equipment failure, work stoppages by package delivery vendors
or interruption in services by telephone or satellite service providers.

FLUCTUATING RESULTS, SEASONALITY. Our operating results have varied in the past,
and may  vary  in the  future,  depending  on  factors  such  as the  volume  of
advertising in response to seasonal buying  patterns,  the timing of new product
and service introductions, the timing of revenue recognition upon the completion
of longer term projects, increased competition, timing of acquisitions,  general
economic   factors   and  other   factors.   As  a  result,   we  believe   that
period-to-period  comparisons of our results of operations  are not  necessarily
meaningful and should not be relied upon as an indication of future performance.
For  example,   our  operating  results  have  historically  been  significantly
influenced by the volume of business from the motion picture industry,  which is
an  industry  that  is  subject  to  seasonal  and  cyclical   downturns,   and,
occasionally,  work stoppages by actors, writers and others. In addition, as our
business from advertising  agencies tends to be seasonal,  our operating results
may be subject to  increased  seasonality  as the  percentage  of business  from
advertising  agencies  increases.  In any period  our  revenues  are  subject to
variation  based on changes in the volume and mix of services  performed  during
the period.  It is possible that in some future quarter the Company's  operating
results  will  be  below  the  expectations  of  equity  research  analysts  and
investors.  In such event,  the price of the Company's Common Stock would likely
be materially  adversely affected.  Fluctuations in sales due to seasonality may
become more pronounced if the growth rate of the Company's sales slows.

CONTROL  BY  PRINCIPAL  SHAREHOLDER;  POTENTIAL  ISSUANCE  OF  PREFERRED  STOCK;
ANTI-TAKEOVER PROVISIONS. The Company's Chairman,  President and Chief Executive
Officer,  R.  Luke  Stefanko,   beneficially  owned  approximately  28%  of  the
outstanding common stock as of December 31, 2000. Mr. Stefanko's ex-spouse owned
approximately  25% of the  common  stock  on that  date.  Together,  they  owned
approximately  59%. In August 2000, Mr. Stefanko was granted a one-time proxy to
vote his ex-spouse's  shares in connection with the election of directors at the
Company's annual meeting. By virtue of his stock ownership,  Mr. Stefanko may be
able to significantly  influence the outcome of matters required to be submitted
to a vote of shareholders, including (i) the election of the board of directors,
(ii) amendments to the Company's  Restated  Articles of Incorporation  and (iii)
approval of mergers and other significant corporate transactions.  The foregoing
may have the effect of  discouraging,  delaying or  preventing  certain types of
transactions  involving an actual or potential change of control of the Company,
including  transactions  in which the holders of common  stock  might  otherwise
receive a premium for their  shares over  current  market  prices.  Our Board of
Directors  also has the  authority to issue up to 5,000,000  shares of preferred
stock  without par value (the  "Preferred  Stock") and to  determine  the price,
rights,  preferences,  privileges and  restrictions  thereof,  including  voting
rights,  without  any  further  vote or  action by the  Company's  shareholders.
Although we have no current  plans to issue any shares of Preferred  Stock,  the
rights of the holders of common  stock would be subject to, and may be adversely
affected by, the rights of the holders of any Preferred Stock that may be issued
in  the  future.   Issuance  of  Preferred   Stock  could  have  the  effect  of
discouraging,  delaying,  or  preventing  a change in  control  of the  Company.
Furthermore,   certain   provisions  of  the  Company's   Restated  Articles  of
Incorporation  and By-Laws and of  California  law also could have the effect of
discouraging, delaying or preventing a change in control of the Company.

POSSIBLE   STRIKE   AFFECTING  OUR  CUSTOMERS.   In  May  2001  and  July  2001,
screenwriters  and actors,  respectively,  may conduct a work stoppage  directly
affecting our studio and television customers. We cannot predict the length of a
strike by  either  of these  groups  or the  ultimate  impact on our  customers'
production  and ability to provide  work to the Company.  Either work  stoppage,
should it occur,  could have a material adverse effect on the Company's  results
of operations.

                                       13

<PAGE>

                                 VDI MULTIMEDIA

                           PART II - OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company's Annual Meeting of Shareholders was held on August 15, 2000. At the
meeting,  shareholders  voted on: (i) the  election of  directors to hold office
until the next  annual  meeting of  shareholders  of the  Company or until their
successors are duly elected and qualified,  and (ii) approval of the appointment
of  PricewaterhouseCoopers  LLP as the Company's  independent public accountants
for the fiscal year ending December 31, 2000.

1.         Election of Directors

The following individuals were elected as directors at the Annual Meeting of
Shareholders:

               Name                           Votes For           Votes Withheld
               ----                           ---------           --------------

           R. Luke Stefanko                   5,999,371               11,400
           Haig S. Bagerdijan                 5,999,371               11,400
           Robert A. Baker                    5,999,371               11,400
           Greggory J. Hutchins               5,999,371               11,400
           Robert M. Loeffler                 5,999,371               11,400

2. The appointment by the Board of Directors of the Company of
PricewaterhouseCoopers LLP as the Company's independent auditors for the fiscal
year ending December 31, 2000 was ratified with 6,009,571 for the proposal,
1,200 against the proposal, 0 votes abstaining and 0 broker nonvotes.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

    (A)    EXHIBIT NO.              DESCRIPTION
           -----------              -----------

            10.1              Second Amended and Restated Credit Agreement
                              (Filed with the SEC on November 14, 2000 as an
                              exhibit to the Company's Form 10-Q and
                              incorporated herein by reference)

    (B)    REPORTS ON FORM 8-K
           -------------------

               The Company filed a Current Report on Form 8-K covering Item 4
               above on or about July 26, 2000 relating to changes in the
               Company's management and board of directors.


                                       14
<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.



                             VDI MULTIMEDIA



DATE:   May 9, 2001          BY:/s/  Alan Steel
                                ------------------------------
                                Alan Steel
                                Executive Vice President, Finance
                                  and Administration (duly authorized officer
                                  and principal financial officer)