Point.360 10-K/A 2008 FY Annual report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

n ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2008

¨ 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 001-33468

POINT.360

(Exact name of registrant as specified in its charter)

California	01-0893376
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
2777 North Ontario Street, Burbank, CA	91504
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (818) 565-1400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
Common Stock, no par value	Nasdaq Global Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨    No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes ¨    No x

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

Yes x    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 Large accelerated filer    ¨ Accelerated Filer    ¨

  Non-accelerated filer    o Smaller reporting company    þ

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ¨      No x

The aggregate market value of the voting common equity held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter (December 31, 2007) was approximately $16 million.  As of March 31, 2009, there were 10,225,300 shares of Common Stock outstanding.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

EXPLANATORY NOTE

The purpose of this amendment is to include the city and state in the signature blocks of the Report and Consent of Independent Registered Public Accounting Firm and to conform the date in the body of the Consent to the related signature date in the Company’s Form 10-K originally filed on September 19, 2008.  Additionally, a sentence inadvertently included in the sixth paragraph of Note 12 of the Notes to Consolidated Financial Statements has been removed. Except as otherwise expressly set forth in this amendment, no portion of the Form 10-K filed on September 19, 2008 is being amended or updated by this amendment and this amendment does not reflect events that occurred after September 19, 2008.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

	Page
Report of Independent Registered Public Accounting Firm	4
Financial Statements:
Consolidated Balance Sheets –
December 31, 2006 (restated) and  June 30, 2007 (restated) and 2008	5
Consolidated Statements of Income (Loss) –
Fiscal Years Ended December 31, 2005 and 2006, the six months ended June 30, 2007 and the year ended June 30, 2008	6
Consolidated Statements of Invested and Shareholders’ Equity –
Fiscal Years Ended December 31, 2005 (restated) and 2006 (restated), the six months ended June 30, 2007 (restated) and the year ended June 30, 2008	7
Consolidated Statements of Cash Flows –
Fiscal Years Ended December 31, 2005 and 2006, the six months ended June 30, 2007 and the year ended June 30, 2008	8
Notes to Consolidated Financial Statements	9
Financial Statement Schedule:
Schedule II – Valuation and Qualifying Accounts

Schedules other than those listed above have been omitted since they are either not required, are not applicable or the required information is shown in the financial statements or the related notes.

3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Shareholders of Point.360

Burbank, California

We have audited the consolidated balance sheets of Point.360 (formerly New 360) and its subsidiary (collectively the “Company”) as of June 30, 2008, June 30, 2007 (restated), and December 31, 2006 (restated) and the related consolidated statements of income (loss), invested and shareholders equity and cash flows for the year ended June 30, 2008, for the six months ended June 30, 2007 (restated) (the transition period 2007), and for each of the two years in the two-year period ended December 31, 2006 (restated).   Our audits also included the financial statement schedule of Point.360 listed in Item 15(a).  These financial statements and financial statement schedule are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Point.360 and its subsidiaries as of June 30, 2008, 2007(restated), and December 31, 2006 (restated) and the results of their operations and their cash flows for the year ended June 30, 2008, for the six months ended June 30, 2007 (the transition period 2007), and for each of the two years in the two-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles.  Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We were not engaged to examine management’s assertion about the effectiveness of Point. 360’s internal control over financial reporting as of June 30, 2008 discussed in the accompanying Item 9A Controls and Procedures and, accordingly, we do not express an opinion thereon.

As discussed in Note 7 to the consolidated financial statements, the Company has adopted the provisions of Statement of Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109” on July 1, 2007.

As described in Notes 1, 13 and 14 to the financial statements, the Company has restated its financial statements for each of the two years ended December 31, 2006 and for the six-month period ending June 30, 2007 for correction of an error in the calculation of deferred tax liability.

SingerLewak LLP, (signed)

Los Angeles, California

September 18, 2008

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Point.360

Consolidated Balance Sheets

(in thousands)

	December 31,		June 30,
	2006		2007		2008
	(Restated)		(Restated)
Assets
Current assets:
Cash and cash equivalents	$	-	$	7,302	$	13,056
Accounts receivable, net of allowances for doubtful accounts of $513, $490 and $541, respectively		9,522		6,253		6,971
Inventories, net		539		555		502
Prepaid expenses and other current assets		533		868		667
Prepaid income taxes		439		1,535		1,441
Deferred income taxes		-		532		490
Total current assets		11,033		17,045		23,127
Property and equipment, net		12,850		11,330		8,667
Other assets, net		346		322		743
Goodwill		9,253		9,868		9,820
Total assets	$	33,482	$	38,565	$	42,358
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,045	$	2,497	$	1,716
Accrued wages and benefits		1,592		2,216		2,109
Accrued earn-out payments		2,000		-		-
Other accrued expenses		237		726		816
Income taxes payable		123		-		-
Due to parent company		2,533		1,614		-
Current portion of borrowings under notes payable		-		-		1,810
Current portion of deferred gain on sale of real estate		178		178		178
Total current liabilities		9,708		7,231		6,631
Deferred income taxes		635		768		-
Notes payable, less current portion		-		-		2,839
Due to parent company, less current portion		3,157		4,257		-
Deferred gain on sale of real estate, less current portion		2,363		2,274		2,089
Total long-term liabilities		6,350		7,299		4,928
Total liabilities		16,058		14,530		11,558
Commitments and contingencies		-		-		-
Shareholders’ equity
Parent company’s invested equity		17,424		24,035		-
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 shares issued and outstanding on each date		-		-		21,583
Additional paid-in capital		-		-		9,320
Retained earnings (deficit)		-		-		(103	)
Total shareholders’ equity		17,424		24,035		30,800
Total liabilities and shareholders’ equity	$	33,482	$	38,565	$	42,358

The accompanying notes are an integral part of these consolidated financial statements.

5

Point.360

Consolidated Statements of Income (Loss)

(in thousands, except per share amounts)

	Year Ended December 31,						Six Months Ended June 30,			Year Ended June 30,
	2005			2006			2007			2008
Revenues	$	43,059		$	43,533		$	20,850		$	45,150
Cost of services sold		(29,472	)		(29,976	)		(15,760	)		(31,156	)
Gross profit		13,587			13,557			5,090			13,994
Selling, general and administrative expense		(11,201	)		(10,108	)		(5,590	)		(14,491	)
Allocation of Point.360 corporate expenses  (Note 1)		(3,771	)		(3,446	)		(1,481	)		(120	)
Restructuring costs		-			-			-			(513	)
Operating income (loss)		(1,385	)		3			(1,981	)		(1,130	)
Interest expense		(1,280	)		(659	)		(299	)		(553	)
Interest income		-			-			35			348
Other income (expense)		-			-			-			100
Income (loss) before income taxes		(2,665	)		(656	)		(2,244	)		(1,235	)
Benefit from income taxes		1,045			342			607			292
Net income (loss)	$	(1,620	)	$	(314	)	$	(1,637	)	$	(943	)
Pro forma basic and diluted earnings (loss) per share	$	(0.15	)	$	(0.03	)	$	(0.16	)	$	(0.09	)
Pro forma weighted average number of shares		10,554			10,554			10,554			10,554

The accompanying notes are an integral part of these consolidated financial statements.

6

Point.360

Consolidated Statements of Invested and Shareholders’ Equity

(in thousands)

				Common Stock
	Invested Equity			Shares		Dollars		Paid-in Capital			Retained Earnings			Shareholders’ Equity
	(Restated)					(Restated)								(Restated)
Balance on December 31, 2004	$	20,541				$		$			$			$
Changes in investment account due to allocation of operating activities (Note 1)		836
Net income (loss)		(1,620	)
Balance on December 31, 2005		19,757
Changes in investment account due to allocation of operating activities (Note 1)		(2,019	)
Net income (loss)		(314	)
Balance on December 31, 2006		17,424
Changes in investment account due to allocation of operating activities (Note 1)		8,248
Net income (loss)		(1,637	)
Balance on June 30, 2007		24,035
Net  income (loss)		-			-		-		-			(841	)		(841	)
Balance on August 13, 2007		24,035			-		-		-			(841	)		23,194
Formation of New 360		(24,035	)		10,554		21,080		2,114			841			-
Recognition of New 360 book/tax differences		-			-		503		-			-			503
Payments by DGFC, net of transaction expenses		-			-				7,131			-			7,131
Additional transaction expenses		-			-				(2	)		-			(2	)
FAS 123R option expense		-			-				77			-			77
Net income (loss)		-			-		-		-			(103	)		(103	)
Balance on June 30, 2008	$	-			10,554	$	21,583	$	9,320		$	(103	)	$	30,800

The accompanying notes are an integral part of these consolidated financial statements.

7

 Point.360

Consolidated Statements of Cash Flows

(in thousands)

	Year Ended December 31,						Six Months Ended June 30,			Year Ended June 30,
	2005			2006			2007			2008
Cash flows from operating activities:
Net loss	$	(1,620	)	$	(314	)	$	(1,637	)	$	(943	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,096			4,653			2,359			4,700
Provision for (recovery of) doubtful accounts		43			89			(23	)		51
Deferred income taxes		310			(1,735	)		-			-
Changes in operating assets and liabilities (net of acquisitions):
(Increase) decrease in accounts receivable		(544	)		(2,159	)		3,292			(769	)
(Increase) decrease in inventories		163			36			(16	)		53
(Increase) decrease in prepaid expenses and other current assets		(740	)		1,826			(2,331	)		295
(Increase) decrease in other assets		153			45			44			(211	)
(Decrease) increase in accounts payable		(1,024	)		676			(549	)		(780	)
Increase (decrease) in accrued expenses		430			(27	)		(888	)		(17	)
Increase (decrease) in income taxes pay- able/receivable, net		83			(1,108	)		(123	)		-
(Increase) decrease in deferred tax asset		410			279			160			(936	)
Net cash and cash equivalents provided by (used in) operating activities		2,760			2,261			288			1,443
Cash flows from investing activities:
Capital expenditures		(2,317	)		(2,064	)		(839	)		(2,037	)
Proceeds from sale of equipment or real estate		-			13,543			56			(185	)
(Increase) decrease in goodwill		(642	)		(588	)		(635	)		48
Net cash and cash equivalents provided by (used in) investing activities		(2,959	)		10,891			(1,464	)		(2,174	)
Cash flows from financing activities:
Change in revolving credit		450			(737	)		(1,464	)		-
(Increase) decrease in invested equity		836			(2,020	)		(8,248	)		7,707
(Repayment) proceeds from of notes payable		(1,096	)		(10,926	)		(1,658	)		(1,217	)
Repayment proceeds from of capital lease obligations		(64	)		(64	)		(10	)		(5	)
Net cash (used in) provided by financing activities		126			(13,747	)		(8,432	)		6,485
Net increase (decrease) in cash and cash equivalents		(73	)		(595	)		7,302			5,754
Cash and cash equivalents at beginning of year		668			595		-				7,302
Cash and cash equivalents at end of year	$	595		$	-		$	7,302		$	13,056

The accompanying notes are an integral part of these consolidated financial statements.

8

Point. 360

Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION:

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.

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”).  Subsequent to the Merger, the Company changed its name back to Point.360. See Note 12.

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.

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.

For periods prior to the Spin-off, certain corporate and general and administrative expenses, including those related to executive management, tax, accounting, legal and treasury services, have been allocated by Old Point.360 to the Company based on the ratio of the Company’s revenues to Old Point.360’s total revenues.  Additionally, balance sheet amounts shown as “Due to parent company” and “Due to parent company, less current portion” have been allocated by Old Point.360 to the Company based on the ratio of the Company’s working capital and net fixed assets to total Old Point.360 working capital and net fixed assets, respectively.  Management believes such allocations represent a reasonable estimate of such expenses that would have been incurred by the Company on a stand-alone basis.  However, the associated balance sheet amounts and expenses recorded by the Company in the accompanying Consolidated Financial Statements may not be indicative of the actual balance or expenses that would have been recorded or incurred had the Company been operating as a separate, stand-alone public company for the periods presented.  Following the separation and distribution from Old Point.360, the Company has performed administrative functions using internal resources or purchased services.

9

The process of segregating the post production business and the ads business required the following:

· Separation of sales, cost of sales, facility rents, personnel and other costs specifically related to each business.

· Allocation of costs shared by all Old Point.360 businesses such as accounting, sales and information technology, based on either specific criteria or an allocation based on sales, asset levels or another appropriate means.  For example, interest expense related to Old Point.360 term and revolving credit loans was allocated based on property and equipment and accounts receivable balances of the post production and ads businesses, respectively.  Accounting (billing, credit and collection, etc.) was allocated based on sales.

· Assets and liabilities related to each business were identified and assigned to post production or ads businesses.

· Virtually all of the ads business was performed in five isolated facilities.

Invested equity at December 31, 2005 and 2006 and June 30, 2007 reflects the application of estimating techniques described above on those dates. Changes in invested equity from year to year are due to the income or loss of the Company and the net effect of the changes in balance sheet accounts determined by such estimating techniques.

In presenting the Consolidated Financial Statements, management makes estimates and assumptions that affect the amounts reported and related disclosures. Estimates, by their nature, are based on judgment and available information. Accordingly, actual results could differ from those estimates.

Restatement of Prior Year Financial Statements

The financial statements include restatements of Deferred Income Taxes and Invested Equity as of December 31, 2004, 2005 and 2006 and June 30, 2007 to reflect the correction of an accounting error described in Note 13 to these consolidated financial statements.  Additionally, certain footnote data related to these amounts has been restated.  See Note 14 to these financial statements for restatement of these amounts in the unaudited consolidated balance sheets and certain related footnotes contained in the Company’s Forms 10-Q for the quarters ended September 30, 2007, December 31, 2007 and March 31, 2008.

Business Description

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. Clients include major motion picture studios, advertising agencies and corporations.

The Company operates in a single business segment from six locations.  Each location is electronically tied to the others and serves the same customer base.  Depending on the location size, the production equipment consists of tape duplication, feature movie and commercial ad editing, encoding, standards conversion, and other machinery.  Each location employs personnel with the skills required to efficiently run the equipment and handle customer requirements.  While all locations are not exactly the same, an order received at one location may be fulfilled at one or more “sister” facilities to use resources in the most efficient manner.

Typically, a feature film or television show will be submitted to a facility by a motion picture studio, independent producer, advertising agency, or corporation for processing and distribution.  A common sales force markets the Company’s capability for all facilities.  Once an order is received, the local customer service representative determines the most cost-effective way to perform the services considering geographical logistics and facility capabilities.

The Company does not have the systems to adequately segregate revenues for each product and service as orders can be for multiple services performed at several facilities.  Providing information contemplated by paragraph 37 of FAS 131 is impracticable.

10

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash equivalents represent highly liquid short-term investments with original maturities of less than three months.

Revenues and Receivables

The Company records revenues when the services have been completed.  Although sales and receivables are concentrated in the entertainment industry, credit risk due to financial insolvency is limited because of the financial stability of the customer base (i.e., large studios).

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and accounts receivable.  The Company maintains its cash and cash equivalents with high credit quality financial institutions; at times, such balances with any one financial institution may exceed FDIC insured limits.

Credit risk with respect to trade receivables is concentrated due to the large number of orders with major entertainment studios in any particular reporting period.  Our five largest studio customers represented 72%, 55% and 53% of accounts receivable at December 31, 2006 and June 30, 2007 and 2008 respectively.  The Company reviews credit evaluations of its customers but does not require collateral or other security to support customer receivables.

The five largest studio customersaccounted for 52%, 58%, 56% and 52% of net sales for the years ended December 31, 2005 and 2006, the six months ended June 30, 2007 and the year ended June 30, 2008, respectively.  Twentieth Century Fox (and affiliates) was the only customer, which accounted for more than 10% of net sales in any of these periods, or 26%, 33%, 34% and 26% in 2005, 2006, the six months ended June 30, 2007 and the year ended June 30, 2008, respectively.

Inventories

Inventories comprise raw materials, principally tape stock, and are stated at the lower of cost or market.  Cost is determined using the average cost method.

Property and Equipment

Property and equipment are stated at cost.  Expenditures for additions and major improvements are capitalized.  Depreciation is computed using the straight-line method over the estimated useful lives of the related assets.  Amortization of leasehold improvements is computed using the straight-line method over the lesser of the estimated useful lives of the improvements or the remaining lease term.

Goodwill

Prior to the January 1, 2002 implementation of Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), goodwill was amortized on a straight-line basis over 5 - 20 years.  Since that date, goodwill has been subject to periodic impairment tests in accordance with SFAS 142.

The Company identifies and records impairment losses on long-lived assets, including goodwill that is not identified with an impaired asset, when events and circumstances indicate that such assets might be impaired.  Events and circumstances that may indicate that an asset is impaired include significant decreases in the market value of an asset, a change in the operating model or strategy and competitive forces.

11

The Company evaluates its goodwill on an annual basis and when events and circumstances indicate that the carrying amount of an asset may not be recoverable.  If the independent appraisal or other indicator of value of the asset or the expected undiscounted future cash flow attributable to the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.  In 2007, fair value was determined using an independent appraisal, which was then compared to the carrying amount of the Company including goodwill.  In 2008, the discounted cash flow method was used to evaluate goodwill impairment and included cash flow estimates for 2009 and subsequent years.  If actual cash flow performance does not meet these expectations due to factor cited above, any resulting potential impairment could adversely affect reported goodwill asset values and earnings. To date, no such impairment has been recorded.

Amounts shown as Goodwill in the accompanying balance sheets represent the amounts of Old Point.360’s goodwill allocable to the Company (see Note 3 for the allocation method). Certain disclosures in the footnotes include a discussion of Old Point.360’s goodwill (as opposed to only that allocable to the Company) to provide an explanation of the total goodwill to be allocated.

Income Taxes

The Company accounts for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes” (“SFAS 109”).  SFAS 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts for financial reporting purposes and the tax basis of assets and liabilities.  A valuation allowance is recorded for that portion of deferred tax assets for which it is more likely than not that the assets will not be realized.

In July 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 SFAS No. 109, “Accounting for Income Taxes” (“FAS 109”). This interpretation prescribes a recognition threshold and measurement attribute for the financial statement 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. We adopted FIN 48 effective July 1, 2007.  As a result of the implementation of Interpretation No. 48, we did not recognize any increase in the liability for unrecognized tax benefits. In addition, we did not record a cumulative effect adjustment related to the adoption of FIN 48.

Advertising Costs

Advertising costs are not significant to the Company’s operations and are expensed as incurred.

Fair Value of Financial Instruments

To meet the reporting requirements of SFAS No. 107, “Disclosures About Fair Value of Financial Instruments” (“SFAS 107”), the Company calculates the fair value of financial instruments and includes this additional information in the notes to financial statements when the fair value is different than the book value of those financial instruments.  When the fair value is equal to the book value, no additional disclosure is made.  The Company uses quoted market prices whenever available to calculate these fair values.

Pro Forma Earnings (Loss) Per Share

Old Point.360 has historically followed SFAS No. 128, “Earnings per Share” (“SFAS 128”), and related interpretations for reporting earnings per share.  SFAS 128 requires dual presentation of basic earnings per share (“Basic EPS”) and diluted earnings per share (“Diluted EPS”).  Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the reported period.  Diluted EPS reflects the potential dilution that could occur if a company had a stock option plan and stock options were exercised using the treasury stock method. While the Company will be subject to FAS 128, pro forma earnings per share in the accompanying Consolidated Statements of Income (Loss) have been calculated based on the actual number of the Company’s shares outstanding upon separation.

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Supplemental Cash Flow Information

Selected cash payments and non-cash activities were as follows (in thousands):

	Year Ended December 31,				Six Months ended June 30,		Year Ended June 30,
	2005		2006		2007		2008
Cash payments for income taxes (net of refunds)	$	-	$	-	$	129	$	15
Cash payments for interest		1,121		605		197		435
Non-cash investing and financing activities:
Accrual for earn-out payments		2,000		2,000		-		-
Detail of acquisitions:
Goodwill (1)		2,186		2,000		2,091		-

(1) Includes additional purchase price payments made or accrued to former owners in periods subsequent to various acquisitions of $1,000,000, $2,000,000 and $2,000,000 in 2004, 2005 and 2006, respectively.

Recent Accounting Pronouncements

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 further acquisitions by the Company.

 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 100”) 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.

3.  ACQUISITIONS:

During 1997 to 2007, Old Point.360 acquired eleven businesses.  These acquisitions were accounted for as purchases, with the excess of the purchase price over the fair value of the net assets acquired allocated to goodwill.  The contingent portion of the purchase prices, to the extent earned was recorded as an increase to goodwill.  As of June 30, 2008, additional purchase price earn-out payments are as described below.  The consolidated financial statements of the Company reflect the operations of the acquired post production companies since their respective acquisition dates.

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Old Point.360’s goodwill and other intangibles, net, as of December 31, 2006 and June 30, 2007 consist of the following:

	2006			2007
				(unaudited)
Goodwill	$	37,050,000		$	39,140,000
Covenant not to compete		1,000,000			1,020,000
		38,050,000			40,160,000
Less accumulated amortization		(6,576,000	)		(6,576,000	)
	$	31,474,000		$	33,584,000

Old Point.360 ceased amortizing goodwill on January 1, 2002 with the adoption of SFAS 142.  The covenant not to compete was fully amortized in 2003.

Old Point.360 operated in a single business segment due to the combination of facility assets, sales forces and management subsequent to the acquisitions, and the integration of branding and communications efforts. The goodwill acquired, therefore, is common to all Old Point.360 facilities. As of December 31, 2006 and June 30, 2007,  the goodwill assignable to the Company was $9,253,000 and $9,868,000,  respectively, determined by comparing the value of the Company determined by an independent appraiser to the value of the advertising distribution business of Old Point.360 as evidenced by the market value of consideration to be paid by DG FastChannel for the advertising distribution business.

During 2006, the amount of goodwill, net, increased from $29,474,000 to $31,474,000 due to the $2,000,000 earn-out payment accrued for the IVC acquisition.  During the six months ended June 30, 2007, the amount of goodwill, net, increased from $31,474,000 to $33,568,000 due to the acquisition of Eden FX. As described above, a portion of Old Point.360’s goodwill, including goodwill from the IVC transaction has been allocated to the Company.

In the fiscal year ended June 30, 2008, the amount of goodwill did not change.

4.  PROPERTY AND EQUIPMENT:

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 Sales with 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 the improvement advance (approximately $13.8 million) were used to pay off the mortgage and other outstanding debt.

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 and increasing annually thereafter based on the consumer price index change from year to year.

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	December 31,			June 30,
	2006			2007			2008
Land	$	-		$	-			-
Building		16,000			19,000			19,000
Machinery and equipment		32,426,000			32,855,000			33,855,000
Leasehold improvements		6,736,000			6,847,000			6,888,000
Computer equipment		4,717,000			5,189,000			6,606,000
Equipment under capital lease		290,000			285,000			285,000
Office equipment, CIP		413,000			416,000			576,000
Less accumulated depreciation and amortization		(31,748,000	)		(34,281,000	)		(39,022,000	)
Property and equipment, net	$	12,850,000		$	11,330,000		$	8,667,000

Property and equipment consist of the following:

Depreciation is expensed over the estimated lives of machinery and equipment (7 years), computer equipment (5 years) and leasehold improvements (2 to 10 years depending on the remaining term of the respective leases or estimated useful life of the improvement). Depreciation expense totaled $ 5,096,000, $ 4,653,000, $2,359,000 and $4,700,000 for the years ended December 31,  2005 and 2006,  the six months ended June 30, 2007 and the year ended June 30, 2008,  respectively.  Accumulated amortization on capital leases amounted to $ 254,000, $264,000 and $281,000 as of December 31, 2006, June 30, 2007 and 2008, respectively.

In July 2008, the Company purchased land and a building.  See Note 14 - Subsequent Events.

5.  401(K) PLAN:

The Company has a 401(K) plan, which covers substantially all employees.  Each participant is permitted to make voluntary contributions not to exceed the lesser of 20% of his or her respective compensation or the applicable statutory limitation, and is immediately 100% vested.  The Company matches one-fourth of the first 4% contributed by the employee.  Contributions to the plan related to employees of the Company were, $92,000, $84,000, $53,000 and $96,000 in the years ended December 31, 2005 and 2006, the six months ended June 30, 2007 and the year ended June 30, 2008, respectively.

6.  LONG TERM DEBT AND NOTES PAYABLE:

On December 30, 2005, Old Point.360 entered into a $10 million term loan agreement.  The term loan provides for interest at LIBOR (5.38% as of June 30, 2007) plus 3.15% and is secured by Old Point.360’s equipment. In March 2006, Old Point.360 prepaid $4 million of the principal with proceeds of a sale/leaseback transaction. The term loan will be repaid in 60 equal monthly principal payments plus interest.  Proceeds of the term loan were used to repay the previously existing term loan.

On March 30, 2007, Old Point.360 entered into an additional $2.5 million term loan agreement.  The loan provides for interest at 8.35% per annum and is secured by the Company’s equipment.  The loan will be repaid in 45 equal monthly installments of principal and interest.

The Company assumed both term loan agreements upon Spin-off.

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 (1) prime (5.00% at June 30, 2008)  minus 0%-1.00% or (2) LIBOR plus 1.50% - - 2.50% depending on the level of the Company’s ratio of outstanding debt to fixed charges (as defined), or 4.50% or 4.91%, respectively, on June 30, 2008.  The facility is secured by all of the Company’s assets, except for equipment securing new term loans as described above.

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Annual maturities for debt under bank term note obligations as of June 30, 2008, are as follows:

2009		1,811,000
2010		1,872,000
2011		967,000
	$	4,650,000

In the accompanying Consolidated Balance Sheets, the current and long-term “Due to Parent Company” amounts reflect the portion of Old Point.360’s revolving credit and term loan debt assigned to the Company based on the proportion of the Company’s net working capital and property and equipment, net, to Old Point.360’s total net working capital and property and equipment, net, respectively.

Debt obligations allocable to the Company are included as amounts “Due to Parent Company” in the accompanying balance sheet as follows:

	December 31, 2006		June 30, 2007
Line of credit debt	$	1,464,000	$	—
Current portion of term loan		1,069,000		1,614,000
Total current liability		2,533,000		1,614,000
Long-term debt		3,157,000		4,257,000
Total	$	5,690,000	$	5,871.000

The differences in the amounts in the preceding table are shown as negative cash flows from financing activities in the Consolidated Statements of Cash Flows.

In July 2008, the Company entered into a $6,000,000 Promissory Note with a bank for the purchase of land and a building.  See Note 14 – Subsequent Events.

7. INCOME TAXES:

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, 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.

The Company’s provision for, or benefit from, income taxes has been determined as if the Company filed income tax returns on a stand-alone basis.

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The Company’s provision for (benefit from) income taxes for the years ended December 31, 2005 and 2006,  the six  months ended June 30, 2007 and the year ended June 30, 2008 consists of the following (in thousands):

	Year Ended December 31,						Six Months Ended June 30			Year Ended June 30
	2005			2006			2007			2008
Current tax (benefit) expense:
Federal	$	(1,467	)	$	954		$	(452	)	$	28
State		(310	)		157			-			95
Total current		(1,777	)		1,111			(452	)		123
Deferred  tax (benefit) expense:
Federal		616			(1,283	)		(132	)		(314	)
State		116			(170	)		(23	)		333
Valuation allowance		-			-			-			(434	)
Total deferred		732			(1,453	)		(155	)		(415	)
Total provision for (benefit from) for income taxes	$	(1,045	)	$	(342	)	$	(607	)	$	(292	)

The composition of the deferred tax assets (liabilities) at December 31, 2006 and June 30, 2007 and 2008 are listed below:

	December 31,			June 30,			June 30,
	2006			2007			2008
	(Restated)			(Restated)
Accrued liabilities	$	197,000		$	273,000		$	253,000
Allowance for doubtful accounts		220,000			209,000			232,000
Other		22,000			49,000			5,000
Total current deferred tax assets		439,000			531,000			490,000
Property and equipment		(2,350,000	)		(1,814,000	)		(221,000	)
Goodwill and other intangibles		(351,000	)		(684,000	)		-
State net operating loss carry forward		-			406,000			-
Other		1,870,000			1,758,000			431,000
Valuation allowance		-			(434,000	)		-
Total non-current deferred tax liabilities		(831,000	)		(768,000	)		210,000
Net deferred tax liability	$	(392,000	)	$	(237,000	)	$	700,000

At the end of each fiscal year, the Company updates its reconciliation of book and tax differences based on the tax return of the previous fiscal year filed with the Internal Revenue Service in the third quarter of the current fiscal year.  Any resulting adjustments are reflected in the table above in the fiscal year in which the adjustments were determined.  During the fiscal year ended June 30, 2008, a $503,000 reduction of deferred tax liability was credited to common stock as an adjustment of invested equity in New 360 in the Consolidated Statements of Invested and Shareholders’ Equity.

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The amounts in the above table have been restated to reflect the adjustment to the non-current deferred tax liability related to Goodwill and other intangibles a follows (in thousands):

	December 31, 2006
	As Originally Reported			Restatements		As Restated
	(Restated)
Accrued liabilities	$	197,000				$	197,000
Allowance for doubtful accounts		220,000					220,000
Other		22,000					22,000
Total current deferred tax assets		439,000					439,000
Property and equipment		(2,350,000	)				(2,350,000	)
Goodwill and other intangibles		(3,799,000	)	$	3,448,000		(351,000	)
State net operating loss carry forward		-					-
Other	��	1,870,000					1,870,000
Valuation allowance		-					-
Total non-current deferred tax liabilities		(4,279,000	)		3,448,000		(831,000	)
Net deferred tax liability	$	(3,840,000	)	$	3,448,000	$	(392,000	)

	June 30, 2007
	As Originally Reported			Restatements		As Restated
	(Restated)
Accrued liabilities	$	273,000				$	273,000
Allowance for doubtful accounts		209,000					209,000
Other		49,000					49,000
Total current deferred tax assets		531,000					531,000
Property and equipment		(1,814,000	)				(1,814,000	)
Goodwill and other intangibles		(4,132,000	)	$	3,448,000		(684,000	)
State net operating loss carry forward		406,000					406,000
Other		1,758,000					1,758,000
Valuation allowance		(434,000	)				(434,000	)
Total non-current deferred tax liabilities		(4,216,000	)		3,448,000		(768,000	)
Net deferred tax liability	$	(3,685,000	)	$	3,448,000	$	(237,000	)

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The provision for (benefit from) income taxes differs from the amount of income tax determined by applying the applicable U.S. Statutory income taxes rates to income before taxes as a result of the following differences:

	Year Ended December 31,						Six Months Ended June 30,			Year Ended June 30,
	2005			2006			2007			2008
Federal tax computed at statutory rate		34	%		34	%		34	%		34	%
State taxes, net of federal benefit and net operating loss limitation		6	%		6	%		6	%		6	%
Valuation allowance		-			-			(12	)%		(14	)%
Other (meals and entertainment)		1	%		(6	)%		(1	)%		(2	)%
		41	%		34	%		27	%		24	%

8.  COMMITMENTS AND CONTINGENCIES:

Operating Leases

The Company leases the Company’s office and production facilities in California under various operating leases. Approximate minimum rental payments under these non-cancelable operating leases as of June 30, 2008 are as follows for the indicated fiscal years ended June 30:

2009	$	2,155,000
2010		2,357,000
2011		2,197,000
2012		2,274,000
2013		1,382,000
Thereafter		9,907,000

Total rental expense was approximately $2,470,000, $3,176,000, $1,842,000 and $3,608,000  for the years ended December 31,  2005 and 2006,  the six months ended June 30, 2007 and the year ended June 30, 2008,  respectively.

Severance Agreements

On September 30, 2003 Old Point.360 entered into severance agreements with its Chief Executive Officer and Chief Financial Officer which continue in effect through December 31, 2009, and are renewed automatically on an annual basis after that unless notice is received terminating the agreement by September 30 of the preceding year.  The severance agreements contain a “Golden Parachute” provision. The Company assumed these severance agreements.

Contingencies

In July, 2008, the Company was served with a complaint filed in the Superior court of the State of California for the County of Los Angeles by Aryana Farshad and Aryana F. Productions, Inc.  (“Farshad”).  The complaint alleges that Point.360 and its janitorial cleaning company failed to exercise reasonable care for the protection and preservation of Farshad’s film footage which was lost.  As a result of the defendant’s negligence, Farshad claims to have suffered damages in excess of $2 million and additional unquantified general and special damages.  While the outcome of this claim cannot be predicted with certainty, management does not believe that the outcome will have a material effect on the financial condition or results of operation of the Company.

From time to time the Company may become a party to other legal actions and complaints arising in the ordinary course of business, although it is not currently involved in any such material legal proceedings.

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9.  STOCK OPTION PLAN:

In 2007, the Board of Directors approved the 2007 Equity Incentive Plan (the “2007 Plan”).  The 2007 Plan provides for the award of options to purchase up to 2,000,000 shares of common stock, appreciation rights and restricted stock awards.

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 over 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 years ended June 30, 2008 and December 31, 2006 and the six-months ended June 30, 2007 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-K 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-K, expected forfeitures are immaterial. The Company will re-asses 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 period ended June 30, 2008 was $77,000 ($59,000 net of tax benefit).

The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant uses the Black-Sholes 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.

During the year ended June 30,  2008, the Company granted awards of stock options for 1,045,600 shares at an average market price of $1.79 per share, which represent the only options outstanding as of June 30,  2008. The estimated fair value of all awards granted during the year ended June 30, 2008 was $890,000. The total fair value of options expensed during year ended June 30, 2008 was $77,000. 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:

Risk-free interest rate	3.02	%
Expected term (years)	5.0
Volatility	51	%
Expected annual dividends	-

The following table summarizes the status of the 2007 Plan as of June 30, 2008:

Options originally available	2,000,000
Stock options outstanding	1,045,600
Options available for grant	954,400

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Transactions involving stock options are summarized as follows:

	Number of Shares		Weighted Average Exercise Price
Balance at June 30, 2007		-	$	-
Granted during fiscal 2008		1,045,600		1.79
Exercised during fiscal 2008		-		-
Cancelled during fiscal 2008		-		-
Balance at June 30, 2008		1,045,600	$	1.79

As of June 30, 2008, the total compensation costs related to non-vested awards yet to be expensed was approximately $0.7 million to be amortized over the next four years.

The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of June 30, 2008 were as follows:

As of June 30, 2008	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)		Intrinsic Value
Employees – Outstanding		1,045,600	$	1.79		4.65	$	-
Employees – Expected to Vest		951,040	$	1.79		4.65	$	-
Employees – Exercisable		-	$	-		-	$	-

Additional information with respect to outstanding options as of June 30, 2008 is as follows (shares in thousands):

		Options Outstanding					Options Exercisable
	Options Exercise Price Range	Number of Shares		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	1.79		1,046	4.6 Years	$	1.79		-	$	1.79

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).

10.  STOCK RIGHTS PLAN

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.

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No triggering events occurred in the year ended June 30, 2008.

11.  RESTRUCTURING CHARGE

In the first quarter of fiscal 2008, in conjunction with the completion of the Merger and Spin-off transactions, we decided to close down one of our post production facilities.  Future costs associated with the facility lease and certain severance payments totaling $513,000 were treated as restructuring costs.  All matters related to the restructuring were finalized during fiscal 2008 at a cost approximating the restructuring charge.

12.  SALE OF ADS DISTRIBUTION BUSINESS

On April 16, 2007, Old Point.360, the Company, a newly formed California corporation and wholly owned subsidiary of Old Point.360 and DG FastChannel, Inc. (“DG FastChannel”), entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), as amended by an instrument executed by the parties as of June 19, 2007.

Under the terms of the Merger Agreement, DG FastChannel agreed to make an exchange offer (the “Exchange Offer”) for all outstanding shares of Old Point.360 common stock, no par value per share, including the associated preferred stock purchase rights (collectively, the “Old Point.360 Shares”), in which Exchange Offer each Old Point.360 Share tendered and accepted by DG FastChannel would be exchanged for a number of shares of common stock, par value $0.001 per share, of DG FastChannel (the “DG Common Stock”) equal to the quotient obtained by dividing (x) 2,000,000 by (y) the number of Old Point.360 Shares (excluding Old Point.360 Shares owned by DG or Point.360) issued and outstanding immediately prior to the completion of the Exchange Offer (such amount of shares of DG Common Stock paid per Old Point.360 Share pursuant to the Exchange Offer is referred to herein as the “Exchange Offer Consideration”).

In addition, on April 16, 2007, Old Point.360, DG FastChannel, and the Company entered into a Contribution Agreement (the “Contribution Agreement”), as amended by an instrument executed by the parties as of June 19, 2007.  Pursuant to the Contribution Agreement, prior to the completion of the Exchange Offer, Old Point.360 contributed (the “Contribution”) to the Company all of the 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”), and the Company assumed certain liabilities of Old Point.360.  Immediately following the Contribution but prior to the completion of the Exchange Offer, Old Point.360 distributed (the “Spin-off”) to its shareholders on a pro rata basis all of the capital stock then outstanding of the Company.

On July 13, 2007, the Company filed a Registration Statement on Form S-1 (the “Form S-1”) with the Securities and Exchange Commission for the purpose of registering the Spin-off under the Securities Act of 1933, as amended.  Among other things, the Form S-1 contained:  (1) a detailed description of the Contribution and the Spin-off; (2) a description of Old Point.360’s post-production business that was to be transferred to the Company pursuant to the Contribution; (3) risk factors relating to the Company business, the Contribution and Spin-Off and the Company’s common stock; (4) a valuation of the Company by Old Point.360’s financial advisor; (5) management’s discussion and analysis of the Company’s financial condition and results of operations for each of the three years in the period ended December 31, 2006; (6) unaudited pro forma financial statements of the Company as of December 31, 2006, and for the year then ended, giving effect to the Contribution and Spin-off; (7) audited financial statements for New 360 as of December 31, 2006 and 2005 and for each of the three years in the period ended December 31, 2006; and (8) a description of New 360’s proposed management and executive compensation policies.  The contribution and Spin-off were completed on August 14, 2007.

The Company’s common stock was approved for listing on the Nasdaq Global Market.  As a result of the Contribution and the Spin-Off, at the completion of the Exchange Offer, the assets and liabilities of Old Point.360 consisted only of those assets and liabilities exclusively related to the ADS Business.

Following the completion of the Exchange Offer, DG FastChannel effected the merger of Old Point.360 with and into DG FastChannel (the “Merger”), with DG FastChannel continuing as the surviving corporation.  Upon the completion of the Merger, each Old Point.360 Share not purchased in the Exchange Offer was converted into the right to receive the Exchange Offer Consideration, without interest.  DG FastChannel also paid to the Company as part of the merger consideration cash of (i) $7 million in lieu of prepayment of the Company’s outstanding debt, (ii) $0.3 million for reimbursement of merger expenses and (iii) a $0.4 million prepayment for working capital of the ADS Business.  

22

The following table sets forth the Company’s cash and cash equivalents and shareholders’ equity as of June 30, 2007 on an historical basis and on a pro forma basis after giving effect to the following separation transactions:

· the formation of the Company and the contribution by Old Point.360 to the Company of all the assets and liabilities of Old Point.360 (including Old Point.360’s post-production business) other than assets and liabilities relating to the ADS Business;

· the distribution of Company common stock to Old Point.360 shareholders by Old Point.360;

· the payment by DG FastChannel of $7 million to the Company; and

· the payment of the estimated amount of $2.3 million to the Company by DG FastChannel to compensate the Company for working capital transferred by Old Point.360 to DG FastChannel in the merger of Old Point.360 into DG FastChannel.

	June 30, 2007
(in thousands)	Historical		Separation Adjustments			Separation Pro Forma
Cash and cash equivalents	$	7,302	$	2,300	(a)	$	16,602
				7,000	(b)
Invested equity (restated)	$	24,035	$	(24,035	)(c)	$	—
Common stock (restated)		—		24,035	(c)	$	24,035
Additional paid-in capital		—		7,000	(b)		9,300
				2,300	(a)
Total invested/shareholder’s equity (restated)	$	24,035	$	9,300		$	33,335

_____________

 (a) Represents the receipt of the estimated amount of $2.3 million from DG FastChannel  in payment for Old Point.360’s working capital (other than the Company’s working capital).

 (b) Represents the payment of $7 million to the Company as provided in the Merger Agreement.

 (c) Represents the reclassification of invested equity to common stock upon the contribution of Old Point.360’s post-production net assets to the Company and the distribution of the Company’s common stock to Old Point.360’s shareholders.

(d)  The amounts in the above table have been restated to reflect the adjustment of invested equity, common stock and total invested/shareholders’ equity by increasing previously reported amounts by $3,448,000 in each instance.  See Note 15 of these financial statements for an explanation of the adjustment.

13.   CORRECTION OF AN ERROR IN THE COMPUTATION OF DEFERRED TAX LIABILITY AND INVESTED EQUITY

During the preparation of the June 30, 2008 financial statements, we discovered an error in the computation of the deferred tax liability allocable to the Company when Old Point.360 was split into two entities.  Specifically, the amount of book basis goodwill assignable to the Company as reflected in the tax records (as opposed to the financial reporting records) was overstated.  When compared to the tax basis goodwill amount, therefore, the resulting deferred tax liability was overstated.  The net effect of the error was to overstate the deferred tax liability and understate investors equity in the consolidated balance sheets and/or consolidated statements of invested and shareholders’ equity as of December 31, 2005 and 2006, and June 30, 2007.

23

Based on the foregoing, the Company has determined the effect on its previously issued financial statements as presented below:

Consolidated Balance Sheet-December 31, 2006

	As Originally Reported		Restatements			As Restated
Assets
Current assets:
Cash and cash equivalents	$	-				$	-
Accounts receivable, net of allowances for doubtful accounts of  $513		9,522					9,522
Inventories, net		539					539
Prepaid expenses and other current assets		533					533
Prepaid income taxes		439					439
Deferred income taxes		-					-
Total current assets		11,033					11,033
Property and equipment, net		12,850					12,850
Other assets, net		346					346
Goodwill		9,253					9,253
Total assets	$	33,482				$	33,482
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,045				$	3,045
Accrued wages and benefits		1,592					1,592
Accrued earn-out payments		2,000					2,000
Other accrued expenses		237					237
Income taxes payable		123					123
Due to parent company		2,533					2,533
Current portion of borrowings under notes payable		-					-
Current portion of deferred gain on sale of real estate		178					178
Total current liabilities		9,708					9,708
Deferred income taxes		4,278	$	(3,448	)		830
Notes payable, less current portion		-					-
Due to parent company, less current portion		3,157					3,157
Deferred gain on sale of real estate, less current portion		2,363					2,363
Total long-term liabilities		9,798		(3,448	)		6,350
Total liabilities		19,506		(3,448	)		16,058
Commitments and contingencies		-					-
Shareholders’ equity
Parent company’s invested equity		13,976		3,448			17,424
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 shares issued and outstanding on each date		-					-
Additional paid-in capital		-					-
Retained earnings (deficit)		-					-
Total shareholders’ equity		13,976		3,448			17,424
Total liabilities and shareholders’ equity	$	33,482				$	33,482

24

Consolidated Balance Sheet-June 30, 2007

	As Originally Reported		Restatements			As Restated
Assets
Current assets:
Cash and cash equivalents	$	7,302				$	7,302
Accounts receivable, net of allowances for doubtful accounts of  $490		6,253					6,253
Inventories, net		555					555
Prepaid expenses and other current assets		868					868
Prepaid income taxes		1,535					1,535
Deferred income taxes		532					532
Total current assets		17,045					17,045
Property and equipment, net		11,330					11,330
Other assets, net		322					322
Goodwill		9,868					9,868
Total assets	$	38,565				$	38,565
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,497				$	2,497
Accrued wages and benefits		2,216					2,216
Accrued earn-out payments		-					-
Other accrued expenses		726					726
Income taxes payable		-					-
Due to parent company		1,614					1,614
Current portion of borrowings under notes payable		-					-
Current portion of deferred gain on sale of real estate		178					178
Total current liabilities		7,231					7,231
Deferred income taxes		4,216	$	(3,448	)		768
Notes payable, less current portion		-					-
Due to parent company, less current portion		4,257					4,257
Deferred gain on sale of real estate, less current portion		2,274					2,274
Total long-term liabilities		10,747		(3,448	)		7,299
Total liabilities		17,978		(3,448	)		14,530
Commitments and contingencies		-					-
Shareholders’ equity
Parent company’s invested equity		20,587		3,448			24,035
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 shares issued and outstanding on each date		-					-
Additional paid-in capital		-					-
Retained earnings (deficit)		-					-
Total shareholders’ equity		20,587		3,448			24,035
Total liabilities and shareholders’ equity	$	38,565				$	38,565

25

Consolidated Statements of Invested Equity for the periods from December 31, 2004 to June 30, 2007 (in thousands):

	As Originally Reported			Restatements		As Restated
Balance on December 31, 2004	$	17,093		$	3,448	$	20,541
Changes in investment account due to allocation of operating activities (Note 1)		836					836
Net income (loss)		(1,620	)				(1,620	)
Balance on December 31, 2005		16,309			3,448		19,757
Changes in investment account due to allocation of operating activities (Note 1)		(2,019	)				(2,019	)
Net income (loss)		(314	)				(314	)
Balance on December 31, 2006		13,976			3,448		17,424
Changes in investment account due to allocation of operating activities (Note 1)		8,248					8,248
Net income (loss)		(1,637	)				(1,637	)
Balance June 30, 2007	$	20,587		$	3,448	$	24,035

14.    CORRECTION OF AN ERROR IN THE COMPUTATION OF DEFERRED TAX LIABILITY AND INVESTED AND SHAREHOLDERS’ EQUITY – QUARTERLY RESULTS (UNAUDITED)

The effects of the adjustments described in Note 13 of the consolidated financial statements on the consolidated balance sheets and related footnotes contained in the previously filed Forms 10-Q for the three, six and nine month periods ended September 30, 2007, December 31, 2007 and March 31, 2008, respectively, are as follows: (in thousands):

26

Consolidated Balance Sheet – September 30, 2007	As Originally Reported			Restatements			As Restated
Assets
Current assets:
Cash and cash equivalents	$	10,962					$	10,962
Accounts receivable, net of allowances for doubtful accounts of $497,000,		7,123						7,123
Inventories, net		567						567
Prepaid expenses and other current assets		2,279						2,279
Prepaid income taxes		1,754						1,754
Deferred income taxes		947						947
Total current assets		23,632						23,632
Property and equipment, net		10,567						10,567
Other assets, net		359						359
Goodwill		9,868						9,868
Total assets	$	44,426					$	44,426
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,005					$	2,005
Accrued wages and benefits		1,413						1,413
Other accrued expenses		1,591						1,591
Income tax payable		-						-
Due to parent company		-						-
Current portion of borrowings under notes payable		1,771						1,771
Current portion of capital lease obligations		4						4
Current portion of deferred gain on sale of real estate		178						178
Total current liabilities		6,962						6,962
Deferred income taxes		4,632		$	(3,448	)		1,184
Notes payable, less current portion		4,202						4,202
Due to parent company, less current portion		-						-
Deferred gain on sale of real estate, less current portion		2,223						2,223
Total long-term liabilities		11,057			(3,448	)		7,609
Total liabilities		18,019			(3,448	)		14,571
Commitments and contingencies		-						-
Shareholders’ equity
Parent company’s invested 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 shares issued and outstanding on each date		17,632			3,448			21,080
Additional paid-in capital		9,245						9,245
Retained earnings (deficit)		(470	)					(470	)
Total shareholders’		26,407			3,448			29,855
Total liabilities and shareholders’ equity	$	44,426					$	44,426

27

Consolidated Balance Sheet – December 31, 2007	As Originally Reported			Restatements			As Restated
Assets
Current assets:
Cash and cash equivalents	$	12,754					$	2,754
Accounts receivable, net of allowances for doubtful accounts of  $509,000		7,588						7,588
Inventories, net		520						520
Prepaid expenses and other current assets		902						902
Prepaid income taxes		1,760						1,760
Deferred income taxes		477						477
Total current assets		24,001						24,001
Property and equipment, net		9,708						9,708
Other assets, net		358						358
Goodwill		9,868						9,868
Total assets	$	43,935					$	43,935
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	2,587					$	2,587
Accrued wages and benefits		1,916						1,916
Other accrued expenses		899						899
Due to parent company		-						-
Current portion of borrowings under notes payable		1,784						1,784
Current portion of capital lease obligations		2						2
Current portion of deferred gain on sale of real estate		178						178
Total current liabilities		7,366						7,366
Deferred income taxes		4,107		$	(3,448	)		659
Notes payable, less current portion		3,751						3,751
Due to parent company, less current portion		-						-
Deferred gain on sale of real estate, less current portion		2,178						2,178
Total long-term liabilities		10,036			(3,448	)		6,588
Total liabilities		17,402			(3,448	)		13,954
Commitments and contingencies		-						-
Shareholders’ equity
Parent company’s invested 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 shares issued and outstanding on each date		17,632			3,448			21,080
Additional paid-in capital		9,243						9,243
Retained earnings (deficit)		(342	)					(342	)
Total shareholders’ equity		26,533			3,448			29,981
Total liabilities and shareholders’ equity	$	43,935					$	43,935

28

Consolidated Balance Sheet – March 31, 2008	As Originally Reported			Restatements			As Restated
Assets
Current assets:
Cash and cash equivalents	$	12,420					$	12,420
Accounts receivable, net of allowances for doubtful accounts of  $531,000,		6,894						6,894
Inventories, net		555						555
Prepaid expenses and other current assets		804						804
Prepaid income taxes		1,760						1,760
Deferred income taxes		477						477
Total current assets		22,910						22,910
Property and equipment, net		9,202						9,202
Other assets, net		324						324
Goodwill		9,868						9,868
Total assets	$	42,304					$	42,304
Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	1,467					$	1,467
Accrued wages and benefits		1,621						1,621
Other accrued expenses		875						875
Due to parent company		-						-
Current portion of borrowings under notes payable		1,797						1,797
Current portion of deferred gain on sale of real estate		178						178
Total current liabilities		5,938						5,938
Deferred income taxes		4,226		$	(3,448	)		778
Notes payable, less current portion		3,296						3,296
Due to parent company, less current portion		-						-
Deferred gain on sale of real estate, less current portion		2,134						2,134
Total long-term liabilities		9,656			(3,448	)		6,208
Total liabilities		15,594			(3,448	)		12,146
Commitments and contingencies		-						-
Shareholders’ equity
Parent company’s invested 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 shares issued and outstanding on each date		17,632			3,448			21,080
Additional paid-in capital		9,270						9,270
Retained earnings (deficit)		(192	)					(192	)
Total shareholders’ equity		26,710			3,448			30,158
Total liabilities and shareholders’ equity	$	42,304					$	42,304

29

Note 7  to the consolidated financial statements contained in each of the Forms 10-Q For the three, six and nine month periods ended September 30, 2007, December 31, 2007 and March 31, 2007 contained the Table in Note 12 to consolidated financial statements in this Form 10-K.  See Note 12 for the effects of the restatement.

The following table was disclosed in Note 10 to consolidated financial statements contained in the Forms 10-Q for the six and nine month periods ended December 31, 2007 and March 31, 2008 (in thousands):

	Invested Equity			Common Stock		Paid-in Capital			Retained Earnings			Shareholders’ Equity
Balance June 30, 2007	$	20,587		$	-	$	-		$	-		$	20,587
Net loss		-			-		-			(841	)		(841	)
Balance, August 13, 2007		20,587			-		-			(841	)		19,746
Formation of New 360		(20,587	)		17,632		2,114			841			-
Payments by DGFC, net of transaction expenses		-			-		7,131			-			7,131
Net loss		-			-		-			(470	)		(470	)
Balance, September 30, 2007		-			17,632		9,245			(470	)		26,407
Additional transaction expenses		-			-		(2	)		-			(2	)
Net income		-			-		-			128			128
Balance, December 31, 2007		-			17,632		9,243			(342	)		26,533
FAS 123R option expense		-			-		27			-			27
Net Income		-			-		-			150			150
Balance, March  31, 2008	$	-		$	17,632	$	9,270		$	(192	)	$	26,710

30

The table below shows restated amounts:

	Invested Equity			Common Stock		Paid-in Capital			Retained Earnings			Shareholders’ Equity
	(Restated)			(Restated)								(Restated)
Balance June 30, 2007	$	24,035		$	-	$	-		$	-		$	24,035
Net loss		-			-		-			(841	)		(841	)
Balance, August 13, 2007		24,035			-		-			(841	)		23,194
Formation of New 360		(24,035	)		21,080		2,114			841			-
Payments by DGFC, net of transaction expenses		-			-		7,131			-			7,131
Net loss		-			-		-			(470	)		(470	)
Balance, September 30, 2007		-			21,080		9,245			(470	)		29,855
Additional transaction expenses		-			-		(2	)		-			(2	)
Net income		-			-		-			128			128
Balance, December 31, 2007		-			21,080		9,243			(342	)		29,981
FAS 123R option expense		-			-		27			-			27
Net Income		-			-		-			150			150
Balance, March  31, 2008	$	-		$	21,080	$	9,269		$	(192	)	$	30,158

15.   SUPPLEMENTAL DATA (unaudited):

The following tables set forth quarterly supplementary data for the years ended December 31, 2005 and 2006, the six-month period ended June 30, 2007, and the year ended June 30, 2008 (in thousands except per share data).

	2005
	Quarter Ended											Year Ended
	March 31			June 30			Sept 30			Dec 31		Dec 31
Revenues	$	10,750		$	10,748		$	10,441		$	11,119	$	43,059
Gross profit	$	2,906		$	3,220		$	3,345		$	4,115	$	13,587
Net income (loss)	$	(712	)	$	(532	)	$	(405	)	$	29	$	(1,620	)

	2006
	Quarter Ended											Year Ended
	March 31			June 30		Sept 30			Dec 31			Dec 31
Revenues	$	10,693		$	11,442	$	10,626		$	10,772		$	43,533
Gross profit	$	3,311		$	3,430	$	3,080		$	3,736		$	13,557
Net income (loss)	$	(144	)	$	12	$	(99	)	$	(83	)	$	(314	)

31

	2007
	Quarter Ended						Six months Ended
	March 31			June 30			June 30
Revenues	$	10,307		$	10,543		$	20,850
Gross profit	$	2,800		$	2,290		$	5,090
Net income (loss)	$	(456	)	$	(1,181	)	$	(1,637	)

	2008
	Quarter Ended										Year Ended
	Sept 30			Dec 31		March 31		June 30			June 30
Revenues	$	10,361		$	12,141	$	11,284	$	11,365		$	45,150
Gross profit	$	2,370		$	3,893	$	3,923	$	3,808		$	13,994
Net income (loss)	$	(1,311	)	$	128	$	150	$	(17	)	$	(943	)

16.  SUBSEQUENT EVENTS (unaudited):

Purchase of Real Estate: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 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% (6.4% as of the purchase date).  The mortgage debt is secured by the land and building.  The resulting annual mortgage and interest payments on the Note will be approximately $0.2 million less than the annual rent payments on the property at the time of the transaction.

Stock Repurchase Plan:In May 2008, the Company announced that its Board of Directors authorized a stock purchase plan.  The board authorized the open market purchase at such times and prices determined at the discretion of management in an amount not to exceed 20% of the Company’s net cash on hand (defined as cash less outstanding current and long-term debt).  In July 2008, the Company purchased 60,000 shares for $94,000.

32

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Item 15 is included in this Form 10-K/A as originally filed together with amended Exhibits 23.1, 31.1, 31.2, 32.1 and 32.2.

(a)         Documents Filed as Part of this Report:

   (1, 2)      Financial Statements and Schedules.

    The following financial documents of Point.360 are filed as part of this report under Item 8:

Consolidated Balance Sheets – December 31, 2006 (restated), June 30, 2007 (restated) and June 30, 2008

Consolidated Statements of Income (Loss) – Fiscal Years Ended December 31, 2005 and 2006 the Six Months Ended June 30, 2006 (unaudited) and 2007 and the Fiscal Year Ended June 30, 2008

Consolidated Statements of Invested and Shareholders’ Equity – Fiscal Years Ended December 31, 2005 (restated)  and 2006 (restated), the Six Months Ended June 30, 2007 (restated) and Fiscal Year Ended June 30, 2008

Consolidated Statements of Cash Flows – Fiscal Years Ended December 31, June 30, 2008, 2005, 2006, the Six Months Ended June 30, 2006 (unaudited) and 2007 and the Fiscal Year Ended June 30, 2008

Notes to Consolidated Financial Statements

Schedule II – Valuation and Qualifying Accounts

       (3)      Exhibits:

Exhibit No.	Exhibit Description*
2.1	Agreement and Plan of Merger and Reorganization, dated as of April 16, 2007, among the Registrant, Old Point.360 and DG FastChannel, Inc. (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
2.2	Contribution Agreement, dated as of April 16, 2007, among the Registrant, Old Point.360 and DG FastChannel, Inc. (incorporated by reference to Exhibit 2.2 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
2.3	First Amendment to Agreement and Plan of Merger and Reorganization, dated as of June 22, 2007, among the Registrant, Old Point.360, and DG FastChannel, Inc. (incorporated by reference to Exhibit 2.3 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
2.4	First Amendment to Contribution Agreement, dated as of June 22, 2007, among the Registrant, Old Point.360, and DG FastChannel, Inc. (incorporated by reference to Exhibit 2.4 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
3.1	Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Form 10-K/T filed by the Registrant on November 13, 2007)
3.2	Certificate of Amendment to the Registrant’s Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed by the Registrant on August 22, 2007.

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3.3	Bylaws of the Registrant  (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
4.1	Form of the Registrant’s Common Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1, Registration No. 333-144547, filed by the Registrant on July 13, 2007)
4.2	Form of Rights Agreement between the Registrant and American Stock Transfer & Trust Company (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-1 filed by the Registrant on July 26, 2007)
4.3	Form of Certificate of Determination of Series A Junior Participating Preferred Stock of the Registrant (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-1 filed by the Registrant on July 26, 2007)
4.4	Form of Right Certificate (incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Registration Statement on Form S-1 filed by the Registrant on July 26, 2007)
10.1	Form of Noncompetition Agreement between the Registrant and DG FastChannel, Inc. (incorporated by reference to Exhibit 10.1 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.2	Form of Post Production Services Agreement between the Registrant and DG FastChannel, Inc. (incorporated by reference to Exhibit 10.2 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.3	Form of Working Capital Reconciliation Agreement among the Registrant, Old Point.360 and DG FastChannel, Inc. (incorporated by reference to Exhibit 10.3 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.4	Form of Indemnification and Tax Matters Agreement between the Registrant and DG FastChannel, Inc. (incorporated by reference to Exhibit 10.4 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.5	Severance Agreement, dated September 30, 2003 (assumed by the Registrant), between Old Point.360 and Haig S. Bagerdjian (incorporated by reference to Exhibit 10.5 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.6	Severance Agreement, dated September 30, 2003 (assumed by the Registrant), between Old Point.360 and Alan R. Steel (incorporated by reference to Exhibit 10.6 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.7	2007 Equity Incentive Plan of the Registrant (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
10.8	Building Lease (1133 Hollywood Way, Burbank Facility), dated June 11, 1998 (assumed by the Registrant), between Old Point.360 and Hollywood Way Office Ventures LLC (incorporated by reference to Exhibit 10.8 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)

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10.9	Standard Industrial / Commercial Single – Tenant Lease – Net (712 N. Seward St., Los Angeles facility), dated January 24, 1997 (assumed by the Registrant), between Old Point.360 and Richard Hourizadeh, as amended in July 2002 (incorporated by reference to Exhibit 10.9 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.10	Standard Industrial / Commercial Multi-Tenant Lease-Net (West Los Angeles facility), dated March 17, 2004 (assumed by the Registrant), between Old Point.360 and Martin Shephard, as co-Trustee of the Shephard Family Trust of 1988 (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
10.11	Standard Industrial Lease – Net (Highland facility), dated April 3, 1989 (assumed by the Registrant), between Old Point.360 and Leon Vahn FBO for Leon Vahn Living Trust, as amended (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
10.12	Standard Industrial / Commercial Multi-Tenant Lease –Net (IVC facility), dated March 1, 2002 (assumed by the Registrant), between Old Point.360 and 2777 LLC, as amended (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
10.13	Lease Agreement (Media Center) dated March 29, 2006 (assumed by the Registrant), between Old Point.360 and LEAFS Properties, LP (incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Registration Statement on Form 10 filed by the Registrant on June 22, 2007)
10.14	Asset Purchase Agreement, dated as of March 7, 2007 (assumed by the Registrant), among Old Point.360, Eden FX, Mark Miller, and John Gross (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
10.15	Standard Loan Agreement dated August 7, 2007 between the Registrant and Bank of America N.A.  (incorporated by reference to Exhibit 10.15 to the Form 10-K/T filed by the Registrant on November 13, 2007)
10.16	Promissory Note dated December 30, 2005 (assumed by the Registrant), between General Electric Capital Corporation and Old Point.360 (incorporated by reference to Exhibit 10.16 to the Form 10-K/T filed by the Registrant on November 13, 2007)
10.17	Promissory Note dated March 30, 2007 (assumed by the Registrant), between General Electric Capital Corporation and Old Point.360 (incorporated by reference to Exhibit 10.17 to the Form 10-K/T filed by the Registrant on November 13, 2007)
10.18	Transfer and Assumption Agreement dated August 8, 2007 between the Registrant and Old Point.360 (incorporated by reference to Exhibit 10.18 to the Form 10-K/T filed by the Registrant on November 13, 2007)
10.19	Sale, Purchase and Escrow Agreement (1133 Hollywood Way, Burbank Facility) dated May 19, 2008 among Point.360, Hollywood Way Office Ventures, LLC and Commonwealth Land Title Insurance Company (incorporated by reference to Exhibit 10.1 to the Form 8-K filed by the company on July 7, 2008)
10.20	Promissory Note dated July 1, 2008 between Point.360 and Lehman Brothers Bank FSB (incorporated by reference to Exhibit 10.2 to the Form 8-K filed by the Company on July 7, 2008)

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10.21	Settlement Agreement and Release (712 N. Seaward St., Los Angeles facility) dated June 19, 2008 among Point.360, Richard Hourizadeh, Vida Hourizadeh and Travira Trust
21.1	Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registration Statement on Form 10 filed by the Registrant on May 14, 2007)
23.1	Consent of Singer Lewak LLP
31.1	Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. § 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

___________________

* Prior to August 21, 2007, Point.360 was named New 360.  On August 21, 2007, New 360 changed its name to Point.360.  In this Exhibit Index, Point.360 (including New 360 for the period prior to August 21, 2007) is referred to as the “Registrant.”

References in this Exhibit Index to “Old Point.360” are intended to refer to the Registrant’s former parent corporation, named Point.360, which was merged into DG FastChannel, Inc. on August 14, 2007, with DG FastChannel, Inc. continuing in existence as the surviving corporation.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

Dated:  April 10, 2009

Point.360
By:	/s/ Alan R. Steel
	Alan R. Steel Executive Vice President, Finance and Administration   and Chief Financial Officer (duly authorized officer and principal financial officer)

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