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, 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
              -----------------------------------------------------
                                   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.


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

ITEM 1. FINANCIAL STATEMENTS

                                    POINT.360
                           CONSOLIDATED BALANCE SHEETS

                                   ASSETS
                                                                 December 31,          September 30,
                                                                    2001                   2002
                                                                                        (unaudited)
Current assets:
<S>                                                                 <C>                  <C>
Cash and cash equivalents                                           $  3,758,000         $  6,381,000
Accounts receivable, net of allowances for doubtful
  accounts of $681,000 and $825,000, respectively                     12,119,000           10,998,000
Notes receivable from officers                                           928,000              777,000
Income tax receivable                                                  1,399,000              393,000
Inventories                                                              820,000              887,000
Prepaid expenses and other current assets                                554,000            1,062,000
Deferred income taxes                                                    884,000            1,235,000
                                                                    ------------         ------------
Total current assets                                                  20,462,000           21,733,000

Property and equipment, net                                           23,232,000           20,267,000
Other assets, net                                                        833,000              762,000
Goodwill and other intangibles, net                                   26,320,000           27,839,000
                                                                    ------------         ------------
Total assets                                                        $ 70,847,000         $ 70,601,000
                                                                    ============         ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable                                                    $  4,675,000         $  2,751,000
Accrued expenses                                                       2,715,000            4,245,000
Current portion of notes payable                                      28,999,000            5,750,000
Current portion of capital lease obligations                              79,000               83,000
                                                                    ------------        -------------
Total current liabilities                                             36,468,000           12,829,000
                                                                    ------------        -------------
Deferred income taxes                                                  2,635,000            3,515,000
Notes payable, less current portion                                            -           19,750,000
Capital lease obligations, less current portion                           78,000               86,000
Derivative valuation liability                                           888,000              845,000

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 9,014,232 shares issued and
  outstanding, respectively                                           17,336,000          17,359,000
Additional paid-in capital                                               439,000           1,272,000
Accumulated other comprehensive income                                  (150,000)           (105,000)
Retained earnings                                                     13,153,000          15,050,000
                                                                   -------------        ------------
Total shareholders' equity                                            30,778,000          33,576,000
                                                                   -------------        ------------
Total liabilities and shareholders' equity                         $  70,847,000        $ 70,601,000
                                                                   =============        ============
</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,
                                                             ------------                         ------------
                                                        2001              2002               2001               2002
                                                        ----              ----               ----               ----
<S>                                                 <C>               <C>                <C>                <C>
Revenues                                            $ 16,905,000      $ 16,959,000       $ 52,459,000       $ 50,516,000
Cost of goods sold                                   (11,246,000)      (10,181,000)       (35,114,000)       (31,410,000)
                                                    ------------      ------------       ------------       ------------
Gross profit                                           5,659,000         6,778,000         17,345,000         19,106,000
Selling, general and administrative expense           (4,976,000)       (4,706,000)       (16,204,000)       (13,800,000)
                                                    ------------      ------------       ------------       ------------
Operating income                                         683,000         2,072,000          1,141,000          5,306,000
Interest expense, net                                   (825,000)         (623,000)        (2,344,000)        (1,943,000)
Derivative fair value change                            (458,000)          (53,000)          (777,000)           (35,000)
                                                    ------------      ------------       ------------       ------------
Income (loss) before income taxes                       (600,000)        1,396,000         (1,980,000)         3,328,000
(Provision for) benefit from income taxes               (120,000)         (600,000)           544,000         (1,431,000)
                                                    ------------      ------------       ------------       ------------
Net income (loss)                                   $   (720,000)     $    796,000       $ (1,436,000)      $  1,897,000
                                                    ============      ============       ============       ============
Other comprehensive income:
Derivative fair value change                        $    (22,000)     $    (15,000)      $   (147,000)      $    (45,000)
                                                    ------------      ------------       ------------       ------------
Comprehensive income (loss)                         $   (742,000)     $    781,000       $ (1,583,000)      $  1,852,000
                                                    ============      ============       ============       ============
Earnings (loss) per share:
Basic:
Net income (loss)                                   $      (0.08)     $       0.09       $      (0.16)            $ 0.21
Weighted average number of shares                      9,046,004         9,014,232          9,075,430          9,012,884
                                                    ============      =============      ============       ============
Diluted:
Net income (loss)                                   $      (0.08)     $       0.09       $      (0.16)      $       0.20
Weighted average number of shares including
  the dilutive effect of stock options                 9,046,004         9,114,849          9,075,430          9,255,780
                                                    ============      ============       ============       ============
</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,
                                                                              ------------
                                                                        2001                  2002
                                                                        ----                  ----
<S>                                                                 <C>                  <C>
Cash flows from operating activities:
Net income (loss)                                                   $ (1,436,000)        $  1,897,000
Adjustments to reconcile net income (loss)
  to net cash provided by operating activities:
Depreciation and amortization                                          5,218,000            4,010,000
Provision for doubtful accounts                                          400,000              258,000
Deferred income taxes                                                    407,000              529,000
Other non cash item                                                      954,000              118,000
Write-off of note receivable                                                                  148,000
Changes in assets and liabilities:
Decrease in accounts receivable                                        3,473,000              863,000
Decrease (increase) in inventories                                        31,000              (67,000)
Decrease (increase) in prepaid expenses and
  other current assets                                                    98,000             (520,000)
Decrease in other assets                                                  34,000               71,000
(Decrease) in accounts payable                                        (4,003,000)          (1,797,000)
Increase in accrued expenses                                           1,351,000            1,809,000
(Decrease) increase in income taxes                                     (668,000)           1,006,000
                                                                   -------------       --------------
Net cash provided by operating activities                              5,859,000            8,325,000
                                                                   -------------       --------------
Cash used in investing activities:
Capital expenditures                                                  (2,453,000)            (935,000)
Proceeds from sale of equipment                                                -               27,000
Net cash paid for acquisitions                                          (956,000)          (1,249,000)
                                                                   -------------       --------------
Net cash used in investing activities                                 (3,409,000)          (2,157,000)
                                                                   -------------       --------------
Cash flows used in financing activities:
Repurchase of common stock                                              (300,000)                   -
Proceeds from exercise of stock option                                         -               12,000
Repayment of notes payable                                            (1,775,000)          (3,499,000)
Repayment of capital lease obligations                                   (52,000)             (58,000)
                                                                   --------------      --------------
Net cash used in financing activities                                 (2,127,000)          (3,545,000)
                                                                   --------------      --------------
Net increase in cash                                                     323,000            2,623,000
Cash and cash equivalents at beginning of period                         769,000            3,758,000
                                                                   -------------       --------------
Cash and cash equivalents at end of period                         $   1,092,000       $    6,381,000
                                                                   =============       ==============
Supplemental disclosure of cash flow information -
Cash paid for:
Interest                                                           $   2,095,000       $    1,845,000
                                                                   =============       ==============
Income tax                                                         $     101,000       $      921,000
                                                                   =============       ==============
Non-financing activities:
   Capital lease obligations incurred                              $      75,000       $       69,000
                                                                   =============       ==============
</TABLE>
           See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                                    POINT.360

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

                               September 30, 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 and nine month
periods ended September 30, 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

                                       5
<PAGE>

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  implemented  FAS No. 142 in the first
quarter of fiscal 2002 which required no goodwill impairment.

        We ceased  amortization  of  approximately  $26.3  million  of  goodwill
beginning in 2002. We had recorded approximately $2.0 million of amortization on
these amounts during the year ended December 31, 2001.

        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.

        In  April  2002,  the FASB  issued  SFAS No.  145,  "Rescission  of FASB
Statements No. 4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical
Corrections."  SFAS  No.  145  updates,   clarifies,   and  simplifies  existing
accounting  pronouncements.  This statement  rescinds SFAS No. 4, which required
all gains and  losses  from  extinguishment  of debt to be  aggregated  and,  if
material, classified as an extraordinary item, net of related income tax effect.
As a result, the criteria in APB No. 30 will now be used to classify those gains
and losses.  SFAS No. 64 amended  SFAS No. 4 and is no longer  necessary as SFAS
No. 4 has been  rescinded.  SFAS No.  44 has been  rescinded  as it is no longer
necessary.  SFAS No.  145  amends  SFAS No. 13 to  require  that  certain  lease
modifications that have economic effects similar to sale-leaseback  transactions
be accounted for in the same manner as sale-lease  transactions.  This statement
also  makes  technical  corrections  to  existing  pronouncements.  While  those
corrections  are not substantive in nature,  in some instances,  they may change
accounting  practice.  The Company  does not expect  adoption of SFAS No. 145 to
have a  material  impact,  if any,  on its  financial  position  or  results  of
operations.

        In June  2002,  the FASB  issued  SFAS No.  146,  "ACCOUNTING  FOR COSTS
ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES." This statement addresses financial
accounting and reporting for costs  associated with exit or disposal  activities
and nullifies  Emerging  Issues Task Force ("EITF")  Issue No. 94-3,  "LIABILITY
RECOGNITION FOR CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN
ACTIVITY (INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING)."  This statement
requires  that a  liability  for a cost  associated  with an  exit  or  disposal
activity be recognized when the liability is incurred.  Under EITF Issue 94-3, a
liability  for an exit  cost,  as  defined,  was  recognized  at the  date of an
entity's  commitment  to an exit plan.  The  provisions  of this  statement  are
effective for exit or disposal  activities that are initiated after December 31,
2002 with earlier application  encouraged.  The Company does not expect adoption
of SFAS No.146 to have a material impact,  if any, on its financial  position or
results of operations, except as discussed in Note 8.

                                       6
<PAGE>

        In October 2002, the FASB issued SFAS No. 147,  "ACQUISITIONS OF CERTAIN
FINANCIAL INSTITUTIONS." SFAS No. 147 removes the requirement in SFAS No. 72 and
Interpretation 9 thereto, to recognize and amortize any excess of the fair value
of  liabilities  assumed  over  the  fair  value of  tangible  and  identifiable
intangible assets acquired as an unidentifiable intangible asset. This statement
requires that those  transactions  be accounted for in accordance  with SFAS No.
141,  "BUSINESS  COMBINATIONS," and SFAS No. 142, "GOODWILL AND OTHER INTANGIBLE
ASSETS." In addition,  this statement  amends SFAS No. 144,  "Accounting for the
Impairment  or Disposal of  Long-Lived  Assets,"  to include  certain  financial
institution-related  intangible assets.  This statement is not applicable to the
Company.

NOTE 3 - LONG TERM DEBT AND NOTES PAYABLE

        In November 1998, the Company borrowed $29,000,000 on a term loan with a
bank.  The term loan was  repaid in 2000 with the  proceeds  of a new  borrowing
arrangement with a group of banks.

        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.  Loans made under the
Agreement are  collateralized by substantially all of the Company's assets.  The
borrowing  base under the  Agreement  was  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 limited 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 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.  In  connection  with  the
restructuring,  the  Company  wrote off  $265,000 of  deferred  financing  costs
related to the original  Agreement in the second quarter of 2002.  Certain legal
and other costs  associated with the new term loan were  capitalized and will be
amortized over the life of the loan.

        In  October  2002,  the  company  paid  the  banks  $20,000  and made an
additional  principal  payment of $500,000 in connection  with a waiver received
from the banks to allow  the  company's  former  President  and Chief  Executive
Officer to reduce his percentage ownership in the Company to below 14%.

                                       7
<PAGE>

NOTE 4 - NOTE RECEIVABLE FROM AND RESIGNATION OF OFFICER

        At  September  30,  2002,  the  Company  had a loan  outstanding  to its
President and Chief  Executive  Officer,  R. Luke Stefanko,  totaling  $777,000,
including  accrued interest of $84,000.  The loan is  collateralized  by a trust
deed and bears  interest at a rate of 3%. The loan is due on or before  December
31, 2002. On October 2, 2002, Mr. Stefanko  resigned as Chief Executive  Officer
(see Note 8). Haig S.  Bagerdjian,  the  Company's  Chairman  of the Board,  was
appointed  Chief  Executive  Officer.  Concurrently,  Mr.  Bagerdjian  purchased
1,436,179 shares of the Company's  common stock from Mr. Stefanko,  assuming the
payment  obligations  for Mr.  Stefanko's  loan as part of the  transaction.  In
connection  with his  resignation,  Mr.  Stefanko's  existing stock options were
extended for two years. The fair value of the options as of the resignation date
($214,000  valued  using the  Black-Scholes  model) was written off as severance
expense  during  the  third  quarter  of 2002  since the  arrangements  had been
essentially agreed upon as of September 30, 2002.

NOTE 5 - ISSUANCE OF WARRANT

        In  July  2002,  the  Company  acquired  an  option  to  purchase  three
subsidiaries  (the  "Subsidiaries")  of Alliance  Atlantis  Communications  Inc.
("Alliance") engaged in businesses directly related to those of the Company. The
Company may exercise its purchase option at any time prior to December 31, 2002.

        In  consideration  for the  option,  the  Company  issued to  Alliance a
warrant to acquire  500,000  shares of the  Company's  common stock at $2.00 per
share.  The warrant expires on July 3, 2007, or July 3, 2005 if the Company does
not exercise its option to purchase the Subsidiaries.  In connection  therewith,
the Company  capitalized the fair value of the warrant  ($619,000  determined by
using the Black-Scholes valuation model) as an other asset on the balance sheet.
If the Company does not exercise the option to purchase the  subsidiaries,  such
amount will be written off.

NOTE 6 - EARN-OUT PAYMENT

        In July 2002, the Company entered into an arrangement regarding earn-out
payments related to the July 1997 acquisition of MultiMedia  Services,  Inc. The
original  acquisition  agreement would have required  payments of  approximately
$1.5 million during the next two years assuming minimum earnings levels are met,
which levels have been  achieved in the past.  In exchange  for a one-time  $1.1
million  payment  made in July 2002,  the  Company  was  relieved  of all future
earn-out obligations under the purchase agreement.

NOTE 7 - 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 6.5% rate of interest  for three years.  FAS 133 requires  that
the 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 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 swap  contract at the  beginning  and end of such
quarter. The effect of adopting FAS 133 during the first nine months of 2001 was
to record an initial  cumulative-effect  type adjustment by charging Accumulated
Other Comprehensive  Income (a component of shareholders'  equity) $212,000 (net
of  $96,000  tax  benefit),  crediting  Derivative  Valuation  Liability  by the
$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, 2002:

                                       8
<PAGE>
<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)
                                               ============            ============                ============

For the three months ended September 30, 2002:
---------------------------------------------
Amortization of cumulative-effect type
adjustment                                     $    (26,000)           $     11,000                $    (15,000)

Difference in the derivative fair value
between the beginning and end of the quarter        (27,000)                 12,000                     (15,000)
                                               ------------            ------------                ------------
                                               $    (53,000)           $     23,000                $    (30,000)
                                               ============            ============                ============

For the nine months ended September 30, 2002:
--------------------------------------------
Amortization of cumulative-effect type
adjustment                                     $    (78,000)           $     34,000                $    (44,000)

Difference in the derivative fair value
between the beginning and end of the period          43,000                 (18,000)                      25,000
                                               ------------            ------------                -------------
                                               $     35,000            $     16,000                $     (19,000)
                                               ============            ============                =============
</TABLE>
NOTE 8 - SUBSEQUENT EVENT

        In October  2002,  R. Luke  Stefanko  resigned in all  capacities  as an
officer, director and employee of the Company. Concurrently, Haig S. Begerdjian,
the Company's Chairman of the Board, was appointed to positions of President and
Chief Executive Officer.

        In  connection  with  his  resignation,  Mr.  Stefanko  entered  into  a
consulting agreement with the Company to consult for a specified number of hours
per month for two years.  Mr.  Stefanko  will be paid $10,000 per month  through
December 2002 and at an hourly rate thereafter.

        Concurrent with the above agreements, Mr. Bagerdjian purchased 1,436,179
shares  of  Point.360   common  stock  owned  by  Mr.   Stefanko,   representing
approximately 16% of the outstanding common stock of Point.360.

                                       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, 2002 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2001.

        REVENUES.  Revenues  increased by $0.1 million to $17.0  million for the
three-month  period ended September 30, 2002,  compared to $16.9 million for the
three-month period ended September 30, 2001.

        GROSS PROFIT. Gross profit increased $1.1 million or 20% to $6.8 million
for the three-month  period ended  September 30, 2002,  compared to $5.7 million
for the  three-month  period ended September 30, 2001. As a percent of revenues,
gross  profit  increased  from 33% to 40%.  The  increase  in gross  profit as a
percentage  of  revenues  was  principally  due to lower  wages and  benefits as
headcount was reduced 13% since September 30, 2001.

        SELLING,  GENERAL  AND  ADMINISTRATIVE  EXPENSE.  Selling,  general  and
administrative  ("SG&A") expense  decreased $0.3 million,  or 2% to $4.7 million
for the three-month  period ended  September 30, 2002,  compared to $5.0 million
for the  three-month  period  ended  September  30,  2001.  As a  percentage  of
revenues,  SG&A decreased to 28% for the three-month  period ended September 30,
2002,  compared to 29% for the  three-month  period  ended  September  30, 2001.
Excluding  amortization of intangibles in 2001, SG&A expenses were $4.6 million,
or 27% of sales in the 2001 second quarter.

        OPERATING  INCOME.  Operating  income  increased  $1.4  million  to $2.1
million for the three-month period ended September 30, 2002,  compared to a $0.7
million for the three-month period ended September 30, 2001.

        INTEREST  EXPENSE.  Interest  expense for the  three-month  period ended
September  30,  2002 was $0.6  million,  a  decrease  of $0.2  million  from the
three-month  period ended September 30, 2001 because of lower debt levels due to
principal payments made during 2002.

        ADOPTION OF FAS 133 AND  DERIVATIVE  FAIR VALUE CHANGE.  During the nine
months  ended  September  30,  2001,  the Company  adopted  FAS 133.  During the
quarters ended September 30, 2001 and 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 periods,  or $0.04 million ($0.3 million net of
tax  benefit)  and  $27,000  ($15,000  net of tax  benefit)  in 2001  and  2002,
respectively, and amortization of the cumulative-effect adjustment.

        INCOME  TAXES.  The  Company's  effective tax rate was 43% for the third
quarter of 2002 and 20% for the third quarter of 2001. The increase 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 for the  three-month  period  ended
September 30, 2002 was $0.8 million,  an increase of $1.5 million  compared to a
net loss of $0.7 million for the three-month period ended September 30, 2001.

NINE MONTHS ENDED SEPTEMBER 30, 2002 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2001.

        REVENUES.  Revenues decreased by $2.0 million or 4% to $50.5 million for
the nine-month  period ended  September 30, 2002,  compared to $52.5 million for
the nine-month  period ended  September 30, 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.

                                       10
<PAGE>

        GROSS  PROFIT.  Gross  profit  increased  $1.8  million  or 10% to $19.1
million for the nine-month  period ended  September 30, 2002,  compared to $17.3
million for the  nine-month  period ended  September  30, 2001.  As a percent of
revenues,  gross profit  increased from 33% to 38%. The increase in gross profit
as a percentage of revenues was  principally  due to lower wages and benefits as
headcount was reduced 13% since September 30, 2001.

        SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A expense decreased $2.4
million,  or 15%, to $13.8 million for the nine-month period ended September 30,
2002,  compared to $16.2 million for the nine-month  period ended  September 30,
2001.  As a percentage  of revenues,  SG&A  decreased to 27% for the  nine-month
period ended September 30, 2002, compared to 31% for the nine-month period ended
September 30, 2001.  Excluding  amortization  of goodwill in 2001, SG&A expenses
were $14.9 million,  or 28% of sales in the 2001 nine-month period. The decrease
in 2002 was due principally to lower wage costs, bank and professional fees.

        OPERATING  INCOME.  Operating  income  increased  $4.2  million  to $5.3
million for the  nine-month  period ended  September 30, 2002,  compared to $1.1
million for the nine-month period ended September 30, 2001.

        INTEREST  EXPENSE.  Interest  expense for the  nine-month  period  ended
September  30,  2002 was $2.0  million,  a  decrease  of $0.3  million  from the
nine-month  period ended September 30, 2001 due to a lower average level of debt
outstanding.

        ADOPTION  OF FAS 133 AND  DERIVATIVE  FAIR VALUE  CHANGE.  On January 1,
2001, the Company adopted FAS. During the nine-month  period ended September 30,
2001 and 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 periods,  or $0.7 million  ($0.5  million net of tax benefit) of expense and
$43,000 ($25,000 net of tax epense) of income, respectively, and amortization of
the cumulative-effect adjustment.

        INCOME  TAXES.  The  Company's  effective tax rate was 43% for the first
nine months of 2002 and 20% for the first nine months 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 for the  nine-month  period  ended
September 30, 2002 was $1.9 million,  an increase of $3.3 million  compared to a
net loss of $1.4 million for the nine-month period ended September 30, 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  September  30,  2002,  the  Company's  cash  and  cash   equivalents
aggregated $6.3 million.  The Company's  operating  activities  provided cash of
$8.3 million for the nine months ended September 30, 2002.

        The Company's investing activities used cash of $2.2 million in the nine
months ended  September 30, 2002. The Company spent  approximately  $0.9 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  $0.8 million in high definition post  production  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.

                                       11
<PAGE>

        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.

        In July 2002, we entered into an arrangement regarding earn-out payments
related to the July 1997 acquisition of MultiMedia  Services,  Inc. The original
acquisition agreement would have required payments of approximately $1.5 million
during the next two years assuming minimum earnings levels are met, which levels
have been achieved in the past. In exchange for a one-time $1.1 million  payment
made in July 2002, we were relieved of all future earn-out obligations under the
purchase agreement.  The Company's cash balance on July 30, 2002 (after the $1.1
million payment) was $4.7 million.

        In  October  2002,  the  company  paid  the  banks  $20,000  and made an
additional  principal  payment of $500,000 in connection  with a waiver received
from the banks to allow  the  company's  former  President  and Chief  Executive
Officer to reduce his percentage ownership in the Company to below 14%.

        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.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

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

        VALUATION  OF  LONG-LIVED  AND  INTANGIBLE  ASSETS.  Long-lived  assets,
consisting primarily of property, plant and equipment and intangibles comprise a
significant portion of the Company's total assets.  Long-lived assets, including
goodwill and intangibles are reviewed for impairment  whenever events or changes
in  circumstances  have  indicated  that  their  carrying  amounts  may  not  be
recoverable.  Recoverability  of  assets  is  measured  by a  comparison  of the
carrying amount of an asset to future net cash flows expected to be generated by
that  asset.  The cash  flow  projections  are based on  historical  experience,
management's view of growth rates within the industry and the anticipated future
economic environment.

                                       12
<PAGE>

        Factors we consider  important which could trigger an impairment  review
include the following:

   o    significant   underperformance   relative  to  expected   historical  or
        projected future operating results;
   o    significant  changes in the manner of our use of the acquired  assets or
        the strategy for our overall business;
   o    significant negative industry or economic trends;
   o    significant decline in our stock price for a sustained period; and
   o    our market capitalization relative to net book value.

        When we determine  that the carrying  value of  intangibles,  long-lived
assets and related goodwill and enterprise level goodwill may not be recoverable
based upon the existence of one or more of the above  indicators of  impairment,
we measure any impairment based on a projected discounted cash flow method using
a discount rate  determined by our management to be  commensurate  with the risk
inherent  in our current  business  model.  Net  intangible  assets,  long-lived
assets, and goodwill amounted to $48.1 million as of September 30, 2002.

        We ceased  amortization  of  approximately  $26.3  million  of  goodwill
beginning in 2002. We had recorded approximately $2.0 million of amortization on
these amounts during the year ended December 31, 2001.

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

        Significant management judgment is required in determining our provision
for income  taxes,  our deferred tax assets and  liabilities  and any  valuation
allowance  recorded  against our net deferred  tax assets.  The net deferred tax
liability  as of June 30,  2002 was $1.8  million.  The Company did not record a
valuation allowance against its deferred tax assets as of June 30, 2002.

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:

                                       13
<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 five
fiscal quarters ended December 31, 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 three  fiscal
quarters  ending  September  30,  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.

                                       14
<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  other  than an option to  acquire  three
facilities  from  Alliance  Atlantis  Communications,  Inc.  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.

In July 2002,  the Company  issued a warrant to purchase  500,000  shares of the
Company's   common   stock  to  Alliance   Atlantis   Communications,   Inc.  in
consideration of an option to purchase three post production facilities owned by
Alliance. In connection therewith, the Company capitalized the fair value of the
warrant  ($620,000,  determined by using the Black-Scholes  valuation model). In
the event the Company  does not  exercise  its option by the option  termination
date (December 31, 2002) or any extension  thereof,  the capitalized amount will
be written off.  Although such a write-off  would represent a non cash charge to
income, we cannot predict the effect of such a charge on the market price of our
common stock, if any.

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.

                                       15
<PAGE>

DEPENDENCE  ON KEY  PERSONNEL.  The  Company is  dependent  on the  efforts  and
abilities  of certain of its senior  management,  particularly  those of Haig S.
Bagerdjian,  Chairman,  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.  Bagerdjian  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,  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  and there is no assurance  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 Chairman,  President and Chief Executive
Officer,  Haig  S.  Bagerdjian,  beneficially  owned  approximately  25%  of the
outstanding  common  stock as of October  15,  2002.  The  ex-spouse  of R. Luke
Stefanko,  the Company's  former  President and Chief Executive  Officer,  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 their  stock
ownership,  Ms. Stefanko and Mr. 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

                                       16
<PAGE>

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        MARKET RISK.  The Company had borrowings of $25,499,000 at September 30,
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"). 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 6.50%  rate of
interest for the three years.

        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) as a charge to Accumulated Other  Comprehensive  Income, a component of
Shareholders'  Equity,  and an expense of $700,000 ($560,000 net of tax benefit)
for the  derivative  fair value  change of an interest  rate swap  contract  and
amortization  of the  cumulative  effect  adjustment.  During the three and nine
month periods ended September 30, 2002, the Company recorded expenses of $30,000
(net of $23,000  tax  benefit)  and of $19,000  (net of  $16,000  tax  benefit),
respectively,  for the  derivative  fair value  change and  amortization  of the
cumulative effect type adjustment.

ITEM 4. CONTROLS AND PROCEDURES

        Within the 90-day  period  prior to the filing date of this  report,  an
evaluation was conducted under the supervision and with the participation of the
Company's management,  including our Chief Executive Officer and Chief Financial
Officer,  of the  effectiveness  of the design and  operation  of the  Company's
disclosure  controls and procedures,  as such term is defined in Rules 13a-14(c)
and 15d-14(c)  under the Securities  Exchange Act of 1934 (the "Exchange  Act").
Based on that  evaluation,  the Chief  Executive  Officer  and  Chief  Financial
Officer  concluded  that the Company's  disclosure  controls and  procedures are
effective in bringing to their attention on a timely basis material  information
relating  to the  Company  that is required  to be  disclosed  in the  Company's
reports that are filed under the Exchange  Act.  Subsequent to the date that the
Chief Executive  Officer and Chief Financial Officer completed their evaluation,
there have not been any significant  changes in the Company's  internal controls
or in other factors that could significantly affect such internal controls.

                                       17
<PAGE>
                           PART II - OTHER INFORMATION

ITEM 6. 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. (1)

        10.2    Option  Agreement  dated July 3, 2002  between  the  Company and
                Alliance Atlantis Inc. (2)

        10.3    First Amendment to Credit Agreement dated October 2, 2002, among
                the Company, Union Bank of California, Bank of the West and U.S.
                National Bank Association.

        10.4    Resignation and General Release  Agreement dated October 2, 2002
                between R. Luke Stefanko and the Company. (3)

        10.5    Consulting  Agreement  dated  October  2, 2002  between  R. Luke
                Stefanko and the Company. (3)

        10.6    Non-competition  Agreement dated October 2, 2002 between R. Luke
                Stefanko and the Company. (3)

        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.

   Notes:

        (1)     Filed as an exhibit to Form 10-Q for the period  ended March 31,
                2002 with the Commission on May 14, 2002.
        (2)     Filed as an exhibit to Form 8-K with the  Commission on July 15,
                2002.
        (3)     Filed as an exhibit to Form 8-K with the  Commission  on October
                7, 2002.

   (b)  Reports On Form 8-K

        The Company  filed a Form 8-K dated June 12, 2002 related to a change in
        its independent public accountants.

        The  Company  filed  a Form  8-K  dated  July  3,  2002  related  to the
        acquisition of an option to purchase three entities in consideration for
        issuance  of a warrant to the seller to purchase  500,000  shares of the
        Company's common stock.

        The  Company  filed a Form  8-K  dated  July  26,  2002  related  to the
        appointment of a new independent public accountants.

        The  Company  filed a Form 8-K  dated  October  2, 2002  related  to the
        resignation of R. Luke Stefanko as President and Chief Executive Officer
        of the  Company  and the  appointment  of Haig S.  Bagerdjian  to  those
        positions.

        The  Company  filed a Form 8-K dated  November  1, 2002  related  to the
        filing of amended Forms 10-Q for 2001 and 2002 and Form 10-K for 2001.


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


                                       18
<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;

   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;

   4.   The  registrant's  other  certifying  officer and I are  responsible for
        establishing  and  maintaining  disclosure  controls and  procedures (as
        defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and
        we have:

        (a)     designed such disclosure  controls and procedures to ensure that
                material information  relating to the registrant,  including its
                consolidated subsidiaries,  is made known to us by others within
                those  entities,  particularly  during  the period in which this
                quarterly report is being prepared;

        (b)     evaluated  the  effectiveness  of  the  registrant's  disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly  report (the  "Evaluation  Date");
                and

        (c)     presented in this  quarterly  report our  conclusions  about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

   5.   The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation,  to the registrant's  auditors and the audit
        committee of the registrant's board of directors:

        (a)     all  significant  deficiencies  in the  design or  operation  of
                internal  controls which could adversely affect the registrant's
                ability to record, process,  summarize and report financial data
                and have identified for the  registrant's  auditors any material
                weaknesses in internal controls; and

        (b)     any fraud, whether or not material,  that involves management or
                other employees who have a significant  role in the registrant's
                internal controls; and

   6.   The registrant's  other certifying  officer and I have indicated in this
        quarterly  report  whether  or not there  were  significant  changes  in
        internal  controls or in other factors that could  significantly  affect
        internal controls  subsequent to the date of our most recent evaluation,
        including any corrective actions with regard to significant deficiencies
        and material weaknesses.


Date: November 14, 2002               /s/  Haig S. Bagerdjian
                                      -----------------------------------
                                      Haig S. Bagerdjian
                                      Chairman of the Board of Directors,
                                      President and Chief Executive Officer


                                       19
<PAGE>

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;

   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;

   4.   The  registrant's  other  certifying  officer and I are  responsible for
        establishing  and  maintaining  disclosure  controls and  procedures (as
        defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and
        we have:

        (a)     designed such disclosure  controls and procedures to ensure that
                material information  relating to the registrant,  including its
                consolidated subsidiaries,  is made known to us by others within
                those  entities,  particularly  during  the period in which this
                quarterly report is being prepared;

        (b)     evaluated  the  effectiveness  of  the  registrant's  disclosure
                controls and procedures as of a date within 90 days prior to the
                filing date of this quarterly  report (the  "Evaluation  Date");
                and

        (c)     presented in this  quarterly  report our  conclusions  about the
                effectiveness of the disclosure controls and procedures based on
                our evaluation as of the Evaluation Date;

   5.   The registrant's other certifying officer and I have disclosed, based on
        our most recent evaluation,  to the registrant's  auditors and the audit
        committee of the registrant's board of directors:

        (a)     all  significant  deficiencies  in the  design or  operation  of
                internal  controls which could adversely affect the registrant's
                ability to record, process,  summarize and report financial data
                and have identified for the  registrant's  auditors any material
                weaknesses in internal controls; and

        (b)     any fraud, whether or not material,  that involves management or
                other employees who have a significant  role in the registrant's
                internal controls; and

   6.   The registrant's  other certifying  officer and I have indicated in this
        quarterly  report  whether  or not there  were  significant  changes  in
        internal  controls or in other factors that could  significantly  affect
        internal controls  subsequent to the date of our most recent evaluation,
        including any corrective actions with regard to significant deficiencies
        and material weaknesses.


Date: November 14, 2002                /s/  Alan R. Steel
                                       ----------------------------------
                                       Alan R. Steel
                                       Executive Vice President
                                       Finance and Administration and
                                       Chief Financial Officer


                                       20
<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, 2002, 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,  to my
knowledge:

   (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 14, 2002


                                       21
<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, 2002, 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, to my knowledge:

   (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 14, 2002


                                       22