UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended December 31, 2009 or
o | 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) |
(818) 565-1400
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
þ Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
¨ Yes ¨ No
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 ¨ | 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).
o Yes þ No
As of December 31, 2009, there were 10,491,166 shares of the registrant’s common stock outstanding.
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POINT.360
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 2009* | December 31, 2009 (unaudited) | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 5,235 | $ | 2,989 | ||||
Accounts receivable, net of allowances for doubtful accounts of $537 and $527, respectively | 8,347 | 6,790 | ||||||
Inventories, net | 401 | 487 | ||||||
Prepaid expenses and other current assets. | 524 | 681 | ||||||
Prepaid income taxes | 1,877 | 1,565 | ||||||
Total current assets | 16,384 | 12,512 | ||||||
Property and equipment, net | 20,417 | 19,865 | ||||||
Other assets, net | 593 | 1,470 | ||||||
Total assets | $ | 37,394 | $ | 33,847 | ||||
Liabilities and Shareholders’ Equity | ||||||||
Current liabilities: | ||||||||
Current portion of borrowings under notes payable | $ | 2,086 | $ | 2,137 | ||||
Accounts payable | 1,708 | 1,561 | ||||||
Accrued wages and benefits | 1,438 | 1,033 | ||||||
Other accrued expenses. | 1,220 | 1,390 | ||||||
Current portion of deferred gain on sale of real estate | 178 | 178 | ||||||
Total current liabilities | 6,630 | 6,299 | ||||||
Notes payable, less current portion | 10,844 | 9,761 | ||||||
Deferred gain on sale of real estate, less current portion, and other long-term liabilities | 1,911 | 1,876 | ||||||
Total long-term liabilities | 12,755 | 11,637 | ||||||
Total liabilities | 19,385 | 17,936 | ||||||
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; 10,148,700 and 10,491,166 shares issued and outstanding on June 30 and December 31, 2009, respectively | 21,025 | 21,525 | ||||||
Additional paid-in capital | 9,547 | 9,674 | ||||||
Retained (deficit) | (12,563 | ) | (15,288 | ) | ||||
Total shareholders’ equity | 18,009 | 15,911 | ||||||
Total liabilities and shareholders’ equity | $ | 37,394 | $ | 33,847 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
*Amounts derived from audited financial statements
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POINT.360
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Three Months Ended December 31, | Six Months Ended December 31, | |||||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Revenues | $ | 11,802,000 | $ | 10,254,000 | $ | 23,358,000 | $ | 19,673,000 | ||||||||
Cost of services | (7,820,000 | ) | (6,981,000 | ) | (15,458,000 | ) | (14,341,000 | ) | ||||||||
Gross profit | 3,982,000 | 3,273,000 | 7,900,000 | 5,332,000 | ||||||||||||
Selling, general and administrative expense | (4,001,000 | ) | (3,704,000 | ) | (7,709,000 | ) | (7,493,000 | ) | ||||||||
Research and development expense | - | (282,000 | ) | - | (390,000 | ) | ||||||||||
Operating income (loss) | (19,000 | ) | (713,000 | ) | 191,000 | (2,551,000 | ) | |||||||||
Interest expense | (195,000 | ) | (227,000 | ) | (325,000 | ) | (449,000 | ) | ||||||||
Interest income | 20,000 | - | 44,000 | 9,000 | ||||||||||||
Other Income | 213,000 | 187,000 | 215,000 | 266,000 | ||||||||||||
Income (loss) before income taxes | 19,000 | (753,000 | ) | 125,000 | (2,725,000 | ) | ||||||||||
Provision for income taxes | 76,000 | - | 29,000 | - | ||||||||||||
Net income (loss) | $ | 95,000 | $ | (753,000 | ) | $ | 154,000 | $ | (2,725,000 | ) | ||||||
Earnings (loss) per share: | ||||||||||||||||
Basic: | ||||||||||||||||
Net income (loss) | $ | 0.01 | $ | (0.07 | ) | $ | 0.01 | $ | (0.26 | ) | ||||||
Weighted average number of shares | 10,437,323 | 10,491,166 | 10,470,947 | 10,321,794 | ||||||||||||
Diluted: | ||||||||||||||||
Net income (loss) | $ | 0.01 | $ | (0.07 | ) | $ | 0.01 | $ | (0.26 | ) | ||||||
Weighted average number of shares including the dilutive effect of stock options | 10,437,787 | 10,491,166 | 10,471,473 | 10,321,794 |
See accompanying notes to condensed consolidated financial statements.
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POINT.360
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended December 31, | ||||||||
2008 | 2009 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 154,000 | $ | (2,725,000 | ) | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Stock based compensation expense | 117,000 | 127,000 | ||||||
Depreciation and amortization | 2,457,000 | 1,834,000 | ||||||
Gain on sale of fixed assets | (138,000 | ) | (112,000 | ) | ||||
Provision (benefit from) for doubtful accounts | 14,000 | (9,000 | ) | |||||
Amortization of deferred gain on sale of real estate | (89,000 | ) | (89,000 | ) | ||||
Amortization of non-compete agreement | - | 7,000 | ||||||
Changes in assets and liabilities: | ||||||||
(Increase) decrease in accounts receivable | (2,227.000 | ) | 1,566,000 | |||||
(Increase) decrease in inventories | 100,000 | (86,000 | ) | |||||
(Increase) decrease in prepaid expenses and other current assets | (107,000 | ) | 154,000 | |||||
(Increase) in other assets | (70,000 | ) | (646,000 | ) | ||||
(Increase) in deferred tax asset | (336,000 | ) | - | |||||
Increase (decrease) in accounts payable | (90,000 | ) | (147,000 | ) | ||||
Increase (decrease) in accrued expenses | (657,000 | ) | (235,000 | ) | ||||
Increase (decrease) in income taxes payable | 270,000 | - | ||||||
Net cash provided by (used in) operating activities | (602,000 | ) | (361,000 | ) | ||||
Cash used in investing activities: | ||||||||
Capital expenditures | (8,834,000 | ) | (820,000 | ) | ||||
Proceeds from sale of fixed assets | 138,000 | 112,000 | ||||||
Investment in acquisitions | (440,000 | ) | (200,000 | ) | ||||
Net cash used in investing activities | (9,136,000 | ) | (908,000 | ) | ||||
Cash flows provided by (used in) financing activities: | ||||||||
Stock buyback | (245,000 | ) | - | |||||
Increase (decrease) in notes payable | 5,082,000 | (957,000 | ) | |||||
Repayment of capital lease and other obligations | (1,000 | ) | (74,000 | ) | ||||
Acquisition of capital lease and other obligations | 98,000 | 54,000 | ||||||
Net cash provided by (used in) financing activities | 4,934,000 | (977,000 | ) | |||||
Net (decrease) in cash | (4,804,000 | ) | (2,246,000 | ) | ||||
Cash and cash equivalents at beginning of period | 13,056,000 | 5,235,000 | ||||||
Cash and cash equivalents at end of period | $ | 8,252,000 | $ | 2,989,000 | ||||
Supplemental disclosure of cash flow information - Cash paid for: | ||||||||
Interest | $ | 260,000 | $ | 338,000 | ||||
Income tax | $ | 375,000 | $ | (312,000 | ) | |||
Non-cash investing activities: | ||||||||
Capital stock issued for acquisition | $ | - | $ | 500,000 |
See accompanying notes to condensed consolidated financial statements.
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POINT.360
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
December 31, 2009
NOTE 1 - THE COMPANY
The Company provides high definition and standard definition digital mastering, data conversion, video and film asset management and sophisticated computer graphics services to owners, producers and distributors of entertainment and advertising content. The Company provides the services necessary to edit, master, reformat, convert, archive and ultimately distribute its clients’ film and video content, including television programming feature films and movie trailers. The Company’s interconnected facilities provide service coverage to all major U.S. media centers.
The Company seeks to capitalize on growth in demand for the services related to the distribution of entertainment content, without assuming the production or ownership risk of any specific television program, feature film or other form of content. The primary users of the Company’s services are entertainment studios and advertising agencies that choose to outsource such services due to the sporadic demand of any single customer for such services and the fixed costs of maintaining a high-volume physical plant.
The accompanying Condensed Consolidated Financial Statements include the accounts and transactions of the Company, including those of the Company’s subsidiaries. The accompanying Condensed 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 accompanying Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred net losses of $2,725,000 in the six months ended December 31, 2009, and $12,640,000 the fiscal year ended June 30, 2009 (including a goodwill impairment charge of $9,961,000). The Company has used cash in operations of $361,000 in the six months ended December 31, 2009, and generated cash from operations of $1,373,000 for the year ended June 30, 2009. As of December 31, 2009, we had an accumulated deficit of $15.3 million, cash of $2,989,000 and long-term debt of $9,761,000.
Based on the Company’s current operating plans, management believes that the Company’s existing cash resources and cash forecasted by management to be generated by operations will be sufficient to meet working capital and capital requirements through at least the next twelve months. In this regard, the Company will complete certain research and development projects and bring them to market. The Company has also been working to secure additional financing; however, there is no assurance that the Company will be successful in these endeavors. The Company is also planning to reduce operating expenses in some of its facilities. Management believes that current resources, and actions taken and to be taken provide the opportunity for the Company to continue as a going concern.
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles and the Securities and Exchange Commission’s rules and regulations for reporting interim financial statements and footnotes. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended December 31, 2009 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2010. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s Form 10-K for the period ended June 30, 2009. Certain immaterial reclassifications have been made to the prior period’s financial statements to conform to the current year presentation.
5
Earnings Per Share
A reconciliation of the denominator of the basic EPS computation to the denominator of the diluted EPS computation is as follows (in thousands):
Three Months Ended December 31, | Three Months Ended December 31, | Six Months Ended December 31, | Six Months Ended December 31, | |||||||||||||
2008 | 2009 | 2008 | 2009 | |||||||||||||
Pro forma weighted average of number of shares | ||||||||||||||||
Weighted average number of common shares outstanding used in computation of basic EPS | 10,437 | 10,491 | 10,471 | 10,322 | ||||||||||||
Dilutive effect of outstanding stock options...................... | - | - | - | - | ||||||||||||
Weighted average number of common and potential Common shares outstanding used in computation of Diluted EPS | 10,437 | 10,491 | 10,471 | 10,322 | ||||||||||||
Effect of dilutive options excluded in the computation of diluted EPS due to net loss | - | 10 | - | 19 |
The weighted average number of common shares outstanding was the same amount for both basic and diluted income or loss per share in each of the periods presented. The effect of potentially dilutive securities at December 31, 2009 were excluded from the computation of diluted earnings per share because the Company reported a net loss, and the effect of inclusion would be antidilutive (i.e., including such securities would result in a lower loss per share). These potentially dilutive securities consist of stock options.
Fair Value Measurements
As of December 31, 2009 and June 30, 2009, the carrying value of cash, accounts receivable, accounts payable, accrued expenses and interest payable approximates fair value due to the short-term nature of such instruments. The carrying value of other long-term liabilities approximates fair value as the related interest rates approximate rates currently available to the Company.
Fair Value Measurement
The Company follows a framework for consistently measuring fair value under generally accepted accounting principles, and the disclosures of fair value measurements. The framework provides a fair value hierarchy to classify the source of the information.
The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value and include the following:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Cash, the only Level 1 input applicable to the Company (there are no Level 2 or 3 inputs), is stated on the Condensed Consolidated Balance Sheet at fair value.
The carrying amounts reported in the balance sheets for cash and cash equivalents, short-term marketable securities, accounts receivable and accounts payable approximate their fair values due to the short term nature of these financial instruments.
Recent Accounting Pronouncements
On September 30, 2009, the Company adopted updates issued by the Financial Accounting Standards Board (FASB) to the authoritative hierarchy of GAAP. These changes establish the FASB Accounting Standards Codification (ASC) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The FASB will no longer issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead the FASB will issue Accounting Standards Updates. Accounting Standards Updates will not be authoritative in their own right as they will only serve to update the Codification. These changes and the Codification itself do not change GAAP. Other than the manner in which new accounting guidance is referenced, the adoption of these changes had no impact on the financial statements.
6
On June 30, 2009, the Company adopted updates issued by the FASB to accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued, otherwise known as “subsequent events.” Specifically, these changes set forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. The adoption of these changes had no impact on the financial statements.
On June 30, 2009, the Company adopted updates issued by the FASB to fair value accounting. These changes provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased and includes guidance for identifying circumstances that indicate a transaction is not orderly. This guidance is necessary to maintain the overall objective of fair value measurements, which is that fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. The adoption of these changes had no impact on the financial statements.
On July 1, 2009, the Company adopted updates issued by the FASB to the recognition and presentation of other-than-temporary impairments. These changes amend existing other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities. The recognition provision applies only to fixed maturity investments that are subject to the other-than-temporary impairments. If an entity intends to sell, or if it is more likely than not that it will be required to sell an impaired security prior to recovery of its cost basis, the security is other-than-temporarily impaired and the full amount of the impairment is recognized as a loss through earnings. Otherwise, losses on securities which are other-than-temporarily impaired are separated into: (i) the portion of loss which represents the credit loss; or (ii) the portion which is due to other factors. The credit loss portion is recognized as a loss through earnings, while the loss due to other factors is recognized in other comprehensive income (loss), net of taxes and related amortization. A cumulative effect adjustment is required to accumulated earnings and a corresponding adjustment to accumulated other comprehensive income (loss) to reclassify the non-credit portion of previously other-than-temporarily impaired securities which were held at the beginning of the period of adoption and for which the Company does not intend to sell and it is more likely than not that the Company will not be required to sell such securities before recovery of the amortized cost basis. These changes were effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted these changes effective July 1, 2009. The impact of adopting these updates did not have an effect on the Company’s financial statements.
On June 30, 2009, the Company adopted updates issued by the FASB to fair value disclosures of financial instruments. These changes require a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such disclosures include the fair value of all financial instruments, for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position; the related carrying amount of these financial instruments; and the method(s) and significant assumptions used to estimate the fair value. Other than the required disclosures, the adoption of these changes had no impact on the financial statements.
On September 30, 2008, the Company adopted updates issued by the FASB to fair value accounting and reporting as it relates to nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value in the financial statements on at least an annual basis. These changes define fair value, establish a framework for measuring fair value in GAAP, and expand disclosures about fair value measurements. This guidance applies to other GAAP that require or permit fair value measurements and is to be applied prospectively with limited exceptions. The adoption of these changes, as it relates to nonfinancial assets and nonfinancial liabilities, had no impact on the financial statements.
On July 1, 2009, the Company adopted updates issued by the FASB to accounting for intangible assets. These changes amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset in order to improve the consistency between the useful life of a recognized intangible asset outside of a business combination and the period of expected cash flows used to measure the fair value of an intangible asset in a business combination. The adoption of these changes had no impact on the financial statements.
On July 1, 2009, the Company adopted updates issued by the FASB to the calculation of earnings per share. These changes state that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method for all periods presented. The adoption of these changes had no impact on the financial statements.
7
NOTE 2 - LONG TERM DEBT AND NOTES PAYABLE
In August 2009 the Company entered into a credit agreement which provides up to $5 million of revolving credit based on 80% of acceptable accounts receivables, as defined. The 15 month agreement provides for interest of either (1) prime (3.25% at December 31, 2009) minus .5% - plus .5% or (2) LIBOR plus 2.0% - 3.0% depending on the level of the Company’s ratio of outstanding debt to fixed charges (as defined), or 3.75% or 3.45%, respectively, on December 31, 2009. The facility is secured by all of the Company’s assets, except for equipment securing new term loans as described below and real property securing mortgages. As of June 30, 2009 and December 31, 2009, the Company had secured a $500,000 standby letter of credit related to a building lease which reduces the amount available under the credit agreement. No other amounts were outstanding under the credit agreement on that date.
Our bank revolving credit agreement requires us to maintain a minimum “leverage ratio” and “fixed charge coverage ratio.” The leverage ratio compares tangible assets to total liabilities (excluding the deferred real estate gain). Our fixed charge coverage ratio compares, on a rolling twelve-month basis, (i) EBITDA plus rent expense and non-cash charges less income tax payments, to (ii) interest expense plus rent expense, the current portion of long term debt and maintenance capital expenditures. As of December 31, 2009, the leverage ratio was 2.12 compared to a minimum requirement of 1.75, and the fixed charge coverage ratio was 0.79 as compared to a minimum requirement of 1.10. As of December 31, 2009, the Company was not in compliance with the fixed charge rate and received a forbearance from the bank. The forbearance period extends to March 31, 2010, during which time the amount available under the credit agreement will be limited to the $0.5 million letter of credit, after which date the entire revolving credit agreement will terminate.
In July 2008, the Company entered into a Promissory Note with a bank (the “note”) in order to purchase land and a building that had 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 base 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.
In June 2009, the Company entered into a $3,562,500 million Purchase Money Promissory Note secured by a Deed of Trust for the purchase of land and a building. The note bears interest at 7% fixed for ten years. The principal amount of the note is payable on June 12, 2019. The note is secured by the property.
On December 30, 2005, the Company entered into a $10 million term loan agreement. The term loan provides for interest at LIBOR (0.45% as of December 31, 2009) plus 3.15%, or 3.60% on that date, and is secured by equipment. The term loan will be repaid in 60 equal monthly principal payments plus interest. In March 2006, $4 million of the term loan was prepaid. Monthly principal payments were subsequently reduced pro rata. On March 30, 2007, the Company entered into an additional $2.5 million term loan agreement. The Loan provides for interest at 8.35% per annum and is secured by equipment. The loan will be repaid in 45 equal monthly installments of principal and interest.
The term loans are scheduled to be repaid completely by December 31, 2010.
NOTE 3- PROPERTY AND EQUIPMENT
In March 2006, the Company 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, the Company received $0.5 million from the purchaser for improvements. In accordance with the Accounting Standards Codification, the gain will be amortized over the initial 15-year lease term as reduced rent. Net proceeds at the closing of the sale and improvement advance (approximately $13.8 million) were used to pay off the mortgage and other outstanding debt.
The lease is treated as an operating lease for financial reporting purposes. After the initial lease term, the Company has four five-year options to extend the lease. Minimum annual rent payments for the initial five years of the lease are $1,111,000, increasing annually thereafter based on the Consumer Price Index change from year to year.
8
Property and equipment consist of the following as of December 31, 2009:
Land | $ | 3,985,000 | ||
Building | 9,093,000 | |||
Machinery and equipment | 36,475,000 | |||
Leasehold improvements | 6,443,000 | |||
Computer equipment | 6,809,000 | |||
Equipment under capital lease | 671,000 | |||
Office equipment, CIP | 709,000 | |||
Less accumulated depreciation and Amortization | (44,320,000 | ) | ||
Property and equipment, net | $ | 19,865,000 |
NOTE 4- 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 defendants’ negligence, Farshad claims to have suffered damages in excess of $2 million and additional unquantified general and special damages. Management does not believe that the outcome will have a material effect on the financial condition or results of operation of the Company.
On May 1, 2009 the Company was served with a Verified Unlawful Detainer Complaint” by 1220 Highland, LLC, the landlord of the facility in Hollywood, CA that had been rented by the Company for many years. The Company’s lease on the facility expired in March 2009. The Complaint seeks possession of the property, damages for each day of the Company’s possession from May 1, 2009, and other damages and legal fees. Management does not believe that the outcome will have a material effect on the financial condition of the Company, especially since full rent was paid until the property was returned to the landlord on June 30, 2009.
On October 6, 2009, DG FastChannel, Inc. (“DGFC”) filed a claim in the United States District Court Central District of California, alleging that the Company violated certain provisions of agreements governing transactions related to the August 13, 2007 sale of the Company’s advertising distribution business to DGFC. DGFC alleges that (i) the Company did not fulfill its obligation to restrict a former employee from competing against DGFC subsequent to the transaction and, therefore, DGFC does not owe the Company $500,000 related to that portion of the transaction; (ii) the Company violated the noncompetition agreement between DGFC and the Company by distributing advertising content after the transaction; (iii) due to the violation of the noncompetition agreement, the post production services agreement that required DGFC to continue to vault its customers’ physical elements at the Company’s Media Center became null and void; and (iv) the company must return all of DGFC’s vaulted material to DGFC. DGFC also seeks unspecified monetary damages.
If DGFC is successful in its claims, the possibility exists that the Company must return the DGFC vaulted elements which will result in a future decline in annual revenues of approximately $0.7 million, partially offset in the first year by “pull” charges. The Company believes it has adequate defenses against the claims.
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.
NOTE 5- INCOME TAXES
The Accounting Standards Codification prescribes a recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition.
The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal state or local income tax examinations by tax authorities for years before 2002. The Company has analyzed its filing positions in all of the federal and state jurisdictions where it is required to file income tax returns. The Company, was last audited by New York taxing authorities for the years 2002 through 2004 resulting in no change. 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.
9
The Company was notified by the IRS in September 2009 of its intent to audit federal tax returns for calendar year 2006 and the period from January 1 to August 13, 2007.
The Company was notified by the IRS in November 2009 of its intent to audit the federal tax return for the fiscal ended June 30, 2008. The audit was subsequently withdrawn.
NOTE 6- STOCK OPTION PLAN, STOCK-BASED COMPENSATION
In May 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 in one to five years.
The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. We also 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).
We 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 Condensed Consolidated Statements of Income (Loss). Stock-based compensation expense recognized in the Condensed Consolidated Statements of Income (Loss) for the three and six months ended December 31, 2009 included compensation expense for the share-based payment awards based on the grant date fair value. 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 Condensed Consolidated Statements of Income (Loss) for the periods reported in this Form 10-Q is based on awards expected to vest, forfeitures are also estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the periods being reported in this Form 10-Q, expected forfeitures are immaterial. The Company will re-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 three and six month periods ended December 31, 2009 were $70,000 and $126,000, respectively.
The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant uses the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the expected term of the awards, and actual and projected employee stock options exercise behaviors. The Company estimates expected volatility using historical data. The expected term is estimated using the “safe harbor” provisions provided by the SEC.
During each of the quarters and six month periods ended December 31, 2008 and 2009, the Company granted awards of stock options for 30,000 shares at a market price of $1.37 and $1.05 per share, respectively. As of December 31, 2009, there were options outstanding to acquire 1,326,425 shares at an average exercise price of $1.64 per share. The estimated fair value of all awards granted during the 2008 and 2009 periods was $16,000 and $13,000 respectively. For the 2009 period, 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 | 0.12 | % | ||
Expected term (years) | 5.0 | |||
Volatility | 49 | % | ||
Expected annual dividends | - |
The following table summarizes the status of the 2007 Plan as of December 31, 2009:
Options originally available | 2,000,000 | |||
Stock options outstanding | 1,326,425 | |||
Options available for grant | 673,525 |
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Transactions involving stock options are summarized as follows:
Number of Shares | Weighted Average Exercise Price | |||||||
Balance at June 30, 2009 | 1,322,025 | $ | 1.66 | |||||
Granted | ||||||||
Exercised | - | - | ||||||
Cancelled | (8,725 | ) | 1.66 | |||||
Balance at September 30, 2009 | 1,313,300 | $ | 1.66 | |||||
Granted | 30,000 | 1.05 | ||||||
Exercised | - | - | ||||||
Cancelled | (16,875 | ) | 1.74 | |||||
Balance at December 31, 2009 | 1,326,425 | $ | 1.64 |
As of December 31, 2009, the total compensation costs related to non-vested awards yet to be expensed was approximately $0.5 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 December 31, 2009 were as follows:
Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | Intrinsic Value | |||||||||||||
As of December 31, 2009 | ||||||||||||||||
Employees – Outstanding | 1,166,425 | $ | 1.65 | 3.36 | $ | - | ||||||||||
Employees – Expected to Vest | 1,102,545 | $ | 1.65 | 3.36 | $ | - | ||||||||||
Employees – Exercisable | 225,900 | $ | 1.79 | 3.12 | $ | - | ||||||||||
Non-Employees – Outstanding | 160,000 | $ | 1.57 | 3.59 | $ | 4,000 | ||||||||||
Non-Employees – Vested | 85,000 | $ | 1.38 | 4.01 | $ | 4,000 | ||||||||||
Non-Employees – Exercisable | 85,000 | $ | 1.38 | 4.01 | $ | 4,000 |
The aggregate intrinsic value in the table above is the sum of the amounts by which the quoted market price of our common stock exceeded the exercise price of the options at December 31, 2009, for those options for which the quoted market price was in excess of the exercise price.
Additional information with respect to outstanding options as of December 31, 2009 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 | 992 | 3.1 Years | $ | 1.79 | 251 | $ | 1.79 | |||||||||||
$ | 1.37 | 30 | 3.9 Years | $ | 1.37 | 30 | $ | 1.37 | |||||||||||
$ | 1.20 | 274 | 4.1 Years | $ | 1.20 | - | $ | 1.20 | |||||||||||
$ | 1.05 | 30 | 4.9 Years | $ | 1.05 | 30 | $ | 1.05 |
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NOTE 7- 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.
No triggering events occurred in the six months ended December 31, 2009.
NOTE 8- SHAREHOLDER’S EQUITY
The following table analyzes the components of shareholders’ equity from June 30, 2009 to December 31, 2009 (in thousands):
Common Stock | Paid-in Capital | Retained (Deficit) | Shareholders’ Equity | |||||||||||||
Balance, June 30, 2009 | $ | 21,025 | $ | 9,547 | $ | (12,563 | ) | $ | 18,009 | |||||||
FAS 123R option expense | - | 57 | - | 57 | ||||||||||||
Net income (loss) | - | - | (1,972 | ) | (1,972 | ) | ||||||||||
Stock Issuance | 500 | - | - | 500 | ||||||||||||
Balance, September 30, 2009 | $ | 21,525 | $ | 9,604 | $ | (14,535 | ) | $ | 16,594 | |||||||
FAS 123R option expense | - | 70 | - | 70 | ||||||||||||
Net income (loss) | - | - | (753 | ) | (753 | ) | ||||||||||
Stock buyback | - | - | - | - | ||||||||||||
Balance, December 31, 2009 | $ | 21,525 | $ | 9,674 | $ | (15,288 | ) | $ | 15,911 |
NOTE 9- STOCK REPURCHASE PLAN
In February 2008, the Company’s Board of Directors authorized a stock repurchase program. Under the stock repurchase program, the Company may purchase outstanding shares of its common stock on the open market at such times and prices determined in the sole discretion of management. No shares were acquired pursuant to the repurchase program during the six months ended December 31, 2009.
NOTE 10- ACQUISITIONS
On September 29, 2009, the Company acquired the assets of Kiosk Concepts, a general partnership for a purchase price of approximately $500,000 through the issuance of 342,466 shares of its common stock. The purchase price included $0.3 million of property and equipment and $0.2 million of deposits acquired. Substantially all of the assets purchased were new and had not been placed in service as of the acquisition date. No liabilities were assumed. The acquisition will enable to the Company to expand its service offerings by using the assets to develop and commercialize “automated” stores to rent and sell digital video discs (DVDs). The DVD stores will contain up to 10,000 DVDs for rent or sale via software-controlled automated dispensers contained in 1,000 to 1,500 square feet of retail space for each store.
The Company expects to spend $1.5 million to $2 million prior to April 1, 2010 to create three “proof of concept” locations. The Company expects to seek expansion capital to increase the number of stores depending on the success of the “test” stores. The new stores will provide consumers with an alternative to renting or acquiring DVDs from big box stores (e.g., Blockbuster), on-line vendors (e.g., Netflix), and stand-alone kiosks (e.g., Redbox).
In a separate transaction, on November 15, 2009, the Company purchased the stock of DVDs On the Run, Inc. (“DOR”) for $650,000 ($200,000 paid at closing and $450,000 placed in escrow pending completion of certain services). The assets of DOR consisted of intellectual property (“IP”) related to mechanical receipt, storage and dispensing of DVDs. The purchased IP will be modified pursuant to a related Services Agreement. If the software and certain physical mechanical design goals are achieved within a specified period, the seller will receive the $450,000 placed in escrow on the transaction date.
The enhanced software and mechanical designs are intended to form the backbone of the automated store DVD system.
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The $200,000 purchase price of DOR stock was assigned to IP, the estimated fair value. The $450,000 placed in escrow was recorded as a deposit pending satisfactory completion of the services to be rendered by the seller. Upon satisfactory completion of the services, the $450,000 will be released to the seller and reclassified to fixed assets (IP).
These acquisitions were accounted for as a business combination. On the date of acquisition, the transaction was not material to the Company’s financial position. Accordingly, pro forma financial amounts are not presented. The allocation of the purchase price to the tangible assets acquired is based on the replacement cost and estimates from management to calculate fair value.
During the three and six months ended December 31, 2009, the Company incurred $282,000 and $390,000 of costs associated with the acquisitions, consisting of transaction expenses ($22,000 and $55,000, respectively) and project consulting costs ($260,000 and $335,000, respectively) associated with the automated stores. These expenses are reflected as research and development expenses in the Consolidated Statements of Income (Loss).
NOTE I1- SUBSEQUENT EVENTS
Management evaluated all activity of the Company through the issue date of these Consolidated Financial Statements and concluded that no subsequent events have occurred that would require recognition in the Consolidated Financial Statements or disclosure in Notes to Consolidated Financial Statements.
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POINT.360
MANAGEMENT’S DISCUSSION AND ANALYSIS
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Except for the historical information contained herein, certain statements in this quarterly report are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, which involve certain risks and uncertainties, which could cause actual results to differ materially from those discussed herein, including but not limited to competition, customer and industry concentration, depending on technological developments, risks related to expansion, dependence on key personnel, fluctuating results and seasonality and control by management. See the relevant portions of the Company's documents filed with the Securities and Exchange Commission and Risk Factors in Item 1A of Part II of this Form 10-Q, for a further discussion of these and other risks and uncertainties applicable to the Company's business.
Overview
Point.360 is one of the largest providers of video and film asset management services to owners, producers and distributors of entertainment content. We provide the services necessary to edit, master, reformat and archive our clients’ film and video content, including television programming, feature films and movie trailers using electronic and physical means. Clients include major motion picture studios and independent producers.
We operate in a highly competitive environment in which customers desire a broad range of services at a reasonable price. There are many competitors offering some or all of the services provided by us. Additionally, some of our customers are large studios, which also have in-house capabilities that may influence the amount of work outsourced to companies like Point.360. We attract and retain customers by maintaining a high service level at reasonable prices.
The market for our services is primarily dependent on our customers’ desire and ability to monetize their entertainment content. The major studios derive revenues from re-releases and/or syndication of motion pictures and television content. While the size of this market is not quantifiable, we believe studios will continue to repurpose library content to augment uncertain revenues from new releases. The current uncertain economic environment and intermittent entertainment industry labor unrest have negatively impacted the ability and willingness of independent producers to create new content.
The demand for entertainment content should continue to expand through web-based applications. We believe long and short form content will be sought by users of personal computers, hand held devices and home entertainment technology. Additionally, changing formats from standard definition, to high definition, to Blu Ray and perhaps to 3D will continue to give us the opportunity to provide new services with respect to library content.
To meet these needs, we must be prepared to invest in technology and equipment, and attract the talent needed to serve our client needs. Labor, facility and depreciation expenses constitute approximately 75% of our cost of sales. Our goals include maximizing facility and labor usage, and maintaining sufficient cash flow for capital expenditures and acquisitions of complementary businesses to enhance our service offerings.
We continue to look for opportunities to solidify our businesses. During the fiscal year ended June 30, 2009 and the six months ended December 31, 2009, we have completed the following:
· | We purchased the 32,000 square foot Burbank facility to enhance future cash flow and secure that operational capability for the future. |
· | We purchased the assets of Video Box Studios and consolidated its operations into our West Los Angeles location. |
· | We purchased the assets of MI Post providing the Company with an East Coast presence. |
· | We purchased an 18,300 square foot building in Hollywood into which we will move operations that have previously occupied 37,000 square feet of rented space. |
· | We purchased physical assets and intellectual property and hired personnel to test a content distribution business model. |
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We have an opportunity to expand our business by establishing closer relationships with our customers through excellent service at a competitive price and adding to our service offering. Our success is also dependent on attracting and maintaining employees capable of maintaining such relationships. Also, growth can be achieved by acquiring similar businesses (for example, the acquisitions of International Video Conversions, Inc., in July 2004, Eden FX in March 2007 and those described above) that can increase revenues by adding new customers, or expanding current services to existing customers.
Our business generally involves the immediate servicing needs of our customers. Most orders are fulfilled within several days, with occasional larger orders spanning weeks or months. At any particular time, we have little firm backlog.
We believe that our interconnected facilities provide the ability to better service customers than single-location competitors. We will look to expand both our service offering and geographical presence through acquisition of other businesses or opening additional facilities.
Three Months Ended December 31, 2009 Compared to Three Months Ended December 31, 2008
Revenues. Revenues were $10.3 million for the quarter ended December 31, 2009, compared to $11.8 million for the quarter ended December 31, 2008. Revenues may continue to come under some downward pressure in the future if major studios reduce output due to current difficult financial conditions and other competitors reduce prices to compete for our business. Additionally, revenues for the second quarter of fiscal 2010 were lower than prior quarters by approximately $0.9 million principally due to the move of the operations to one of our Hollywood facilities (“Highland”) to two of our other locations as we renovate the Vine Property to house both Highland and Eden FX. We expect the negative effect on revenues to continue as we consolidate approximately 37,000 square feet of operating space into approximately 20,000 square feet by June 2010. We are continuing to invest in high definition capabilities where demand is expected to grow. We believe our high definition service platform will attract additional business in the future.
Cost of Services. Costs of services consist principally of wages and benefits, facility costs and depreciation of physical assets. During the quarter ended December 31, 2009, total costs of services were 68.1% of sales compared to 66.3% in the prior year. Material (tape stock) and delivery costs declined $0.3 million due to lower volume. Other reductions included a lowering of facility costs at our Hollywood facility resulting from the Vine building purchase, offset by the addition of the New York facility. Other costs remained relatively consistent with the prior year period due to the fixed nature of our service infrastructure.
Gross Profit. In 2009, gross margin was 31.9% of sales, compared to 33.7% for the same period last year. The decrease in gross profit percentage is due to the factors cited above. From time to time, we will increase staff capabilities to satisfy potential customer demand. If the expected demand does not materialize, we will adjust personnel levels. We expect gross margins to fluctuate in the future as the sales mix changes.
Selling, General and Administrative Expense. SG&A expense was $3.7 million (36.1% of sales) in 2009 as compared to $4.0 million (33.9% of sales) in 2008. Depreciation expense declined $0.2 million, offset by an increase in professional fees associated with managing and upgrading our information technology network.
Research and Development Expense. During the quarter ended December 31, 2009, the Company undertook a research and development project to evaluate, develop and commercialize “automated” stores to rent and sell digital video discs (DVDs). The DVD stores will contain up to 10,000 DVDs for rent or sale via software-controlled automated dispensers contained in 1,000 to 1,500 square feet of retail space for each store. Expenses associated with R&D activities were $0.3 million for the quarter.
Operating Income (Loss). Operating loss was $0.7 million in 2009 compared to break-even results in 2008.
Interest Expense. Net interest expense for 2009 was $0.2 million, the same as in 2008.
Other Income. Other income represents sublease income beginning in September 2008.
Net Income (Loss). Net loss for 2009 was $0.8 million compared to an income of $0.1 million in 2008.
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Six Months Ended December 31, 2009 Compared to Six Months Ended December 31, 2008
Revenues. Revenues were $19.7 million for the six months ended December 31, 2009, compared to $23.4 million for the six months ended December 31, 2008. Revenues from several studio customers declined due to reduced ordering of our services resulting from current difficult financial conditions. Additionally, $1.5 million of the decline in revenues for the first six months of fiscal 2010 was due to the move of the operations to one of our Hollywood facilities (“Highland”) to two of our other locations as we renovate the Vine Property to house both Highland and Eden FX. We expect the negative effect on revenues to continue as we consolidate approximately 37,000 square feet of operating space into approximately 20,000 square feet by June 2010. We are continuing to invest in high definition capabilities where demand is expected to grow. We believe our high definition service platform will attract additional business in the future.
Cost of Services. Costs of services consist principally of wages and benefits, facility costs and depreciation of physical assets. During the six months ended December 31, 2009, total costs of services were 72.9% of sales compared to 66.2% in the prior year. Material (tape stock) and delivery costs declined $0.4 million due to lower sales volume. Our Hollywood facility costs were reduced by the move, offset by an increase in facility costs by the addition of our New York space. Other costs remained consistent with the prior year period due to the fixed nature of our service infrastructure.
Gross Profit. In 2009, gross margin was 27.1% of sales, compared to 33.8% for the same period last year. The decrease in gross profit percentage is due to the factors cited above. From time to time, we will increase staff capabilities to satisfy potential customer demand. If the expected demand does not materialize, we will adjust personnel levels. We expect gross margins to fluctuate in the future as the sales mix changes.
Selling, General and Administrative Expense. SG&A expense was $7.5 million (38.1% of sales) in 2009 as compared to $7.7 million (33.0% of sales) in 2008. Administrative personnel costs declined $0.2 million, offset by an increase in professional fees associated with managing and upgrading our information technology.
Research and Development Expense. During the six months ended December 31, 2009, the Company undertook a research and development project to evaluate, develop and commercialize “automated” stores to rent and sell digital video discs (DVDs). The DVD stores will contain up to 10,000 DVDs for rent or sale via software-controlled automated dispensers contained in 1,000 to 1,500 square feet of retail space for each store. Expenses associated with R&D activities were $0.4 million for the six month period.
Operating Income (Loss). Operating loss was $2.6 million in 2009 compared to income of $0.2 million in 2008.
Interest Expense. Net interest expense for 2009 was $0.4 million, an increase of $0.1 million from 2008. The increase was due to a mortgage related to real estate purchased in June 2009.
Other Income. Other income represents sublease income beginning in September 2008.
Net Income (Loss). Net loss for 2009 was $2.7 million compared to an income of $0.2 million in 2008
LIQUIDITY AND CAPITAL RESOURCES
This discussion should be read in conjunction with the notes to the financial statements and the corresponding information more fully described elsewhere in this Form 10-Q.
On December 30, 2005, the Company entered into a $10 million term loan agreement. The term loan provides for interest at LIBOR (0.45% at December 31, 2009) plus 3.15% (3.60% on that date) and is secured by the Company’s equipment. The term loan will be repaid in 60 equal principal payments plus interest. On March 30, 2007, the Company 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 is being repaid in 45 equal monthly installments of principal and interest. Both loans are scheduled to be repaid fully by December 31, 2010.
In March 2006, Old Point.360 entered into a sale and leaseback transaction with respect to its Media Center vaulting real estate. The real estate was sold for $13,946,000 resulting in a $1.3 million after tax gain. Additionally, Old Point.360 received $500,000 from the purchaser for improvements. In accordance with the Accounting Standards Codification (ASC) 840-25, the gain and the improvement allowance will be amortized over the initial 15-year lease term as reduced rent.
In July 2008, the Company entered into a Promissory Note with a bank (the “Note”) in order to purchase land and a building that has been occupied by the Company since 1998 (the total purchase price was approximately $8.1 million). Pursuant to the Note, the company borrowed $6,000,000 payable in monthly installments of principal and interest on a fully amortized basis over 30 years at an initial five-year interest rate of 7.1% and thereafter at a variable rate equal to LIBOR plus 3.6% (4.05% as of December 31, 2009).
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In June 2009, the Company entered into a $3,562,500 million Purchase Money Promissory Note secured by a Deed of Trust for the purchase of land and a building (“Vine Property”). The note bears interest at 7% fixed for ten years. The principal amount of the note is payable on June 12, 2019. The note is secured by the property.
Monthly and annual principal and interest payments due under the term debt and mortgages are approximately $244,000 and $2.9 million, respectively, assuming no change in interest rates.
In August 2009, the Company entered into a credit agreement which provides up to $5 million of revolving credit based on 80% of acceptable accounts receivables, as defined. The agreement provides for interest of either (i) prime (3.25% at December 31, 2009) minus .5% - to plus .5% or (ii) LIBOR plus 2.0% - 3.00% depending on the level of the Company’s ratio of outstanding debt to fixed charges (as defined), or 3.75% or 3.45%, respectively, at December 31, 2009. The facility is secured by all of the Company’s accounts receivable.
Our bank revolving credit agreement requires us to maintain a minimum “leverage ratio” and “fixed charge coverage ratio.” The leverage ratio compares tangible assets to total liabilities (excluding the deferred real estate gain). Our fixed charge coverage ratio compares, on a rolling twelve-month basis, (i) EBITDA plus rent expense and non-cash charges less income tax payments, to (ii) interest expense plus rent expense, the current portion of long term debt and maintenance capital expenditures. As of December 31, 2009, the leverage ratio was 2.12 compared to a minimum requirement of 1.75, and the fixed charge coverage ratio was 0.79 as compared to a minimum requirement of 1.10. As of December 31, 2009, the Company was not in compliance with the fixed charge ratio and received forbearance from the bank. The forbearance period extends to March 31, 2010, during which time the amount available under the credit agreement will be limited to the $0.5 million standby letter of credit related to building lease. As of March 31, 2010, the revolving credit agreement will terminate, and the Company must either replace or fully collateralize the letter of credit. Thereafter, no amounts will be available under the revolving credit agreement. No other amounts were outstanding under the credit agreement on December 31, 2009.
The following table summarizes the December 31, 2009 amounts outstanding under our revolving line of credit, and term (including capital lease obligations) and mortgage loans:
Revolving credit | $ | - | ||
Current portion of term loan and mortgages | 2,122,000 | |||
Long-term portion of term loan and mortgages | 9,776,000 | |||
Total | $ | 11,898,000 |
We expect that availability of bank or institutional credit from new sources and cash generated from operations will be sufficient to fund debt service, operating needs and about $2.0 – $3.0 million of capital expenditures for the next twelve months including approximately $1.5 million to complete the renovation of the Vine Property.
The Company’s cash balance decreased from $5,235,000 on July 1, 2009 to $2,989,000 at December 31, 2009, principally due to the following:
Balance July 1, 2009 | $ | 5,235,000 | ||
Capital expenditures for equipment | (820,000 | ) | ||
Acquisitions | (200,000 | ) | ||
Debt principal and interest payments | (1,295,000 | ) | ||
Other cash activities | 69,000 | |||
Balance December 31, 2009 | $ | 2,989,000 |
Cash generated by operating activities is directly dependent upon sales levels and gross margins achieved. We generally receive payments from customers in 50-90 days after services are performed. The larger payroll component of cost of sales must be paid currently. Payment terms of other liabilities vary by vendor and type. Income taxes must be paid quarterly. Fluctuations in sales levels will generally affect cash flow negatively or positively in early periods of growth or contraction, respectively, because of operating cash receipt/payment timing. Other investing and financing cash flows also affect cash availability.
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In recent quarters, the underlying drivers of operating cash flows (sales, receivable collections, the timing of vendor payments, facility costs and employment levels) have been consistent, except that days sales outstanding in accounts receivable have decreased from approximately 67 days to 65 days within the last 12 months. Generally major studios have delayed payments in response to the general economic slowdown. However, we do not expect days sales outstanding to materially fluctuate in the future.
As of December 31, 2009, our facility costs consisted of building rent, maintenance and communication expenses. In July 2008, rents were reduced by the purchase of our Hollywood Way facility in Burbank, CA, eliminating approximately $625,000 of annual rent expense. The real estate purchase involved a down payment of $2.1 million and $6 million of mortgage debt. The mortgage payments are approximately $488,000 per year.
In March 2009, the lease on one of our facilities in Hollywood, CA (“Highland”) expired and the Company became a holdover tenant. The landlord issued a Notice to Quit which required us to move out of the facility. The Highland operations have been temporarily housed at several other of our facilities.
The Company purchased the Vine Property in June 2009. The purchase price of the Vine Property was $4.75 million, $1.2 million of which was paid in cash with the balance being financed by the seller over ten years, interest only at 7% for the entire term, with the principal amount being due at the end of the term. Building renovations will cost about $1.5 million. After renovation, we expect to move our Eden FX and Highland operations into the Vine Property by January 2010.
When Highland and Eden FX are moved into the Vine Property, annual cash outlays for the two operations will be reduced from $1.1 million of rent payments to about $250,000 of interest payments. While we will spend about $2.7 million for the down payment and renovation of the Vine Property, annual cash flow will improve by approximately $600,000 (rent payments less interest and other incremental operating costs).
The mortgage payments are approximately $488,000 per year. We believe our current cash position and a difficult economy may provide us with the opportunity to invest in facility assets that will not only help fix our operating costs, but give us the potential to own appreciating real estate assets. We will continue to evaluate opportunities to reduce facility costs.
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The following table summarizes contractual obligations as of December 31, 2009 due in the future:
Payment due by Period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 Year | Years 2 and 3 | Years 4 and 5 | Thereafter | |||||||||||||||
Long Term Debt Principal Obligations | $ | 11,396,000 | $ | 1,962,000 | $ | 143,000 | $ | 179,000 | $ | 9,112,000 | ||||||||||
Long Term Debt Interest Obligations (1) | 9,757,000 | 739,000 | 1,333,000 | 1,259,000 | 6,426,000 | |||||||||||||||
Capital Lease Obligations | 502,000 | 160,000 | 320,000 | 22,000 | - | |||||||||||||||
Capital Lease Interest Obligations | 55,000 | 29,000 | 26,000 | - | - | |||||||||||||||
Operating Lease Obligations | 21,831,000 | 3,186,000 | 5,605,000 | 4,990,000 | 8,050,000 | |||||||||||||||
Total | $ | 43,541,000 | $ | 6,076,000 | $ | 7,427,000 | $ | 6,450,000 | $ | 23,588,000 |
(1) Interest on variable rate debt has been computed using the rate on the latest balance sheet date.
As described in the Notes to Consolidated Financial Statements in this Form 10-Q, the Company began a research and development project in Fiscal 2010 to create “proof of concept” stores to distribute digital video discs (DVDs) to consumers. The Company hopes to capture a portion of the DVD rental market being vacated by the closure of many larger distribution vendors (e.g., Blockbuster and Hollywood Video) locations. The Company has initially issued stock and cash for assets and intellectual property, and will spend $1 to $1.5 million in the last half of Fiscal 2010 to test the concept.
During the past year, the Company has generated sufficient cash to meet operating, capital expenditure and debt service needs and obligations, as well as to provide sufficient cash reserves to address contingencies. When preparing estimates of future cash flows, we consider historical performance, technological changes, market factors, industry trends and other criteria. In our opinion, the Company will continue to be able to fund its needs for the foreseeable future.
We will continue to consider the acquisition of businesses which compliment our current operations and possible real estate transactions. Consummation of any acquisition, real estate or other expansion transaction by the Company may be subject to the Company securing additional financing, perhaps at a cost higher than our existing term loans. In the current economic climate, additional financing may not be available. Additionally, our current bank line of credit might not be renewed upon its November 2010 expiration due to recent changes in the bank lending environment. Future earnings and cash flow may be negatively impacted to the extent that any acquired entities do not generate sufficient earnings and cash flow to offset the increased financing costs.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates and judgments, including those related to allowance for doubtful accounts, valuation of long-lived assets, and accounting for income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Critical accounting policies are those that are important to the portrayal of the Company’s financial condition and results, and which require management to make difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. We have made critical estimates in the following areas:
Revenues. We perform a multitude of services for our clients, including film-to-tape transfer, video and audio editing, standards conversions, adding special effects, duplication, distribution, etc. A customer orders one or more of these services with respect to an element (movie, trailer, electronic press kit, etc.). The sum total of services performed on a particular element (a “package”) becomes the deliverable (i.e., the customer will pay for the services ordered in total when the entire job is completed). Occasionally, a major studio will request that package services be performed on multiple elements. Each element creates a separate revenue stream which is recognized only when all requested services have been performed on that element. At the end of an accounting period, revenue is accrued for un-invoiced but shipped work.
Certain jobs specify that many discrete tasks must be performed which require up to four months to complete. In such cases, we use the proportional performance method for recognizing revenue. Under the proportional performance method, revenue is recognized based on the value of each stand-alone service completed.
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In some instances, a client will request that we store (or “vault”) an element for a period ranging from a day to indefinitely. The Company attempts to bill customers a nominal amount for storage, but some customers, especially major movie studios, will not pay for this service. In the latter instance, storage is an accommodation to foster additional business with respect to the related element. It is impossible to estimate (i) the length of time we may house the element, or (ii) the amount of additional services we may be called upon to perform on an element. Because these variables are not reasonably estimable and revenues from vaulting are not material (billed vaulting revenues are approximately 3% of sales), we do not treat vaulting as a separate deliverable in those instances in which the customer does not pay.
The Company records all revenues when all of the following criteria are met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or the services have been rendered; (iii) the Company’s price to the customer is fixed or determinable; and (iv) collectability is reasonably assured. Additionally, in instances where package services are performed on multiple elements or where the proportional performance method is applied, revenue is recognized based on the value of each stand-alone service completed.
Allowance for doubtful accounts. We are required to make judgments, based on historical experience and future expectations, as to the collectability of accounts receivable. The allowances for doubtful accounts and sales returns represent allowances for customer trade accounts receivable that are estimated to be partially or entirely uncollectible. These allowances are used to reduce gross trade receivables to their net realizable value. The Company records these allowances as a charge to selling, general and administrative expenses based on estimates related to the following factors: (i) customer specific allowance; (ii) amounts based upon an aging schedule and (iii) an estimated amount, based on the Company’s historical experience, for issues not yet identified.
Valuation of long-lived and intangible assets. Long-lived assets, consisting primarily of property, plant and equipment and intangibles, comprise a significant portion of the Company’s total assets. Long-lived assets, including goodwill are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to its fair value in a current transaction between willing parties, other than in a forced liquidation sale.
Factors we consider important which could trigger an impairment review include the following:
· | Significant underperformance relative to expected historical or projected future operating results; |
· | Significant changes in the manner of our use of the acquired assets or the strategy of our overall business; |
· | Significant negative industry or economic trends; |
· | Significant decline in our stock price for a sustained period; and |
· | Our market capitalization relative to net book value. |
When we determine that the carrying value of intangibles, long-lived assets and related goodwill and enterprise level goodwill may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on comparing the carrying amount of the asset to its fair value in a current transaction between willing parties or, in the absence of such measurement, on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. Any amount of impairment so determined would be written off as a charge to the income statement, together with an equal reduction of the related asset. Net long-lived assets amounted to approximately $19.9 million as of December 31, 2009.
In accounting for goodwill, the Company historically performed an annual impairment review. On August 14, 2007, the Company was formed by a spin-off transaction, and a certain portion of Old Point.360’s goodwill was assigned to the Company. In the 2009 test performed as of June 30, 2009, the discounted cash flow method was used to evaluate goodwill impairment and included cash flow estimates for fiscal 2010 and subsequent years. As a result, the Company recorded a goodwill impairment charge of $10 million as of June 30, 2009.
Research and Development. Research and development costs include expenditures for planned search and investigation aimed at discovery of new knowledge to be used to develop new services or processes or significantly enhance existing processes. Research and development costs also include the implementation of the new knowledge through design, testing of service alternatives, or construction of prototypes. The cost of materials and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses are capitalized as tangible assets when acquired or constructed. All other research and development costs are expensed as incurred.
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Accounting for income taxes. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.
Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The net deferred tax assets as of December 31, 2009 were $0.0 million.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market Risk. The Company had borrowings of $11.9 million on December 31, 2009 under term loan and mortgage agreements. One term loan was subject to variable interest rates. The weighted average interest rate paid during the first six months of fiscal 2010 was 6.7%. For variable rate debt outstanding at December 31, 2009, a .25% increase in interest rates will increase annual interest expense by approximately $3,000. Amounts that may become outstanding under the revolving credit facility provide for interest at the banks’ prime rate minus ..5% to plus .5% or LIBOR plus 2.0% to 3.0% and LIBOR plus 3.15% for the variable rate term loan. The Company’s market risk exposure with respect to financial instruments is to changes in prime or LIBOR rates.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls
Pursuant to Rules 13a-15(b) and 15d-15(b) under the Exchange Act, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and President and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on the evaluation, the Chief Executive Officer and President and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by the report.
Changes in Internal Control over Financial Reporting
The Chief Executive Officer and President and the Chief Financial Officer conducted an evaluation of our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) to determine whether any changes in internal control over financial reporting occurred during the quarter ended December 31, 2009 that have materially affected or which are reasonably likely to materially affect internal control over financial reporting. Based on the evaluation, no such change occurred during such period.
Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
· | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
· | Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and members of our board of directors; and |
· | Provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements. |
Management previously concluded that, as of June 30, 2009, we did not maintain effective controls regarding the timing of revenue recognition under the proportional performance method. This control deficiency resulted in the restatement of our interim consolidated financial statements for the three months ended September 30, 2008, the six months ended December 31, 2008 and the nine months ended March 31, 2009. Accordingly, management determined that this control deficiency constituted a material weakness in internal control over financial reporting as of June 30, 2009.
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We have since reviewed and documented the controls regarding the proportional performance method and have trained personnel involved in such controls. The material weakness has also been remediated by an additional level of review by senior personnel at the Company. We tested the newly implemented controls and found them to be effective and have concluded as of December 31, 2009, this material weakness has been remediated.
Limitations on Internal Control over Financial Reporting
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process, and it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 defendants’ 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.
On May 1, 2009 the Company was served with a Verified Unlawful Detainer Complaint” by 1220 Highland, LLC, the landlord of the facility in Hollywood, CA that had been rented by the Company for many years. The Company’s lease on the facility expired in March 2009. The Complaint seeks possession of the property, damages for each day of the Company’s possession from May 1, 2009, and other damages and legal fees. While the outcome of the claim cannot be predicted with certainty, management does not believe that the outcome will have a material effect on the financial condition of the Company, especially since full rent was paid until the property was returned to the landlord on June 30, 2009.
On October 6, 2009, DG FastChannel, Inc. (“DGFC”) filed a claim in the United States District Court Central District of California, alleging that the Company violated certain provisions of agreements governing transactions related to the August 13, 2007 sale of the Company’s advertising distribution business to DGFC. DGFC alleges that (i) the Company did not fulfill its obligation to restrict a former employee from competing against DGFC subsequent to the transaction and, therefore, DGFC, does not owe the Company $500,000 related to that portion of the transaction; (ii) the Company violated the noncompetition agreement between DGFC and the Company by distributing advertising content after the transaction; (iii) due to the violation of the noncompetition agreement, the post production services agreement that required DGFC to continue to vault its customers’ physical elements at the Company’s Media Center became null and void; and (iv) the company must return all of DGFC’s vaulted material to DGFC. DGFC also seeks unspecified monetary damages.
If DGFC is successful in its claims, the possibility exists that the Company must return the DGFC vaulted elements which will result in a future decline in annual revenues of approximately $0.7 million, partially offset in the first year by “pull” charges. The Company believes it has adequate defenses against the claims.
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.
ITEM 1A. RISK FACTORS
In our capacity as Company management, we may from time to time make written or oral forward-looking statements with respect to our long-term objectives or expectations which may be included in our filings with the Securities and Exchange Commission (the “SEC”), reports to stockholders and information provided on our web site.
The words or phrases “will likely,” “are expected to,” “is anticipated,” “is predicted,” “forecast,” “estimate,” “project,” “plans to continue,” “believes,” or similar expressions identify “forward-looking statements.” Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected. We wish to caution you not to place undue reliance on any such forward-looking statements, which speak only as of the date made. We are calling to your attention important factors that could affect our financial performance and could cause actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
The following list of important factors may not be all-inclusive, and we specifically decline to undertake an obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Among the factors that could have an impact on our ability to achieve expected operating results and growth plan goals and/or affect the market price of our stock are:
· | Recent history of losses. |
· | Prior breaches and changes in credit agreements and ongoing liquidity. |
· | Our highly competitive marketplace. |
· | The risks associated with dependence upon significant customers. |
· | Our ability to execute our expansion strategy. |
· | The uncertain ability to manage in a changing environment. |
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· | Our dependence upon and our ability to adapt to technological developments. |
· | Dependence on key personnel. |
· | Our ability to maintain and improve service quality. |
· | Fluctuation in quarterly operating results and seasonality in certain of our markets. |
· | Possible significant influence over corporate affairs by significant shareholders. |
· | Our ability to operate effectively as a stand-alone, publicly traded company. |
· | The cost associated with becoming compliant with the Sarbanes-Oxley Act of 2002, and the consequences of failing to implement effective internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 by the date that we must comply with that section of the Sarbanes-Oxley Act. |
ITEM 1B. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company’s Annual meeting of Shareholders was held on November 19, 2009 after a solicitation of proxies pursuant to Regualtion 14A of he Securities Exchange Act of 1934. At the meeting, shareholders voted on the election of directors to hold office until the next annual meeting of shareholders of the Company or until their successors are duly elected and qualified. The results of shareholder voting were as follows:
Name | Votes For | Votes Withheld | ||
Haig S. Bagerdjian | 8,959,797 | 121,101 | ||
Robert A. Baker | 9,039,395 | 41,503 | ||
Greggory J. Hutchins | 8,597,993 | 482,905 | ||
Sam P. Bell | 9,039,395 | 41,503 | ||
G. Samuel Oki | 9,039,395 | 41,503 |
Other factors not identified above, including the risk factors described in the “Risk Factors” section of the Company’s June 30, 2009, Form 10-K filed with the Securities and Exchange Commission, may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these areas of risk in connection with considering any forward-looking statements that may be made in this Form 10-Q and elsewhere by us and our business generally. Except to the extent of any obligation to disclose material information under the federal securities laws or the rules of the NASDAQ Global Market, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.
ITEM 6. EXHIBITS
(a) | Exhibits |
10.1 | Amendment No. 1 to 2007 Equity Incentive Plan of Point.360 dated February 10, 2010. |
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. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
POINT.360 | ||
DATE: February 12, 2010 | BY: | /s/ Alan R. Steel |
Alan R. Steel | ||
Executive Vice President, | ||
Finance and Administration | ||
(duly authorized officer and principal financial officer) |
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