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

                                    FORM 10-Q


                                   (Mark One)

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

   For the quarterly period ended March 31, 2002 or

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

                   For the transition period from to_________

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

                                    Point.360
             (Exact Name of Registrant as Specified in Its Charter)


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


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


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


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


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


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

             Yes   X     No ____
                 ------


As of April 20, 2002,  there were 9,014,232  shares of the  registrant's  common
stock outstanding.

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>

                                    POINT.360
                           CONSOLIDATED BALANCE SHEETS

                                     ASSETS

                                                                 DECEMBER 31,             MARCH 31,
                                                                     2001                    2002
                                                                                         (unaudited)
<S>                                                              <C>                   <C>
Current assets:
Cash and cash equivalents                                        $     3,758,000       $     5,161,000
Accounts receivable, net of allowances for doubtful
  accounts of $681,000 and $779,000, respectively                     12,119,000            12,661,000
Notes receivable from officers                                           928,000               773,000
Income tax receivable                                                  1,399,000             1,132,000
Inventories                                                              820,000               833,000
Prepaid expenses and other current assets                                554,000               722,000
Deferred income taxes                                                    884,000               924,000
                                                                 ---------------       ---------------
Total current assets                                                  20,462,000            22,206,000

Property and equipment, net                                           23,232,000            22,007,000
Other assets, net                                                        833,000               804,000
Goodwill and other intangibles, net                                   26,320,000            26,445,000
                                                                 ---------------       ---------------
Total assets                                                     $    70,847,000       $    71,462,000
                                                                 ===============       ===============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                                 $     4,675,000       $     3,645,000
Accrued expenses                                                       2,715,000             3,632,000
Current portion of notes payable                                      28,999,000             6,750,000
Current portion of capital lease obligations                              79,000                71,000
                                                                 ---------------       ---------------
     Total current liabilities                                        36,468,000            14,098,000
                                                                 ---------------       ---------------
Deferred income taxes                                                  2,650,000             2,931,000
Notes payable, less current portion                                            -            22,249,000
Capital lease obligations, less current portion                           78,000                71,000
Derivative valuation liability                                           579,000               377,000

Shareholders' equity
Preferred stock - no par value; 5,000,000 authorized;
  none outstanding                                                             -                     -
Common stock - no par value; 50,000,000 authorized; 8,992,806
  and 9,011,324 shares issued and outstanding, respectively           17,336,000            17,340,000
Additional paid-in capital                                               439,000               439,000
Comprehensive income - FAS 133                                           238,000               223,000
Retained earnings                                                     13,059,000            13,734,000
                                                                 ---------------       ---------------
Total shareholders' equity                                            31,072,000            31,736,000
                                                                 ---------------       ---------------
Total liabilities and shareholders' equity                       $    70,847,000       $    71,462,000
                                                                 ===============       ===============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>

                                    POINT.360

           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                  THREE MONTHS ENDED
                                                                       MARCH 31,
                                                               2001                2002
                                                               ----                ----

<S>                                                         <C>                  <C>
Revenues                                                    $ 19,108,000         $ 16,846,000
Cost of goods sold                                           (12,643,000)         (10,594,000)
                                                            ------------         ------------
Gross profit                                                   6,465,000            6,252,000
Selling, general and administrative expense                   (5,499,000)          (4,607,000)
                                                            ------------         ------------
Operating income                                                 966,000            1,645,000
Interest expense, net                                           (785,000)            (678,000)
Derivative fair value change                                    (253,000)             217,000
                                                            ------------         ------------
Income (loss) before income taxes                                (72,000)           1,184,000
(Provision for) benefit from income taxes                         40,000             (509,000)
                                                            ------------         ------------
Income (loss) before adoption of FAS 133 (2001)                  (32,000)             675,000
Cumulative effect of adopting FAS 133 (2001)                    (139,000)                   -
                                                            ------------         ------------
Net income (loss)                                           $   (171,000)        $    675,000
                                                            ============         ============
Other comprehensive income:
Derivative fair value change                                $    (26,000)        $    (15,000)
                                                            ------------         ------------
Comprehensive income (loss)                                 $   (197,000)        $    660,000
                                                            ============         ============
Earnings per share:
Basic:
Income (loss) per share before adoption
  of FAS 133 (2001)                                         $          -         $       0.07
Cumulative effect of adopting FAS 133 (2001)                       (0.02)                   -
                                                            ------------         ------------
Net income (loss)                                           $      (0.02)        $       0.07
                                                            ============         ============
Weighted average number of shares                              9,136,559            9,011,324

Diluted:
Income (loss) per share before adoption
  of FAS 133 (2001)                                         $          -         $       0.07
Cumulative effect of adopting FAS 133 (2001)                       (0.02)                   -
                                                            ------------         ------------
Net income (loss)                                           $      (0.02)        $       0.07
                                                            ============         ============
Weighted average number of shares including
  the dilutive effect of stock options                         9,136,559            9,069,172

</TABLE>

       See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                                    POINT.360

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                 THREE MONTHS ENDED
                                                                      MARCH 31,
                                                                      ---------
                                                               2001                  2002
                                                               ----                  ----
<S>                                                        <C>                   <C>
Cash flows from operating activities:
Net income (loss)                                          $    (171,000)       $       675,000
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
Depreciation and amortization                                  1,649,000              1,507,000
Provision for doubtful accounts                                  143,000                169,000
Deferred income taxes                                           (327,000)               241,000
Other non cash item                                              602,000               (217,000)
Cumulative effect of adopting FAS 133                            139,000                      -
Write-off of note receivable                                           -                148,000
Changes in assets and liabilities:
Decrease (increase) in accounts receivable                       736,000               (711,000)
(Increase) in inventories                                        (85,000)               (13,000)
(Increase) in prepaid expenses and
  other current assets                                           (29,000)              (177,000)
Decrease in other assets                                           8,000                 29,000
Decrease in accounts payable                                  (1,174,000)            (1,010,000)
Increase in accrued expenses                                     967,000                775.000
(Decrease) increase in income taxes                              (60,000)               267,000
                                                           -------------        ---------------
Net cash provided by operating activities                      2,398,000              1,683,000
                                                           -------------        ---------------
Cash used in investing activities:
Capital expenditures                                          (1,325,000)              (287,000)
Proceeds from sale of equipment                                        -                 27,000
Net cash paid for acquisitions                                  (333,000)                (5,000)
                                                           -------------        ---------------
Net cash used in investing activities                         (1,658,000)              (265,000)
Cash flows used in financing activities:
Repurchase of common stock                                      (300,000)                     -
Repayment of capital lease obligations                           (29,000)               (15,000)
                                                           -------------        ---------------
Net cash used in financing activities                           (329,000)               (15,000)
Net increase in cash                                             411,000              1,403,000
Cash and cash equivalents at beginning of period                 769,000              3,758,000
                                                           -------------        ---------------
Cash and cash equivalents at end of period                 $   1,180,000        $     5,161,000
                                                           =============        ===============

Supplemental disclosure of cash flow information -
Cash paid for:
Interest                                                   $     565,000        $      663,000
                                                           =============        ==============
Income tax                                                 $      37,000        $            -
                                                           =============        ==============

</TABLE>
           See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                                    POINT.360

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                                 March 31, 2002

NOTE 1 - THE COMPANY

        Point.360 (the "Company") is a leading  provider of video and film asset
management  services to owners,  producers and distributors of entertainment and
advertising  content.  The Company  provides  the  services  necessary  to edit,
master, reformat, digitize, archive and ultimately distribute its clients' video
content.

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

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

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

        The accompanying  unaudited  financial  statements have been prepared in
accordance with generally accepted accounting  principles and the Securities and
Exchange  Commission's  rules and  regulations for reporting  interim  financial
statements  and  footnotes.  In  the  opinion  of  management,  all  adjustments
(consisting of normal  recurring  adjustments)  considered  necessary for a fair
presentation  have been included.  Operating  results for the three month period
ended March 31, 2002 are not  necessarily  indicative of the results that may be
expected  for the year ending  December  31, 2002.  These  financial  statements
should be read in  conjunction  with the financial  statements and related notes
contained in the Company's Form 10-K for the year ended December 31, 2001.

NOTE 2 - ACCOUNTING PRONOUNCEMENTS

        Effective  January 1, 2001, the Company  adopted  Statement of Financial
Accounting Standards No. 133, Accounting for Derivative  Instruments and Hedging
Activities ("FAS 133"). The standard,  as amended,  requires that all derivative
instruments be recorded on the balance sheet at their fair value. Changes in the
fair value of derivatives are recorded each period in other income.

        In June 2001, the Financial  Accounting  Standards Board ("FASB") issued
FAS Nos. 141 and 142, "Business Combinations" and "Goodwill and Other Intangible
Assets," respectively.  FAS No. 141 replaces Accounting Principles Board ("APB")
Opinion No. 16. It also provides guidance on purchase  accounting related to the
recognition of intangible assets and accounting for negative  goodwill.  FAS No.
142  changes  the  accounting  for  goodwill  and other  intangible  assets with
indefinite  useful  lives  ("goodwill")  from  an  amortization   method  to  an
impairment-only  approach.  Under FAS No. 142,  goodwill will be tested annually
and whenever  events or  circumstances  occur  indicating that goodwill might be
impaired.  FAS  No.  141  and  FAS  No.  142  are  effective  for  all  business
combinations  completed  after June 30,  2001.  Upon  adoption  of FAS No.  142,

                                       5
<PAGE>

amortization of goodwill recorded for business combinations consummated prior to
July 1, 2001 will cease,  and intangible  assets  acquired prior to July 1, 2001
that do not  meet  the  criteria  for  recognition  under  FAS No.  141  will be
reclassified  to  goodwill.  The  Company  implemented  FAS No. 142 in the first
quarter of fiscal 2002 which required no goodwill impairment.

        In August  2001,  the FASB  issued FAS No.  143,  "Accounting  for Asset
Retirement  Obligations,"  which requires entities to record the fair value of a
liability  for an  asset  retirement  obligation  in the  period  in  which  the
obligation  is incurred.  When the liability is initially  recorded,  the entity
capitalizes the cost by increasing the carrying amount of the related long-lived
asset.  FAS No. 143 is effective for fiscal years beginning after June 15, 2002.
The Company does not have asset retirement obligations and, therefore,  believes
there will be no impact upon adoption of FAS No. 143.

        In October  2001,  the FASB  issued  FAS No.  144,  "Accounting  for the
Impairment or Disposal of Long-Lived  Assets,"  which is applicable to financial
statements issued for fiscal years beginning after December 15, 2001. The FASB's
new  rules  on asset  impairment  supersede  FAS No.  121,  "Accounting  for the
Impairment of Long-Lived  Assets and for  Long-Lived  Assets to be Disposed of,"
and portions of APB Opinion No. 30,  "Reporting the Results of Operations."  FAS
No. 144 provides a single  accounting model for long-lived assets to be disposed
of and significantly  changes the criteria that would have to be met to classify
an asset as  held-for-sale.  Classification  as  held-for-sale  is an  important
distinction since such assets are not depreciated and are stated at the lower of
fair value and  carrying  amount.  FAS No.  144 also  requires  expected  future
operating losses from  discontinued  operations to be displayed in the period(s)
in which the losses are  incurred,  rather  than as of the  measurement  date as
presently  required.  The Company is in the process of evaluating  the impact of
adopting FAS No. 144.

NOTE 3 - STOCK REPURCHASE

        In February 1999, the Company commenced a stock repurchase program.  The
board of  directors  authorized  the  Company to allocate  up to  $4,000,000  to
purchase its common stock at suitable  market  prices.  In September  2000,  the
board of directors  authorized the Company to allocate an additional  $5,000,000
to purchase its common stock.  As of March 31, 2002, the Company had repurchased
860,766 shares of the Company's common stock in connection with this program.

NOTE 4 - LONG TERM DEBT AND NOTES PAYABLE

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

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

        The Agreement  also  contained  covenants  requiring  certain  levels of
annual earnings before interest,  taxes,  depreciation and amortization (EBITDA)
and net worth,  and limits the amount of capital  expenditures.  By December 31,
2000,  the Company had borrowed  $31,024,000  under the Agreement and was not in
compliance with certain financial covenants due to adjustments recorded to prior
years' and 2000  results.  The bank waived  compliance  with the  covenants  and
amended the  Agreement in April 2001.  In  connection  with the  amendment,  the
Company paid the banks a restructuring fee of $225,000 which was expensed in the
second quarter of 2001.

                                       6
<PAGE>

        As of April 30, May 31 and June 30, 2001,  outstanding amounts under the
line of credit  exceeded the borrowing  base. On June 11 and July 20, 2001,  the
Company entered into amendment and  forbearance  agreements with the banks which
required  the Company to repay the amount of excess  borrowings  and amended the
Agreement to reduce the aggregate  commitment  from  $45,000,000  to $30,050,000
until the expiration of the commitment on December 31, 2005. In August 2001, the
Company  did not make  required  debt  payments  which  created  a breach of the
amendment and forbearance agreements. As a consequence of the breach, the amount
outstanding under the credit facility became immediately due and payable.

        In May 2002, the Company and the banks entered into a restructured  loan
agreement  changing  the  revolving  credit  facility  to a term loan,  with all
existing  defaults  being waived.  The term loan has a maturity date of December
31, 2004.  Pursuant to the  agreement,  the Company made a $2 million  principal
payment  and will make  additional  principal  payments  of $3.5  million,  $5.0
million and $18.5 million in 2002,  2003 and 2004,  respectively.  The agreement
provides for interest at the banks'  reference  rate plus 1.25% and requires the
Company to maintain certain financial  covenant ratios. The term loan is secured
by substantially all of the Company's assets.




                                       7
<PAGE>

                                    POINT.360

                      MANAGEMENT'S DISCUSSION AND ANALYSIS

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

THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED MARCH 31, 2001.

    REVENUES. Revenues decreased by $2.3 million or 12% to $16.8 million for the
three-month  period  ended March 31,  2002,  compared  to $19.1  million for the
three-month  period  ended  March  31,  2001 due to a  decline  in  studio  post
production sales as some work was brought in-house.  Studios have  traditionally
maintained  in-house  capacity and several  customers  utilized that capacity in
2002 to a greater extent thereby affecting our sales.

    GROSS PROFIT.  Gross profit decreased $0.2 million or 3% to $6.3 million for
the  three-month  period ended March 31, 2002,  compared to $6.5 million for the
three-month period ended March 31, 2001. As a percent of revenues,  gross profit
increased  from 34% to 37%.  The  increase in gross  profit as a  percentage  of
revenues  was  principally  due to lower  wages and  benefits as  headcount  was
reduced 13% since March 31, 2001.

    SELLING,   GENERAL  AND  ADMINISTRATIVE   EXPENSE.   Selling,   general  and
administrative  ("SG&A") expense decreased $0.9 million,  or 16% to $4.6 million
for the  three-month  period ended March 31, 2002,  compared to $5.5 million for
the three-month  period ended March 31, 2001. As a percentage of revenues,  SG&A
decreased to 27% for the  three-month  period ended March 31, 2002,  compared to
29% for the three-month period ended March 31, 2001.  Excluding  amortization of
goodwill in 2001,  SG&A expenses were $5.1 million,  or 27% of sales in the 2001
first quarter. The decrease in 2002 was due principally to lower wage costs.

    OPERATING  INCOME.  Operating  income increased $0.7 million to $1.6 million
for the  three-month  period ended March 31, 2002,  compared to $1.0 million for
the three-month period ended March 31, 2001.

    INTEREST  EXPENSE.  Interest expense for the three-month  period ended March
31, 2002 was $0.7  million,  a decrease  of $0.1  million  from the  three-month
period  ended March 31, 2001 due to a lower  average  level of debt  outstanding
partially  offset  by a 2%  default  rate of  interest  premium  charged  by the
Company's banks.

    ADOPTION OF FAS 133 AND  DERIVATIVE  FAIR VALUE CHANGE.  On January 1, 2001,
the Company adopted FAS 133 by recording a cumulative  effect adjustment of $0.1
million after tax benefit.  During the quarter ended March 31, 2001, the Company
recorded the difference between the derivative fair value of the Company's hedge
contract at the beginning and end of the first quarter, or $0.3 million.  During
the quarter ended March 31, 2002, the Company  recorded the  difference  between
the derivative  fair value of the Company's  interest rate hedge contract at the
beginning and end of the first quarter, or $0.2 million, and amortization of the
cumulative-effect adjustment.

    INCOME TAXES. The Company's effective tax rate was 43% for the first quarter
of 2002 and 55% for the first  quarter of 2001.  The decrease in  effective  tax
rate is the result of the Company's  periodic  assessment of the relationship of
book/tax  timing  differences to total expected  annual pre-tax  results and the
elimination of goodwill expense for financial statement purposes.  The effective
tax rate percentage may change from period to period depending on the difference
in the timing of the  recognition  of  revenues  and  expenses  for book and tax
purposes.

    NET INCOME (LOSS).  The net income (loss) for the  three-month  period ended
March 31, 2002 was $0.7 million,  an increase of $0.9 million compared to a loss
of $0.2 million for the three-month period ended March 31, 2001.

LIQUIDITY AND CAPITAL RESOURCES

    This  discussion  should  be read  in  conjunction  with  the  notes  to the
financial  statements and the corresponding  information more fully described in
the Company's Form 10-K for the year ended December 31, 2001.

    On March 31, 2002, the Company's cash and cash  equivalents  aggregated $5.2
million.  The Company's  operating  activities provided cash of $1.7 million for
the three months ended March 31, 2002.

                                       8
<PAGE>

    The Company's  investing  activities  used cash of $0.3 million in the three
months ended March 31, 2002.  The Company spent  approximately  $0.3 million for
the addition and  replacement of capital  equipment and  management  information
systems  which we believe is a reasonable  capital  expenditure  level given the
current revenue volume.  In the prior year, the Company's  capital  expenditures
were greater than a normal  recurring  amount partially due to the investment of
approximately  $0.3  million  in  high  definition  television  equipment.   The
Company's business is equipment  intensive,  requiring periodic  expenditures of
cash or the incurrence of additional debt to acquire  additional fixed assets in
order to increase capacity or replace existing equipment.

    In  September  2000,  the  Company  signed a $45  million  revolving  credit
facility  agented by Union Bank of California.  The amount of the commitment was
reduced to $30 million in July 2001.  The  facility  provided  the Company  with
funding  for capital  expenditures,  working  capital  needs and support for its
acquisition strategies.

    Due to lower sales  levels in the second and third  quarters of Fiscal 2001,
the borrowing base (eligible  accounts  receivable,  inventory and machinery and
equipment)  securing the Company's  bank line of credit was less than the amount
borrowed  under the line.  Consequently,  the  Company  was in breach of certain
covenants.  On June 11 and on July 20, 2001, the Company  entered into amendment
and  forbearance  agreements  with the banks and  agreed to repay the  overdraft
amount in weekly  increments.  In August  2001,  the Company  failed to meet the
repayment schedule and again entered discussions with the banks.

    In May 2002,  the Company and the banks  entered  into a  restructured  loan
agreement  changing  the  revolving  credit  facility  to a term loan,  with all
existing  defaults  being waived.  The term loan has a maturity date of December
31, 2004.  Pursuant to the  agreement,  the Company made a $2 million  principal
payment  and will make  additional  principal  payments  of $3.5  million,  $5.0
million and $18.5 million in 2002,  2003 and 2004,  respectively.  The agreement
provides for interest at the banks'  reference  rate plus 1.25% and requires the
Company to maintain certain financial  covenant ratios. The term loan is secured
by substantially  all of the Company's assets. We believe that cash on hand plus
that  generated  from  operations  will be  sufficient  to meet debt service and
operational requirements for the next twelve months.

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

CAUTIONARY STATEMENTS AND RISK FACTORS

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

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

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

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<PAGE>

   o    Recent history of losses
   o    Prior breach of credit  agreement  covenants and new  principal  payment
        requirements.
   o    Our highly competitive marketplace.
   o    The risks associated with dependence upon significant customers.
   o    Our ability to execute our expansion strategy.
   o    The uncertain ability to manage growth.
   o    Our  dependence   upon  and  our  ability  to  adapt  to   technological
        developments.
   o    Dependence on key personnel.
   o    Our ability to maintain and improve service quality.
   o    Fluctuation in quarterly operating results and seasonality in certain of
        our markets.
   o    Possible  significant  influence over  corporate  affairs by significant
        shareholders.

These risk factors are discussed further below.

RECENT HISTORY OF LOSSES.  The Company has reported  losses for each of the four
fiscal  quarters  ended  September 30, 2001 due, in part, to lower gross margins
and lower  sales  levels and a number of unusual  charges.  Although we achieved
profitability  in Fiscal  2000 and  prior  years,  as well as in the two  fiscal
quarters  ending  March  31,  2002,  there  can  be no  assurance  as to  future
profitability on a quarterly or annual basis.

PRIOR  BREACH  OF  CREDIT   AGREEMENT   COVENANTS  AND  NEW  PRINCIPAL   PAYMENT
REQUIREMENTS.  Due to lower operating cash amounts  resulting from reduced sales
levels in 2001 and the  consequential  net losses,  the Company breached certain
covenants of its credit facility.  The breaches were temporarily  cured based on
amendments  and  forbearance  agreements  among the  Company and the banks which
called for, among other provisions, scheduled payments to reduce amounts owed to
the banks to the permitted borrowing base. In August 2001, the Company failed to
meet the principal repayment schedule and was once again in breach of the credit
facility.  The banks ended their  formal  commitment  to the Company in December
2001.

In May 2002,  we entered into an  agreement  with the banks to  restructure  the
credit  facility to a term loan  maturing on December 31, 2004.  As part of this
restructuring,  the banks  waived all  existing  defaults and the Company made a
principal  payment of $2.0 million.  The Company also agreed to make  additional
principal  payments of $3.5  million,  $5.0  million and $18.5  million in 2002,
2003, and 2004,  respectively.  Based upon the Company's financial forecast, the
Company will have to refinance the facility by 2004 to satisfy the final payment
requirement.

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

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

We may also face competition from companies in related markets which could offer
similar or superior services to those offered by the Company. We believe that an
increasingly  competitive  environment  and the  possibility  that customers may
utilize in-house capabilities to a greater extent could lead to a loss of market
share or price  reductions,  which could have a material  adverse  effect on our
financial condition, results of operations and prospects.

CUSTOMER AND INDUSTRY  CONCENTRATION.  Although we have an active client list of
over 2,500 customers,  seven motion picture studios  accounted for approximately
34% of the Company's revenues during the year ended December 31, 2001. If one or
more of these  companies were to stop using our services,  our business could be
adversely  affected.  Because we derive  substantially  all of our revenue  from
clients  in  the  entertainment  and  advertising   industries,   the  financial
condition,  results of  operations  and  prospects of the Company  could also be
adversely  affected  by an  adverse  change in  conditions  which  impact  those
industries.

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<PAGE>

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

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

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

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

MANAGEMENT  OF GROWTH.  During the three  years  ended  December  31,  1999,  we
experienced rapid growth that resulted in new and increased responsibilities for
management  personnel and placed and continues to place increased demands on our
management, operational and financial systems and resources. To accommodate this
growth,  compete  effectively  and manage future growth,  we will be required to
continue to implement  and improve our  operational,  financial  and  management
information systems, and to expand,  train,  motivate and manage our work force.
We cannot be sure that the Company's personnel, systems, procedures and controls
will be adequate to support  our future  operations.  Any failure to do so could
have a material adverse effect on our financial condition, results of operations
and prospects.

DEPENDENCE ON TECHNOLOGICAL DEVELOPMENTS. Although we intend to utilize the most
efficient  and  cost-effective   technologies   available  for  telecine,   high
definition  formatting,  editing,  coloration  and  delivery  of video  content,
including digital  satellite  transmission,  as they develop,  we cannot be sure
that we will be able to adapt to such  standards in a timely  fashion or at all.
We believe our future growth will depend in part, on our ability to add to these
services and to add customers in a timely and  cost-effective  manner. We cannot
be sure we will be successful in offering such services to existing customers or
in  obtaining  new  customers  for  these  services,   including  the  Company's
significant investment in high definition technology in 2000 and 2001. We intend
to rely on third party vendors for the  development  of these  technologies  and
there  is  no  assurance  that  such  vendors  will  be  able  to  develop  such
technologies  in a manner that meets the needs of the Company and its customers.
Any material  interruption  in the supply of such services could  materially and
adversely affect the Company's  financial  condition,  results of operations and
prospects.

DEPENDENCE  ON KEY  PERSONNEL.  The  Company is  dependent  on the  efforts  and
abilities  of certain of its senior  management,  particularly  those of R. Luke
Stefanko, President and Chief Executive Officer. The loss or interruption of the
services of key members of management  could have a material  adverse  effect on
our  financial  condition,  results of  operations  and  prospects if a suitable
replacement is not promptly  obtained.  Although we have  employment  agreements
with Mr.  Stefanko  and  certain  of our  other  key  executives  and  technical
personnel,  we cannot be sure that such  executives will remain with the Company
during  or after  the term of their  employment  agreements.  In  addition,  our
success depends to a significant  degree upon the continuing  contributions  of,
and  on  our  ability  to  attract  and  retain,  qualified  management,  sales,
operations,  marketing and technical  personnel.  The  competition for qualified

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<PAGE>

personnel is intense and the loss of any such persons, as well as the failure to
recruit  additional  key  personnel  in a timely  manner,  could have a material
adverse effect on our financial condition,  results of operations and prospects.
There is no  assurance  that we will be able to  continue  to attract and retain
qualified management and other personnel for the development of our business.

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

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

CONTROL  BY  PRINCIPAL  SHAREHOLDER;  POTENTIAL  ISSUANCE  OF  PREFERRED  STOCK;
ANTI-TAKEOVER  PROVISIONS.  The Company's President and Chief Executive Officer,
R. Luke Stefanko,  beneficially  owned  approximately  18.4% of the  outstanding
common  stock  as  of  February  28,  2002.  Mr.   Stefanko's   ex-spouse  owned
approximately  25.2% of the  common  stock on that  date.  Together,  they owned
approximately  43.6%.  In August  2000 and May 2001,  Mr.  Stefanko  was granted
one-time proxies to vote his ex-spouse's  shares in connection with the election
of directors at the Company's  annual  meetings.  The Company's  Chairman of the
Board,  Haig Bagerdjian,  beneficially  owned  approximately  6.7% of the common
stock on February 28, 2002. By virtue of their stock ownership, Messrs. Stefanko
and Bagerdjian  individually or together may be able to significantly  influence
the  outcome of matters  required  to be  submitted  to a vote of  shareholders,
including  (i) the election of the board of  directors,  (ii)  amendments to the
Company's  Restated  Articles of Incorporation and (iii) approval of mergers and
other significant corporate  transactions.  The foregoing may have the effect of
discouraging,  delaying or preventing certain types of transactions involving an
actual or potential change of control of the Company,  including transactions in
which the holders of common  stock might  otherwise  receive a premium for their
shares over current market prices. Our Board of Directors also has the authority
to issue up to  5,000,000  shares of  preferred  stock  without  par value  (the
"Preferred Stock") and to determine the price, rights,  preferences,  privileges
and restrictions thereof,  including voting rights,  without any further vote or
action by the Company's shareholders. Although we have no current plans to issue
any shares of Preferred  Stock,  the rights of the holders of common stock would
be subject to, and may be  adversely  affected  by, the rights of the holders of
any  Preferred  Stock that may be issued in the future.  Issuance  of  Preferred
Stock could have the effect of discouraging, delaying, or preventing a change in
control  of the  Company.  Furthermore,  certain  provisions  of  the  Company's
Restated  Articles of Incorporation and By-Laws and of California law also could
have the effect of  discouraging,  delaying or preventing a change in control of
the Company.

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<PAGE>

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    MARKET RISK.  The Company had  borrowings of  $28,999,000  at March 31, 2002
under a credit  agreement.  Amounts  outstanding  under the credit agreement now
bear interest at the bank's reference rate plus 1.25%.

    The Company's market risk exposure with respect to financial  instruments is
to changes in the London Interbank Offering Rate ("LIBOR").  The Company entered
into an interest  rate swap  transaction  with a bank on November 28, 2000.  The
swap  transaction  was for a notional  amount of $15,000,000 for three years and
fixes the  interest  rate paid by the  Company on such  amount at 6.50% less the
applicable LIBOR rate, plus 1.25% over prime rate.

    On June 15, 1998,  the Financial  Accounting  Standards  Board (FASB) issued
Statement of Financial  Accounting  Standards No. 133, Accounting for Derivative
Instruments  and Hedging  Activities.  The standard,  as amended by Statement of
Financial  Accounting  Standards No. 137, Accounting for Derivative  Instruments
and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133,
an amendment of FASB  Statement No. 133, and  Statement of Financial  Accounting
Standards No. 138,  Accounting for Certain  Derivative  Instruments  and Certain
Hedging  Activities,  an  amendment  of FASB  Statement  No.  133  (referred  to
hereafter  as "FAS 133"),  is  effective  for all fiscal  quarters of all fiscal
years beginning  after June 15, 2000 (January 1, 2001 for the Company).  FAS 133
requires  that all  derivative  instruments  be recorded on the balance sheet at
their fair value.  Changes in the fair value of  derivatives  are recorded  each
period in  current  earnings  or in other  comprehensive  income,  depending  on
whether a derivative is designated as part of a hedging  relationship and, if it
is,  depending on the type of hedging  relationship.  During  2001,  the Company
recorded a cumulative  effect type  adjustment  of $247,000  (net of $62,000 tax
benefit),  and an expense of  $508,000  ($406,000  net of tax  benefit)  for the
derivative  fair value change of an interest rate hedging  contract.  During the
quarter ended March 31, 2002,  the Company  recorded  income of $124,000 (net of
$93,000 tax expense) for the derivative  fair value change and  amortization  of
the cumulative effect type adjustment.


                           PART II - OTHER INFORMATION

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

    For a discussion of the May 2002  agreement in which the Company's  defaults
under its bank  borrowings were waived,  see Note 4 to the Financial  Statements
that are included in Part I, Item 1 of this Report on Form 10-Q.

ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

   10.1   Third Amendment and Restated Credit Agreement dated May 2, 2002, among
          the Company,  Union Bank of California,  N.A., United California Bank,
          and U.S. Bank National Association

(b) Reports On Form 8-K

           None.


                                   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:  May 14, 2002                 BY:    /s/ Alan Steel
                                    -----------------------------
                                    Alan Steel
                                    Executive Vice President,
                                      Finance and Administration
                                      (duly authorized officer and
                                      principal financial officer)




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