INDEX TO FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	F-2

Financial Statements:

Consolidated Balance Sheets -
December 31, 2005 and 2006	F-3

Consolidated Statements of Income -
Fiscal Years Ended December 31, 2004, 2005 and 2006	F-4

Consolidated Statements of Invested Equity -
Fiscal Years Ended December 31, 2004, 2005 and 2006	F-5

Consolidated Statements of Cash Flows -
Fiscal Years Ended December 31, 2004, 2005 and 2006	F-6

Notes to Consolidated Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Shareholder of New 360

Burbank, California

We have audited the accompanying consolidated balance sheets of New 360 and subsidiary (collectively, the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, invested equity, and cash flows for each of the three years in the period ended December 31, 2006. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of New 360 and subsidiaries as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

Singer Lewak Greenbaum & Goldstein LLP (signed)

Los Angeles, California

May 14, 2007

F-2

New 360

Consolidated Balance Sheets

	December 31,
	2005		2006
Assets
Current assets:
Cash and cash equivalents	$	595,000	$	-
Accounts receivable, net of allowances for doubtful accounts of $424,000 and $513,000,
respectively		7,452,000		9,522,000
Inventories, net		575,000		539,000
Prepaid expenses and other current asset		2,358,000		533,000
Deferred income taxes		718,000		439,000
Total current assets		11,698,000		11,033,000

Property and equipment, net (Note 4)		26,474,000		12,850,000
Other assets, net		392,000		346,000
Goodwill (Note 3)		8,665,000		9,253,000
Total assets	$	47,229,000	$	33,482,000

Liabilities and Invested Equity
Current liabilities:
Accounts payable	$	2,369,000	$	3,045,000
Accrued wages and benefits		1,890,000		1,592,000
Accrued earn-out payments		2,000,000		2,000,000
Other accrued expenses		-		237,000
Income tax payable		1,231,000		123,000
Due to parent company		4,442,000		2,533,000
Current portion of deferred gain on sale of real estate		-		178,000

Total current liabilities		11,932,000		9,708,000

Deferred income taxes		6,014,000		4,278,000
Due to Parent company, less current portion (Note 6)		12,974,000		3,157,000
Deferred gain on sale of real estate, less current portion		-		2,363,000

Total long-term liabilities		18,988,000		9,978,000

Total liabilities		30,920,000		19,506,000

Commitments and contingencies (Note 8)		-		-
Invested equity		16,309,000		13,976,000

Total liabilities and invested equity	$	47,229,000	$	33,482,000

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

F-3

New 360

Consolidated Statements of Income (Loss)

	Year Ended December 31,
	2004			2005			2006
Revenues	$	38,588,000		$	43,059,000		$	43,533,000
Cost of services sold		(27,957,000	)		(29,472,000	)		(29,976,000	)

Gross profit		10,631,000			13,587,000			13,557,000

Selling, general and administrative expense		(9,511,000	)		(11,201,000	)		(10,108,000	)
Allocation of Point.360 corporate expenses (Note 1)		(4,138,000	)		(3,771,000	)		(3,446,000	)

Operating income (loss)		(3,018,000	)		(1,385,000	)		3,000
Interest expense (net)		(654,000	)		(1,280,000	)		(659,000	)

Income (loss) before income taxes		(3,672,000	)		(2,665,000	)		(656,000	)
Benefit from income taxes		1,489,000			1,045,000			342,000

Net income (loss)	$	(2,183,000	)	$	(1,620,000	)	$	(314,000	)


Basic and diluted earnings (loss) per share	$	(0.24	)	$	(0.17	)	$	(0.03	)
Weighted average number of shares		9,196,620			9,346,533			9,511,006

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

F-4

New 360

Consolidated Statements of Invested Equity

(in thousands)

Balance on December 31, 2003	$	14,554,000

Changes in investment account due to allocation
of operating activities (Note 1)		4,722,000

Net income (loss)		(2,183,000	)

Balance on December 31, 2004		17,093,000

Changes in investment account due to allocation
of operating activities (Note 1)		836,000

Net income (loss)		(1,620,000	)

Balance on December 31, 2005		16,309,000

Changes in investment account due to allocation
of operating activities (Note 1)		(2,019,000	)

Net income (loss)		(314,000	)

Balance on December 31, 2006	$	13,976,000

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

F-5

New 360

Consolidated Statements of Cash Flows

	Year Ended December 31,
	2004			2005			2006
Cash flows from operating activities:
Net income (loss)	$	(2,183,000	)	$	(1,620,000	)	$	(314,000	)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		4,636,000			5,096,000			4,653,000
Provision for (recovery of) doubtful accounts		(143,000	)		43,000			89,000
Deferred income taxes		2,026,000			310,000			(1,735,000	)

Changes in operating assets and liabilities (net of acquisitions):
(Increase) decrease in accounts receivable		(2,208,000	)		(544,000	)		(2,159,000	)
(Increase) decrease in inventories		(143,000	)		163,000			36,000
(Increase) in prepaid expenses and other current assets		(796,000	)		(740,000	)		1,826,000
(Increase) decrease in other assets		570,000			153,000			45,000
(Decrease) increase in accounts payable		1,227,000			(1,024,000	)		676,000
Increase (decrease) in accrued expenses		(98,000	)		430,000			(60,000	)
Increase in income taxes payable (receivable), net (Increase) decrease in deferred tax asset		852,000 286,000			83,000 410,000			(1,108,000) 279,000
Net cash and cash equivalents provided by operating activities		4,026,000			2,760,000			2,261,000

Cash flows from investing activities:
Capital expenditures		(4,014,000	)		(2,317,000	)		(2,064,000	)
Proceeds from sale of equipment		40,000			-			-
Net cash paid for acquisitions		(1,094,000	)		-			-
Net cash paid for acquisition of building		(2,065,000	)		-			13,543,000
Net cash and cash equivalents used in investing activities		(7,133,000	)		(2,317,000	)		11,479,000

Cash flows from financing activities:
Change in revolving credit agreement		1,751,000			450,000			(737,000	)
(Increase) decrease in invested equity		4,722,000			836,000			(2,020,000	)
(Increase) in goodwill		(71,000	)		(642,000	)		(588,000	)
Repayment of notes payable		(10,623,000	)		(1,096,000	)		(10,926,000	)
Repayment of capital lease obligations		(10,000	)		(64,000	)		(64,000	)
Net cash (used in) provided by financing activities		(4,231,000	)		(516,000	)		(14,335,000	)

Net increase in cash and cash equivalents		(7,338,000	)		(73,000	)		(595,000	)
Cash and cash equivalents at beginning of year		8,006,000			668,000			595,000
Cash and cash equivalents at end of year	$	668,000		$	595,000		$	-

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

F-6

New 360

Notes to Consolidated Financial Statements

1. BASIS OF PRESENTATION:

New 360’s business represents the assets and liabilities used in managing and operating the business of Point.360 other than the advertising distribution business. On April 13, 2007, Point.360.’s Board of Directors approved a plan to contribute such assets and liabilities to New 360 (“New 360” or the “Company”), and to subsequently distribute the common stock of New 360 to Point.360 shareholders on a share-for-share basis to form an independent, publicly traded entity. On April 16, 2007, Point.360, New 360 and DG FastChannel, Inc. (“DG FastChannel”) entered into an Agreement and Plan of Merger and Reorganization and ancillary documents (the “Agreements”) which establish the basis of the distribution. The net assets contributed to the Company by Point.360 are shown as Invested Equity in the Consolidated Balance Sheets.

The accompanying Consolidated Financial Statements include the accounts and transactions of New 360, including those of Point.360’s only subsidiary, International Video Conversions, Inc. (“IVC”). The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions have been eliminated in the Consolidated Financial Statements.

The Company’s combined results of operations, financial position and cash flows may not be indicative of its future performance and do not necessarily reflect what the combined results of operations, financial position and cash flows would have been had the Company operated as a separate, stand-alone entity during the periods presented, including changes in its operations and capitalization as a result of the separation and distribution from Point.360.

Certain corporate and general and administrative expenses, including those related to executive management, tax, accounting, legal and treasury services, have been allocated by Point.360 to the Company based on the ratio of the Company’s revenues to Point.360’s total revenues. Additionally, certain balance sheet amounts have been allocated by Point.360 to the Company based on the ratio of the Company’s working capital, net fixed assets and other factors as of each year end. Management believes such allocations are reasonable. However, the associated balance sheet amounts and expenses recorded by the Company in the accompanying Consolidated Financial Statements may not be indicative of the actual balance or expenses that would have been recorded or incurred had the Company been operating as a separate, stand-alone public company for the periods presented. Following the separation and distribution from Point.360, the Company will perform administrative functions using internal resources or purchased services.

Invested equity at December 31, 2004, 2005 and 2006 reflects the application of estimating techniques described above on those dates. Changes in invested equity from year to year are due to the income or loss of New 360 and the net effect of the changes in balance sheet accounts determined by such estimating techniques.

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

Business Description

The Company provides of high definition and standard definition digital mastering, data conversion, video and film asset management and sophisticated computer graphics services to owners, producers and distributors of entertainment and advertising content, the Company provides the services necessary to edit, master, reformat, convert, archive and ultimately distribute its clients’ film and video content, including television programming feature films and movie trailers. The Company’s interconnected facilities provide service coverage to all major U.S. media centers. Clients include major motion picture studios, advertising agencies and corporations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates in the Preparation of Financial Statements

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

F-7

Cash and Cash Equivalents

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

Revenues and Receivables

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

Concentration of Credit Risk

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

Credit risk with respect to trade receivables is concentrated due to the large number of orders with major entertainment studios in any particular reporting period. Our five largest studio customers represented 57% and 72% of accounts receivable at December 31, 2005 and December 31, 2006, respectively. The Company reviews credit evaluations of its customers but does not require collateral or other security to support customer receivables.

The five largest studio customers accounted for 28%, 52% and 58% of net sales for the years ended December 31, 2004, 2005 and 2006, respectively. Twentieth Century Fox (and affiliates) was the only customer, which accounted for more than 10% of net sales in any of the last three years, or 26% and 35% in 2005 and 2006, respectively.

Inventories

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

Property and Equipment

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

Goodwill

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

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

The Company evaluates its goodwill on an annual basis and when events and circumstances indicate that the carrying amount of an asset may not be recoverable. If the independent appraisal or other indicator of value of the asset or the expected undiscounted future cash flow attributable to the asset is less than the carrying amount of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. In 2006, fair value was determined using independent appraisals and other valuation techniques depending on the nature of the assets. To date, no such impairment has been recorded.

F-8

Income Taxes

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

Advertising Costs

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

Fair Value of Financial Instruments

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

Earnings Per Share

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

In accordance with SFAS 128, basic earnings (loss) per share are calculated based on the weighted average number of shares of common stock outstanding during the reporting period. Diluted earnings per share are calculated giving effect to all potentially dilutive common shares, assuming such shares were outstanding during the reporting period. Basic and diluted shares are the same in the accompanying Consolidated Statements of Income (Loss) due to losses incurred.

F-9

Supplemental Cash Flow Information

Selected cash payments and noncash activities were as follows:

	2004		2005		2006
Cash payments for income taxes (net of refunds)	$	-	$	-	$	-
Cash payments for interest		568,000		1,121,000		605,000

Noncash investing and financing activities:
Accrual for earn-out payments		1,000,000		2,000,000		2,000,000
Detail of acquisitions:
Goodwill (1)		242,000		2,186,000		2,000,000

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

Recent Accounting Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments” (“SFAS 155”), which amends SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities” (SFAS 133”) and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” (SFAS 140”). SFAS 155 amends SFAS 133 to narrow the scope exception for interest-only and principal-only strips on debt instruments to include only such strips representing rights to receive a specified portion of the contractual interest or principle cash flows. SFAS 155 also amends SFAS 140 to allow qualifying special-purpose entities to hold a passive derivative financial instrument pertaining to beneficial interests that itself is derivative instrument. The Company is currently evaluating the impact this new Standard, but believes that it will not have a material impact on the Company’s financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets - an amendment of FASB Statement No. 140”. The provisions of SFAS 156 are effective for fiscal years beginning after September 15, 2006. This statement was issued to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. The Company is currently assessing the impact that the adoption of SFAS 156 will have on its results of operation and financial position.

In July 2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 clarifies the accounting and reporting for uncertainties in income tax law. This interpretation prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. This statement is effective for fiscal years beginning after December 15, 2006. If there are changes in net assets as a result of application of FIN 48, these will be accounted for as an adjustment to retained earnings. As a result of the Company’s investigation, the Company does not believe it will recognize any increase in the liability for unrecognized tax benefits and will not record a cumulative effect adjustment related to the adoption of FIN 48.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is required to adopt the provision of SFAS 157, as applicable, beginning in fiscal year 2008. Management does not believe the adoption of SFAS 157 will have a material impact on the Company’s financial position or results of operations.

3. ACQUISITIONS

During 1997 to 2005, Point.360 acquired ten businesses. These acquisitions were accounted for as purchases, with the excess of the purchase price over the fair value of the net assets acquired allocated to goodwill. The contingent portion of the purchase prices, to the extent earned was recorded as an increase to goodwill. As of December 31, 2006, additional purchase price earn-out payments are as described below. The consolidated financial statements of New 360 reflect the operations of the acquired post production companies since their respective acquisition dates.

F-10

Point.360’s goodwill and other intangibles, net, as of December 31, 2005 and 2006, consist of the following:

		2005			2006
Goodwill	$	35,050,000		$	37,050,000
Covenant not to compete		1,000,000			1,000,000
		36,050,000			38,050,000
Less accumulated amortization		(6,576,000	)		(6,576,000	)
	$	29,474,000		$	31,474,000

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

Point.360 operates in a single business segment due to the combination of facility assets, sales forces and management subsequent to the acquisitions, and the integration of branding and communications efforts. The goodwill acquired, therefore, is common to all Point.360 facilities. As of December 31, 2005 and 2006, the goodwill assignable to the Company was $8,665,000 and $9,253,000, respectively, determined by comparing pro forma operating income generated by, and capital invested in, the facilities contributed to the Company to that of all Point.360 facilities.

In July 2002, the Company acquired an option to purchase three subsidiaries of Alliance Atlantis Communications Inc. (“Alliance”) engaged in businesses directly related to those of the Company. During the following 18 months, the Company performed due diligence, extended the option to purchase, and attempted to obtain financing for the acquisition and to replace existing credit facilities.

In June 2003, discussions with Alliance and the new lenders were terminated. In July 2003, Alliance filed several actions against Point.360 seeking to recover various damages from Point.360 related to breach of the option agreement and related non-disclosure agreement. In August, 2003, Point.360 filed a counterclaim alleging breach of contract.

Pursuant to a Settlement and Mutual Release Agreement executed in November 2004, Alliance and Point.360 agreed to settle all claims. Pursuant to the agreement, Point.360 paid Alliance $575,000 in cash in November 2004. In 2004, Point.360, wrote off the settlement amount and other deferred costs related to the proposed Alliance transaction. The portion of the write-off allocated to the Company was determined using the same criteria as that for goodwill described above.

In order to expand our relationships with our studio customers and gain new customers, on July 1, 2004, Point.360 acquired all of the outstanding stock of IVC for $7 million in cash. The purchase agreement required possible additional payments of $1 million, $2 million and $2 million in 2005, 2006 and 2007, respectively, if earnings before interest, taxes, depreciation and amortization during the 30 months after the acquisition reached certain predetermined levels (the second two increments of $2 million each were earned and are reflected as accrued liabilities on the balance sheets as of December 31, 2005 and 2006, respectively). As part of the transaction, Point.360 entered into employment and/or non competition agreements with four senior officers of IVC which fixed responsibilities, salaries and other benefits and set forth limitations on the individuals’ ability to compete with Point.360 for the term of the earn-out period (30 months). IVC is a high definition and standard definition digital mastering and data conversion entity serving the motion picture/television production industry. To pay for the acquisition, Point.360 used $2.3 million of cash on hand and borrowed $4.7 million under the term loan portion of the Point.360’s bank facility.

The total purchase consideration ($12 million either paid or accrued as of December 31, 2006) has been allocated to the assets and liabilities acquired based on their respective estimated fair values as summarized below.

F-11

Cash and cash equivalents	$	1,205,000
Inventories		120,000
Other current assets		1,000
Accounts receivable		2,036,000
Goodwill		5,242,000
Property, plant and equipment		6,009,000
Total assets acquired		14,613,000
Accounts payable		(442,000	)
Accrued		(417,000	)
Income tax payable		(72,000	)
Deferred tax liabilities		(1,682,000	)
Current and other liabilities assumed		(2,613,000	)
Net assets acquired over liabilities,
and purchase price	$	12,000,000

As stated above, New 360’s portion of Point.360’s goodwill was based on an allocation formula.

The following table presents unaudited pro forma results of the combined operations for the year ended December 31, 2004, as if the acquisition had occurred as of the beginning of 2004 rather than as of the acquisition date. The pro forma information presented below is for illustrative purposes only and is not indicative of results that would have been achieved or results which may be achieved in the future:

	2004
Revenue	$	44,276,000
Operating income (loss)		(2,554,000	)
Net income (loss)		(1,974,000	)
Basic and diluted earnings (loss) per share		(0.21	)

In 2005, Point.360 issued 105,000 shares in connection with a purchase of assets. The shares were recorded at fair value on the issue date. In connection with the transition, $186,000 was recorded as goodwill.

During 2005, the amount of Point.360’s goodwill, net, increased from $27,288,000 to $29,474,000 due to the $2,000,000 earn-out payment accrued for the IVC acquisition and $186,000 of excess of fair value of stock issued over the fair value of purchased assets, as noted above. During 2006, the amount of goodwill, net, increased from $29,474,000 to $31,474,000 due to the $2,000,000 earn-out payment accrued for the IVC acquisition. As described above, a portion of Point.360’s goodwill, including goodwill from the IVC transaction, has been allocated to New 360.

F-12

4. PROPERTY AND EQUIPMENT:

In November 2003, the Point.360 leased a new 64,600 square foot building in Los Angeles, California, for the purpose of consolidating four vault locations then occupying approximately 71,000 square feet. This and the subsequent transactions related to the building have been treated as New 360 transactions in the accompanying financial statements. Therefore the company is treated as the owner.

As part of the transaction, the Company paid $600,000 for an option to purchase the facility for $8,571,500. Additionally, the landlord, General Electric Capital Business Asset Funding Corporation (“General Electric”), committed to finance approximately $6,500,000 of the purchase price at a fixed interest rate of 7.75% over 15 years. The Company was not obligated to purchase the building or, if the option was exercised, borrow any portion of the purchase price from General Electric. The cost of the option was included in other assets on the balance sheet as of December 31, 2003, to be capitalized as a cost of the building or written off when the Company exercised the purchase option or did not exercise the option, respectively.

Pursuant to the lease, General Electric also advanced the Company $800,000 to pay for improvements to the building. As of December 31, 2003, the $800,000 was reflected as an obligation to purchase property and equipment with an offsetting liability on the balance sheet. In 2004, the Company reduced the right and the obligation to purchase property and equipment by $800,000 expended for improvements to the building. In August 2004, the Company purchased the facility for $8.6 million ($2.2 in cash and a $6.4 million mortgage).

In March 2006, the Company entered into a sale and leaseback transaction with respect to its Media Center vaulting real estate. The real estate was sold for approximately $14.0 million resulting in a $1.3 million after tax gain. Additionally, the Company received $0.5 million from the purchaser for improvements. In accordance with SFAS No. 28, “Accounting for Sales with Leasebacks,” the gain will be amortized over the initial 15-year lease term as reduced rent. Net proceeds at the closing of the sale and the improvement advance (approximately $13.8 million) were used to pay off the mortgage and other outstanding debt.

The lease is treated as an operating lease for financial reporting purposes. After the initial lease term, the Company has four five-year options to extend the lease. Minimum annual rent payments for the initial five years of the lease are $1,111,000, increasing annually thereafter based on the consumer price index change from year to year.

The following table presents unaudited pro forma results the year ended December 31, 2005, as if the sale and leaseback transaction had occurred as of the beginning of the year. The pro forma information presented below is for illustrative purposes only and is not indicative of results that would have been achieved or results which may be achieved in the future (in thousands):

	As Reported			Adjustments		Pro Forma
Revenue	$	43,059				$	43,059
Cost of services		(29,472	)		(837) (1)		(30,309	)
Gross profit		13,587					12,750
Selling, general and administrative expense		(14,972	)				(14,972	)
Operating income		(1,385	)				(2,222	)
Interest income (expense)		(1,280	)		881 (2)		(399	)
Income (loss) before income taxes		(2,665	)				(2,621	)
Benefit from income taxes		1,045			(17) (3)		1,028
Net income (loss)	$	(1,620	)			$	(1,593	)

Net (loss) per share	$	(0.17	)			$	(0.17	)

(1)	First year rent expense net of amortization of the deferred gain on the sale, partially offset by the elimination of depreciation expense associated with the building.

(2)	Pro forma interest saved on the amount of mortgage, term and revolving credit debt paid off with net sales proceeds.

(3)	Tax effect at 40%.

F-13

The following table presents an unaudited pro forma summary balance sheet as of December 31, 2005 as if the sale and leaseback had occurred on that date (in thousands):

	As Reported		Adjustments		Pro Forma
Current assets	$	11,698			$	11,698
Property and equipment, net		26,474		(11,261) (1)		15,213
Goodwill and other assets		9,057				9,057
Total assets	$	47,229			$	35,968

Accounts payable and accrued expenses	$	6,259			$	6,259
Deferred income taxes		1,231		879 (2)		2,110
Due to parent company		4,442		(4,442) (4)		-
Current liabilities		11,932				8,369

Deferred gain on sale		-		1,318 (3)		1,318
Deferred income taxes and other		6,014		500 (5)		6,514
Due to parent company, net if current portion		12,974		(9,516) (4)		3,458
Invested equity		16,309				16,309
Total liabilities and invested equity	$	47,229			$	35,968

(1)	Net book value of assets sold.

(2)	Tax on gain on sale at 40%.

(3)	Deferred gain on sale to be amortized over life of lease.

(4)	Pay-down of debt with net proceeds.

(5)	Non-refundable advance from purchaser for improvements.

Property and equipment consist of the following:

	December 31,
	2005			2006

Land	$	4,500,000		$	-
Building		6,230,000			16,000
Machinery and equipment		31,338,000			32,426,000
Leasehold improvements		6,495,000			6,736,000
Computer equipment		4,207,000			4,717,000
Equipment under capital lease		285,000			290,000
Office equipment. CIP		437,000			413,000
Less accumulated depreciation and amortization		(27,018,000	)		(31,748,000	)
Property and equipment, net	$	26,474,000		$	12,850,000

Depreciation is expensed over the estimated lives of machinery and equipment (7 years), computer equipment (5 years) and leasehold improvements (2 to 10 years depending on the remaining term of the respective leases or estimated useful life of the improvement). Depreciation expense totaled $ 4,636,000, $ 5,096,000 and $ 4,212,000 for the years ended December 31, 2004, 2005 and 2006, respectively. Accumulated amortization on capital leases amounted to $ 211,000 and $ 254,000 as of December 31, 2005 and 2006, respectively.

F-14

5. 401(K) PLAN

Point.360 has a 401(K) plan, which covers substantially all employees. Each participant is permitted to make voluntary contributions not to exceed the lesser of 20% of his or her respective compensation or the applicable statutory limitation, and is immediately 100% vested. Point.360 matches one-fourth of the first 4% contributed by the employee. Contributions to the plan related to employees of the Company were $60,000, $92,000 and $84,000 in 2004, 2005, and 2006, respectively.

6. LONG TERM DEBT AND NOTES PAYABLE:

On December 30, 2005, Point.360 entered into a $10 million term loan agreement. The term loan provides for interest at LIBOR (5.37% as of December 31, 2006) plus 3.15% and is secured by Point.360’s equipment. In March 2006, Point.360 prepaid $4 million of the principal with proceeds of a sale/leaseback transaction. The term loan will be repaid in 60 equal monthly principal payments plus interest. Proceeds of the term loan were used to repay the previously existing term loan.

In March 2006, Point.360 entered into a new revolving credit agreement, which provides up to $10 million of revolving credit. The two-year agreement provides for interest of LIBOR (5.37% as of December 31, 2006) plus 1.85% for the first six months of the agreement, and thereafter at either (i) prime minus 0% - 1.00% or (ii) LIBOR plus 1.50% - 2.5%, depending on the level of Point.360’s ratio of outstanding debt to fixed charges (as defined). The facility is secured by all of Point.360’s assets, except for equipment securing the new term loan as described in Note 6. The revolving credit agreement requires Point.360 to comply with various financial and business covenants. There are cross default provisions contained in the two in both the new revolving and term loan agreements. As of December 31, 2006, Point.360 was in compliance with revolving and term loan agreement covenants.

Point.360 has financed the purchase of certain equipment through the issuance of bank notes payable and under capital leasing arrangements. The notes bear interest at rates ranging from 3% to LIBOR plus 3.15%. Such obligations are payable in monthly installments through May 2019.

Annual maturities for debt under bank notes payable obligations as of December 31, 2006, are as follows:

2007	$	1,052,000
2008		1,052,000
2009		1,052,000
2010		1,053,000
	$	4,209,000

In the accompanying Consolidated Balance Sheets, the current and long-term “Due to Parent Company” amounts reflect the portion of Point.360’s revolving credit and term loan debt assigned to the Company based on the proportion of the Company’s net working capital and property and equipment, net, to Point.360’s total net working capital and property and equipment, net, respectively. Once separated from Point.360, it is expected that the Company will have no outstanding revolving credit or term debt since that debt will be paid pursuant to the Agreements.

7.INCOME TAXES:

The Company’s provision for, or benefit from, income taxes has been determined using the effective federal and state tax rates of Point.360 applied to the Company’s pre-tax income or loss.

The Company’s provision for (benefit from) income taxes for the three years ended December 31, 2006 consists of the following:

	Year Ended December 31, .
	2004			2005			2006
Current tax (benefit) expense:
Federal	$	(1,224,000	)	$	(1,467,000	)	$	954,000
State		(271,000	)		(310,000	)		157,000

Total current		(1, 495,000	)		(1,777,000	)		1,111,000

Deferred tax (benefit) expense:
Federal		25,000			616,000			(1,282,000	)
State		(19,000	)		116,000			(170,000	)
Total deferred		6,000			732,000			(1,452,000	)

Total provision for (benefit from) for income taxes	$	(1,489,000	)	$	(1,044,000	)	$	(341,000	)

F-15

The composition of the deferred tax assets (liabilities) at December 31, 2005 and December 31, 2006 are listed below:

	2005			2006

Accrued liabilities	$	345,000		$	197,000
Allowance for doubtful accounts		181,000			220,000
Other		192,000			22,000
Total current deferred tax assets		718,000			439,000

Property and equipment		(3,869,000	)		(2,350,000	)
Goodwill and other intangibles		(2,649,000	)		(3,799,000	)
Other		498,000			1,870,000
Total non-current deferred tax liabilities		(6,014,000	)		(4,279,000	)

Net deferred tax liability	$	(5,296,000	)	$	(3,840,000	)

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

	2004	2005	2006

Federal tax computed at statutory rate	34%	34%	34%
State taxes, net of federal benefit and net operating loss limitation	6%	6%	6%
Other (meals and entertainment)	1%	1%	(6%)
	41%	41%	34%

8. COMMITMENTS AND CONTINGENCIES:

Operating Leases

Point.360 leases the Company’s office and production facilities in California under various operating leases, which leases will be assumed by the Company upon separation from Point.360. Approximate minimum rental payments under these non-cancelable operating leases as of December 31, 2006 are as follows:

2007	$	3,757,000
2008		3,447,000
2009		2,376,000
2010		2,173,000
2011		2,219,000
Thereafter		12,695,000

Total rental expense was approximately $2,995,000, $2,470,000 and $3,176,000 for the three years ended December 31, 2004, 2005 and 2006, respectively.

F-16

On September 30, 2003 Point.360 entered into severance agreements with its Chief Executive Officer and Chief Financial Officer which continue in effect through December 31, 2007, and are renewed automatically on an annual basis after that unless notice is received terminating the agreement by September 30 of the preceding year. The severance agreements contain a “Golden Parachute” provision. The Company will assume these severance agreements.

Contingencies

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

9. SUPPLEMENTAL DATA (unaudited)

The following tables set forth quarterly supplementary data for each of the years in the two-year period ended December 31, 2006 (in thousands except per share data).

	2005
	Quarter Ended											Year Ended
	March 31			June 30			Sept 30			Dec 31		Dec 31

Revenues	$	10,750		$	10,748		$	10,441		$	11,119	$	43,059
Gross profit	$	2,906		$	3,220		$	3,345		$	4,115	$	13,587
Net income (loss)	$	(712	)	$	(532	)	$	(405	)	$	29	$	(1,620	)

Income (loss) per share:
Basic	$	(0.07	)	$	(0.05	)	$	(0.04	)	$	0.00	$	(0.17	)
Diluted	$	(0.07	)	$	(0.05	)	$	(0.04	)	$	0.00	$	(0.17	)

	2006
	Quarter Ended											Year Ended
	March 31			June 30		Sept 30			Dec 31			Dec 31

Revenues	$	10,693		$	11,442	$	10,626		$	10,772		$	43,533
Gross profit	$	3,311		$	3,430	$	3,080		$	3,736		$	13,557
Net income (loss)	$	(144	)	$	12	$	(99	)	$	(83	)	$	(314	)

Income (loss) per share:
Basic	$	(0.01	)	$	0.00	$	(0.01	)	$	(0.01	)	$	(0.03	)
Diluted	$	(0.01	)	$	0.00	$	(0.01	)	$	(0.01	)	$	(0.03	)

F-17

10. SUBSEQUENT EVENTS

In March 2007, Point.360 acquired substantially all of the assets and business of Eden FX, Inc. (“Eden”) for $2.2million in cash. Eden will be included in Point.360’s post production business and, consequently, the contractual obligations of Point.360 under the various acquisition agreements will be assigned to the Company when the distribution of Company shares to Point.360 shareholders is completed. The purchase agreement requires possible additional payments of $0.7 million, $0.9 million and $1.2 million in 2008, 2009 and 2010, respectively, if earnings before interest, taxes, depreciation and amortization during the three years after the acquisition reach certain predetermined levels. As part of the transaction, the Point.360 entered into employment and non competition agreements with three senior officers of Eden which fix responsibilities, salaries and other benefits and set forth limitations on the individual’s ability to compete with the Company for the term of the earn-out period (three years). Eden is a producer computer generated visual effects for feature films, television program and commercial advertising content.

On April 16, 2007, the Company entered into the Agreements pursuant to which New 360 was formed. Since December 31, 2006, an increase in the market price of Point 360’s stock has resulted in the exercise of stock options generating approximately $5.5 million of cash for the Company.

F-18

APPENDIX A

OPINION OF MARSHALL & STEVENS, INC.

FAIRNESS OPINION FOR

POINT.360

AND

VALUATION OF THE

FAIR MARKET VALUE OF

THE STOCK DISTRIBUTION

TO NEW 360

A-1

April 13, 2007

Board of Directors

of Point.360

2777 North Ontario Street

Burbank, CA 91504

Dear Board of Directors:

It is our understanding that Point.360 (herein referred to as the Company or the Seller) has entered into an Agreement and Plan of Merger (herein referred to as the Agreement), dated April 16, 2007, between DG FastChannel Inc. (herein referred to as the Buyer) and the Company whereby the Buyer plans to acquire the ADS Business (“ADS Business”) from the Company and the Company’s Post Production Business will be transferred to a new, wholly-owned, subsidiary (New 360), the shares of which will be distributed to the shareholders of the Company (other than the Buyer) (herein referred to as the Transaction.) The Board of Directors of the Seller has requested Marshall & Stevens, Inc., (herein referred to as Marshall & Stevens) to prepare a Fairness Opinion (herein referred to as the Opinion) on behalf of the Board of Directors of the Company. The Board of Directors of the Seller has also requested Marshall & Stevens to prepare a Fair Market Valuation of the Stock Distribution (herein referred to as the Valuation) on behalf of the Board of Directors of the Company.

You have requested our Opinion as to whether the Transaction is fair from a financial point of view, pursuant to the terms and conditions set forth in the Agreement between the Buyer and Seller. We have not been engaged to give advice on whether the shareholders should approve the Buyer’s offer, nor have we been requested to seek or identify alternative business strategies and no such advice or alternative business strategy is given or provided. Marshall & Stevens is of the opinion that, as of April 13, 2007, and based upon qualifications, assumptions, limiting conditions and other matters set forth herein, the receipt by Point.360's shareholders (other than DG) of shares of New 360 common stock and DG common stock in connection with the transactions contemplated by the Merger Agreement and the Contribution Agreement is fair, from a financial point of view, to Point.360's shareholders (other than DG.) The date of this Opinion is as of April 13, 2007.

A-2

You have requested our Valuation to determine the fair market value of the distribution of stock of New 360, pursuant to the terms and conditions set forth in the Agreement between the Buyer and Seller. We have not been engaged to give advice on whether the shareholders should approve the Buyer’s offer, nor have we been requested to seek or identify alternative business strategies and no such advice or alternative business strategy is given or provided. As of April 13, 2007, assuming the contribution of the Company’s Post

Production Business to New 360 pursuant to the terms of this Agreement, the fair market value of New 360 is $20.5 million. The date of this Valuation is as of April 13, 2007.

In arriving at our Opinion and Valuation conclusions, we made such reviews, analyses and inquiries of other information as we deemed necessary and appropriate, such as, but not limited to:

1.	Agreement and Plan of Merger dated April 16, 2007;

2.	The Company’s business plan for the ADS Business fiscal year ended December 31 2007;

3.	Form 10-K Annual Report of the Company for the fiscal years ended December 31, 2005 and December 31, 2006;

4.	Unaudited financial statements for the ADS Business and for the New 360 for fiscal years ended December 31, 2003, 2004, 2005, and 2006;

5.	Unaudited financial statements for interim two month period for the ADS Business and the New 360 ended February 28, 2007;

6.	Unaudited financial statements for the trailing twelve month period for the ADS Business and the New 360 ended February 28, 2007;

7.	Proforma projected income statements for the New 360 for the fiscal years ending December 31, 2007, 2008 and 2009.

8.	Form of Working Capital Reconciliation Agreement;

9.	Support Agreement between the Buyer and Haig S.Bagerdjian, a Shareholder, dated April 16, 2007;

10.	Media Distribution Service Agreement, dated April 16, 2007;

11.	Contribution Agreement, dated April 16, 2007;

12.	Form of Noncompetition Agreement;

13.	Form of Indemnification and Tax Matters Agreement;

14.	Met with the management of the Company to discuss the Transaction;

15.	Reviewed the historical market prices and trading volumes associated with the Company;

16.	Reviewed publicly available financial data for certain companies which we deemed comparable to the Company; and

17.	Various product brochures and other literature relative to the Company.

A-3

In addition to reviewing the above information, we have among other things:

Considered the nature of its business and its history; the Company’s earnings before interest and taxes (EBIT); earnings before interest, taxes, depreciation and amortization (EBITDA); revenues; book capital; and total assets for the past four fiscal years (2003-2006) and the latest interim periods; the outlook for future EBIT, EBITDA and revenues; the Company’s financial condition; and the Company’s dividend-paying capacity;

Analyzed financial statements, prices and other materials regarding guideline publicly traded companies in the media distribution industry; required rates of return on debt and equity capital; materials discussing the economic outlook, in general; and the specific outlook for the media distribution industry; and such other material as we deemed appropriate;

3.	Analyzed the financial terms and operating results and financial conditions of companies, to the extent publicly available, involved in certain recent business combinations in the media distribution industry;

4.	Compared certain statistical and financial information of the Company with similar information for certain guideline publicly traded companies in the media distribution industry;

5.	Visited the Company’s headquarters in Burbank, California, conducted interviews with management and relied upon their representations concerning the operations, financial condition, future prospects, and projected operations and performance of the Company; and

6.	Conducted such other financial studies, analyses and inquiries, and considered such other matters as we deemed necessary and appropriate for our Opinion.

In rendering our Opinion and Valuation, we have not independently verified the accuracy and completeness of the financial information or other information furnished by the Company, orally or in writing, or other information obtained from publicly available sources. We reviewed most current and best available estimates and judgments of the management of the Company, as to the expected future financial and operating performance of the Company, and did not undertake any obligation to assess whether such forecasts, estimates or judgments were reasonable or were likely to be accurate, nor did we undertake any obligation independently to verify the underlying assumptions made in connection with such forecasts, estimates or judgments. In addition, we did not make an independent valuation or appraisal of any particular assets or liabilities of the Company. Our Opinion and Valuation is based on business, economic, market and other conditions as they exist as of the date of this Opinion and Valuation. We have assumed that the factual circumstances, agreements and terms, as they exist at the date of this Opinion and Valuation, will remain substantially unchanged through the time the Transaction is completed. Marshall & Stevens did not (i) opine as to the tax or accounting treatment of the Transaction or any related matter thereto, (ii) assess the impact of compliance with any labor laws, including without limitations, the Federal Warn Act, or (iii) rely upon any third party appraisals in arriving at this Opinion and Valuation.

A-4

This Opinion and Valuation has been prepared for the benefit of the Board of Directors of the Seller in connection with the Transaction and may not be quoted, published, used or referred to in wide or in part, in connection with the Transaction or for any other purpose without Marshall & Stevens’ prior written consent; provided that, this Opinion and Valuation may be included in the proxy statement sent by the Company to its shareholders concerning the Transaction so long as the Opinion and Valuation is reproduced in full in such proxy statement and any summary of the Opinion and Valuation in the proxy statement is reasonably acceptable to Marshall & Stevens. Our fee for this Opinion and Valuation is not contingent upon our conclusion regarding the fairness of the consideration received by the shareholders of the Company other than the Buyer.

Based upon the foregoing and upon such other factors as deemed relevant, including the attached assumptions and limiting conditions, it is our Opinion and Valuation, that as of the date of this Opinion and Valuation, the Transaction is fair to the shareholders of the Company other than the Buyer, from a financial point of view, pursuant to the terms and subject to the conditions set forth in the Agreement. It is also our opinion assuming that, the contribution of the Company’s Post Production Business to New 360 pursuant to the terms of this Agreement, the fair market value of New 360 is $20.5 million.

Very truly yours,

MARSHALL & STEVENS INCORPORATED

31-11-21832

A-5

Assumptions and Limiting Conditions

The opinion of Marshall & Stevens, Incorporated to which these Assumptions and Limiting Conditions (the “Conditions”) are attached (the “Opinion”) is rendered subject to the following assumptions and limiting conditions. Reliance on this Opinion and Valuation is likewise subject to such assumptions and limiting conditions. Any defined term not defined in these Condition, will have the same meaning as set forth in the Opinion and Valuation.

1. The Opinion and Valuation is issued subject to the following representations and warranties:

a. The Company represents that all information provided to us by or on behalf of the Company was true, correct, accurate and complete in all respects (and, specifically, did not omit any information required to make the information provided not misleading) when given and as of the date of our Opinion and Valuation; and

b. The Company represents that, without our prior written approval, the Opinion and Valuation will only be used by the Company for purposes of the consideration by the Board of Directors of the Transaction and the distribution of stock for New 360, and for no other purpose; and

c. Each addressee of our Opinion and Valuation represents and warrants that it not aware of any facts, circumstances or other matters which would render our Opinion and Valuation inaccurate or erroneous.

2. We have assumed there are no hidden or unexpected conditions that would adversely affect the value of the asset or business that are the subject matter of the Opinion and Valuation, other than may have been specified to us in writing by the Company.

3. Our Opinion and Valuation and, the Marshall & Stevens’ name are not to be used in whole or in part outside the Company, without our prior written approval except in connection with the transaction that is the subject matter of our Opinion and Valuation, and may not be relied upon by any person or persons other than the addressees of such Opinion and Valuation.

4. The addresses of our Opinion and Valuation acknowledge that Marshall & Stevens has not assumed, abridged, abrogated or undertake to discharge any duty of the Company, or of any officer, director or employee of the Company to any other person including, without limitation, the shareholders or creditors of the Company or any other addressee of our Opinion and Valuation.

No opinion is intended to be given or expressed about matters that require legal, accounting, actuarial, insurance coverage, engineering, architectural or other specialized expertise, investigation or knowledge beyond that customarily employed by valuation professionals.

6. Marshall & Stevens warrants that in rendering its Opinion and Valuation it has acted in a professional manner in accordance with professional standards. Marshall & Stevens makes no further warranty of any kind, express or implied. It is acknowledged that in rendering its Opinion and Valuation, Marshall & Stevens has relied upon projections and forecasts prepared or supplied by management and that the Company assumes full responsibility for the accuracy of such forecasts and projections and the assumptions on which they may be based. It is further acknowledged by the addressees of our Opinion and Valuation that no person can accurately forecast future events and that Marshall & Stevens makes no guarantees that events will ultimately turn out as anticipated or predicted. Our Opinion and Valuation speaks only as of the date of such opinion and valuation, and Marshall & Stevens has no obligation or duty to update such Opinion and Valuation.

A-6

7. Marshall & Stevens expressly disclaims liability as an insurer or guarantor. Any person seeking greater protection from loss or damage than is provided for herein should obtain appropriate insurance.

Hazardous substances, if present within a facility or property, can introduce an actual or potential liability that may adversely affect marketability and value. Such effect may be in the form of immediate expense or future liability. In the development or giving of our Opinion and Valuation, no consideration will be given to such liability or its impact on value unless Marshall & Stevens was specifically authorized and directed to obtain a written environmental or toxic contamination report from a third party or was provided with such a written report by or on behalf of the Company, in which case Marshall & Stevens has been authorized to rely upon such written report (without further investigation or inquiry) in making its determinations as to value. The addressees of our Opinion and Valuation acknowledge and agree that Marshall & Stevens is not in the business of assessing liabilities (including, without limitation, potential cleanup costs) with respect to environmental matters or matters otherwise relating to the presence or remediation of hazardous or toxic materials or the liabilities related thereto. Accordingly, the Company and each addressee of our Opinion and Valuation hereby releases Marshall & Stevens from any and all liability related in any way to such matters.

If Marshall & Stevens, or any officer, employee, director, direct or indirect shareholder, member or other equity holder of Marshall & Stevens, is requested or compelled to produce documents or testify with regard to (a) the work performed, (b) any advice given or opinion rendered, and/or (c) the Transaction, regardless of who makes such request, the Company will promptly reimburse Marshall & Stevens for all costs, including without limitation reasonable attorneys' fees, preparation and travel time, duplication costs, interview, deposition and court time and expenses, and will compensate Marshall & Stevens for the time spent in connection with such matters at Marshall & Stevens’ then-existing rates, which it is acknowledged may be in excess of the fees specified elsewhere in this Agreement.

In the event of any claim or dispute involving our Opinion or Valuation, the due diligence conducted or standard of care used with respect to our Opinion and Valuation, and/or the delivery or rendering of our Opinion and Valuation (a “Dispute”) , such dispute or claim shall be submitted to arbitration before a three member panel under the rules of commercial arbitration of the American Arbitration Association, the results of which shall be binding on all parties to this Agreement absent fraud or willful misconduct. The arbitration shall be conducted in Los Angeles, California. The party prevailing at the arbitration shall recover from the other party its costs and expenses, including attorneys', arbitrators' and stenographers' fees. Our Opinion, Valuation and these Conditions are to be interpreted under the laws of the State of California; as such laws apply to contracts entered into and to be performed entirely within such state.

No Dispute may be brought by the Company or any other addressee of our Opinion and Valuation against any one/or more Marshall & Stevens, its officers, directors, employees, contractors or agents more than one year after the date of our Opinion and Valuation.

The Company and each addressee of our opinion acknowledges and agrees that it is dealing with either a corporation and agrees that in no event will it seek to hold any direct or indirect shareholder of Marshall & Stevens liable for or to bring any suit or proceeding against any direct or indirect shareholder of Marshall & Stevens for any act, error, or omission on the part of Marshall & Stevens, its officers, directors, employees, contractors or agents, whether inadvertent, negligent, willful or intentional.

A-7

What do shareholders need to do to participate in the distribution?	Nothing, but we urge you to read this entire document carefully. Shareholders who hold Point.360 common stock as of the record date will not be required to take any action to receive New 360 common stock in the distribution. No shareholder approval of the distribution is required or sought. We are not asking you for a proxy, and you are requested not to send us a proxy. You will not be required to make any payment or to surrender or exchange your shares of Point.360 common stock or take any other action to receive your shares of New 360 common stock. If you own Point.360 common stock as of the close of business on the record date, Point.360, with the assistance of American Stock Transfer & Trust Company (“American Stock Transfer”), the distribution agent, will electronically issue shares of our common stock to you or to your brokerage firm on your behalf by way of direct registration in book-entry form. American Stock Transfer will mail to you a book-entry account statement that reflects your shares of New 360 common stock, or your bank or brokerage firm will credit your account for the shares. If you sell shares of Point.360 common stock in the “regular-way” market up to and including through the distribution date, you will be selling your right to receive shares of New 360 common stock in the distribution. Following the distribution, shareholders whose shares are held in book-entry form may request that their shares of New 360 common stock held in book-entry form be transferred to a brokerage or other account at any time, without charge.

How does the proposed distribution of New 360 shares relate to the merger of Point.360 into DG and to DG’s exchange offer for Point.360 common stock?	Pursuant to the Merger Agreement, DG agreed to make an exchange offer for all shares of Point.360 common stock in which each Point.360 share that is tendered in the offer will be exchanged for approximately one-fifth of a share of DG common stock. Following the completion of the exchange offer, Point.360 will be merged into DG, which will continue in existence as the surviving corporation. Point.360 shareholders who did not tender their shares in the exchange offer will receive in the merger approximately one-fifth of a share of DG common stock for each of their Point.360 shares. The exact percentage of a share of DG common stock to be exchanged for each Point.360 share in the exchange offer and the merger will be determined by dividing 2,000,000 by the number of Point.360 shares that are outstanding immediately prior to the completion of the exchange offer, excluding Point.360 share that are owned by DG. As a condition to the completion by DG of the exchange offer and the merger, Point.360 agreed in the Merger Agreement (1) to transfer its post-production business to New 360 and (2) to distribute to Point.360’s shareholders other than DG all shares of New 360. This Information Statement describes the business of New 360 and is not intended to provide a definitive summary of the merger between Point.360 and DG or to constitute a recommendation to Point.360’s shareholders as to whether they should accept DG’s exchange offer. Separate documents distributed to Point.360’s shareholders by DG and Point.360 describe the exchange offer and the merger.

Does New 360 plan to pay dividends?	The declaration and payment of any future dividends by New 360 will be subject to the discretion of our Board of Directors and will depend
	upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt obligations, legal requirements, regulatory constraints and other factors deemed relevant by our Board.

Will New 360 have any debt?	We do not expect New 360 to have any debt as of the date of separation from Point.360. We believe that subsequent to separation, we will obtain a working capital borrowing facility consisting of a $6-8 million revolving line of credit based on eligible accounts receivable. Point.360 has agreed to repay up to $7 million of Point.360 debt.

	December 31, 2006
		Historical		Separation Pro Forma
		(in thousands)
Cash and cash equivalents	$	-	$	7,000

Invested equity ^(a)	$	13,976	$	26,666

Total capitalization	$	13,976	$	33,666

	Year Ended December 31,
(in thousands except per share amounts)	2002			2003			2004			2005			2006
Statement of Income Data
Revenues	$	43,183		$	37,542		$	38,588		$	43,059		$	43,533
Cost of Services Sold		(28,843	)		(25,774	)		(27,957	)		(29,472	)		(29,976	)
Gross Profit		14,340			11,768			10,631			13,587			13,557
Selling, General and administrative expense		(13,161	)		(11,627	)		(13,649	)		(14,972	)		(13,554	)
Operating Income (loss)		1,179			141			(3,018	)		(1,385	)		3
Interest expense, net		(1,956	)		(1,644	)		(654	)		(1,280	)		(656	)
Benefit from income tax		323			604			1,489			1,045			342
Net income (loss)	$	(454	)	$	(899	)	$	(2,183	)	$	(1,620	)	$	(314	)

Earnings (loss) per share	$	(0.05	)	$	(0.10	)	$	(0.24	)	$	(0.17	)	$	(0.03	)
Weighted average common share outstanding		9,013			9,067			9,196			9,347			9,511

	Year Ended December 31,
	2002		2003		2004		2005			2006
Other Data					(3)
EBITDA (1)	$	5,444	$	4,013	$	1, 618	$	3,711		$	4,656
Capital Expenditures		1,228		1,981		4,014		2,317			2,064
Selected Balance Sheet Data
Cash and cash equivalents		5,372		8,006		668		595			-
Working capital (deficit		5,154		4,170		1,565		(234	)		1,325
Property and equipment, net		17,370		13,431		29,437		26,474			12,850
Total assets		42,609		37,935		49,108		47,229			33,482
Due to parent company		20,162		13,683		17,126		17,416			5,690
Invested Equity		11,801		14,554		17,093		16,309			13,976


Summary		4
Risk Factors		15
Cautionary Statement Concerning Forward-Looking Information		22
The Separation		24
Dividend Policy		33
Capitalization		34
Selected Historical Consolidated Financial Data		35
Unaudited Pro Forma Consolidated Financial Statements		37
Management’s Discussion and Analysis of Financial Condition and Results of Operations		41
Business		48
Management		53
Security Ownership of Certain Beneficial Owners and Management		63
Agreements Between New 360 and DG		64
Certain Relationships and Related Party Transactions		66
Description of Capital Stock		67
Where You Can Find More Information		69
Index to Financial Statements	F-1
Opinion of Marshall & Stevens, Inc.	A-1

(amounts in thousands)	Year Ended December 31,
Statement of Income Data		2004			2005			2006			Pro forma 2006
Revenues	$	38,588		$	43,059		$	43,533		$	43,533
Total expenses		(42,260	)		(45,724	)		(44,189	)		(43,530	)
Income (loss) before taxes		(3,672	)		(2,665	)		(656	)		3
Net income (loss)	$	(2,183	)	$	(1,620	)	$	(314	)		3

Earnings (loss) per share	$	(0.24	)	$	(0.17	)	$	(0.03	)	$	-

		2002			2003			2004			2005			2006
Net income (loss)	$	(454	)	$	(899	)	$	(2,183	)	$	(1,670	)	$	(314	)
Add Back:
Interest		1,956			1,644			654			1,280			659
Income tax benefit		(323	)		(604	)		(1,489	)		(1,045	)		(342	)
Depreciation & Amortization		4,265			3,872			4,636			5,096			4,653
EBITA	$	5,444		$	4,013		$	1,618		$	3,711		$	4,656

Assets	Historical as Reported		Separation Adjustment			Proforma
Current assets:
Cash and cash equivalents	$	-	$	3,000(b	)	$	7,000
				4,000(c	)
Accounts receivable, net of allowances for doubtful accounts
of $513,000		9,522					9,522
Inventories, net		539					539
Prepaid expenses and other current assets		533					533
Deferred income taxes		439		-			439
Total current assets		11,033		7,000			18,033

Property and equipment, net		12,850					12,850
Other assets, net		346					346
Goodwill (Note		9,253					9,253
Total assets	$	33,482	$	7,000		$	40,482

Liabilities and Shareholders’ Equity
Current liabilities:
Accounts payable	$	3,045				$	$ 3,045
Accrued wages and benefits		1,592					1,592
Accrued earn-out payments		2,000					2,000
Other accrued expenses		237					237
Income tax payable		123					123
Due to parent company		2,533		(2,533(a	))		-
Current portion of deferred gain on sale of real estate		178					178
Total current liabilities		9,708		(2,533	)		7,175

Deferred income taxes		4,278					4,278
Due to Parent company, less current portion		3,157		(3,157(a	))		-
Deferred gain on sale of real estate, less current portion		2,363					2,363
Total long-term liabilities		9,798		(3,157	)		6,641
Total liabilities		19,506		(5,690	)		13,816

Commitments and contingencies		-
Invested equity		13,976		12,690			26,666

Total liabilities and invested equity	$	33,482	$	7,000		$	40,482

(a)	Represents the pay off of New 360’s portion of up to $7 million of Point.360 revolving and term debt by DG.
(b)	Represents the receipt of the estimated amount of $3 million from DG in payment for Point.360’s working capital (other than New 360’s working capital), less $1 million.
(c)	Represents the cash received and expected to be received from the exercise of Point.360 stock options, which cash will remain with New 360.

	Year Ended December 31, Separation Pro forma
	2004			2005			2006			Adjustments			2006
Revenues	$	38,588		$	43,059		$	43,533					$	43,533
Cost of services sold		(27,957	)		(29,472	)		(29,976	)					(29,976	)

Gross profit		10,631			13,587			13,557						13,557
Selling, general and administrative expense		(9,511	)		(11,201	)		(10,108	)					(10,108	)
Allocation of Point.360 corporate expenses		(4,138	)		(3,771	)		(3,446	)					(3,446	)

Operating income (loss)		(3,018	)		(1,385	)		3						3
Interest expense (net)		(654	)		(1,280	)		(659	)		659(a	)		-

Income (loss) before income taxes		(3,672	)		(2,665	)		(656	)		659			3
(Provision for )benefit from		1,489			1,045			342			(342(b	))		-

Net income (loss)	$	(2,183	)	$	(1,620	)	$	(314	)	$	317		$	3

Basic and diluted earnings (loss) per shares	$	(0.24	)	$	( 0.17	)	$	(0.03	)	$	(0.03	)	$	-
Weighted average number of shares		9,196,620			9,346,533			9,511,006			9,511,006			9,511,006

(a)	Represents the reduction in interest expenses associated with the pay off of $7 million of revolving and term debt to DG.
(b)	Represents adjustment to income taxes related to the reduction in interest expense in (a) above.

	Year Ended December 31
	2004						2005						2006
	Amount			Percent of Revenues			Amount			Percent of Revenues			Amount			Percent of Revenues
(dollars in thousands)
Revenues	$	38,588			100.00		$	43,059			100.00		$	43,533			100.00
Costs of services sold		(27,956	)					(29,472	)		(68.4	)		(29,976	)		( 68.9	)
Gross profit		10,631			27.6			13,587			31.6			13,557			31.1
Selling, general and administrative expense		(9,511	)		(24.6	)		(11,201	)		(26.0	)		(10,108	)		(23.2	)
Allocation of Point.360 corporate expenses		(4,138	)		(10.7	)		(3,771	)		(8.8	)		(3,446	)		(7.9	)
Operating income (loss)		(3,018	)		(7.8	)		(1,385	)		(3.2	)		3			-
Interest expense, net Benefit from income taxes		(654) 1,489			(1.7) 3.9			(1,280) 1,045			(3.0) 2.4			(656) 342			(1.5) 0.7
Net income (loss)	$	(2,183	)		(5.7	)	$	(1,620	)		(3.8	)	$	(314	)		(0.1	)

Revolving credit	$	3,006,000
Current portion of term loan		1,174,000
Long-term portion of term loan		3,474,000
Total	$	7,654,000

	Payment due by Period
Contractual Obligations	Total		Less than 1 Year		Years 2 and 3		Years 4 and 5		Thereafter
Long Term Debt Obligations	$	4,209,000	$	1,052,000	$	2,104,000	$	1,053,000	$	-
Capital Lease Obligations		16,000		16,000		-		-		-
Operating Lease Obligations		26,667,000		3,757,000		5,823,000		4,392,000		12,695,000
Total	$	30,892,000	$	4,825,000	$	7,927,000	$	5,445,000	$	12,695,000

	Square Footage
Hollywood, CA.	31,000
Hollywood, CA.	8,000
Hollywood, CA.	13,000
Burbank, CA.	32,000
Burbank, CA.	45,500
Los Angeles, CA.	64,600
Los Angeles, CA.	13,400

Name	Age	Position

Haig S. Bagerdjian	50	Chairman of the Board of Directors, President and Chief Executive Officer

Alan R. Steel	62	Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary


Name	Age	Position(s)
Haig S. Bagerdjian	50	Chairman of the Board President, Chief Executive Officer and Director
Robert A. Baker	68	Director
Greggory J. Hutchins	45	Director
Sam P. Bell	70	Director
G. Samuel Oki	56	Director

	Fees Earned or		Option ⁽¹⁾
Name	Paid in Cash ($)		Awards ($)		Total ($)
Robert A. Baker	$	19,750	$	7,650	$	27,400
Greggory J. Hutchins		16,750		7,650		24,400
Sam P. Bell		22,750		7,650		30,400
G. Samuel Oki		18,750		7,650		26,400

Name and Principal Position	Year	Salary ($)	Option Awards ($)⁽¹⁾	All Other Compensation⁽²⁾	Totals ($)
Haig S. Bagerdjian	2006	$334,000	$100,000	$19,000	$453,000
Chairman, President and Chief Executive Officer

Alan R. Steel	2006	$222,000	$ 20,000	$ 9,000	$251,000
Executive Vice President,
Finance & Administration
Chief Financial Officer,
and Secretary

	Grant	Number of Securities	Exercise or Base Price	Fair Value of
Name	Date	Underlying Options (#)	of Option Awards ($/sh)	Option Awards ($)
Haig S Bagerdjian	6/14/06	100,000	$2.24	$100,000

Alan R. Steel	6/14/06	20,000	$2.24	$20,000

	Number of Securities Underlying Unexercised Options (#)		Option Exercise	Option Expiration
Name	Exercisable	Unexercisable	Price ($)	Date

Haig S. Bagerdjian	15,000		$3.75	8/15/10
	100,000		1.75	6/21/07
	120,000 ⁽¹⁾		3.94	9/24/08
	100,000 ⁽¹⁾		2.38	10/12/09
		100,000 ⁽²⁾	2.24	6/14/11

Alan R. Steel	250,000		3.75	12/12/10
	6,300		1.75	6/21/07
	20,000 ⁽¹⁾		2.62	7/30/08
	20,000 ⁽¹⁾		2.38	10/12/09
		20,000 ⁽²⁾	2.24	6/14/11

Name	Number of Shares Acquired on Exercise (#)	Value Realized on Exercise ($)⁽¹⁾
Haig S. Bagerdjian	305,000	$122,000
Alan R. Steel	33,300	$18,000

Name of Beneficial Owner	Total # of Shares to be Beneficially Owned	Approximate Percent of Ownership
Haig S. Bagerdjian Julia Stefanko	3,070,234 1,252,568	28% 12%
Robert A. Baker	11,500	*
Greggory J. Hutchins	60,000	*
Sam P. Bell	40,000	*
G. Samuel Oki	38,600	*
Alan R. Steel	52,300	*

All directors and executive officers
as a group	3,272,634	30%
*Less than 1%