Unassociated Document

	June 30,			March 31,
	2008			2009
Assets				(unaudited)
Current assets:
Cash and cash equivalents	$	13,056,000		$	7,047,000
Accounts receivable, net of allowances for doubtful accounts of $541,000 and $526,000,
respectively		6,971,000			8,638,000
Inventories, net		502,000			430,000
Prepaid expenses and other current assets		667,000			646,000
Prepaid income taxes		1,441,000			2,142,000
Deferred income taxes		490,000			490,000
Total current assets		23,127,000			19,393,000

Property and equipment, net		8,667,000			15,684,000
Deferred income taxes		210,000			187,000
Other assets, net		533,000			317,000
Goodwill		9,820,000			9,961,000
Total assets	$	42,358,000		$	45,542,000

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,716,000		$	1,504,000
Accrued wages and benefits		2,109,000			1,775,000
Other accrued expenses		816,000			520,000
Current portion of borrowings under notes payable and capital lease obligations		1,810,000			1,962,000
Current portion of deferred gain on sale of real estate		178,000			178,000

Total current liabilities		6,631,000			5,940,000

Notes payable and capital lease obligations, less current portion		2,839,000			7,458,000
Deferred gain on sale of real estate, less current portion		2,089,000			1,955,000

Total long-term liabilities		4,928,000			9,413,000

Total liabilities		11,558,000			15,353,000

Commitments and contingencies		-			-

Shareholders’ equity
Preferred stock – no par value; 5,000,000 shares authorized; none outstanding		-			-
Common stock – no par value; 50,000,000 shares authorized; 10,553,410 and 10,225,300
shares issued and outstanding, respectively		21,583,000			21,124,000
Additional paid-in capital		9,320,000			9,491,000
Retained earnings (deficit)		(103,000	)		(426,000	)
Total shareholders’ equity		30,800,000			30,189,000

Total liabilities and shareholders’ equity	$	42,358,000		$	45,542,000

	Three Months Ended March 31,						Nine Months Ended March 31,
	2008			2009			2008			2009
Revenues	$	11,284,000		$	11,104,000		$	33,785,000		$	34,548,000
Cost of services		(7,361,000	)		(7,513,000	)		(23,600,000	)		(22,901,000	)

Gross profit		3,923,000			3,591,000			10,185,000			11,647,000
Selling, general and administrative expense		(3,713,000	)		(4,267,000	)		(10,858,000	)		(11,968,000	)
Restructuring costs		-			-			(513,000	)		-

Operating income (loss)		210,000			(676,000	)		(1,186,000	)		(321,000	)
Interest expense		(49,000	)		(177,000	)		(398,000	)		(502,000	)
Interest income		7,000			2,000			293,000			46,000
Other income (expense)		100,000			13,000			100,000			152,000

Income (loss) before income taxes		269,000			(838,000	)		(1,191,000	)		(625,000	)
(Provision for) benefit from income taxes		(119,000	)		394,000			159,000			302,000
Net income (loss)	$	150,000		$	(444,000	)	$	(1,032,000	)	$	(323,000	)

Earnings (loss) per share:
Basic:
Net income (loss)	$	0.01		$	(0.04	)	$	(0.10	)	$	(0.03	)
Weighted average number of shares		10,553,410			10,319,664			10,553,410			10,421,256
Diluted:
Net income (loss)	$	0.01		$	(0.04	)	$	(0.10	)	$	(0.03	)
Weighted average number of shares including the dilutive effect of stock options		10,553,410			10,319,664			10,553,410			10,421,256

	Nine Months Ended March 31,
	2008			2009
Cash flows from operating activities:
Net income (loss)	$	(1,032,000	)	$	(323,000	)
Stock based compensation expense		-			171,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,528,000			3,643,000
Provision for doubtful accounts		41,000			(15,000	)
Changes in assets and liabilities:
(Increase) in accounts receivable		(681,000	)		(1,652,000	)
Decrease in inventories		1,000			72,000
(Increase) in prepaid expenses and other current assets		(161,000	)		(680,000	)
(Increase) decrease in other assets		(3,000	)		222,000
(Increase) decrease in deferred tax asset		54,000			23,000
(Decrease) in accounts payable		(1,030,000	)		(212,000	)
(Decrease) in accrued expenses		(445,000	)		(629,000	)
Decrease in income taxes payable		-			-
Increase in deferred taxes		10,000			-

Net cash (used in) operating activities		282,000			620,000

Cash used in investing activities:
Capital expenditures		(1,400,000	)		(10,384,000	)
Investment in Acquisitions		-			(422,000	)
Net cash used in investing activities		(1,400,000	)		(10,806,000	)

Cash flows provided by (used in) financing activities:
Amortization of deferred gain on sale of real estate.		(140,000	)		(134,000	)
Stock compensation and stock buyback		-			(459,000	)
Decrease in invested equity		7,155,000			-
Increase (decrease) in notes payable		(774,000	)		4,612,000
Repayment of capital lease		(5,000	)		(96,000	)
Acquisition of capital lease		-			254,000
Net cash provided by (used in) financing activities		6,236,000			4,177,000

Net increase (decrease) in cash		5,118,000			(6,009,000	)
Cash and cash equivalents at beginning of period		7,302,000			13,056,000

Cash and cash equivalents at end of period	$	12,420,000		$	7,047,000

Supplemental disclosure of cash flow information -
Cash paid for:
Interest	$	402,000		$	474,000
Income tax	$	15,000		$	375,000

The Company provides high definition and standard definition digital mastering, data conversion, video and film asset management and sophisticated computer graphics services to owners, producers and distributors of entertainment and advertising content. The Company provides the services necessary to edit, master, reformat, convert, archive and ultimately distribute its clients’ film and video content, including television programming feature films and movie trailers. The Company’s interconnected facilities provide service coverage to all major U.S. media centers.

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 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.

On August 14, 2007, pursuant to the terms of an Agreement and Plan of Merger and Reorganization among DG FastChannel, Inc. (“DG FastChannel”), Point.360 (“Old Point.360”) and New 360 (“the Company”), a wholly owned subsidiary of Old Point.360, (the “Merger Agreement”), Old Point.360 was merged into DG FastChannel, with DG FastChannel continuing as the surviving corporation (the “Merger”).

On August 13, 2007, prior to the completion of the Merger, (1) Old Point.360 contributed to the Company (the “Contribution”) all of the assets used by Old Point.360 in its post-production business and all other assets owned, licensed, or leased by Old Point.360 that were not used exclusively in connection with the business of Old Point.360 representing advertising agencies, advertisers, brands, and other media companies which require services for short-form media content (the “ADS Business”), with the Company assuming certain liabilities of Old Point.360 and (2) Old Point.360 distributed to its shareholders on a pro rata basis all of the outstanding common stock of the Company (the “Spin-Off”).

In the Spin-off, each Old Point.360 shareholder received one share of Company common stock (and a related preferred share purchase right) for each share of Old Point.360 common stock held by the shareholder as of the record date of August 7, 2007. As a result of the Contribution and the Spin-off, the assets and liabilities of Old Point.360 acquired by DG FastChannel in the Merger consisted only of those assets and liabilities exclusively related to the ADS Business. Immediately after the completion of the Spin-off, DG FastChannel contributed to the Company shares of the Company common stock that it received in the Spin-off as a shareholder of Old Point.360. As a result of the Spin-off, the Company became a publicly held company whose common stock is traded on the NASDAQ Global Market and is registered under Section 12 of the Securities Exchange Act of 1934. Subsequent to the Merger, the Company changed its name back to Point.360.

The accompanying Consolidated Financial Statements include the accounts and transactions of the Company, including those of the Company’s only subsidiary, International Video Conversions, Inc. (“IVC”). The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in the consolidated Financial Statements.

The Company’s consolidated results of operations, financial position and cash flow may not be indicative of its future performance and do not necessarily reflect what the consolidated results of operations, financial position and cash flows would have been had the Company operated as a separate, stand-alone entity during the periods presented, including changes in its operations and capitalization as a result of the separation and distribution form Old Point.360.

The accompanying 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 statements and footnotes. 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 three month and nine month periods ended March 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2009. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s Forms 10-K and 10-K/A for the period ended June 30, 2008.

On December 30, 2005, Old Point.360 entered into a new $10 million term loan agreement. The term loan provides for interest at LIBOR (1.80% as of March 31, 2009) plus 3.15%, or 4.95% on that date, and is secured by equipment. The term loan will be repaid in 60 equal monthly principal payments plus interest. Proceeds of the term loan were used to repay a previously existing term loan. In March 2006, Old Point.360 prepaid $4 million of the term loan. Monthly principal payments were subsequently reduced pro rata.

In August 2007, the Company entered into a new credit agreement which provides up to $8 million of revolving credit. The two-year agreement provides for interest at either (i) prime (3.25% as of March 31, 2009) minus 0% - 1.00% or (ii) LIBOR plus 1.5% - 2.5%, depending on the level of the Company’s ratio of outstanding debt to fixed charges (as defined), or 2.75% and 3.80%, respectively, on March 31, 2009. The facility is secured by all of the Company’s assets, except for equipment securing the term loans. The revolving credit agreement requires the Company to comply with various financial and business covenants. There are cross default provisions contained in both the revolving and term loan agreements. No amount was outstanding under the credit agreement as of March 31, 2009.

In July 2008, the Company entered into a Promissory Note with a bank (the “Note”) in order to purchase land and a building that has been occupied by the Company since 1998 (the total purchase price was approximately $8.1 million, of which $2.4 million was allocated to land). Pursuant to the Note, the Company borrowed $6,000,000 payable in monthly installments of principal and interest on a fully amortized bases over 30 years at an initial five-year interest rate of 7.1% and thereafter at a variable rate equal to LIBOR plus 3.6% (5.4% as of March 31, 2009). The mortgage debt is secured by the land and building.

In March 2006, Old Point.360 entered into a sale and leaseback transaction with respect to its Media Center vaulting real estate. The real estate was sold for approximately $14.0 million resulting in a $1.3 million after tax gain. Additionally, Old Point.360 received $0.5 million from the purchaser for improvements. In accordance with SFAS No. 28, “Accounting for Sale and Leasebacks,” the gain will be amortized over the initial 15-year lease term as reduced rent. Net proceeds at the closing of the sale and improvement advance (approximately $13.8 million) were used to pay off the mortgage and other outstanding debt.

All rights and obligations under the lease were transferred to the Company in the Spin-off. The lease is treated as an operating lease for financial reporting purposes. After the initial lease term, the Company has four five-year options to extend the lease. Minimum annual rent payments for the initial five years of the lease are $1,111,000, increasing annually thereafter based on the Consumer Price Index change from year to year.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No.48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“FAS 109”). This interpretation prescribes a recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company assumed all liability for income taxes of Old Point.360 related to operations prior to the Spin-off and Merger. Effectively, the Company therefore adopted FIN 48, effective January 1, 2007. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal state or local income tax examinations by tax authorities for years before 2002. The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. Old Point.360, and consequently, the Company, were last audited by New York taxing authorities for the years 2002 through 2004 resulting in no change. Old Point.360 and, consequently, the Company, was previously notified by the U.S Internal Revenue Service of its intent to audit the calendar 2005 tax return. The audit has since been cancelled by the IRS without change; however, the audit could be reopened at the IRS’ discretion. Upon the implementation of FIN 48, the Company did not recognize any increase in the liability for unrecognized tax benefits. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48.

Under the 2007 Plan, the stock option price per share for options granted is determined by the Board of Directors and is based on the market price of the Company’s common stock on the date of grant, and each option is exercisable within the period and in the increments as determined by the Board, except that no option can be exercised later than ten years from the grant date. The stock options generally vest in one to five years.

The Company has adopted SFAS 123(R) which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. SFAS 123(R) requires companies to estimate the fair value of the award that is ultimately expected to vest to be recognized as expense over the requisite service periods in our Consolidated Statements of Income (Loss).

SFAS 123(R) requires companies to estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Consolidated Statements of Income (Loss). Stock-based compensation expense recognized in the Consolidated Statements of Income (Loss) for the quarter and nine months ended March 31, 2009 included compensation expense for the share-based payment awards based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). For stock-based awards issued to employees and directors, stock-based compensation is attributed to expense using the straight-line single option method. As stock-based compensation expense recognized in the Statements of Consolidated Income (Loss) for the periods reported in this Form 10-Q is based on awards expected to vest, SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the periods being reported in this Form 10-Q, expected forfeitures are immaterial. The Company will re-assess the impact of forfeitures if actual forfeitures increase in future quarters. Stock-based compensation expense related to employee or director stock options recognized for the three and nine month periods ended March 31, 2009 was $54,000 ($32,000 net of tax benefit) and $171,000 ($103,000 net of tax benefit), respectively.

The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant uses the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the expected term of the awards, and actual and projected employee stock options exercise behaviors. The Company estimates expected volatility using historical data. The expected term is estimated using the “safe harbor” provisions under SAB 110.

As of March 31, 2009, there were options outstanding to acquire 1,323,550 shares at an average exercise price of $1.66 per share. The estimated fair value of all awards granted during the nine months ended March 31, 2009 was $119,000. The fair value of each option was estimated on the date of grant using the Black-Scholes option–pricing model with the following weighted average assumptions:

				Weighted
				Average
	Number			Exercise
	of Shares			Price
Balance at June 30, 2008		1,045,600		$	1.79
Granted		-			-
Exercised		-			-
Cancelled		-			-
Balance at September 30, 2008		1,045,600		$	1.79
Granted		30,000			1.37
Exercised		-			-
Cancelled		(5,000	)		1.79
Balance at December 31, 2008		1,070,600		$	1.78
Granted		279,450			1.20
Exercised		-			-
Cancelled		(26,500	)		1.79
Balance at March 31, 2009		1,323,550		$	1.66

As of June 30, 2008	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Intrinsic Value
Employees – Outstanding		945,600	$	1.79		4.63	$	-
Employees – Expected to Vest		851,040	$	1.79		4.63	$	-
Employees – Exercisable		-	$	-		-	$	-

Non-Employees-Outstanding		100,000	$	1.79		4.63	$	-
Non-Employees-Vested		-	$	-		4.63	$	-
Non-Employees-Exercisable		-	$	-		-	$	-

As of March 31, 2009	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Intrinsic Value
Employees – Outstanding		1,193,550	$	1.65		4.11	$	-
Employees – Expected to Vest		1,074.195	$	1.65		4.11	$	-
Employees – Exercisable		228,525	$	1.79		3.88	$	-

Non-Employees – Outstanding		130,000	$	1.69		4.05	$	-
Non-Employees – Vested		55,000	$	1.56		4.28	$	-
Non-Employees – Exercisable		55,000	$	1.56		4.28	$	-

We have elected to adopt the detailed method provided in SFAS 123(R) for calculating the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS 123(R).

In July 2007, the Company implemented a stock rights program. Pursuant to the program, stockholders of record on August 7, 2007, received a dividend of one right to purchase for $10 one one-hundredth of a share of a newly created Series A Junior Participating Preferred Stock. The rights are attached to the Company’s Common Stock and will also become attached to shares issued subsequent to August 7, 2007. The rights will not be traded separately and will not become exercisable until the occurrence of a triggering event, defined as an accumulation by a single person or group of 20% or more of the Company’s Common Stock. The rights will expire on August 6, 2017 and are redeemable at $0.0001 per right.

After a triggering event, the rights will detach from the Common Stock. If the Company is then merged into, or is acquired by, another corporation, the Company has the opportunity to either (i) redeem the rights or (ii) permit the rights holder to receive in the merger stock of the Company or the acquiring company equal to two times the exercise price of the right (i.e., $20). In the latter instance, the rights attached to the acquirer’s stock become null and void. The effect of the rights program is to make a potential acquisition of the Company more expensive for the acquirer if, in the opinion of the Company’s Board of Directors, the offer is inadequate.

	Common Stock			Pain-in Capital		Retained Earnings			Shareholders’ Equity
Balance, June 30, 2008		21,583		$	9,320	$	(103	)	$	30,800
FAS 123R option expense		-			51		-			51
Net income (loss)		-			-		(45	)		(45	)
Stock buyback		(94	)		-		-			(94	)
Balance, September 30, 2008		21,488			9,371		(148	)		30,711

FAS 123R option expense		-			66		-			66
Net income (loss)		-			-		167			167
Stock buyback		(151	)		-		-			(151	)
Balance, December 31, 2008		21,337			9,437		19			30,793
FAS 123R option expense		-			54		-			54
Net income (loss)		-			-		(445	)		(445	)
Stock buyback		(213	)		-		-			(213	)

Balance, March 31, 2009	$	21,124		$	9,491	$	(426	)	$	30,189

In February 2008, the Company’s Board of Directors authorized a stock repurchase program. Under the stock repurchase program, the Company may purchase outstanding shares of its common stock on the open market at such times and prices determined in the sole discretion of management. During the three and nine month periods ended March 31, 2009, the Company purchased 166,200 and 328,110 shares for $213,000 and $459,000, respectively. In April and May 2009, the Company purchased an additional 76,600 shares for $99,000.

On September 29, 2008, the Company and Centerstaging Musical Productions, Inc. (“CMPI”) entered an Asset Purchase Agreement (the “Agreement”) whereby the Company intends to acquire certain assets of CMPI for $3 million and the assumption of up to $1.3 million of equipment financing obligations subject to bankruptcy court approval and overbid in CMPI’s pending Chapter 11 bankruptcy case. The Company was approved as the “stalking horse” bidder pursuant to a motion to approve sale procedures in the United States Bankruptcy Court.

CMPI is primarily engaged in the business of (i) providing production and support services for live musical performances for major television programs; (ii) renting its studio and soundstage facilities, and (iii) renting musical instruments and related equipment for use at its studios and other venues as debtor and debtor in possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. The Agreement provides that CMPI will sell, transfer, convey, assign and deliver to the Company, in accordance with Section 363 and 365 and the other applicable provisions of the Bankruptcy Code, certain assets and liabilities of CMPI upon the terms and subject to the conditions set forth in the Agreement.

The proposed sale of CMPI’s assets to the Company was subject to overbid pursuant to sale procedures approved by the Bankruptcy Court and any sale will be pursuant to a Sale Order of the Bankruptcy Court approving such sale under Section 363 of the Bankruptcy Code and will include the assumption and assignment of certain executory contracts, unexpired leases and liabilities thereunder pursuant to Section 365 of the Bankruptcy Code and the terms and conditions of the Agreement. Another party offered to purchase the CMPI assets for an amount in excess of that proposed by the Company, and the Court approved the sale. The sale failed to close by the December 31, 2008 deadline established by the Court. The Company is once again considering the purchase and may submit a new offer to the Court.

On April 6, 2009, the Company acquired the assets and business of Moving Images NY LLC (“MI”) for approximately $800,000 - $300,000 in cash and the assumption of approximately $500,000 of capital equipment lease obligations. In the transaction, the Company assumed the real estate obligations of MI with respect to the lease of 11,000 square feet of office space in New York City. The Lease Agreement provides for rental payments totaling approximately $4.5 million from April 6, 2009 through June 30, 2016. The Lease Agreement may be terminated by Point.360 after December 31, 2010 upon 12 months written notice and the payment of a $300,000 termination fee, which fee shall decline to $200,000 if the lease is terminated after December 31, 2011.

Except for the historical information contained herein, certain statements in this quarterly report are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, which involve certain risks and uncertainties, which could cause actual results to differ materially from those discussed herein, including but not limited to competition, customer and industry concentration, dependence on technological developments, risks related to expansion, dependence on key personnel, fluctuating results and seasonality and control by management.

Point.360 is one of the largest providers of video and film asset management services to owners, producers and distributors of entertainment content. We provide the services necessary to edit, master, reformat and archive our clients’ film and video content, including television programming, feature films and movie trailers using electronic and physical means. Clients include major motion picture studios and independent producers.

We operate in a highly competitive environment in which customers desire a broad range of services at a reasonable price. There are many competitors offering some or all of the services provided by us. Additionally, some of our customers are large studios, which also have in-house capabilities that may influence the amount of work outsourced to companies like Point.360. We attract and retain customers by maintaining a high service level at reasonable prices.

The market for our services is primarily dependent on our customers’ desire and ability to monetize their entertainment content. The major studios derive revenues from re-releases and/or syndication of motion pictures and television content. While the size of this market is not quantifiable, we believe studios will continue to repurpose library content to augment uncertain revenues from new releases. The current uncertain economic environment and entertainment industry labor unrest have negatively impacted the ability and willingness of independent producers to create new content.

The demand for entertainment content should continue to expand through web-based applications. We believe long and short form content will be sought by users of personal computers, hand held devices and home entertainment technology. Additionally, changing formats from standard definition, to high definition, to Blu Ray and perhaps to 3D will continue to give us the opportunity to provide new services with respect to library content.

To meet these needs, we must be prepared to invest in technology and equipment, and attract the talent needed to serve our client needs. Labor, facility and depreciation expenses constitute approximately 75% of our cost of sales. Our goals include maximizing facility and labor usage, and maintaining sufficient cash flow for capital expenditures and acquisitions of complementary businesses to enhance our service offerings.

We have an opportunity to expand our business by establishing closer relationships with our customers through excellent service at a competitive price and adding to our service offering. Our success is also dependent on attracting and maintaining employees capable of maintaining such relationships. Also, growth can be achieved by acquiring similar businesses (for example, the acquisitions of IVC in July 2004, Eden FX in March 2007 and those described above) that can increase revenues by adding new customers, or expanding current services to existing customers.

Revenues. Revenues were $11.1 million for the three months ended March 31, 2009, compared to $11.3 million for the quarter ended March 31, 2008. The current period revenues were similar to the previous four calendar quarters. No unusual trends have been noted; however, revenues may come under some downward pressure in the future due to lower prices that might occur if major studios reduce output due to current difficult economic considerations and other competitors reduce pricing to compete for our business.

Cost of Services. Costs of services consist principally of wages and benefits, facility costs and depreciation of physical assets. During the quarter ended March 31, 2009, total costs of services were 67.7% of sales compared to 65.2% in the prior year’s period. While wages and benefits and depreciation costs were consistent between periods, facility expenses declined by $89,000 due to elimination of rent for one of our Burbank facilities which we purchased in July 2008. Offsetting the reduction in rent was an increase in the cost of outsourced work of $163,000 due to unusually fast turnaround requirements for a particular project (we occasionally farm out certain tasks for which we have insufficient production capacity). While outsourcing generally involves lower margins, it allows us to better meet infrequent unusually fast delivery time requirements of our clients.

Gross Profit. In 2009, gross margin was 32.3% of sales, compared to 34.8% for the same period last year. The decline in gross profit percentage is due to the cost services of factors cited above. From time to time, we will increase staff capabilities to satisfy potential customer demand. If the expected demand does not materialize, we will adjust personnel levels. We expect gross margins to fluctuate in the future as the sales mix changes.

Selling, General and Administrative Expense. SG&A expense was $4.3 million (38.4% of sales) in the 2009 period as compared to $3.7 million (32.9% of sales) in 2008. During the quarter ended March 31, 2009, the Company incurred approximately $319,000 of costs associated with documentation of its internal control processes in anticipation of performing its first management assessment of internal controls for the fiscal year ended June 30, 2009. Additionally, the Company spent approximately $257,000 in consulting fees to improve its information technology infrastructure. Excluding these costs, SG&A expenses for the quarter ended March 31, 2009 were $3.7 million, or 33.4% of sales.

Revenues. Revenues were $34.5 million for the nine months ended March 31, 2009, compared to $33.8 million for the period ended March 31, 2008. We expect revenues to come under some downward pressure in the future if major studios reduce output due to current difficult financial conditions and other competitors reduce prices to compete for our business. However, we continue to invest in high definition capabilities where demand is expected to grow. We believe our high definition service platform will attract additional business in the future.

Cost of Services. Costs of services consist principally of wages and benefits, facility costs and depreciation of physical assets. During the nine months ended March 31, 2009, total costs of services were 66.3% of sales compared to 69.9% in the prior year’s period. While depreciation costs were consistent between periods, wages and benefits declined $406,000 due to personnel reductions following the August 2007 divestiture of the ADS Business. Additionally, facility expenses declined $349,000 due to elimination of rent for one of our Burbank facilities which we purchased in July 2008. Offsetting the reductions was an increase in the cost of outsourced work of $235,000 due to unusually fast turnaround requirements for several projects (we occasionally farm out certain tasks for which we have insufficient production capacity). While outsourcing generally involves lower margins, it allows us to better meet infrequent unusually fast delivery time requirements of our clients.

Gross Profit. In 2009, gross margin was 33.7% of sales, compared to 30.1% for the same period last year. The increase in gross profit percentage is due to the factors cited above. From time to time, we will increase staff capabilities to satisfy potential customer demand. If the expected demand does not materialize, we will adjust personnel levels. We expect gross margins to fluctuate in the future as the sales mix changes.

Selling, General and Administrative Expense. SG&A expense was $12.0 million (34.6% of sales) in the 2009 period as compared to $11.3 million (33.3% of sales) in 2008 excluding the restructuring charge. During the nine months ended March 31, 2009, the Company incurred approximately $319,000 of costs associated with documentation of its internal control processes in anticipation of performing its first management assessment of internal controls for the fiscal year ended June 30, 2009. Additionally, the Company spent approximately $257,000 in consulting fees to improve its information technology infrastructure. Excluding these costs, SG&A expenses for the nine months ended March 31, 2009 were $11.4 million, or 33.0% of sales.

On August 14, 2007 and thereafter, the Company received $7 million from DG FastChannel upon completion of the Merger. The Company also received approximately $2.2 million for reimbursement of merger expenses and prepayment for ADS Business working capital. The Company expects to receive an additional $0.3 million from DG FastChannel for ADS Business working capital, which amount is included in other assets and is considered fully collectible.

In August 2007, the Company entered into a new credit agreement which provides up to $8 million of revolving credit based on 80% of acceptable accounts receivables, as defined. The two-year agreement provides for interest of either (i) prime (3.25% at March 31, 2009) minus 0% - 1.00% or (ii) LIBOR plus 1.50% - 2.50% depending on the level of the Company’s ratio of outstanding debt to fixed charges (as defined), or 2.75% or 3.80%, respectively, at March 31, 2009. The facility is secured by all of the Company’s assets, except for equipment securing term loans as described above.

In March 2006, Old Point.360 entered into a sale and leaseback transaction with respect to its Media Center vaulting real estate. The real estate was sold for $13,946,000 resulting in a $1.3 million after tax gain. Additionally, Old Point.360 received $500,000 from the purchaser for improvements. In accordance with SFAS No. 28, “Accounting for Sales with Leasebacks” (“SFAS28”), the gain and the improvement allowance will be amortized over the initial 15-year lease term as reduced rent.

In July 2008, the Company entered into a Promissory Note with a bank (the “Note”) in order to purchase land and a building that has been occupied by the Company since 1998 (the total purchase price was approximately $8.1 million). Pursuant to the Note, the company borrowed $6,000,000 payable in monthly installments of principal and interest on a fully amortized basis over 30 years at an initial five-year interest rate of 7.1% and thereafter at a variable rate equal to LIBOR plus 3.6% (5.40% as of March 31, 2009).

Our bank revolving credit agreement requires us to maintain a minimum “fixed charge coverage ratio.” Our fixed charge coverage ratio compares, on a rolling twelve-month basis, (i) EBITDA plus rent expense and non-cash charges less income tax payments, to (ii) interest expense plus rent expense, the current portion of long term debt and maintenance capital expenditures. As of March 31, 2009, the fixed charge coverage ratio was 1.37 as compared to a minimum requirement of 1.10.

In March 2007, we acquired substantially all the assets of Eden FX for approximately $2.2 million in cash. The purchase agreement requires additional payments of $0.7 million, $0.9 million and $1.2 million in March of 2008, 2009 and 2010, respectively, if earnings during the three years after acquisition meet certain predetermined levels. The earnings levels for calendar 2007 and 2008 were not met; therefore, the 2008 and 2009 payments were not made.

Cash generated by operating activities is directly dependent upon sales levels and gross margins achieved. We generally receive payments from customers in 50-90 days after services are performed. The larger payroll component of cost of sales must be paid currently. Payment terms of other liabilities vary by vendor and type. Income taxes must be paid quarterly. Fluctuations in sales levels will generally affect cash flow negatively or positively in early periods of growth or contraction, respectively, because of operating cash receipt/payment timing. Other investing and financing cash flows also affect cash availability.

In recent quarters, the underlying drivers of operating cash flows (sales, receivable collections, the timing of vender payments, facility costs and employment levels) have been consistent, except that days sales outstanding in accounts receivable have risen from approximately 54 days to 66 days within the last 12 months. Major studios have generally delayed payments in response to the general economic slowdown. However, we do not expect days sales outstanding to materially increase in the future.

As of March 31, 2009, our facility costs consisted of building rent, maintenance and communication expenses. In July 2008, rents were reduced by the purchase of our Hollywood Way facility in Burbank, CA, eliminating approximately $625,000 of annual rent expense. The real estate purchase involved a down payment of $2.1 million and $6 million of mortgage debt (described above). The mortgage payments are approximately $488,000 per year. We believe our current cash position and a difficult economy may provide us with the opportunity to invest in facility assets that will not only help fix our operating costs, but give us the potential to own appreciating real estate assets. We will continue to evaluate opportunities to reduce facility costs. See below for descriptions of additional facility related transactions occurring subsequent to March 31, 2009 and their impact on future cash flows.

	Payment due by Period
Contractual Obligations	Total		Less than 1 Year		Years 2 and 3		Years 4 and 5		Thereafter
Long Term Debt Principal Obligations	$	9,261,000	$	1,629,000	$	1,858,000	$	162,000	$	5,612,000
Long Term Debt Interest Obligations (1)		7,843,000		589,000		879,000		800,000		5,575,000
Capital Lease Obligations		159,000		53,000		101,000		5,000		-
Capital Lease Interest Obligations		16,000		8,000		8,000		-		-
Operating Lease Obligations		17,995,000		2,120,000		5,049,000		3,154,000		7,672,000
Total	$	35,274,000	$	4,399,000	$	7,895,000	$	4,121,000	$	18,859,000

In March 2009, the lease on one of our facilities in Hollywood, CA (“Highland”) expired and the Company became a holdover tenant. The landlord has issued a Notice to Quit which will require us to move out of the facility within the next 60 days. The Company is evaluating several alternatives, including moving a portion of our operations to our other facilities and renting a significantly smaller location, to purchasing an alternate facility.

	Payment due by Period
Contractual Obligations	Total		Less than 1 Year		Years 2 and 3		Years 4 and 5		Thereafter
Long Term Debt Principal Obligations	$	9,261,000	$	1,629,000	$	1,858,000	$	162,000	$	5,612,000
Long Term Debt Interest Obligations (1)		7,843,000		589,000		879,000		800,000		5,575,000
Capital Lease Obligations		632,000		162,000		343,000		127,000		-
Capital Lease Interest Obligations		84,000		38,000		42,000		4,000		-
Operating Lease Obligations		22,704,000		2,771,000		6,323,000		4,419,000		9,193,000
Total	$	40,526,000	$	5,189,000	$	9,445,000	$	5,512,000	$	20,380,000

During the past year, the Company has generated sufficient cash to meet operating, capital expenditure and debt service needs and obligations, as well as to provide sufficient cash reserves to address contingencies. When preparing estimates of future cash flows, we consider historical performance, technological changes, market factors, industry trends and other criteria. In our opinion, the Company will continue to be able to fund its needs for the foreseeable future.

We will continue to consider the acquisition of businesses which compliment our current operations and possible real estate transactions. Consummation of any acquisition, real estate or other expansion transaction by the Company may be subject to the Company securing additional financing, perhaps at a cost higher than our existing term loans. In the current economic climate, additional financing may not be available. Additionally, our current bank line of credit might not be renewed upon its August 2009 expiration due to recent changes in the bank lending environment. Future earnings and cash flow may be negatively impacted to the extent that any acquired entities do not generate sufficient earnings and cash flow to offset the increased financing costs.

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to allowance for doubtful accounts, valuation of long-lived assets, and accounting for income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Critical accounting policies are those that are important to the portrayal of the Company’s financial condition and results, and which require management to make difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. We have made critical estimates in the following areas:

Revenues. We perform a multitude of services for our clients, including film-to-tape transfer, video and audio editing, standards conversions, adding special effects, duplication, distribution, etc. A customer orders one or more of these services with respect to an element (commercial spot, movie, trailer, electronic press kit, etc.). The sum total of services performed on a particular element (a “package”) becomes the deliverable (i.e., the customer will pay for the services ordered in total when the entire job is completed). Occasionally, a major studio will request that package services be performed on multiple elements. Each element creates a separate revenue stream which is recognized only when all requested services have been performed on that element.

In some instances, a client will request that we store (or “vault”) an element for a period ranging from a day to indefinitely. The Company attempts to bill customers a nominal amount for storage, but some customers, especially major movie studios, will not pay for this service. In the latter instance, storage is an accommodation to foster additional business with respect to the related element. It is impossible to estimate (i) the length of time we may house the element, or (ii) the amount of additional services we may be called upon to perform on an element. Because these variables are not reasonably estimable and revenues from vaulting are not material (billed vaulting revenues are approximately 3% of sales), we do not treat vaulting as a separate deliverable in those instances in which the customer does not pay.

Allowance for doubtful accounts. We are required to make judgments, based on historical experience and future expectations, as to the collectibility of accounts receivable. The allowances for doubtful accounts and sales returns represent allowances for customer trade accounts receivable that are estimated to be partially or entirely uncollectible. These allowances are used to reduce gross trade receivables to their net realizable value. The Company records these allowances as a charge to selling, general and administrative expenses based on estimates related to the following factors: i) customer specific allowance; ii) amounts based upon an aging schedule and iii) an estimated amount, based on the Company’s historical experience, for issues not yet identified.

Valuation of long-lived and intangible assets. Long-lived assets, consisting primarily of property, plant and equipment and intangibles (consisting only of goodwill), comprise a significant portion of the Company’s total assets. Long-lived assets, including goodwill are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to its fair value in a current transaction between willing parties, other than in a forced liquidation sale.

When we determine that the carrying value of intangibles, long-lived assets and related goodwill and enterprise level goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on comparing the carrying amount of the asset to its fair value in a current transaction between willing parties or, in the absence of such measurement, on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. Any amount of impairment so determined would be written off as a charge to the income statement, together with an equal reduction of the related asset. Net intangible assets, long-lived assets and goodwill amounted to approximately $10.0 million as of March 31, 2009.

In 2002, Statement of Financial Accounting Standards (“SFAS”) No.142, “Goodwill and Other Intangible Assets” (“SFAS 142”) became effective. As a result, Old Point.360 ceased to amortize approximately $26.3 million of goodwill in 2002 and performed an annual impairment review thereafter. The initial test on January 1, 2002, and the Fiscal 2002 to 2007 tests performed as of September 30 of each year required no goodwill impairment. On August 14, 2007, the Company was formed by a spin-off transaction, and a certain portion of Old Point.360’s goodwill was assigned to the Company. In the 2008 test performed as of June 30, 2008, the discounted cash flow method was used to evaluate goodwill impairment and included cash flow estimates for 2009 and subsequent years. If actual flow performance does not meet these expectations due to factors cited above, any resulting potential impairment could adversely affect reported goodwill asset values and earnings.

Accounting for income taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

In June 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with Statement FAS 109. This interpretation prescribes a recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition. The Company assumed all liability for income taxes of Old Point.360 related to operations prior to the Spin-off and Merger. Effectively, the Company therefore adopted FIN 48, effective January 1, 2007. The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal state or local income tax examinations by tax authorities for years before 2002. The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. Old Point.360, and consequently, the Company, was last audited by New York taxing authorities for the years 2002 through 2004 resulting in no change. Old Point.360, and consequently, the Company, was previously notified by the U.S. Internal Revenue Service of its intent to audit the calendar 2005 tax return. The audit has since been cancelled by the IRS without change; however, the audit could be reopened at the IRS’ discretion. Upon the implementation of FIN 48, the Company did not recognize any increase in the liability for unrecognized tax benefits. In addition, the Company did not record a cumulative effect adjustment related to the adoption of FIN 48.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (“SFAS 141R”), which requires most identifiable assets, liabilities, non-controlling interests, and goodwill acquired in a business combination to be recorded at “full fair value.” SFAS 141R applies to all business combinations, including combinations among mutual entities and combinations by contract alone. Under Statement 141R, all business combinations will be accounted for by applying the acquisition method. Statement 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141R will affect acquisitions by the Company after June 30, 2009.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 requires the ownership interests in subsidiaries held by parties other than the parent to be treated as a separate component of equity and be clearly identified, labeled, and presented in the consolidated financial statements. SFAS 160 is effective for periods beginning on or after December 15, 2008. Earlier adoption is prohibited. SFAS 160 has not yet affected the Company’s financial statements.

In January 2008, the SEC issued Staff Accounting Bulletin No. 110, “Certain Assumptions Used in Valuation Methods” (“SAB 110”) which amends Staff Accounting Bulletin No. 107, “Share-Based Payment” (“SAB 107”). SAB 110 allows for the continued use, under certain circumstances, of the “simplified” method in developing an estimate of expected term of so-called “plain vanilla” stock options accounted for under FAS 123R. SAB 110 amends SAB 107 to permit the use of the “simplified” method beyond December 31, 2007. The adoption of SAB 110 did not have a significant effect on the Company’s consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161. “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No, 133” (“FAS 161”). The standard requires qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk related contingent features in derivative agreements. FAS 161 is effective for financial statements issued after November 15, 2008. The adoption of FAS 161 will not have a significant effect on the Company’s consolidated financial statements.

Market Risk. The Company had borrowings of $9.4 million on March 31, 2009 under term loan agreements. One term loan was subject to variable interest rates. The weighted average interest rate paid during the first nine months of fiscal 2009 was 6.43%. For variable rate debt outstanding at March 31, 2009, a .25% increase in interest rates will increase annual interest expense by approximately $7,000. Amounts that may become outstanding under the revolving credit facility provide for interest at the banks’ prime rate minus 0%-1.00% assuming the same amount of outstanding debt or LIBOR plus 1.5% to 2.5% and LIBOR plus 3.15% for the term loan. The Company’s market risk exposure with respect to financial instruments is to changes in prime or LIBOR rates.

Pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and President and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, the Chief Executive Officer and President and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.

The Chief Executive Officer and President and the Chief Financial Officer conducted an evaluation of our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) (“Internal Control”) to determine whether any changes in Internal Control occurred during the quarter ended March 31, 2009 that have materially affected or which are reasonably likely to materially affect Internal Control. Based on the evaluation, no such change occurred during such period except as follows. During the quarter ended March 31, 2009, the Company changed certain controls governing the access and use of information technology to strengthen such controls going forward. The evaluation of information technology resulting in the changes was conducted as the Company prepares to implement new and enhanced production operating systems and security over those systems.

Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

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.” 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. 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:

Other factors not identified above, including the risk factors described in the “Risk Factors” section of the Company’s June 30, 2008 Form 10-K filed with the Securities and Exchange Commission may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these areas of risk in connection with considering any forward-looking statements that may be made in this Form 10-Q and elsewhere by us and our business generally. Except to the extent of any obligation to disclose material information under the federal securities laws or the rules of the NASDAQ Global Market, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

Period	(a) Total Number of Shares (or Units) Purchased(1)		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part Of Publicly Announced Plans or Programs(1)		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet be Purchased Under the Plans or Programs
January 1 to January 31, 2009		4,660	$	1.22		4,600		-
February 1 to February 28, 2009		160,000		1.28		160,000		-
March 1 to March 31, 2009		1,600		1.25		1,600		-
Total		166,260	$	1.28		166,260		-

(1)

The Company purchased all shares of common stock listed in this column under Rule 10b5-1 plans adopted pursuant to a stock purchase program that the Company’s Board authorized in February 2008. The Company did not purchase any other shares of its common stock during the quarter ended March 31, 2009. Under the stock purchase program, the Company may purchase outstanding shares of its common stock on the open market at such times and prices as are determined in the sole discretion of management. Under the current version of the stock purchase program, described in a Form 10-Q report for the quarter ended December 31, 2008 which the Company filed with the Securities and Exchange Commission on February 17, 2009, there is no maximum dollar amount or maximum number of shares that may be purchased under the program and the program does not have a specified expiration date.

California (State or other jurisdiction of incorporation or organization)	01-0893376 (I.R.S. Employer Identification No.)

2777 North Ontario Street, Burbank, CA (Address of principal executive offices)	91504 (Zip Code)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

	Three Months Ended March 31,						Nine Months Ended March 31,
	2008			2009			2008			2009
Risk-free interest rate		3.02	%		0.23	%		4.12	%		0.89	%
Expected term (years)		5.0			5.0			5.0			5.0
Volatility		51	%		48	%		51	%		48	%
Expected annual dividends		-			-			-			-

Options originally available			2,000,000
Stock options outstanding			1,323,550
Options available for grant			676,450

Land	$	2,406,000
Building		5,718,000
Machinery and equipment		34,946,000
Leasehold improvements		6,958,000
Computer equipment		6,422,000
Equipment under capital lease		285,000
Office equipment, CIP		755,000
Subtotal	$	57,490,000
Less accumulated depreciation and amortization		(41,806,000	)
Property and equipment, net	$	15,684,000

Options Outstanding					Options Exercisable
Options				Weighted	Weighted				Weighted
Exercise				Average	Average				Average
Price		Number of		Remaining	Exercise		Number		Exercise
Range		Shares		Contractual Life	Price		of Shares		Price
$	1.79		1,040	3.9 Years	$	1.79		253	$	1.79
	1.37		30	4.6 Years		1.37		30		1.37
	1.20		279	4.9 Years		1.20		-		1.20

Revolving credit	$	-
Current portion of term loan and mortgage		1,962,000
Long-term portion of term loan and mortgage		7,458,000
Total	$	9,420,000

	POINT.360

DATE: May 14, 2009	BY:	/s/ Alan R. Steel
		Alan R. Steel
		Executive Vice President,Finance and Administration
		(duly authorized officer and principal financial officer)