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

                                   FORM 10-Q/A


(Mark One)

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

For the quarterly period ended September 30, 2001 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
              -----------------------------------------------------
                                   95-4272619
                  (State or Other Jurisdiction of (IRS Employer
                  Incorporation or Organization) Identification
                                     Number)

               California                                95-4272619
(State of or other jurisdiction of          (I.R.S. Employer Identification No.)
 incorporation or organization)

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

Point.360 is filing this Amendment to its Quarterly  Report on Form 10-Q for the
period  ending  September  30,  2001  in  order  to  reflect  and  describe  the
restatement of its financial  statements  for the three and  nine-month  periods
ended  September 30, 2001. See Note 3. Except as otherwise  expressly  described
herein, this Amendment continues to present information as of November 14, 2001,
which is the date on which we  originally  filed  our  Quarterly  Report on Form
10-Q.  We have  not  updated  the  disclosures  in  this  Amendment  to  present
information as of a later date. All information  contained  herein is subject to
updating and  supplementing  as provided in our periodic  reports filed with the
Securities and Exchange Commission.


<PAGE>
<TABLE>
<CAPTION>
                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                                    POINT.360
                           CONSOLIDATED BALANCE SHEETS

                                   ASSETS
                                                                    December 31,          September 30,
                                                                        2000                  2001
                                                                        ----                  ----
                                                                                           (unaudited)
                                                                                          (as restated)
Current assets:
<S>                                                                 <C>                  <C>
Cash and cash equivalents                                          $     769,000          $   1,092,000
Accounts receivable, net of allowances for doubtful
  accounts of $1,473,000 and $868,000, respectively                   16,315,000             12,442,000
Notes receivable from officers                                         1,001,000              1,039,000
Income tax receivable                                                  1,362,000              2,030,000
Inventories                                                            1,031,000              1,000,000
Prepaid expenses and other current assets                              2,066,000              1,930,000
Deferred income taxes                                                  1,574,000              1,395,000
                                                                   -------------          -------------
Total current assets                                                  24,118,000             20,928,000

Property and equipment, net                                           25,236,000             24,020,000
Other assets, net                                                        920,000                886,000
Goodwill and other intangibles, net                                   27,387,000             26,869,000
                                                                   -------------          -------------
Total assets                                                       $  77,661,000          $  72,703,000
                                                                   =============          =============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                                   $   8,850,000          $   4,847,000
Accrued expenses                                                       2,513,000              3,864,000
Current portion of notes payable                                               -             29,249,000
Current portion of capital lease obligations                              54,000                 59,000
                                                                   -------------          -------------
Total current liabilities                                             11,417,000             38,019,000
                                                                   -------------          -------------
Deferred income taxes                                                  2,271,000              2,499,000
Notes payable, less current portion                                   31,024,000                      -
Capital lease obligations, less current portion                           30,000                 48,000
Derivative valuation liability                                                 -                991,000

Shareholders' equity
Preferred stock - no par value; 5,000,000 authorized;
   none outstanding                                                            -                      -
Common stock - no par value; 50,000,000 authorized; 9,162,670
   and 9,046,004 shares issued and outstanding, respectively          18,272,000             18,082,000
Accumulated other comprehensive income                                         -               (147,000)
Retained earnings                                                     14,647,000             13,211,000
                                                                   -------------           ------------
Total shareholders' equity                                            32,919,000             31,146,000
                                                                   -------------           ------------
Total liabilities and shareholders' equity                         $  77,661,000           $ 72,703,000
                                                                   =============           ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       2
<PAGE>
<TABLE>
<CAPTION>

                                    POINT.360
           CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                   (Unaudited)

                                                          Three Months Ended                    Nine Months Ended
                                                             September 30,                         September 30,
                                                             -------------                         -------------
                                                        2000              2001               2000               2001
                                                        ----              ----               ----               ----
                                                                      (as restated)                        (as restated)
<S>                                                 <C>               <C>                <C>                <C>
Revenues                                            $ 18,121,000      $ 16,905,000       $ 55,691,000       $ 52,459,000
Cost of goods sold                                   (11,413,000)      (11,246,000)       (33,618,000)       (35,114,000)
                                                    ------------      ------------       ------------       ------------
Gross profit                                           6,708,000         5,659,000         22,073,000         17,345,000
Selling, general and administrative expense           (4,694,000)       (4,976,000)       (15,034,000)       (16,204,000)
                                                    ------------      ------------       ------------       ------------
Operating income                                       2,014,000           683,000          7,039,000          1,141,000
Interest expense, net                                   (717,000)         (825,000)        (2,106,000)        (2,344,000)
Derivative fair value change (Note 6)                          -          (458,000)                 -           (777,000)
                                                    ------------      ------------       ------------       ------------
Income (loss) before income taxes                      1,297,000          (600,000)         4,933,000         (1,980,000)
(Provision for) benefit from income taxes               (485,000)         (120,000)        (2,049,000)           544,000
                                                    ------------      ------------       ------------       ------------
Income (loss) before extraordinary item
   and adoption of SAB 101                               812,000          (720,000)         2,884,000         (1,436,000)
Extraordinary item (net of tax benefit
   of $168,000)(Note 5)                                 (232,000)                -           (232,000)                 -
Cumulative effect of adopting SAB 101                          -                 -           (322,000)                 -
                                                    ------------      ------------       ------------      -------------
Net income (loss)                                   $    580,000      $   (720,000)      $  2,330,000      $  (1,436,000)
                                                    ============      ============       ============      =============
Other comprehensive income:
Derivative fair value change                        $          -      $    (22,000)      $          -      $    (147,000)
                                                    ------------      ------------       ------------      -------------
Comprehensive income (loss)                         $    580,000      $   (742,000)      $  2,330,000      $  (1,583,000)
                                                    ============      ============       ============      =============
Earnings per share:
Basic:
Income (loss) per share before extraordinary
   item and adoption of SAB 101                     $       0.09      $      (0.08)      $       0.31      $       (0.16)
Extraordinary item                                         (0.03)                -              (0.03)                 -
Cumulative effect of adopting SAB 101                          -                 -              (0.03)                 -
                                                    ------------      ------------       ------------      -------------
Net income (loss)                                   $       0.06      $      (0.08)      $       0.25      $       (0.16)
                                                    ============      ============       ============      =============
Weighted average number of shares                      9,211,157         9,046,004          9,221,565          9,075,430
Diluted:
Income (loss) per share before extraordinary
   item and adoption of SAB 101                     $      0.09       $      (0.08)      $       0.30      $       (0.16)
Extraordinary item                                        (0.03)                 -              (0.03)                 -
Cumulative effect of adopting SAB 101                         -                  -              (0.03)                 -
                                                    -----------       ------------       ------------      -------------
Net income (loss)                                   $      0.06       $      (0.08)      $       0.24      $       (0.16)
                                                    ===========       ============       ============      =============
Weighted average number of shares including
   the dilutive effect of stock options               9,327,983          9,046,004          9,549,921          9,075,430
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       3
<PAGE>
<TABLE>
<CAPTION>

                                    POINT.360
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)

                                                                           Nine Months Ended
                                                                             September 30,
                                                                             -------------
                                                                        2000                  2001
                                                                        ----                  ----
                                                                                         (as restated)
<S>                                                                 <C>                  <C>
Cash flows from operating activities:
Net income (loss)                                                  $   2,330,000        $ (1,436,000)
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
Depreciation and amortization                                          4,198,000           5,218,000
Provision for doubtful accounts                                          124,000             400,000
Abandonment of leasehold improvements                                      7,000                   -
Other non cash item                                                            -             954,000
Deferred income taxes                                                    429,000             407,000
Extraordinary item                                                       232,000                   -
Cumulative effect of adopting SAB 101                                   322,000                    -
Changes in assets and liabilities:
Decrease in accounts receivable                                        2,419,000           3,473,000
Decrease in inventories                                                   81,000              31,000
(Increase) decrease in prepaid expenses and
   other current assets                                               (1,303,000)             98,000
(Increase) decrease in other assets                                       (6,000)             34,000
Increase (decrease) in accounts payable                                  581,000          (4,003,000)
(Decrease) increase in accrued expenses                                  (55,000)          1,351,000
(Decrease) in income taxes                                            (1,681,000)           (668,000)
                                                                    ------------        ------------
Net cash provided by operating activities                              7,678,000           5,859,000
                                                                    ------------        ------------
Cash used in investing activities:
Capital expenditures                                                  (7,087,000)         (2,453,000)
Net cash paid for acquisitions                                        (1,035,000)           (956,000)
                                                                    ------------        ------------
Net cash used in investing activities                                 (8,122,000)         (3,409,000)
                                                                    ------------        ------------
Cash flows used in financing activities:
S corporation distribution to shareholders                               (55,000)                  -
Repurchase of common stock                                              (332,000)           (300,000)
Proceeds from exercise of stock options                                  256,000                   -
Deferred financing costs                                                (239,000)                  -
Proceeds from notes payable                                           31,174,000                   -
Repayment of notes payable                                           (25,892,000)         (1,775,000)
Repayment of capital lease obligations                                  (157,000)            (52,000)
Repayment of revolving credit agreement                               (5,888,000)                  -
                                                                    ------------        ------------
Net cash used in financing activities                                 (1,133,000)         (2,127,000)
                                                                    ------------        ------------
Net (decrease) increase in cash                                       (1,577,000)            323,000
Cash and cash equivalents at beginning of period                       3,030,000             769,000
                                                                    ------------        ------------
Cash and cash equivalents at end of period                          $  1,453,000        $  1,092,000
                                                                    ============        ============
Supplemental disclosure of cash flow information -
Cash paid for:
Interest                                                            $  2,505,000        $  2,095,000
                                                                    ============        ============
Income tax                                                          $  2,415,000        $    101,000
                                                                    ============        ============
Non-financing activities:
Capital lease obligations incurred                                  $          -        $     75,000
                                                                    ============        ============
</TABLE>

          See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                                    POINT.360

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 2001


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  operates in one
reportable  segment.  The Company provides  worldwide  electronic  distribution,
using fiber optics and satellites.  Additionally,  the Company  provides a broad
range of video  services,  including  the  duplication  of video in all formats,
element storage,  standards  conversions,  closed  captioning and  transcription
services and video encoding for air play verification purposes. The Company also
provides its customers  value-added post  production,  editing and digital media
services.

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

        Since  January 1, 1997,  the Company has  successfully  completed  eight
acquisitions of companies providing similar services.  The 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  restated and unaudited financial  statements have been
prepared in accordance  with generally  accepted  accounting  principles and the
Securities and Exchange Commission's rules and regulations for reporting interim
financial  footnotes  required by generally accepted  accounting  principles for
complete  financial  statements.  In the opinion of management,  all adjustments
(consisting of normal  recurring  adjustments)  considered  necessary for a fair
presentation have been included.  Operating results for the three and nine month
periods ended September 30, 2001 are not  necessarily  indicative of the results
that may be expected  for the year ending  December 31,  2001.  These  financial
statements  should be read in  conjunction  with the  financial  statements  and
related notes  contained in the Company's  Form 10-K for the year ended December
31, 2000.

NOTE 2 - ACCOUNTING PRONOUNCEMENTS

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

                                       5
<PAGE>

        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.  See Note 6
for further detail.

        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,
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 will be required to implement FAS No. 142
in the first quarter of fiscal 2002. In connection  with the adoption of FAS No.
142, the Company will be required to perform a transitional  goodwill impairment
assessment.  The Company is in the process of evaluating  the impact of adoption
of FAS 141 and 142.

        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.

                                       6
<PAGE>

NOTE 3 - RESTATEMENT OF FINANCIAL STATEMENTS

     During 2002, the Company  restated 2001 quarterly  financial  statements to
(i) allocate  certain year end  adjustments  to other than the fourth quarter of
2001, (ii) correct the quarterly  amortization of other  intangibles  associated
with an acquired  company and (iii) correct the  transition  adjustment  and the
required  subsequent  amortization into earnings  resulting from the adoption of
FAS 133 for an interest rate swap contract.  These  adjustments  for the periods
ended September 30, 2001 are as follows:
<TABLE>
<CAPTION>
                                                                    Decrease (Increase) Net Loss
                                                           ---------------------------------------------
Adjustments to previously issued                           Three Months Ended          Nine Months Ended
financial statements:                                      September 30, 2001         September 30, 2001
---------------------                                      ------------------         ------------------
<S>                                                          <C>                         <C>
To reduce depreciation expense (2)                           $      216,000              $     379,000
To correct amortization of other intangibles (3)                    (41,000)                  (130,000)
To properly state raw materials purchases (1)                             -                    131,000
To accrue estimated liability for two abandoned leases (3)                -                   (154,000)
To accelerate software amortization  (3)                            (58,000)                   (58,000)
To correct FAS 133 interest rate swap
  contract amortization                                             (41,000)                 (151,000)
To adjust tax provision for the year                                (72,000)                   (72,000)
To revise tax provision related to above adjustments                 20,000                     (2,000)
                                                             --------------              -------------
Subtotal                                                             24,000                    (57,000)
Reversal of previous incorrect cumulative
   effect of adopting FAS 133 charge, net of tax                          -                    212,000
                                                             --------------              -------------
Total                                                        $       24,000              $     155,000
                                                             ==============              =============
Change in previously reported net loss and
   effect on earnings per share:
Reduction in net loss:
Adjustments                                                  $       24,000              $     (57,000)
FAS 133 cumulative effect reversal                                        -                    212,000
                                                             --------------              -------------
Total                                                        $       24,000              $     155,000
                                                             ==============              =============
Basic Earnings per share:
Adjustments                                                  $            -              $           -
FAS 133 cumulative effect reversal                                        -                       0.02
                                                             --------------              -------------
Total                                                        $            -              $        0.02
                                                             ==============              =============
Diluted earning per share:
Adjustments                                                  $            -              $           -
FAS 133 cumulative effect reversal                                        -                       0.02
                                                             --------------              -------------
Total                                                        $            -              $        0.02
                                                             ==============              =============

</TABLE>

   (1)  Credited to cost of goods sold.
   (2)  Credited to cost of goods sold and selling,  general and  administrative
        expense.
   (3)  Charged to selling, general and administrative expense.

                                       7
<PAGE>

NOTE 4 - STOCK REPURCHASE

        In February 1999, the Company commenced a stock repurchase program.  The
board of  directors  authorized  the  Company to allocate  up to  $4,000,000  to
purchase its common stock at suitable  market  prices.  In September  2000,  the
board of directors  authorized the Company to allocate an additional  $5,000,000
to  purchase  its common  stock.  As of  September  30,  2001,  the  Company had
repurchased 860,766 shares of the Company's common stock in connection with this
program.

NOTE 5 - 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 provides
for interest at the banks' reference rate, the federal funds effective rate plus
0.5%,  or  a  LIBOR   adjusted   rate.   Loans  made  under  the  Agreement  are
collateralized by substantially all of the Company's assets.  The borrowing base
under the Agreement is limited to 90% of eligible  accounts  receivable,  50% of
inventory and 100% of operating machinery and equipment.  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 contains covenants requiring certain levels of annual
earnings before interest,  taxes, depreciation and amortization (EBITDA) and net
worth, and limits the amount of capital expenditures.  By 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.

        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  is  immediately  due and  payable  and,
therefore,  has been  reclassified  as a current  liability as of September  30,
2001. The Company remains  current in its interest  payments to the banks and is
actively engaged in renegotiating  its relationship  with the banks.  During the
nine months ended  September 30, 2001,  the Company made  principal  payments of
$1,775,000.

                                       8
<PAGE>

NOTE 6 - DERIVATIVE AND HEDGING ACTIVITIES

     In November 2000,  the Company  entered into an interest rate swap contract
to economically  hedge its floating debt rate.  Under the terms of the contract,
the notional amount is $15,000,000,  whereby the Company receives LIBOR and pays
a fixed  6.50% rate of  interest  for three  years.  FAS 133  requires  that the
interest  rate swap  contract be recorded at fair value upon adoption of FAS 133
and quarterly by recording (i) a cumulative-effect type adjustment at January 1,
2001 equal to the fair value of the  interest  rate swap  contract on that date,
(ii) amortizing the cumulative-effect type adjustment quarterly over the life of
the derivative contract, and (iii) a charge or credit to income in the amount of
the difference  between the fair value of the interest rate swap contract at the
beginning and end of such quarter.  The effect of adopting FAS 133 was to record
an initial  cumulative  effect type  adjustment  by charging  Accumulated  Other
Comprehensive  Income (a component of  shareholders'  equity)  $213,000  (net of
$96,000 tax benefit), crediting Derivative Valuation Liability by $309,000 gross
cumulative  effect  adjustment and charging  Deferred Income Taxes $96,000.  The
following adjustments were recorded to reflect changes during the three and nine
month periods ended September 30, 2001:
<TABLE>
<CAPTION>
                                                                    Increase (Decrease) Income
                                                  ---------------------------------------------------------------------
                                                  Derivative Fair      (Provision for) Benefit          Net Derivative
                                                   Value Change           from Income Taxes           Fair Value Change
                                                   ------------           -----------------           -----------------
<S>                                               <C>                       <C>                         <C>
For the three months ended September 30, 2001:

Amortization of cumulative-effect type
adjustment                                        $   (26,000)              $     8,000                 $   (18,000)

Difference in the derivative fair value
between the beginning and end of the quarter         (432,000)                  134,000                    (298,000)
                                                  -----------               -----------                 -----------
                                                  $  (458,000)              $   142,000                 $  (316,000)
                                                  ===========               ===========                 ===========
For the nine months ended September 30, 2001:

Amortization of cumulative-effect type
adjustment                                        $   (95,000)              $    29,000                 $   (66,000)

Difference in the derivative fair value
between the beginning and end of the period          (682,000)                  211,000                    (471,000)
                                                  -----------               -----------                 -----------
                                                  $  (777,000)              $   240,000                 $  (537,000)
                                                  ===========               ===========                 ===========
</TABLE>

                                       9
<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 SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000.

        REVENUES.  Revenues decreased by $1.2 million or 7% to $16.9 million for
the three-month  period ended September 30, 2001,  compared to $18.1 million for
the three-month  period ended September 30, 2000 due to a decline in studio post
production sales.  Additionally,  the September 11, 2001 terrorist attack in New
York City adversely  affected sales in an  indeterminable  amount as freight air
carriers  used to deliver  commercial  spots were  grounded  by up to four days,
television  coverage of the events by major networks excluded normal advertising
spots which are  duplicated  and  distributed  by the Company,  and major studio
clients shut down for several days. We estimate  that  September  2001 sales may
have been reduced by approximately $1.0 million.

        GROSS PROFIT. Gross profit decreased $1.0 million or 16% to $5.7 million
for the three-month  period ended  September 30, 2001,  compared to $6.7 million
for the  three-month  period ended September 30, 2000. As a percent of revenues,
gross  profit  decreased  from 37% to 33%.  The  decrease  in gross  profit as a
percentage of revenues was principally due to increased depreciation  associated
with  investments  in high  definition  equipment and higher  delivery costs for
distribution  services,  which  increases  together  amounted  to  about  4%  of
revenues.

        SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general  and
administrative  ("SG&A") expense  increased $0.3 million,  or 6% to $5.0 million
for the three-month  period ended  September 30, 2001,  compared to $4.7 million
for the  three-month  period  ended  September  30,  2000.  As a  percentage  of
revenues,  selling,  general and administrative expense increased to 29% for the
three-month period ended September 30, 2001, compared to 26% for the three-month
period  ended  September  30, 2000.  Excluding  amortization  of goodwill,  SG&A
expenses were $4.4 million, or 26% of sales, compared to $4.3 million, or 24% of
sales in the 2000 third quarter.

        OPERATING  INCOME.  Operating  income  decreased  $1.3  million  to $0.7
million for the three-month  period ended  September 30, 2001,  compared to $2.0
million for the three-month period ended September 30, 2000.

        INTEREST  EXPENSE.  Interest  expense for the  three-month  period ended
September  30,  2001 was $0.8  million,  an increase  of $0.1  million  from the
three-month  period ended  September  30, 2000 due to a higher  average level of
debt  outstanding  and a 2%  default  rate of  interest  premium  charged by the
Company's banks.

        EXTRAORDINARY  ITEM.  During the quarter ended  September 30, 2001,  the
Company  wrote off $0.4  million of deferred  financing  costs  related to prior
credit   facilities  that  were   terminated.   This  item  was  treated  as  an
extraordinary item and is reported net of income taxes.

        ADOPTION OF FAS 133 AND DERIVATIVE FAIR VALUE CHANGE. During the quarter
ended  September  30,  2001,  the Company  recorded the  difference  between the
derivative  fair  value of the  Company's  interest  rate swap  contract  at the
beginning and end of the third quarter, or $0.4 million ($0.3 million net of tax
benefit),  and  amortization  of the  cumulative-effect  adjustment  during  the
quarter.

        INCOME TAXES.  The Company's  effective tax rate was (20%) for the third
quarter  of 2001  and 37% for the  third  quarter  of  2000.  The  reduction  in
effective  tax rate is the result of the  Company's  periodic  assessment of the
relationship of book/tax  differences to total expected annual pre-tax  results.
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 and the effect of permanent differences.

        NET INCOME  (LOSS).  The net income  (loss) for the  three-month  period
ended September 30, 2001 was $(0.7) million, a decrease of $1.3 million compared
to $0.6 million for the three-month period ended September 30, 2000.

                                       10
<PAGE>

NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000.

        REVENUES.  Revenues decreased by $3.2 million or 6% to $52.5 million for
the nine-month  period ended  September 30, 2001,  compared to $55.7 million for
the nine-month  period ended  September 30, 2000 due to a decline in studio post
production sales.  Additionally,  the September 11, 2001 terrorist attack in New
York City adversely  affected sales in an  indeterminable  amount as freight air
carriers  used to deliver  commercial  spots were  grounded  by up to four days,
television  coverage of the events by major networks excluded normal advertising
spots which are  duplicated  and  distributed  by the Company,  and major studio
clients shut down for several days. We estimate  that  September  2001 sales may
have been reduced by approximately $1.0 million.

        GROSS  PROFIT.  Gross  profit  decreased  $4.7  million  or 21% to $17.3
million for the nine-month  period ended  September 30, 2001,  compared to $22.1
million for the  nine-month  period ended  September  30, 2000.  As a percent of
revenues,  gross profit  decreased from 40% to 33%. The decrease in gross profit
as a  percentage  of  revenues  was due to higher  wages  related to the digital
television services department ($0.6 million,  increased depreciation associated
with investments in high definition equipment ($0.8 million) and higher delivery
costs  for  distribution  services  ($0.7  million),  all of which  amounted  to
approximately 4% of reported revenues.

        SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general  and
administrative  expense  increased $1.2 million,  or 8% to $16.2 million for the
nine-month  period ended  September 30, 2001,  compared to $15.0 million for the
nine-month  period  ended  September  30,  2000.  As a  percentage  of revenues,
selling,  general and administrative expense increased to 31% for the nine-month
period ended September 30, 2001, compared to 27% for the nine-month period ended
September  30, 2000.  The fiscal 2000 period  included  $0.8 million of expenses
associated  with a terminated  merger.  The 2001 period included $0.4 million of
bank  agreement  restructuring  charges,  $0.3 million of employee  benefit plan
one-time change  expense,  $0.3 million of severance  accruals,  $0.3 million of
consulting expense  associated with the Company's  rebranding efforts and higher
administrative  salary costs.  Excluding these unusual items and amortization of
goodwill of $1.3 million in 2001 and $1.2 million in 2000, selling,  general and
administrative  expenses were $13.3 million, or 25% of sales in 2001 compared to
$13 million, or 23% of sales in 2000.

        OPERATING INCOME. Operating income decreased $5.9 million or 84% to $1.1
million for the  nine-month  period ended  September 30, 2001,  compared to $7.0
million for the nine-month period ended September 30, 2000.

        INTEREST EXPENSE.  Interest expense  increased $0.2 million,  or 11%, to
$2.3 million for the  nine-month  period ended  September 30, 2001,  compared to
$2.1 million for the nine-month  period ended September 30, 2000 due to a higher
level of average  debt  outstanding  and a 2% default  rate of interest  premium
charged by the Company's banks.

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

        ADOPTION  OF FAS 133 AND  DERIVATIVE  FAIR VALUE  CHANGE.  On January 1,
2001, the Company adopted FAS 133 by recording a cumulative effect adjustment to
shareholders'  equity.  During the nine months ended  September  30,  2001,  the
Company  recorded  the  difference  between  the  derivative  fair  value of the
Company's interest rate swap contract at the beginning and end of the period, or
$0.7  million  ($0.5  million  net  of tax  benefit),  and  amortization  of the
cumulative-effect adjustment during the period.

        INCOME  TAXES.  The  Company's  effective  tax rate was 27% for the nine
months of 2001 and 41.5% for the same period of 2000.  The lower tax rate is due
to the effect of permanent differences on a lower pre-tax income base.

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

                                       11
<PAGE>

        NET  INCOME  (LOSS).  The net  loss  for  the  nine-month  period  ended
September  30, 2001 was $1.4 million,  a decrease of $3.8 million  compared to a
profit of $2.3 million for the nine-month period ended September 30, 2000.

LIQUIDITY AND CAPITAL RESOURCES

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

        On  September  30,  2001,  the  Company's  cash  and  cash   equivalents
aggregated $1.1 million.  The Company's  operating  activities  provided cash of
$5.9 million for the nine months ended September 30, 2001.

        The Company's investing activities used cash of $3.4 million in the nine
months ended  September 30, 2001. The Company spent  approximately  $2.5 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  due  to  the  investment  of
approximately  $4.6  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.  The Company also made
$1.0 million in acquisition earn-out payments in the nine months ended September
30, 2001.

        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  provides  the Company  with
funding  for capital  expenditures,  working  capital  needs and support for its
acquisition  strategies.  The  facility  expires on  December  31,  2005.  As of
September 30, 2001, there was $29 million outstanding under the facility,  which
amount was in excess of the permitted borrowing base by $1.8 million.

        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, which
discussions are ongoing.

        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.

                                       12
<PAGE>

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

   o    Recent history of losses
   o    Breach of credit agreement covenants.
   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,  there can be no assurance as to
future profitability on a quarterly or annual basis.

BREACH  OF CREDIT  AGREEMENT  COVENANTS.  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,  even though we remain  current on
interest payments. We cannot be sure a mutually satisfactory  agreement with the
banks will be reached upon completion of current negotiations or, if successful,
that the Company will not again breach established covenants.

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
31% of the Company's  revenues  during the nine months ended September 30, 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.

                                       13
<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  four  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  in  part  depend  on  our  ability  to  implement
operational improvements in, or exploit potential synergies with, these acquired
businesses.

Acquisitions may involve a number of special risks including: adverse effects on
our  reported   operating  results   (including  the  amortization  of  acquired
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

                                       14
<PAGE>

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
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,  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 a 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 25% of the outstanding common
stock as of September 30, 2001. Mr. Stefanko's ex-spouse owned approximately 25%
of the common stock on that date.  Together,  they owned  approximately  50%. 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.  By virtue of his stock ownership,  Mr. Stefanko may be able to
significantly  influence  the outcome of matters  required to be  submitted to a
vote of shareholders, including (i) the election of the board of directors, (ii)
amendments  to the  Company's  Restated  Articles  of  Incorporation  and  (iii)
approval of mergers and other significant corporate transactions.  The foregoing
may have the effect of  discouraging,  delaying or  preventing  certain types of
transactions  involving an actual or potential change of control of the Company,
including  transactions  in which the holders of common  stock  might  otherwise
receive a premium for their  shares over  current  market  prices.  Our Board of
Directors  also has the  authority to issue up to 5,000,000  shares of preferred
stock  without par value (the  "Preferred  Stock") and to  determine  the price,
rights,  preferences,  privileges and  restrictions  thereof,  including  voting
rights,  without  any  further  vote or  action by the  Company's  shareholders.

                                       15
<PAGE>

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        MARKET  RISK.  The  Company  has market risk  exposure  with  respect to
financial  instruments as a result of changes in the London  Interbank  Offering
Rate  ("LIBOR").  The Company had  borrowings  of $29.2 million at September 30,
2001 under a credit  agreement.  Amounts  outstanding under the credit agreement
bear interest at the bank's reference rate plus a base rate margin not to exceed
1.00%, or, at the Company's election, at LIBOR plus a LIBOR margin not to exceed
2.75%, plus a 2% default rate.

        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%, plus the applicable LIBOR margin, not to exceed 2.75%.

DEFAULTS UPON SENIOR SECURITIES

        Reference is made to Note 4 of Notes to Unaudited Consolidated Financial
Statements for information  related to an existing  default  condition under the
Company's credit agreement with a group of banks.



                           PART II - OTHER INFORMATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

   (a)  Exhibits

        99.1    Certification   of  Chief  Executive   Officer  Pursuant  to  18
                U.S.C.ss.1350,  as  Adopted  Pursuant  to  Section  906  of  the
                Sarbanes-Oxley Act of 2002.

        99.2    Certification   of  Chief  Financial   Officer  Pursuant  to  18
                U.S.C.ss.1350,  as  Adopted  Pursuant  to  Section  906  of  the
                Sarbanes-Oxley Act of 2002

   (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:  November 7, 2002             BY:  /s/ Alan Steel
                                         -----------------------------
                                         Alan Steel
                                         Executive Vice President,
                                         Finance and Administration
                                         (duly authorized officer and
                                          principal financial officer)



                                       16
<PAGE>


                                 CERTIFICATIONS


I, Haig S. Bagerdjian, certify that:

   1.   I have reviewed this quarterly report on Form 10-Q of Point.360;

   2.   Based on my knowledge, this quarterly report does not contain any untrue
        statement of a material fact or omit to state a material fact  necessary
        to make the statements made, in light of the  circumstances  under which
        such  statements  were made, not  misleading  with respect to the period
        covered by this quarterly report; and

   3.   Based on my knowledge,  the financial  statements,  and other  financial
        information  included in this  quarterly  report,  fairly present in all
        material  respects the financial  condition,  results of operations  and
        cash flows of the  registrant  as of, and for, the periods  presented in
        this quarterly report.


Date: November 7, 2002                /s/  Haig S. Bagerdjian
                                      -----------------------
                                      Haig S. Bagerdjian
                                      Chairman of the Board of Directors,
                                      President and Chief Executive Officer




I, Alan R. Steel, certify that:

   1.   I have reviewed this quarterly report on Form 10-Q of Point.360;

   2.   Based on my knowledge, this quarterly report does not contain any untrue
        statement of a material fact or omit to state a material fact  necessary
        to make the statements made, in light of the  circumstances  under which
        such  statements  were made, not  misleading  with respect to the period
        covered by this quarterly report; and

   3.   Based on my knowledge,  the financial  statements,  and other  financial
        information  included in this  quarterly  report,  fairly present in all
        material  respects the financial  condition,  results of operations  and
        cash flows of the  registrant  as of, and for, the periods  presented in
        this quarterly report.


Date: November 7, 2002                 /s/  Alan R. Steel
                                       ------------------------------------
                                       Alan R. Steel
                                       Executive Vice President
                                       Finance and Administration and
                                       Chief Financial Officer


                                       17
<PAGE>
                                                                EXHIBIT 99.1



                            CERTIFICATION PURSUANT TO
                               18 U.S.C. ss. 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection  with the Quarterly  Report of Point.360 ( the  "Company") on Form
10-Q for the period ended  September 30, 2001, as filed with the  Securities and
Exchange  Commission  (the  "Report"),  I, Haig S.  Bagerdjian,  Chief Executive
Officer of the Company,  certify,  pursuant to 18 U.S.C.  ss.  1350,  as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

   (1)  The Report fully complies with the  requirements of Section 13 (a) or 15
        (d) of the Securities Exchange Act of 1934; and

   (2)  The information contained in the Report fairly presents, in all material
        respects,  the  financial  condition  and results of  operations  of the
        Company.



/s/  Haig S. Bagerdjian
----------------------------
Haig  S. Bagerdjian
Chief Executive Officer
November 7, 2002


                                       18
<PAGE>
                                                                EXHIBIT 99.2



                            CERTIFICATION PURSUANT TO
                               18 U.S.C. ss. 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection  with the Quarterly  Report of Point.360 ( the  "Company") on Form
10-Q for the period ended  September 30, 2001, as filed with the  Securities and
Exchange Commission (the "Report"), I, Alan R. Steel, Chief Financial Officer of
the Company,  certify,  pursuant to 18 U.S.C.  ss. 1350, as adopted  pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:

   (1)  The Report fully complies with the  requirements of Section 13 (a) or 15
        (d) of the Securities Exchange Act of 1934; and

   (2)  The information contained in the Report fairly presents, in all material
        respects,  the  financial  condition  and results of  operations  of the
        Company.



/s/  Alan R. Steel
----------------------------
Alan R. Steel
Chief Financial Officer
November 7, 2002

                                       19