10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2014

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

For the transition period from ______to_______

Commission file number 001-33468

                  Point.360                  

(Exact Name of Registrant as Specified in Its Charter)

California (State or other jurisdiction of incorporation or organization)	01-0893376 (I.R.S. Employer Identification No.)
2701 Media Center Drive, Los Angeles, CA (Address of principal executive offices)	90065 (Zip Code)

                   (818) 565-1400                  

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year,

if Changed Since Last Report)

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

þYes              ¨No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

þ YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

¨Yes              þNo

As of September 30, 2014, there were 10,536,906 shares of the registrant’s common stock outstanding.

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

POINT.360

CONSOLIDATED BALANCE SHEETS

(in thousands)

	June 30 2014 (audited)			Sept. 30 2014 (unaudited)
Assets
Current assets:
Cash and cash equivalents	$	2,346		$	1,547
Accounts receivable, net of allowances for doubtful accounts of $228 and $233, respectively		3,431			3,204
Inventories, net		230			188
Prepaid expenses and other current assets		230			457
Total current assets		6,237			5,396
Property and equipment, net		10,173			9,915
Other assets, net		639			633
Total assets	$	17,049		$	15,944
Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of notes payable	$	5,159		$	5,103
Current portion of capital lease obligations		326			280
Accounts payable		1,034			960
Accrued wages and benefits		1,019			1,241
Other accrued expenses		36			113
Current portion of deferred gain on sale of real estate		178			178
Current portion of deferred lease incentive		209			209
Total current liabilities		7,961			8,084
Deferred gain on sale of real estate, less current portion		1,025			981
Deferred lease incentive, less current portion		1,201			1,148
Other long term liabilities		1			6
Total long-term liabilities		2,227			2,135
Total liabilities		10,188			10,219
Commitments and contingencies (Note 4)
Shareholders’ equity:
Preferred stock – no par value; 5,000,000 shares authorized; none issued and outstanding		-			-
Common stock – no par value; 50,000,000 shares authorized; 10,536,906 shares issued and outstanding on June 30, 2014 and September 30, 2014		21,715			21,715
Additional paid-in capital		10,913			10,980
Accumulated deficit		(25,767	)		(26,970	)
Total shareholders’ equity		6,861			5,725
Total liabilities and shareholders’ equity	$	17,049		$	15,944

See accompanying notes to condensed consolidated financial statements.

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POINT.360

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30,
	2013			2014
Revenues	$	6,772,000		$	5,131,000
Cost of services sold		(4,738,000	)		(3,772,000	)
Gross profit		2,034,000			1,359,000
Selling, general and administrative expense		(3,046,000	)		(2,596,000	)
Operating loss		(1,012,000	)		(1,237,000	)
Interest expense		(74,000	)		(46,000	)
Other income		79,000			79,000
Loss before income taxes		(1,007,000	)		(1,204,000	)
Provision for income taxes		-			-
Net loss	$	(1,007,000	)	$	(1,204,000	)
Loss per share:
Basic:
Net loss	$	(0.10	)	$	(0.11	)
Weighted average number of shares		10,520,913			10,536,906
Diluted:
Net loss	$	(0.10	)	$	(0.11	)
Weighted average number of shares including the dilutive effect of stock options		10,520,913			10,536,906

See accompanying notes to condensed consolidated financial statements.

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POINT.360

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended September 30, (in thousands)
	2013			2014
Cash flows from operating activities:
Net loss	$	(1,007	)	$	(1,204	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		501			335
Amortization of deferred gain on real estate		(45	)		(45	)
Amortization of deferred lease credit		(52	)		(52	)
Provision for doubtful accounts		6			5
Stock compensation expense		63			68
Stock option exercises		17			-
Changes in operating assets and liabilities:
Decrease in accounts receivable		875			222
Decrease in inventories		40			42
(Increase) in prepaid expenses and other current assets		(30	)		(226	)
Decrease in prepaid income taxes		2			-
(Increase) decrease in other assets		(2	)		5
Increase (decrease) in accounts payable		64			(73	)
Increase in accrued wages and benefits		124			221
Increase in other accrued expenses		76			82
Net cash provided by (used in) operating activities		632			(620	)
Cash flows from investing activities:
Capital expenditures		(72	)		(77	)
Net cash (used in) investing activities		(72	)		(77	)
Cash flows from financing activities:
Repayment of notes payable		(86	)		(55	)
Payment of capital lease obligations		(36	)		(47	)
Net cash (used in) financing activities		(122	)		(102	)
Net increase (decrease) in cash and cash equivalents		438			(799	)
Cash and cash equivalents at beginning of period		1,696			2,346
Cash and cash equivalents at end of period	$	2,134		$	1,547

Selected cash payments and non-cash activities were as follows (in thousands):

	Three Months Ended
	September 30,
	2013		2014
Cash payments for income taxes (net of refunds)	$	2	$	-
Cash payments for interest	$	73	$	46
Acquisition of capital leases	$	116	$	-

See accompanying notes to condensed consolidated financial statements.

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Point.360

Notes to Condensed Consolidated Financial Statements (unaudited)

September 30, 2014

Note 1 – THE COMPANY

Point.360 and subsidiaries (the “Company,” “we” or “our”) provides high definition and standard definition digital mastering, data conversion, video and film asset management and sophisticated computer graphics services to owners, producers and distributors of entertainment and advertising content. The Company provides the services necessary to edit, master, reformat, convert, archive and ultimately distribute its clients’ film and video content, including television programming feature films and movie trailers. The Company’s interconnected facilities provide service coverage to all major U.S. media centers. Clients include major motion picture studios and independent producers. The Company also rents and sells DVDs directly to consumers through its Movie>Q retail stores.

The Company operates in two business segments from three post production and three Movie>Q locations. Each post production location is electronically tied to the others and serves the same customer base. Depending on the location size, the production equipment consists of tape duplication, editing, encoding, standards conversion, and other machinery. Each location employs personnel with the skills required to efficiently run the equipment and handle customer requirements. While all locations are not exactly the same, an order received at one location may be fulfilled at one or more “sister” facilities to use resources in the most efficient manner.

Typically, a feature film or television show or related material will be submitted to a facility by a motion picture studio, independent producer, advertising agency, or corporation for processing and distribution. A common sales force markets the Company’s capability for all facilities. Once an order is received, the local customer service representative determines the most cost-effective way to perform the services considering geographical logistics and facility capabilities.

In fiscal 2010, the Company purchased assets and intellectual property for a research and development project to address the viability of the DVD rental business being abandoned by the closure of Movie Gallery/Hollywood Video and Blockbuster stores. The DVD rental market consists principally of online services (Netflix), vending machines (Redbox) and other video stores.

As of September 30, 2014, the Company had opened three Movie>Q stores in Southern California. The stores employ an automated inventory management (“AIM”) system in a 1,200-1,600 square foot facility. By saving space and personnel costs which caused the big box stores to be uncompetitive with lower priced online and vending machine rental alternatives, Movie>Q can offer up to 10,000 unit selections to a customer at competitive rental rates. Movie>Q provides online reservations, an in-store destination experience, first run movie titles and a large unit selection (as opposed to 400-700 for a Redbox vending machine).

Based on the success of the stores, the Company may seek to expand the number of Movie>Q stores while further streamlining the design and production of the AIM system. Movie>Q provides the Company with a content distribution capability complimentary to the Company’s post production business.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts and transactions of the Company, including those of the Company’s subsidiaries. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and by 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. All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements. Operating results for the three month period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s Form 10-K for the period ended June 30, 2014.

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Pro Forma Earnings (Loss) Per Share

A reconciliation of the denominator of the basic earnings per share (“EPS”) computation to the denominator of the diluted EPS computation is as follows (in thousands):

	Three Months Ended September 30,		Three Months Ended September 30,
	2013		2014
Pro forma weighted average of number of shares
Weighted average number of common shares outstanding used in computation of basic EPS		10,521		10,537
Dilutive effect of outstanding stock options		-		-
Weighted average number of common and potential Common shares outstanding used in computation of Diluted EPS		10,521		10,537
Effect of dilutive options excluded in the computation of diluted EPS due to net loss		249		27

The weighted average number of common shares outstanding were the same amount for both basic and diluted loss per share in the three month periods ended September 30, 2013 and 2014. The effect of potentially dilutive securities for those periods were excluded from the computation of diluted earnings per share because the Company reported a net loss, and the effect of inclusion would be anti-dilutive (i.e., including such securities would result in a higher earnings per share, or lower loss per share, respectively). There were 2,358,585 and 2,648,473 potentially dilutive shares at September 30, 2013 and 2014, respectively.

Fair Value Measurements

The Company follows a framework for consistently measuring fair value under generally accepted accounting principles, and the disclosures of fair value measurements. The framework provides a fair value hierarchy to classify the source of the information.  

The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value and include the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Cash, the only Level 1 input applicable to the Company (there are no Level 2 or 3 inputs), is stated on the Condensed Consolidated Balance Sheets at fair value.

As of September 30, 2014 the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates fair value due to the short-term nature of such instruments. The carrying value of capital lease obligations, notes payable and other long-term liabilities approximates fair value as the related interest rates approximate rates currently available to the Company.

NOTE 2- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

In August and September of 2012 (subsequently modified on December 18, 2013 and September 5, 2014), the Company entered into revolving credit, equipment financing and two mortgage agreements with a bank, as follows:

Revolving Credit Facility. The revolving credit facility provides up to $2 million of credit with borrowings limited to the lesser of (a) 80% of eligible accounts receivable, as defined, less $600,000 or (b) $1,000,000. The agreement provides for interest at the lower of (i) Libor plus 3.5% or (ii) the bank’s alternative base rate plus 2.5% plus 0.25% per annum assessed on the unused portion of the credit commitment. The maturity date is September 30, 2015 and is renewable for an additional year on each anniversary date upon mutual agreement of the parties.

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Equipment Financing Facility. The equipment financing facility previously provided up to $1.25 million of financing for the cost of new and already-owned or leased equipment. The agreement provided for interest at the bank’s cost of funds plus 3% (3.89% as of September 30, 2014). The maturity date for each “schedule” of equipment is up to four years from the borrowing date. The facility expired on August 14, 2014.

Hollywood Way and Vine Street Mortgages. In September 2012, the Company entered into two real estate term loan agreements with respect to its Hollywood Way and Vine Street locations for $5.5 million and $3.1 million, respectively. The Vine mortgage was paid off upon sale of the building in June 2014. The remaining Hollywood Way loan provides for interest at Libor plus 3% (3.15% as of September 30, 2014). Repayment is based on monthly payments with a 25-year amortization, with all principal due in 10 years. The real estate loan is secured by a first trust deed on the property.

General Terms. All amounts due under the revolving credit facility, equipment financing facility and term mortgage facilities are secured by all personal property and real estate of the Company. While amounts are outstanding under the credit arrangements, the Company will be subject to financial covenants measured quarterly as follows:

1. Minimum TNW rising from $6.25 million at September 30, 2014 to $7 million after March 31, 2015 (the Company’s actual TNW was $5.7 million as of September 30, 2014).

2. Minimum EBITDA (as defined) rising from $250,000 for the quarter ended September 30, 2014 to $750,000 in subsequent quarters, provided that EBITDA may be a minimum of $500,000 in any one quarter within four consecutive quarters (the Company’s EBITDA was a negative $0.8 million for the quarter ended September 30, 2014).

3. Minimum quarterly fixed charge ratio (as defined) rising from 0.70 for the quarter ended September 30, 2014 to 1.25 in subsequent quarters (the Company’s fixed charge ratio was a negative 3.35 for the quarter ended September 30, 2014).

4. Minimum TTM fixed charge ratio (as defined) rising from 0.25 for the TTM ending September 30, 2014, to 0.75 for the TTM ending December 31, 2014, and 1.25 in subsequent TTM periods (the Company’s TTM fixed charge ratio was a negative 0.62 for the TTM ended September 30, 2014).

All obligations to the bank are cross collateralized. The agreements contain certain other terms and conditions common with such arrangements.

As of September 30, 2014 the Company did not meet the TNW, the minimum quarterly EBITDA, and the minimum quarterly and TTM fixed charge ratio covenants, and availability under the revolving credit facility has been suspended. Although the bank has not elected to accelerate the Company’s obligations under the agreement, the balance owed for the mortgage debt and capital leases has been classified as a current liability in the consolidated balance sheet as of September 30, 2014.

Amounts Borrowed. As of September 30, 2014, the Company had no outstanding borrowings under the revolving credit facility, $0.3 million borrowed under the equipment financing facility, and $5.1 million of mortgage debt.

NOTE 3- PROPERTY AND EQUIPMENT

In March 2006, the Company entered into a sale and leaseback transaction with respect to its Media Center real estate. The real estate was sold for approximately $14.0 million resulting in a $1.3 million after tax gain. In accordance with the Accounting Standards Codification (ASC) 840-40, the gain will be amortized over the initial 15-year lease term as reduced rent. Net proceeds at the closing of the sale were used to pay off the mortgage and other outstanding debt. A $250,000 security deposit related to the lease has been recorded as a deposit in “other assets, net” in the Condensed Consolidated Balance Sheets as of June 30, 2014 and September 30, 2014.

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 were $1,111,000, increasing annually thereafter based on the Consumer Price Index change from year to year.

In June 2011, the Company entered into a lease amendment with respect to the Company’s Media Center facility. The amendment provided that the landlord would reimburse the Company up to $2 million for the leasehold improvements to be made by the Company to the premises. The leasehold improvements would be recorded as a fixed asset and amortized over the remaining term of the lease (until March 2021). Pursuant to the lease amendment, the Company’s monthly lease costs increased by approximately $27,000 on April 1, 2012. The Company incurred $2.1 million of costs for construction, of which $2.0 million was reimbursed by the landlord. A deferred lease incentive has been recorded for the total amount reimbursed by the landlord in accordance with ASC 840-20. The lease incentive is being amortized over the remaining lease term as an offset to rent.

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Property and equipment consist of the following as of September 30, 2014:

Land	$	2,405,000
Buildings		6,012,000
Machinery and equipment		38,070,000
Leasehold improvements		9,060,000
Computer equipment		7,987,000
Equipment under capital lease		1,111,000
Office equipment, CIP		627,000
Subtotal		65,272,000
Less accumulated depreciation and amortization		(55,357,000	)
Property and equipment, net	$	9,915,000

NOTE 4- COMMITMENTS AND CONTINGENCIES

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

NOTE 5- INCOME TAXES

The Company reviewed its Accounting Standards Codification (“ASC”) 740-10 documentation for the periods through September 30, 2014 to ascertain if any changes should be made with respect to tax positions previously taken. In addition, the Company reviewed its income tax reporting through September 30, 2014. Based on Company’s review of its tax positions as of September 30, 2014, no new uncertain tax positions have been identified; nor has new information become available that would change management’s judgment with respect to tax positions previously taken.

As of September 30, 2014, the Company had no net deferred tax assets.  No tax benefit was recorded during the three month period ended September 30, 2014 because future realizability of such benefit was not considered to be more likely than not. 

The ASC prescribes a recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal state or local income tax examinations by tax authorities for years before 2008.

NOTE 6- STOCK OPTION PLAN, STOCK-BASED COMPENSATION

In May 2007, the Board of Directors approved the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the award of options to purchase up to 2,000,000 shares of common stock, appreciation rights and restricted stock awards.

In November 2010, the shareholders approved the 2010 Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the award of options to purchase up to 4,000,000 shares of common stock, appreciation rights and restricted stock and performance awards.

Under the 2007 and 2010 Plans, the stock option price per share for options granted is determined by the Board of Directors and is based on the market price of the Company’s common stock on the date of grant, and each option is exercisable within the period and in the increments as determined by the Board, except that no option can be exercised later than ten years from the grant date. The stock options generally vest in one to five years.

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. We also estimate the fair value of the award that is ultimately expected to vest to be recognized as expense over the requisite service periods in the Condensed Consolidated Statements of Operations.

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We estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Condensed Consolidated Statements of Operations. Stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three month period ended September 30, 2014 included compensation expense for the share-based payment awards based on the grant date fair value. For stock-based awards issued to employees and directors, stock-based compensation is attributed to expense using the straight-line single option method. As stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the periods reported in this Form 10-Q is based on awards expected to vest, forfeitures are also estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the period being reported in this Form 10-Q, expected forfeitures are immaterial. The Company will re-assess the impact of forfeitures if actual forfeitures increase in future quarters. Stock-based compensation expense related to employee or director stock options recognized for the three month periods ended September 30, 2013 and 2014 was as follows:

Three months ended September 30, 2013	$	63,000
Three months ended September 30, 2014	$	68,000

The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant uses the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the expected term of the awards, and actual and projected employee stock options exercise behaviors. The Company estimates expected volatility using historical data. The expected term is estimated using the “safe harbor” provisions provided by the SEC.

During the three month period ended September 30, 2014 the Company granted awards of 5,000 stock options at an exercise price of $0.57 per share.

The following table summarizes the status of the 2007 and 2010 Plans as of September 30, 2014:

	2007 Plan		2010 Plan		Total
Options originally available		2,000,000		4,000,000		6,000,000
Stock options outstanding		1,698,298		950,175		2,648,473
Options available for grant		269,537		3,046,250		3,315,787

Transactions involving stock options are summarized as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Balance at June 30, 2014		2,657,348		$	0.83	$	0.52
Granted		5,000		$	0.57	$	0.40
Exercised		-			-		-
Cancelled		(13,875	)	$	0.89	$	0.53
Balance at September 30, 2014		2,648,473		$	0.83	$	0.52

As of September 30, 2014, the total compensation costs related to non-vested awards yet to be expensed was approximately $0.5 million to be amortized over the next four years.

The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of September 30, 2014 were as follows:

	Number of Shares		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Life (Years)		Intrinsic Value ($)
Employees – Outstanding		2,505,973	$	0.82		2.68	$	—
Employees – Expected to Vest		2,255,376	$	0.82		2.68	$	—
Employees – Exercisable		1,064,873	$	0.97		1.62	$	—
Non-Employees-Outstanding		142,500	$	0.96		2.22	$	—
Non-Employees- Expected to Vest		142,500	$	0.96		2.22	$	—
Non-Employees-Exercisable		127,500	$	1.00		1.99	$	—

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The aggregate intrinsic value in the table above is the sum of the amounts by which the quoted market price of the Company’s common stock exceeded the exercise price of the options at September 30, 2014, for those options for which the quoted market price was in excess of the exercise price.

Additional information with respect to outstanding options as of September 30, 2014 is as follows:

Options Outstanding					Options Exercisable
Options Exercise Price Range		Number of Shares		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Number of Shares		Weighted Average Remaining Contractual Life
	1.29		296,100	0.36 years		1.29		296,100	0.36 years
	1.27		15,000	0.95 years		1.27		15,000	0.95 years
	1.15		22,500	1.13 years		1.15		22,500	1.13 years
	1.07		22,500	2.17 years		1.07		22,500	2.17 years
	1.05		22,500	0.14 years		1.05		22,500	0.14 years
	0.95		234,775	2.46 years		0.95		117,663	2.46 years
	0.86		517,435	1.36 years		0.86		384,198	1.36 years
	0.81		820,363	3.36 years		0.81		205,663	3.36 years
	0.80		22,500	3.11 years		0.80		22,500	3.11 years
	0.75		75,000	1.61 years		0.75		56,250	1.61 years
	0.74		22,500	4.10 years		0.74		22,500	4.10 years
	0.64		15,000	4.12 years		0.64		-	4.12 years
	0.57		5,000	4.95 years		0.57		5,000	4.95 years
	0.50		557,300	4.35 years		0.50		-	4.35 years

In addition to the above 2007 Plan, the Company issued 10,000 shares of restricted stock during fiscal year ended June 30, 2010 with a weighted average fair value of $0.58 per share.

We use the detailed method provided in ASC 718 for calculating the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and the Condensed Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of ASC 718.

NOTE 7- STOCK RIGHTS PLAN

In July 2007, the Company implemented a stock rights program. Pursuant to the program, stockholders of record on August 7, 2007, received a dividend of one right to purchase for $10 one one-hundredth of a share of a newly created Series A Junior Participating Preferred Stock. The rights are attached to the Company’s Common Stock and will also become attached to shares issued subsequent to August 7, 2007. The rights will not be traded separately and will not become exercisable until the occurrence of a triggering event, defined as an accumulation by a single person or group of 20% or more of the Company’s Common Stock. The rights will expire on August 6, 2017 and are redeemable at $0.0001 per right.

After a triggering event, the rights will detach from the Common Stock. If the Company is then merged into, or is acquired by, another corporation, the Company has the opportunity to either (i) redeem the rights or (ii) permit the rights holder to receive in the merger stock of the Company or the acquiring company equal to two times the exercise price of the right (i.e., $20). In the latter instance, the rights attached to the acquirer’s stock become null and void. The effect of the rights program is to make a potential acquisition of the Company more expensive for the acquirer if, in the opinion of the Company’s Board of Directors, the offer is inadequate.

No triggering events occurred in the three months ended September 30, 2014.

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NOTE 8- SHAREHOLDER’S EQUITY

The following table analyzes the components of shareholders’ equity from June 30, 2014 to September 30, 2014 (in thousands):

	Common Stock		Paid-in Capital		Accumulated (Deficit)			Shareholders Equity
Balance, June 30, 2014	$	21,715	$	10,912	$	(25,766	)	$	6,861
Stock-based compensation expense		-		68		-			68
Net loss		-		-		(1,204	)		(1,204	)
Balance, September 30, 2014	$	21,715	$	10,980	$	(26,970	)	$	5,725

NOTE 9- STOCK REPURCHASE PLAN

In February 2008, the Company’s Board of Directors authorized a stock repurchase program. Under the stock repurchase program, the Company may purchase outstanding shares of its common stock on the open market at such times and prices determined in the sole discretion of management. No shares were acquired pursuant to the repurchase program during the three months ended September 30, 2014.

NOTE 10- SEGMENT INFORMATION:

In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis consistent with U.S. generally accepted accounting principles. Our two segments are Point.360 and Movie>Q. The two segments discussed in this analysis are presented in the way we internally managed and monitored performance for the three month periods ended September 30, 2013 and 2014. Allocations for internal resources were made for the periods. The Movie>Q segment tracks certain assets separately, and all others are recorded in the Point.360 segment for internal reporting presentations. Cash was not segregated between the two segments but retained in the Point.360 segment.

The types of services provided by each segment are summarized below:

Point.360 – The Point.360 segment provides high definition and standard definition digital mastering, data conversion, video and film asset management and other services to owners, producers and distributors of entertainment and advertising content. Point.360 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 segment’s interconnected facilities provide service coverage to all major U.S. media centers. Clients include major motion picture studios and independent producers.

Movie>Q – The Movie>Q segment rents and sells DVDs directly to consumers though its retail stores. The stores employ an automated inventory management (“AIM”) system in a 1,200-1,600 square foot facility. By saving space and personnel costs which caused the big box stores to be uncompetitive with lower priced online and vending machine rental alternatives, Movie>Q can offer up to 10,000 unit selections to a customer at competitive rental rates. Movie>Q provides online reservations, an in-store destination experience, first run movie and game titles and a large unit selection.

Segment revenues, operating loss and total assets were as follows (in thousands):

Revenue	Three Months Ended September 30,
	2013		2014
Point.360	$	6,662	$	5,039
Movie>Q		110		92
Consolidated revenue	$	6,772	$	5,131

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Operating loss	Three Months Ended September 30,
	2013			2014
Point.360	$	(844	)	$	(1,132	)
Movie>Q		(168	)		(105	)
Operating loss	$	(1,012	)	$	(1,237	)

Total Assets	June 30,		September 30,
	2014		2014
Point.360	$	16,204	$	15,127
Movie>Q		845		817
Consolidated assets	$	17,049	$	15,944

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

Except for the historical information contained herein, certain statements in this quarterly report are "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995, which involve certain risks and uncertainties, which could cause actual results to differ materially from those discussed herein, including but not limited to competition, customer and industry concentration, depending on technological developments, risks related to expansion, dependence on key personnel, fluctuating results and seasonality and control by management. See the relevant portions of the Company's documents filed with the Securities and Exchange Commission, including the Risk Factors section of the Company’s most recent annual report on Form 10-K, and Risk Factors in Item 1A of Part II of this Form 10-Q, for a further discussion of these and other risks and uncertainties applicable to the Company's business.

Overview

Point.360 provides video and film asset management services to owners, producers and distributors of entertainment content.  We provide the services necessary to edit, master, reformat and archive our clients’ film and video content, including television programming, feature films and movie trailers using electronic and physical means. Clients include major motion picture studios and independent producers. The Company also rents and sells DVDs directly to consumers through its Movie>Q retail stores.

We operate in a highly competitive environment in which customers desire a broad range of services at a reasonable price.  There are many competitors offering some or all of the services provided by us.  Additionally, some of our customers are large studios, which also have in-house capabilities that may influence the amount of work outsourced to companies like Point.360. We attract and retain customers by maintaining a high service level at reasonable prices.

The market for our services is primarily dependent on our customers’ desire and ability to monetize their entertainment content. The major studios derive revenues from re-releases and/or syndication of motion pictures and television content. While the size of this market is not quantifiable, we believe studios will continue to repurpose library content to augment uncertain revenues from new releases. The current uncertain economic environment has negatively impacted the ability and willingness of independent producers to create new content.

The demand for entertainment content should continue to expand through web-based applications. We believe long and short form content will be sought by users of personal computers, hand-held devices and home entertainment technology. Additionally, changing formats from standard definition, to high definition, to Blu-Ray and perhaps to 3D and 4K will continue to give us the opportunity to provide new services with respect to library content.

To meet these needs, we must be prepared to invest in technology and equipment, and attract the talent needed to serve our client needs. Labor, facility and depreciation expenses in costs of goods sold constituted approximately 63% of our revenues in the three months ended September 30, 2014. Our goals include maximizing facility and labor usage, and maintaining sufficient cash flow for capital expenditures and acquisitions of complementary businesses to enhance our service offerings.

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We have an opportunity to expand our business by establishing closer relationships with our customers through excellent service at a competitive price and adding to our service offering.  Our success is also dependent on attracting and maintaining employees capable of maintaining such relationships.  Also, growth can be achieved by acquiring similar businesses that can increase revenues by adding new customers, or expanding current services to existing customers. Additionally, we are looking to capitalize on the Movie>Q retail opportunity.

Our business generally involves the immediate servicing needs of our customers.  Most orders are fulfilled within several days, with occasional larger orders spanning weeks or months.  At any particular time, we have little firm backlog.

We believe that our interconnected facilities provide the ability to better service customers than single-location competitors.  We will look to expand both our service offering and geographical presence through acquisition of other businesses or opening additional facilities.

Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Revenues. Revenues were $5.1 million for the three months ended September 30, 2014, compared to $6.8 million for the three months ended September 30, 2013. Sales declined $0.8 million due to our decision to terminate our computer graphics business in October 2013 due to uncertain revenues and the need to retain costly talent. The remaining $0.9 million shortfall is principally due to three customers reducing their outsourced requirements by $0.9 million when compared to the prior year period. Year-to-year sales to the other two principal customers were comparable. Our three largest customers accounted for approximately 57% of sales in the fiscal 2014 period. There is a risk that negative sales fluctuations may occur for these customers the near future. Larger project-based orders can also affect revenues depending on the size of the order and the length of time needed to perform the required services. We continue to have excellent relations with our major customers.

Cost of Services. Costs of services consist principally of wages and benefits, facility costs and depreciation of physical assets. During the three months ended September 30, 2014, total costs of services declined $1.0 million, and were 74% of sales compared to 70% in the prior year. $0.6 million of the decrease was associated with wages and benefits which are expected to decrease further. In the current period, depreciation costs decreased $0.2 million.

Gross Profit. In the three months ended September 30, 2014, gross margin was 27% of sales, compared to 30% for the same period last year. The decrease in gross profit percentage is due to the factors cited above. From time to time, we will increase or decrease staff capabilities to satisfy potential customer service demand. We expect gross margins to fluctuate in the future as the sales mix changes.

Selling, General and Administrative Expense. SG&A expense was $2.6 million (51% of sales) in the three months ended September 30, 2014 as compared to $3.0 million (45% of sales) in the same period last year.

Operating Loss. Operating loss was $1.2 million in the three months ended September 30, 2014 period compared to a $1.0 million loss in the same period last year.

Interest Expense. Net interest expense was $46,000 in the three months ended September 30, 2014 compared to $73,000 in the prior year.

Other Income. Other income in both periods includes sublease income.

Net Loss. Net loss in the three months ended September 30, 2014 was $1.2 million, compared to a $1.0 million loss in the prior year period.

LIQUIDITY AND CAPITAL RESOURCES

This discussion should be read in conjunction with the notes to the condensed consolidated financial statements and the corresponding information more fully described elsewhere in this Form 10-Q.

In August and September of 2012 (subsequently modified on December 18, 2013 and September 5, 2014), the Company entered into revolving credit, equipment financing and two mortgage agreements with a bank, as follows:

Revolving Credit Facility. The revolving credit facility provides up to $2 million of credit with borrowings limited to the lesser of (a) 80% of eligible accounts receivable, as defined, less $600,000 or (b) $1,000,000. The agreement provides for interest at the lower of (i) Libor plus 3.5% or (ii) the bank’s alternative base rate plus 2.5% plus 0.25% per annum assessed on the unused portion of the credit commitment. The maturity date is September 30, 2015 and is renewable for an additional year on each anniversary date upon mutual agreement of the parties.

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Equipment Financing Facility. The equipment financing facility previously provided up to $1.25 million of financing for the cost of new and already-owned or leased equipment. The agreement provided for interest at the bank’s cost of funds plus 3% (3.89% as of September 30, 2014). The maturity date for each “schedule” of equipment is up to four years from the borrowing date. The facility expired on August 14, 2014.

Hollywood Way and Vine Street Mortgages. In September 2012, the Company entered into two real estate term loan agreements with respect to its Hollywood Way and Vine Street locations for $5.5 million and $3.1 million, respectively. The Vine mortgage was paid off upon sale of the building in June 2014. The remaining Hollywood Way loan provides for interest at Libor plus 3% (3.15% as of September 30, 2014). Repayment is based on monthly payments with a 25-year amortization, with all principal due in 10 years. The real estate loan is secured by a first trust deed on the property.

General Terms. All amounts due under the revolving credit facility, equipment financing facility and term mortgage facilities are secured by all personal property and real estate of the Company. While amounts are outstanding under the credit arrangements, the Company will be subject to financial covenants measured quarterly as follows:

1. Minimum TNW rising from $6.25 million at September 30, 2014 to $7 million after March 31, 2015 (the Company’s actual TNW was $5.7 million as of September 30, 2014).

2. Minimum EBITDA (as defined) rising from $250,000 for the quarter ended September 30, 2014 to $750,000 in subsequent quarters, provided that EBITDA may be a minimum of $500,000 in any one quarter within four consecutive quarters (the Company’s EBITDA was a negative $0.8 million for the quarter ended September 30, 2014).

3. Minimum quarterly fixed charge ratio (as defined) rising from 0.70 for the quarter ended September 30, 2014 to 1.25 in subsequent quarters (the Company’s fixed charge ratio was a negative 3.35 for the quarter ended September 30, 2014).

4. Minimum TTM fixed charge ratio (as defined) rising from 0.25 for the TTM ending September 30, 2014, to 0.75 for the TTM ending December 31, 2014, and 1.25 in subsequent TTM periods (the Company’s TTM fixed charge ratio was a negative 0.62 for the TTM ended September 30, 2014).

All obligations to the bank are cross collateralized. The agreements contain certain other terms and conditions common with such arrangements.

As of September 30, 2014 the Company did not meet the TNW, the minimum quarterly EBITDA, and the minimum quarterly and TTM fixed charge ratio covenants, and availability under the revolving credit facility has been suspended. Although the bank has not elected to accelerate the Company’s obligations under the agreement, the balance owed for the mortgage debt and capital leases has been classified as a current liability in the consolidated balance sheet as of September 30, 2014.

Amounts Borrowed. As of September 30, 2014, the Company had no outstanding borrowings under the revolving credit facility, $0.3 million borrowed under the equipment financing facility, and $5.1 million of mortgage debt.

Monthly and annual principal and interest payments due under the capital leases and mortgages are approximately $67,000 and $0.8 million, respectively, assuming no change in interest rates.

The following table summarizes the September 30, 2014 amounts outstanding under our line of credit, capital lease obligations and mortgage loans:

Line of credit	$	-
Current portion of notes payable, capital leases and mortgages		5,383,000
Long-term portion of notes payable, capital leases and mortgages		-
Total	$	5,383,000

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The Company’s cash balance decreased from $2,346,000 on July 1, 2014 to $1,547,000 on September 30, 2014, due to the following:

Balance July 1, 2014	$	2,346,000
Decrease in accounts receivable		(222,000	)
Increase in prepaid expenses & other assets..		(226,000	)
Decrease in notes payable & other liabilities		(175,000	)
Capital expenditures for property and equipment		(77,000	)
Changes in other assets and liabilities		(543,000	)
Balance September 30, 2014	$	1,547,000

Cash generated by operating activities is directly dependent upon sales levels and gross margins achieved. We generally receive payments from customers in 60-120 days after services are performed. The larger payroll and facilities components of our cost structure must be paid currently. Payment terms of other liabilities vary by vendor and type. Fluctuations in sales levels will generally affect cash flow negatively or positively in early periods of growth or contraction, respectively, because of operating cash receipt/payment timing. Other investing and financing cash flows also affect cash availability.

In fiscal 2013 and 2014, the underlying drivers of operating cash flows (sales, receivable collections, the timing of vendor payments, facility costs and employment levels) have been consistent. Sales outstanding in accounts receivable have increased from approximately 51 days to 61 days within the last 12 months. We do not expect days sales outstanding to materially fluctuate in the future.

In June 2011, the Company entered into a lease amendment with respect to the Company’s Media Center facility. The amendment provided that the landlord would reimburse the Company for up to $2 million of improvements to be made to the premises. The amendment also provided that the Company’s monthly rent cost would increase approximately $27,000 on April 1, 2012.

The Company incurred $2.1 million of costs for the Media Center construction, of which $2.0 million was reimbursed by the landlord. The Company completed the project and vacated one of its Burbank facilities on the February 28, 2012 expiration of the related lease and move to the Media Center space. Total annual savings, which began in April 2012, are approximately $1.2 million.

The following table summarizes contractual obligations as of September 30, 2014 due in the future:

	Payment due by Period
Contractual Obligations	Total		Less than 1 Year		Years 2 and 3		Years 4 and 5		Thereafter
Term Debt  Principal Obligations	$	5,103,000	$	5,103,000	$	-	$	-	$	-
Term Debt Interest Obligations  (1)		166,000		166,000		-		-		-
Capital Lease Obligations		280,000		280,000		-		-		-
Capital Lease Interest Obligations		7,000		7,000		-		-		-
Operating Lease Obligations		12,124,000		2,030,000		3,938,000		3,744,000		2,412,000
Line of Credit Obligations		-		-		-		-		-
Total	$	17,680,000	$	7,586,000	$	3,938,000	$	3,744,000	$	2,412,000

⁽¹⁾ Interest on variable rate debt has been computed using the rate on the latest balance sheet date.

During the past year, the Company had generated sufficient cash flow to meet operating, capital expenditure and debt service needs and its other obligations. When preparing estimates of future cash flows, we consider historical performance, technological changes, market factors, industry trends and other criteria. Cash flows from operations were $632,000 and ($620,000) for the 3-month period ended September 30, 2013 and September 30, 2014, respectively. The Company expects to generate sufficient cash flows from operations during the fiscal year ending June 30, 2015 to meet its working cash flow needs for 2015. In our opinion, the Company will continue to be able to fund its needs for the foreseeable future, unless its bank elects to declare all obligations due and payable as a result of a future covenant default condition.

We will continue to consider the acquisition of businesses which complement our current operations and possible real estate transactions. Consummation of any acquisition, real estate or other expansion transaction by the Company may be subject to the Company securing additional financing, perhaps at a cost higher than our existing line of credit and term loans. In the current economic climate, additional financing may not be available. Future earnings and cash flow may be negatively impacted to the extent that any acquired entities do not generate sufficient earnings and cash flow to offset the increased financing costs.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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

Revenues. We perform a multitude of services for our clients, including film-to-tape transfer, video and audio editing, standards conversions, duplication, distribution, etc. A customer orders one or more of these services with respect to an element (movie, television show, etc.). The sum total of services performed on a particular element (a “package”) becomes the deliverable (i.e., the customer will pay for the services ordered in total when the entire job is completed). Occasionally, a major studio will request that package services be performed on multiple elements. Each element creates a separate revenue stream which is recognized only when all requested services have been performed on that element. At the end of an accounting period, revenue is accrued for un-invoiced but shipped work.

Certain jobs specify that many discrete tasks must be performed which require up to four months to complete. In such cases, we use the proportional performance method for recognizing revenue. Under the proportional performance method, revenue is recognized based on the value of each stand-alone service completed.

In some instances, a client will request that we store (or “vault”) an element for a period ranging from a day to indefinitely. The Company attempts to bill customers a nominal amount for storage, but some customers, especially major movie studios, will not pay for this service. In the latter instance, storage is an accommodation to foster additional business with respect to the related element. It is impossible to estimate (i) the length of time we may house the element, or (ii) the amount of additional services we may be called upon to perform on an element. We do not treat vaulting as a separate deliverable in those instances in which the customer does not pay.

The Company records all revenues when all of the following criteria are met: (i) there is persuasive evidence that an arrangement exists; (ii) delivery has occurred or the services have been rendered; (iii) the Company’s price to the customer is fixed or determinable; and (iv) collectability is reasonably assured. Additionally, in instances where package services are performed on multiple elements or where the proportional performance method is applied, revenue is recognized based on the value of each stand-alone service completed.

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

Valuation of long-lived assets. Long-lived assets, consisting primarily of property, plant and equipment, comprise a significant portion of the Company’s total assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances have indicated that their carrying amounts may not be recoverable. Recoverability of assets is measured by comparing the carrying amount of an asset to its fair value in a current transaction between willing parties, other than in a forced liquidation sale.

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

· Significant underperformance relative to expected historical or projected future operating results;

· Significant changes in the manner of our use of the acquired assets or the strategy of our overall business;

· Significant negative industry or economic trends;

· Significant decline in our stock price for a sustained period; and

· Our market capitalization relative to net book value.

When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we measure any impairment based on comparing the carrying amount of the asset to its fair value in a current transaction between willing parties or, in the absence of such measurement, on a projected discounted cash flow method using a discount rate determined by our management to be commensurate with the risk inherent in our current business model. Any amount of impairment so determined would be written off as a charge to the statement of operations, together with an equal reduction of the related asset. Net long-lived assets amounted to approximately $9.9 million as of September 30, 2014.

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Research and Development. Research and development costs include expenditures for planned research and investigation aimed at discovery of new knowledge to be used to develop new services or processes or significantly enhance existing processes. Research and development costs also include the implementation of the new knowledge through design, testing of service alternatives, or construction of prototypes. The cost of materials and equipment or facilities that are acquired or constructed for research and development activities and that have alternative future uses are capitalized as tangible assets when acquired or constructed. All other research and development costs are expensed as incurred.

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 consolidated statements of operations.

At September 30, 2014, the Company has no uncertain tax positions. 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 deferred tax assets are fully reserved at September 30, 2014.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk. The Company had borrowings of $5.1 million on September 30, 2014 under note payable and mortgage agreements. Our line of credit, equipment financing and mortgage loan are subject to variable interest rates. The weighted average interest rate paid during the three months ended September 30, 2014 was 3.3%. For variable rate debt outstanding at September 30, 2014, a .25% increase in interest rates will increase annual interest expense by approximately $13,000. Amounts outstanding or that may become outstanding under the credit facilities provide for interest primarily at the LIBOR plus 2.5-3.0% (2.65% to 3.15% as of September 30, 2014). The Company’s market risk exposure with respect to financial instruments is to changes in LIBOR.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the “Exchange Act”), the Company’s management, with the participation of the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2014.

Changes in Internal Control over Financial Reporting

The Chief Executive Officer and President and the Chief Financial Officer conducted an evaluation of our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) to determine whether any changes in internal control over financial reporting occurred during the quarter ended September 30, 2014 that have materially affected or which are reasonably likely to materially affect internal control over financial reporting. Based on the evaluation, no such change occurred during such period.

Internal control over financial reporting refers to a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

· Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

· Provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and members of our board of directors; and

· Provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

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

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

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

l Recent history of losses.

l Changes in credit agreements and breaches of related covenants and ongoing liquidity.

l Our highly competitive marketplace.

l The risks associated with dependence upon significant customers.

l Our ability to execute our expansion strategy.

l The uncertain ability to manage in a changing environment.

l Our dependence upon and our ability to adapt to technological developments.

l Dependence on key personnel.

l Our ability to maintain and improve service quality.

l Fluctuation in quarterly operating results and seasonality in certain of our markets.

l Possible significant influence over corporate affairs by significant shareholders.

l Our ability to operate effectively as a stand-alone, publicly traded company.

l The consequences of failing to implement effective internal controls over financial reporting as

required by Section 404 of the Sarbanes-Oxley Act of 2002.

l Possibility of the Company’s stock being delisted from the Nasdaq Capital Market.

Other factors not identified above, including the risk factors described in the “Risk Factors” section of the Company’s June 30, 2014, Form 10-K filed with the Securities and Exchange Commission, may also cause actual results to differ materially from those projected by our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these areas of risk in connection with considering any forward-looking statements that may be made in this Form 10-Q and elsewhere by us and our business generally. Except to the extent of any obligation to disclose material information under the federal securities laws or the rules of the NASDAQ Capital Market, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

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ITEM 6. EXHIBITS

(a) Exhibits

31.1 Certification of Chief Executive Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer Pursuant to 15 U.S.C. § 7241, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

101 The following unaudited financial information from our Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (1) Consolidated Balance Sheets as of September 30, 2014 and June 30, 2014; (2) Consolidated Condensed Statements of Operations for the three months ended September 30, 2013 and 2014; (3) Consolidated Condensed Statements of Cash Flows for the three months ended September 30, 2013 and 2014; and (4) Notes to Condensed Consolidated Financial Statements.

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 13, 2014	BY:	/s/  Alan R. Steel
		Alan R. Steel
		Executive Vice President,
		Finance and Administration
		(duly authorized officer and principal financial officer)

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EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

15 U.S.C. § 7241

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Haig S. Bagerdjian, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 13, 2014	/s/  Haig S. Bagerdjian
	Haig S. Bagerdjian
	Chairman of the Board of Directors,
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

15 U.S.C. § 7241

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Alan R. Steel, certify that:

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

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  November 13, 2014	/s/  Alan R. Steel
	Alan R. Steel
	Executive Vice President, Finance and Administration, and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Report of Point.360 (the “Company”) on Form 10-Q for the period ended September 30, 2014, 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. § 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 13, 2014

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. § 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Report of Point.360 (the “Company”) on Form 10-Q for the period ended September 30, 2014, 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. § 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 13, 2014

XML

Stock Rights Plan - Additional Information (Detail) (USD $)	1 Months Ended
	Jul. 31, 2007
Class of Warrant or Right [Line Items]
Dividends declared, number of rights received to purchase one one-hundredth of a share of preferred stock	1
Minimum stock percentage accumulated by a single person or group for the rights to become exercisable	20.00%
Rights expiration date	Aug. 06, 2017
Redemption price per right	0.0001
Price to receive in the merger stock of the Company or the acquiring company	20
Price to purchase one one-hundredth of a share of preferred stock	$ 10

XML

Property and Equipment (Detail) (USD $)	Sep. 30, 2014	Jun. 30, 2014
Property, Plant and Equipment [Line Items]
Land	$ 2,405,000
Buildings	6,012,000
Machinery and equipment	38,070,000
Leasehold improvements	9,060,000
Computer equipment	7,987,000
Equipment under capital lease	1,111,000
Office equipment, CIP	627,000
Subtotal	65,272,000
Less accumulated depreciation and amortization	(55,357,000)
Property and equipment, net	$ 9,915,000	$ 10,173,000

XML

Segment Revenues, Operating Loss and Total Assets (Detail) (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Jun. 30, 2014
Segment Reporting Information [Line Items]
Revenue	$ 5,131,000	$ 6,772,000
Operating income (loss)	(1,237,000)	(1,012,000)
Total Assets	15,944,000		17,049,000
Point.360
Segment Reporting Information [Line Items]
Revenue	5,039,000	6,662,000
Operating income (loss)	(1,132,000)	(844,000)
Total Assets	15,127,000		16,204,000
Movie Q
Segment Reporting Information [Line Items]
Revenue	92,000	110,000
Operating income (loss)	(105,000)	(168,000)
Total Assets	$ 817,000		$ 845,000

XML

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Sep. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 4- COMMITMENTS AND CONTINGENCIES

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

XML

Summary of Status of Stock Plans (Detail)	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2014 2007 Equity Incentive Plan	May 31, 2007 2007 Equity Incentive Plan	Sep. 30, 2014 2010 Incentive Plan	Nov. 30, 2010 2010 Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options originally available	6,000,000		2,000,000	2,000,000	4,000,000	4,000,000
Stock options outstanding	2,648,473	2,657,348	1,698,298		950,175
Options available for grant	3,315,787		269,537		3,046,250

XML

Recognized Stock-based compensation (Detail) (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense related to employee or director stock options recognized	$ 68,000	$ 63,000

XML

Summary of Stock Options Transactions (Detail) (USD $)	3 Months Ended
	Sep. 30, 2014
Number of Shares
Beginning Balance	2,657,348
Granted	5,000
Exercised	0
Cancelled	(13,875)
Ending Balance	2,648,473
Weighted Average Exercise Price
Beginning Balance	$ 0.83
Granted	$ 0.57
Exercised	$ 0
Cancelled	$ 0.89
Ending Balance	$ 0.83
Weighted Average Grant Date Fair Value
Beginning Balance	$ 0.52
Granted	$ 0.40
Exercised	$ 0
Cancelled	$ 0.53
Ending Balance	$ 0.52

XML

Weighted Average Exercise Prices for Options Granted and Exercisable and Weighted Average Remaining Contractual Life for Options Outstanding (Detail) (USD $)			3 Months Ended
	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2014 Employees	Sep. 30, 2014 Non-Employees
Number of Shares
Outstanding	2,648,473	2,657,348	2,505,973	142,500
Vested and Expected to Vest			2,255,376	142,500
Exercisable			1,064,873	127,500
Weighted Average Exercise Price
Outstanding	$ 0.83	$ 0.83	$ 0.82	$ 0.96
Vested and Expected to Vest			$ 0.82	$ 0.96
Exercisable			$ 0.97	$ 1.00
Weighted Average Remaining Contractual Life (Years)
Outstanding			2 years 8 months 5 days	2 years 2 months 19 days
Vested and Expected to Vest			2 years 8 months 5 days	2 years 2 months 19 days
Exercisable			1 year 7 months 13 days	1 year 11 months 26 days
Intrinsic Value
Outstanding			$ 0	$ 0
Vested and Expected to Vest			0	0
Exercisable			$ 0	$ 0

XML

PROPERTY AND EQUIPMENT

3 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

PROPERTY AND EQUIPMENT

NOTE 3- PROPERTY AND EQUIPMENT

In March 2006, the Company entered into a sale and leaseback transaction with respect to its Media Center real estate. The real estate was sold for approximately $14.0 million resulting in a $1.3 million after tax gain. In accordance with the Accounting Standards Codification (ASC) 840-40, the gain will be amortized over the initial 15-year lease term as reduced rent. Net proceeds at the closing of the sale were used to pay off the mortgage and other outstanding debt. A $250,000 security deposit related to the lease has been recorded as a deposit in “other assets, net” in the Condensed Consolidated Balance Sheets as of June 30, 2014 and September 30, 2014.

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 were $1,111,000, increasing annually thereafter based on the Consumer Price Index change from year to year.

In June 2011, the Company entered into a lease amendment with respect to the Company’s Media Center facility. The amendment provided that the landlord would reimburse the Company up to $2 million for the leasehold improvements to be made by the Company to the premises. The leasehold improvements would be recorded as a fixed asset and amortized over the remaining term of the lease (until March 2021). Pursuant to the lease amendment, the Company’s monthly lease costs increased by approximately $27,000 on April 1, 2012. The Company incurred $2.1 million of costs for construction, of which $2.0 million was reimbursed by the landlord. A deferred lease incentive has been recorded for the total amount reimbursed by the landlord in accordance with ASC 840-20. The lease incentive is being amortized over the remaining lease term as an offset to rent.

Property and equipment consist of the following as of September 30, 2014:

Land	$	2,405,000
Buildings		6,012,000
Machinery and equipment		38,070,000
Leasehold improvements		9,060,000
Computer equipment		7,987,000
Equipment under capital lease		1,111,000
Office equipment, CIP		627,000
Subtotal		65,272,000
Less accumulated depreciation and amortization		(55,357,000)
Property and equipment, net	$	9,915,000

XML

Additional Information with Respect to Outstanding Options (Detail) (USD $)			3 Months Ended
	Sep. 30, 2014	Jun. 30, 2014	Sep. 30, 2014 Range One	Sep. 30, 2014 Range Two	Sep. 30, 2014 Range Three	Sep. 30, 2014 Range Four	Sep. 30, 2014 Range Five	Sep. 30, 2014 Range Six	Sep. 30, 2014 Range Seven	Sep. 30, 2014 Range Eight	Sep. 30, 2014 Range Nine	Sep. 30, 2014 Range Ten	Sep. 30, 2014 Range Eleven	Sep. 30, 2014 Range Twelve	Sep. 30, 2014 Range Thirteen	Sep. 30, 2014 Range Fourteen Member
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Options Outstanding, Options Exercise Price Range			$ 1.29	$ 1.27	$ 1.15	$ 1.07	$ 1.05	$ 0.95	$ 0.86	$ 0.81	$ 0.80	$ 0.75	$ 0.74	$ 0.64	$ 0.57	$ 0.50
Options Outstanding, Number of Shares	2,648,473	2,657,348	296,100	15,000	22,500	22,500	22,500	234,775	517,435	820,363	22,500	75,000	22,500	15,000	5,000	557,300
Options Outstanding, Weighted Average Remaining Contractual Life			4 months 10 days	11 months 12 days	1 year 1 month 17 days	2 years 2 months 1 day	1 month 20 days	2 years 5 months 16 days	1 year 4 months 10 days	3 years 4 months 10 days	3 years 1 month 10 days	1 year 7 months 10 days	4 years 1 month 6 days	4 years 1 month 13 days	4 years 11 months 12 days	4 years 4 months 6 days
Options Exercisable, Weighted Average Exercise Price	$ 0.83	$ 0.83	$ 1.29	$ 1.27	$ 1.15	$ 1.07	$ 1.05	$ 0.95	$ 0.86	$ 0.81	$ 0.80	$ 0.75	$ 0.74	$ 0.64	$ 0.57	$ 0.50
Options Exercisable, Number of Shares			296,100	15,000	22,500	22,500	22,500	117,663	384,198	205,663	22,500	56,250	22,500	0	5,000	0
Options Exercisable, Weighted Average Remaining Contractual Life			4 months 10 days	11 months 12 days	1 year 1 month 17 days	2 years 2 months 1 day	1 month 20 days	2 years 5 months 16 days	1 year 4 months 10 days	3 years 4 months 10 days	3 years 1 month 10 days	1 year 7 months 10 days	4 years 1 month 6 days	4 years 1 month 13 days	4 years 11 months 12 days	4 years 4 months 6 days

XML

CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014
Current assets:
Cash and cash equivalents	$ 1,547	$ 2,346
Accounts receivable, net of allowances for doubtful accounts of $228 and $233, respectively	3,204	3,431
Inventories, net	188	230
Prepaid expenses and other current assets	457	230
Total current assets	5,396	6,237
Property and equipment, net	9,915	10,173
Other assets, net	633	639
Total assets	15,944	17,049
Current liabilities:
Current portion of notes payable	5,103	5,159
Current portion of capital lease obligations	280	326
Accounts payable	960	1,034
Accrued wages and benefits	1,241	1,019
Other accrued expenses	113	36
Current portion of deferred gain on sale of real estate	178	178
Current portion of deferred lease incentive	209	209
Total current liabilities	8,084	7,961
Deferred gain on sale of real estate, less current portion	981	1,025
Deferred lease incentive, less current portion	1,148	1,201
Other long term liabilities	6	1
Total long-term liabilities	2,135	2,227
Total liabilities	10,219	10,188
Commitments and contingencies (Note 4)
Shareholders’ equity:
Preferred stock - no par value; 5,000,000 shares authorized; none issued and outstanding	0	0
Common stock - no par value; 50,000,000 shares authorized; 10,536,906 shares issued and outstanding on June 30, 2014 and September 30, 2014	21,715	21,715
Additional paid-in capital	10,980	10,913
Accumulated deficit	(26,970)	(25,767)
Total shareholders’ equity	5,725	6,861
Total liabilities and shareholders’ equity	$ 15,944	$ 17,049

XML

THE COMPANY

3 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

THE COMPANY

Note 1 – THE COMPANY

Point.360 and subsidiaries (the “Company,” “we” or “our”) provides high definition and standard definition digital mastering, data conversion, video and film asset management and sophisticated computer graphics services to owners, producers and distributors of entertainment and advertising content. The Company provides the services necessary to edit, master, reformat, convert, archive and ultimately distribute its clients’ film and video content, including television programming feature films and movie trailers. The Company’s interconnected facilities provide service coverage to all major U.S. media centers. Clients include major motion picture studios and independent producers. The Company also rents and sells DVDs directly to consumers through its Movie>Q retail stores.

The Company operates in two business segments from three post production and three Movie>Q locations. Each post production location is electronically tied to the others and serves the same customer base. Depending on the location size, the production equipment consists of tape duplication, editing, encoding, standards conversion, and other machinery. Each location employs personnel with the skills required to efficiently run the equipment and handle customer requirements. While all locations are not exactly the same, an order received at one location may be fulfilled at one or more “sister” facilities to use resources in the most efficient manner.

Typically, a feature film or television show or related material will be submitted to a facility by a motion picture studio, independent producer, advertising agency, or corporation for processing and distribution. A common sales force markets the Company’s capability for all facilities. Once an order is received, the local customer service representative determines the most cost-effective way to perform the services considering geographical logistics and facility capabilities.

In fiscal 2010, the Company purchased assets and intellectual property for a research and development project to address the viability of the DVD rental business being abandoned by the closure of Movie Gallery/Hollywood Video and Blockbuster stores. The DVD rental market consists principally of online services (Netflix), vending machines (Redbox) and other video stores.

As of September 30, 2014, the Company had opened three Movie>Q stores in Southern California. The stores employ an automated inventory management (“AIM”) system in a 1,200-1,600 square foot facility. By saving space and personnel costs which caused the big box stores to be uncompetitive with lower priced online and vending machine rental alternatives, Movie>Q can offer up to 10,000 unit selections to a customer at competitive rental rates. Movie>Q provides online reservations, an in-store destination experience, first run movie titles and a large unit selection (as opposed to 400-700 for a Redbox vending machine).

Based on the success of the stores, the Company may seek to expand the number of Movie>Q stores while further streamlining the design and production of the AIM system. Movie>Q provides the Company with a content distribution capability complimentary to the Company’s post production business.

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts and transactions of the Company, including those of the Company’s subsidiaries. The statements have been prepared in accordance with accounting principles generally accepted in the United States of America and by 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. All intercompany balances and transactions have been eliminated in the Condensed Consolidated Financial Statements. Operating results for the three month period ended September 30, 2014 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2015. These financial statements should be read in conjunction with the financial statements and related notes contained in the Company’s Form 10-K for the period ended June 30, 2014.

Pro Forma Earnings (Loss) Per Share

A reconciliation of the denominator of the basic earnings per share (“EPS”) computation to the denominator of the diluted EPS computation is as follows (in thousands):

	Three Months Ended September 30,		Three Months Ended September 30,
	2013		2014
Pro forma weighted average of number of shares
Weighted average number of common shares outstanding used in computation of basic EPS		10,521		10,537
Dilutive effect of outstanding stock options		-		-
Weighted average number of common and potential Common shares outstanding used in computation of Diluted EPS		10,521		10,537
Effect of dilutive options excluded in the computation of diluted EPS due to net loss		249		27

The weighted average number of common shares outstanding were the same amount for both basic and diluted loss per share in the three month periods ended September 30, 2013 and 2014. The effect of potentially dilutive securities for those periods were excluded from the computation of diluted earnings per share because the Company reported a net loss, and the effect of inclusion would be anti-dilutive (i.e., including such securities would result in a higher earnings per share, or lower loss per share, respectively). There were 2,358,585 and 2,648,473 potentially dilutive shares at September 30, 2013 and 2014, respectively.

Fair Value Measurements

The Company follows a framework for consistently measuring fair value under generally accepted accounting principles, and the disclosures of fair value measurements. The framework provides a fair value hierarchy to classify the source of the information.  

The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value and include the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Cash, the only Level 1 input applicable to the Company (there are no Level 2 or 3 inputs), is stated on the Condensed Consolidated Balance Sheets at fair value.

As of September 30, 2014 the carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other current liabilities approximates fair value due to the short-term nature of such instruments. The carrying value of capital lease obligations, notes payable and other long-term liabilities approximates fair value as the related interest rates approximate rates currently available to the Company.

XML

Stock Repurchase Plan - Additional Information (Detail)	3 Months Ended
	Sep. 30, 2014
Schedule Of Stock Repurchase Plan [Line Items]
Shares purchased, shares	0

XML

Reconciliation of Denominator of Basic Earnings Per Share Computation to Denominator of Diluted Earnings Per Share Computation (Detail)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share Disclosure [Line Items]
Pro forma weighted average of number of shares Weighted average number of common shares outstanding used in computation of basic EPS	10,536,906	10,520,913
Dilutive effect of outstanding stock options	0	0
Weighted average number of common and potential Common shares outstanding used in computation of Diluted EPS	10,536,906	10,520,913
Effect of dilutive options excluded in the computation of diluted EPS due to net loss	2,648,473	2,358,585
Stock Options
Earnings Per Share Disclosure [Line Items]
Effect of dilutive options excluded in the computation of diluted EPS due to net loss	27,000	249,000

XML

Segment Information - Additional Information (Detail)	3 Months Ended
	Sep. 30, 2014
Segment Reporting Information [Line Items]
Number of business segments	2
Unit selections offered to a customer	10,000
Movie Q | Minimum
Segment Reporting Information [Line Items]
Store facility area	1,200
Movie Q | Maximum
Segment Reporting Information [Line Items]
Store facility area	1,600
Unit selections offered to a customer	10,000

XML

Property And Equipment - Additional Information (Detail) (USD $)	1 Months Ended		3 Months Ended
	Apr. 01, 2012	Mar. 31, 2006	Sep. 30, 2014	Jun. 30, 2011
Property, Plant and Equipment [Line Items]
Sale and leaseback transaction, real estate sold, amount		$ 14,000,000
Sale and leaseback transaction, real estate sold, after tax gain		1,300,000
Sale and leaseback transaction, lease term		15 years
Sale and leaseback transaction, security deposit		250,000
Sale and leaseback transaction, number of options to extend the lease		4
Sale and leaseback transaction, period of options to extend the lease		5 years
Sale and leaseback transaction, minimum annual rent payments for the initial five years of the lease		1,111,000
Sale and leaseback transaction, maximum amount to be reimbursed to the Company for the leasehold improvements				2,000,000
Sale and leaseback transaction, lease expiration date			Mar. 31, 2021
Sale and leaseback transaction, monthly lease costs	27,000
Sale and leaseback transaction, costs for construction incurred			2,100,000
Sale and leaseback transaction, costs for construction reimbursed by the landlord			$ 2,000,000

XML

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

3 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

NOTE 2- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS

In August and September of 2012 (subsequently modified on December 18, 2013 and September 5, 2014), the Company entered into revolving credit, equipment financing and two mortgage agreements with a bank, as follows:

Revolving Credit Facility. The revolving credit facility provides up to $2 million of credit with borrowings limited to the lesser of (a) 80% of eligible accounts receivable, as defined, less $600,000 or (b) $1,000,000. The agreement provides for interest at the lower of (i) Libor plus 3.5% or (ii) the bank’s alternative base rate plus 2.5% plus 0.25% per annum assessed on the unused portion of the credit commitment. The maturity date is September 30, 2015 and is renewable for an additional year on each anniversary date upon mutual agreement of the parties.

Equipment Financing Facility. The equipment financing facility previously provided up to $1.25 million of financing for the cost of new and already-owned or leased equipment. The agreement provided for interest at the bank’s cost of funds plus 3% (3.89% as of September 30, 2014). The maturity date for each “schedule” of equipment is up to four years from the borrowing date. The facility expired on August 14, 2014.

Hollywood Way and Vine Street Mortgages. In September 2012, the Company entered into two real estate term loan agreements with respect to its Hollywood Way and Vine Street locations for $5.5 million and $3.1 million, respectively. The Vine mortgage was paid off upon sale of the building in June 2014. The remaining Hollywood Way loan provides for interest at Libor plus 3% (3.15% as of September 30, 2014). Repayment is based on monthly payments with a 25-year amortization, with all principal due in 10 years. The real estate loan is secured by a first trust deed on the property.

General Terms. All amounts due under the revolving credit facility, equipment financing facility and term mortgage facilities are secured by all personal property and real estate of the Company. While amounts are outstanding under the credit arrangements, the Company will be subject to financial covenants measured quarterly as follows:

1. Minimum TNW rising from $6.25 million at September 30, 2014 to $7 million after March 31, 2015 (the Company’s actual TNW was $5.7 million as of September 30, 2014).

2. Minimum EBITDA (as defined) rising from $250,000 for the quarter ended September 30, 2014 to $750,000 in subsequent quarters, provided that EBITDA may be a minimum of $500,000 in any one quarter within four consecutive quarters (the Company’s EBITDA was a negative $0.8 million for the quarter ended September 30, 2014).

3. Minimum quarterly fixed charge ratio (as defined) rising from 0.70 for the quarter ended September 30, 2014 to 1.25 in subsequent quarters (the Company’s fixed charge ratio was a negative 3.35 for the quarter ended September 30, 2014).

4. Minimum TTM fixed charge ratio (as defined) rising from 0.25 for the TTM ending September 30, 2014, to 0.75 for the TTM ending December 31, 2014, and 1.25 in subsequent TTM periods (the Company’s TTM fixed charge ratio was a negative 0.62 for the TTM ended September 30, 2014).

All obligations to the bank are cross collateralized. The agreements contain certain other terms and conditions common with such arrangements.

As of September 30, 2014 the Company did not meet the TNW, the minimum quarterly EBITDA, and the minimum quarterly and TTM fixed charge ratio covenants, and availability under the revolving credit facility has been suspended. Although the bank has not elected to accelerate the Company’s obligations under the agreement, the balance owed for the mortgage debt and capital leases has been classified as a current liability in the consolidated balance sheet as of September 30, 2014.

Amounts Borrowed. As of September 30, 2014, the Company had no outstanding borrowings under the revolving credit facility, $0.3 million borrowed under the equipment financing facility, and $5.1 million of mortgage debt.

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014
Accounts receivable, allowances for doubtful accounts	$ 233	$ 228
Preferred stock, no par value	$ 0	$ 0
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred Stock, Shares Issued	0	0
Preferred stock, outstanding	0	0
Common stock, no par value	$ 0	$ 0
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	10,536,906	10,536,906
Common stock, shares outstanding	10,536,906	10,536,906

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PROPERTY AND EQUIPMENT (Tables)

3 Months Ended

Sep. 30, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and equipment consist of the following as of September 30, 2014:

Land	$	2,405,000
Buildings		6,012,000
Machinery and equipment		38,070,000
Leasehold improvements		9,060,000
Computer equipment		7,987,000
Equipment under capital lease		1,111,000
Office equipment, CIP		627,000
Subtotal		65,272,000
Less accumulated depreciation and amortization		(55,357,000)
Property and equipment, net	$	9,915,000

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Document And Entity Information	3 Months Ended
	Sep. 30, 2014
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Entity Registrant Name	Point.360
Entity Central Index Key	0001398797
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Trading Symbol	PTSX
Entity Common Stock, Shares Outstanding	10,536,906

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STOCK OPTION PLAN, STOCK-BASED COMPENSATION (Tables)

3 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Stock-based Compensation Expense Related To Employee or Director Stock Options

Stock-based compensation expense related to employee or director stock options recognized for the three month periods ended September 30, 2013 and 2014 was as follows:

Three months ended September 30, 2013	$	63,000
Three months ended September 30, 2014	$	68,000

Summary of Status of Stock Plans

The following table summarizes the status of the 2007 and 2010 Plans as of September 30, 2014:

	2007 Plan		2010 Plan		Total
Options originally available		2,000,000		4,000,000		6,000,000
Stock options outstanding		1,698,298		950,175		2,648,473
Options available for grant		269,537		3,046,250		3,315,787

Summary of Stock Options Transactions

Transactions involving stock options are summarized as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Balance at June 30, 2014		2,657,348	$	0.83	$	0.52
Granted		5,000	$	0.57	$	0.40
Exercised		-		-		-
Cancelled		(13,875)	$	0.89	$	0.53
Balance at September 30, 2014		2,648,473	$	0.83	$	0.52

Weighted Average Exercise Prices for Options Granted and Exercisable and Weighted Average Remaining Contractual Life for Options Outstanding

The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of September 30, 2014 were as follows:

	Number of Shares		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Life (Years)		Intrinsic Value ($)
Employees – Outstanding		2,505,973	$	0.82		2.68	$	—
Employees – Expected to Vest		2,255,376	$	0.82		2.68	$	—
Employees – Exercisable		1,064,873	$	0.97		1.62	$	—
Non-Employees-Outstanding		142,500	$	0.96		2.22	$	—
Non-Employees- Expected to Vest		142,500	$	0.96		2.22	$	—
Non-Employees-Exercisable		127,500	$	1.00		1.99	$	—

Additional Information with Respect to Outstanding Options

Additional information with respect to outstanding options as of September 30, 2014 is as follows:

Options Outstanding					Options Exercisable
Options Exercise Price Range		Number of Shares		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number of Shares		Weighted Average Remaining Contractual Life
	1.29		296,100	0.36 years			1.29		296,100	0.36 years
	1.27		15,000	0.95 years			1.27		15,000	0.95 years
	1.15		22,500	1.13 years			1.15		22,500	1.13 years
	1.07		22,500	2.17 years			1.07		22,500	2.17 years
	1.05		22,500	0.14 years			1.05		22,500	0.14 years
	0.95		234,775	2.46 years			0.95		117,663	2.46 years
	0.86		517,435	1.36 years			0.86		384,198	1.36 years
	0.81		820,363	3.36 years			0.81		205,663	3.36 years
	0.80		22,500	3.11 years			0.80		22,500	3.11 years
	0.75		75,000	1.61 years			0.75		56,250	1.61 years
	0.74		22,500	4.10 years			0.74		22,500	4.10 years
	0.64		15,000	4.12 years			0.64		-	4.12 years
	0.57		5,000	4.95 years			0.57		5,000	4.95 years
	0.50		557,300	4.35 years			0.50		-	4.35 years

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Revenues	$ 5,131,000	$ 6,772,000
Cost of services sold	(3,772,000)	(4,738,000)
Gross profit	1,359,000	2,034,000
Selling, general and administrative expense	(2,596,000)	(3,046,000)
Operating loss	(1,237,000)	(1,012,000)
Interest expense	(46,000)	(74,000)
Other income	79,000	79,000
Loss before income taxes	(1,204,000)	(1,007,000)
Provision for income taxes	0	0
Net loss	$ (1,204,000)	$ (1,007,000)
Basic:
Net loss	$ (0.11)	$ (0.10)
Weighted average number of shares	10,536,906	10,520,913
Diluted:
Net loss	$ (0.11)	$ (0.10)
Weighted average number of shares including the dilutive effect of stock options	10,536,906	10,520,913

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STOCK RIGHTS PLAN

3 Months Ended

Sep. 30, 2014

Stock Rights Plan [Abstract]

STOCK RIGHTS PLAN

NOTE 7- STOCK RIGHTS PLAN

In July 2007, the Company implemented a stock rights program. Pursuant to the program, stockholders of record on August 7, 2007, received a dividend of one right to purchase for $10 one one-hundredth of a share of a newly created Series A Junior Participating Preferred Stock. The rights are attached to the Company’s Common Stock and will also become attached to shares issued subsequent to August 7, 2007. The rights will not be traded separately and will not become exercisable until the occurrence of a triggering event, defined as an accumulation by a single person or group of 20% or more of the Company’s Common Stock. The rights will expire on August 6, 2017 and are redeemable at $0.0001 per right.

After a triggering event, the rights will detach from the Common Stock. If the Company is then merged into, or is acquired by, another corporation, the Company has the opportunity to either (i) redeem the rights or (ii) permit the rights holder to receive in the merger stock of the Company or the acquiring company equal to two times the exercise price of the right (i.e., $20). In the latter instance, the rights attached to the acquirer’s stock become null and void. The effect of the rights program is to make a potential acquisition of the Company more expensive for the acquirer if, in the opinion of the Company’s Board of Directors, the offer is inadequate.

No triggering events occurred in the three months ended September 30, 2014.

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STOCK OPTION PLAN, STOCK-BASED COMPENSATION

3 Months Ended

Sep. 30, 2014

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

STOCK OPTION PLAN, STOCK-BASED COMPENSATION

NOTE 6- STOCK OPTION PLAN, STOCK-BASED COMPENSATION

In May 2007, the Board of Directors approved the 2007 Equity Incentive Plan (the “2007 Plan”). The 2007 Plan provides for the award of options to purchase up to 2,000,000 shares of common stock, appreciation rights and restricted stock awards.

In November 2010, the shareholders approved the 2010 Incentive Plan (the “2010 Plan”). The 2010 Plan provides for the award of options to purchase up to 4,000,000 shares of common stock, appreciation rights and restricted stock and performance awards.

Under the 2007 and 2010 Plans, the stock option price per share for options granted is determined by the Board of Directors and is based on the market price of the Company’s common stock on the date of grant, and each option is exercisable within the period and in the increments as determined by the Board, except that no option can be exercised later than ten years from the grant date. The stock options generally vest in one to five years.

The Company measures and recognizes compensation expense for all share-based payment awards made to employees and directors based on estimated fair values. We also estimate the fair value of the award that is ultimately expected to vest to be recognized as expense over the requisite service periods in the Condensed Consolidated Statements of Operations.

We estimate the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s Condensed Consolidated Statements of Operations. Stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the three month period ended September 30, 2014 included compensation expense for the share-based payment awards based on the grant date fair value. For stock-based awards issued to employees and directors, stock-based compensation is attributed to expense using the straight-line single option method. As stock-based compensation expense recognized in the Condensed Consolidated Statements of Operations for the periods reported in this Form 10-Q is based on awards expected to vest, forfeitures are also estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. For the period being reported in this Form 10-Q, expected forfeitures are immaterial. The Company will re-assess the impact of forfeitures if actual forfeitures increase in future quarters. Stock-based compensation expense related to employee or director stock options recognized for the three month periods ended September 30, 2013 and 2014 was as follows:

Three months ended September 30, 2013	$	63,000
Three months ended September 30, 2014	$	68,000

The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant uses the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the expected term of the awards, and actual and projected employee stock options exercise behaviors. The Company estimates expected volatility using historical data. The expected term is estimated using the “safe harbor” provisions provided by the SEC.

During the three month period ended September 30, 2014 the Company granted awards of 5,000 stock options at an exercise price of $0.57 per share.

The following table summarizes the status of the 2007 and 2010 Plans as of September 30, 2014:

	2007 Plan		2010 Plan		Total
Options originally available		2,000,000		4,000,000		6,000,000
Stock options outstanding		1,698,298		950,175		2,648,473
Options available for grant		269,537		3,046,250		3,315,787

Transactions involving stock options are summarized as follows:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value
Balance at June 30, 2014		2,657,348	$	0.83	$	0.52
Granted		5,000	$	0.57	$	0.40
Exercised		-		-		-
Cancelled		(13,875)	$	0.89	$	0.53
Balance at September 30, 2014		2,648,473	$	0.83	$	0.52

As of September 30, 2014, the total compensation costs related to non-vested awards yet to be expensed was approximately $0.5 million to be amortized over the next four years.

The weighted average exercise prices for options granted and exercisable and the weighted average remaining contractual life for options outstanding as of September 30, 2014 were as follows:

	Number of Shares		Weighted Average Exercise Price ($)		Weighted Average Remaining Contractual Life (Years)		Intrinsic Value ($)
Employees – Outstanding		2,505,973	$	0.82		2.68	$	—
Employees – Expected to Vest		2,255,376	$	0.82		2.68	$	—
Employees – Exercisable		1,064,873	$	0.97		1.62	$	—
Non-Employees-Outstanding		142,500	$	0.96		2.22	$	—
Non-Employees- Expected to Vest		142,500	$	0.96		2.22	$	—
Non-Employees-Exercisable		127,500	$	1.00		1.99	$	—

The aggregate intrinsic value in the table above is the sum of the amounts by which the quoted market price of the Company’s common stock exceeded the exercise price of the options at September 30, 2014, for those options for which the quoted market price was in excess of the exercise price.

Additional information with respect to outstanding options as of September 30, 2014 is as follows:

Options Outstanding					Options Exercisable
Options Exercise Price Range		Number of Shares		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number of Shares		Weighted Average Remaining Contractual Life
	1.29		296,100	0.36 years			1.29		296,100	0.36 years
	1.27		15,000	0.95 years			1.27		15,000	0.95 years
	1.15		22,500	1.13 years			1.15		22,500	1.13 years
	1.07		22,500	2.17 years			1.07		22,500	2.17 years
	1.05		22,500	0.14 years			1.05		22,500	0.14 years
	0.95		234,775	2.46 years			0.95		117,663	2.46 years
	0.86		517,435	1.36 years			0.86		384,198	1.36 years
	0.81		820,363	3.36 years			0.81		205,663	3.36 years
	0.80		22,500	3.11 years			0.80		22,500	3.11 years
	0.75		75,000	1.61 years			0.75		56,250	1.61 years
	0.74		22,500	4.10 years			0.74		22,500	4.10 years
	0.64		15,000	4.12 years			0.64		-	4.12 years
	0.57		5,000	4.95 years			0.57		5,000	4.95 years
	0.50		557,300	4.35 years			0.50		-	4.35 years

In addition to the above 2007 Plan, the Company issued 10,000 shares of restricted stock during fiscal year ended June 30, 2010 with a weighted average fair value of $0.58 per share.

We use the detailed method provided in ASC 718 for calculating the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation, and to determine the subsequent impact on the APIC pool and the Condensed Consolidated Statements of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of ASC 718.

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NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS - Additional Information (Detail) (USD $)	3 Months Ended								3 Months Ended
	Sep. 30, 2014	Sep. 30, 2014 Subsequent Event [Member]	Sep. 30, 2014 Minimum Agreement	Sep. 30, 2014 Minimum in Any One Quarter Within Four Consecutive Quarters	Dec. 31, 2014 Minimum in Any One Quarter Within Four Consecutive Quarters	Sep. 30, 2014 Minimum in Any One Quarter Within Four Consecutive Quarters Subsequent Event [Member]	Sep. 30, 2012 Real Estate Term Loan One	Sep. 30, 2012 Real Estate Term Loan Two	Sep. 30, 2014 Revolving Credit Facility	Sep. 30, 2014 Revolving Credit Facility Libor Rate	Sep. 30, 2014 Revolving Credit Facility Alternative Option For Interest Rate	Sep. 30, 2014 Equipment Financing Facilities	Sep. 30, 2014 Minimum trailing
Debt Instrument [Line Items]
Credit agreement												$ 1,250,000
Debt instrument interest rate basis for effective percentage	Libor plus 3%
Debt instrument interest rate for effective percentage	3.15%
Debt instruments, amortization period (in years)	25 years
Debt instruments, principal amount due period (in years)	10 years
Credit facility, maturity date									Sep. 30, 2015			Aug. 14, 2014
Outstanding borrowings									300,000			5,100,000
Interest rate spread										3.50%	2.50%	3.00%
Credit agreement, interest rate												3.89%
Per annum assessed on the unused portion of the credit commitment											0.25%
General terms, tangible net worth	5,700,000	7,000,000		6,250,000
General terms, quarterly EBITDA	800,000	750,000	250,000	500,000
General terms, quarterly fixed charge ratio	3.35	1.25	0.70	0.62	0.75	1.25							0.25
Long term construction loan agreements, value							$ 5,500,000	$ 3,100,000
Line of credit facility borrowing capacity	The revolving credit facility provides up to $2 million of credit with borrowings limited to the lesser of (a) 80% of eligible accounts receivable, as defined, less $600,000 or (b) $1,000,000.

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SHAREHOLDER'S EQUITY (Tables)

3 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

Components of shareholders' equity

The following table analyzes the components of shareholders’ equity from June 30, 2014 to September 30, 2014 (in thousands):

	Common Stock		Paid-in Capital		Accumulated (Deficit)		Shareholders Equity
Balance, June 30, 2014	$	21,715	$	10,912	$	(25,766)	$	6,861
Stock-based compensation expense		-		68		-		68
Net loss		-		-		(1,204)		(1,204)
Balance, September 30, 2014	$	21,715	$	10,980	$	(26,970)	$	5,725

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SEGMENT INFORMATION:

3 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

SEGMENT INFORMATION

NOTE 10- SEGMENT INFORMATION:

In its operation of the business, management reviews certain financial information, including segmented internal profit and loss statements prepared on a basis consistent with U.S. generally accepted accounting principles. Our two segments are Point.360 and Movie>Q. The two segments discussed in this analysis are presented in the way we internally managed and monitored performance for the three month periods ended September 30, 2013 and 2014. Allocations for internal resources were made for the periods. The Movie>Q segment tracks certain assets separately, and all others are recorded in the Point.360 segment for internal reporting presentations. Cash was not segregated between the two segments but retained in the Point.360 segment.

The types of services provided by each segment are summarized below:

Point.360 – The Point.360 segment provides high definition and standard definition digital mastering, data conversion, video and film asset management and other services to owners, producers and distributors of entertainment and advertising content. Point.360 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 segment’s interconnected facilities provide service coverage to all major U.S. media centers. Clients include major motion picture studios and independent producers.

Movie>Q – The Movie>Q segment rents and sells DVDs directly to consumers though its retail stores. The stores employ an automated inventory management (“AIM”) system in a 1,200-1,600 square foot facility. By saving space and personnel costs which caused the big box stores to be uncompetitive with lower priced online and vending machine rental alternatives, Movie>Q can offer up to 10,000 unit selections to a customer at competitive rental rates. Movie>Q provides online reservations, an in-store destination experience, first run movie and game titles and a large unit selection.

Segment revenues, operating loss and total assets were as follows (in thousands):

Revenue	Three Months Ended September 30,
	2013		2014
Point.360	$	6,662	$	5,039
Movie>Q		110		92
Consolidated revenue	$	6,772	$	5,131

Operating loss	Three Months Ended September 30,
	2013		2014
Point.360	$	(844)	$	(1,132)
Movie>Q		(168)		(105)
Operating loss	$	(1,012)	$	(1,237)

Total Assets	June 30,		September 30,
	2014		2014
Point.360	$	16,204	$	15,127
Movie>Q		845		817
Consolidated assets	$	17,049	$	15,944

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SHAREHOLDER'S EQUITY

3 Months Ended

Sep. 30, 2014

Stockholders' Equity Note [Abstract]

SHAREHOLDER'S EQUITY

NOTE 8- SHAREHOLDER’S EQUITY

The following table analyzes the components of shareholders’ equity from June 30, 2014 to September 30, 2014 (in thousands):

	Common Stock		Paid-in Capital		Accumulated (Deficit)		Shareholders Equity
Balance, June 30, 2014	$	21,715	$	10,912	$	(25,766)	$	6,861
Stock-based compensation expense		-		68		-		68
Net loss		-		-		(1,204)		(1,204)
Balance, September 30, 2014	$	21,715	$	10,980	$	(26,970)	$	5,725

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STOCK REPURCHASE PLAN

3 Months Ended

Sep. 30, 2014

Stock Repurchase Plan [Abstract]

STOCK REPURCHASE PLAN

NOTE 9- STOCK REPURCHASE PLAN

In February 2008, the Company’s Board of Directors authorized a stock repurchase program. Under the stock repurchase program, the Company may purchase outstanding shares of its common stock on the open market at such times and prices determined in the sole discretion of management. No shares were acquired pursuant to the repurchase program during the three months ended September 30, 2014.

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THE COMPANY (Tables)

3 Months Ended

Sep. 30, 2014

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Reconciliation of Denominator of Basic Earnings Per Share Computation to Denominator of Diluted Earnings Per Share Computation

A reconciliation of the denominator of the basic earnings per share (“EPS”) computation to the denominator of the diluted EPS computation is as follows (in thousands):

	Three Months Ended September 30,		Three Months Ended September 30,
	2013		2014
Pro forma weighted average of number of shares
Weighted average number of common shares outstanding used in computation of basic EPS		10,521		10,537
Dilutive effect of outstanding stock options		-		-
Weighted average number of common and potential Common shares outstanding used in computation of Diluted EPS		10,521		10,537
Effect of dilutive options excluded in the computation of diluted EPS due to net loss		249		27

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Components of shareholders' equity (Detail) (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Beginning Balance	$ 6,861,000
Stock-based compensation expense	68,000
Net loss	(1,204,000)	(1,007,000)
Ending Balance	5,725,000
Common Stock
Beginning Balance	21,715,000
Stock-based compensation expense	0
Net loss	0
Ending Balance	21,715,000
Paid-in Capital
Beginning Balance	10,912,000
Stock-based compensation expense	68,000
Net loss	0
Ending Balance	10,980,000
Accumulated (Deficit)
Beginning Balance	(25,766,000)
Stock-based compensation expense	0
Net loss	(1,204,000)
Ending Balance	$ (26,970,000)

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The Company - Additional Information (Detail)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of business segments	2
Unit selections offered to a customer	10,000
Effect of dilutive options excluded in the computation of diluted EPS due to net loss	2,648,473	2,358,585
Post Production
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of business segments	3
Movie Q
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Number of business locations	3
Number of stores opened	3
Movie Q | Minimum
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Store facility area	1,200
Movie Q | Maximum
Organization, Consolidation and Presentation of Financial Statements Disclosure [Line Items]
Store facility area	1,600
Unit selections offered to a customer	10,000

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Income Taxes - Additional Information (Detail) (USD $)	3 Months Ended
	Sep. 30, 2014
Income Taxes [Line Items]
Net deferred tax assets	$ 0
Tax benefit	$ 0

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net loss	$ (1,204,000)	$ (1,007,000)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	335,000	501,000
Amortization of deferred gain on real estate	(45,000)	(45,000)
Amortization of deferred lease credit	(52,000)	(52,000)
Provision for doubtful accounts	5,000	6,000
Stock compensation expense	68,000	63,000
Stock option exercises	0	17,000
Changes in operating assets and liabilities:
Decrease in accounts receivable	222,000	875,000
Decrease in inventories	42,000	40,000
(Increase) in prepaid expenses and other current assets	(226,000)	(30,000)
Decrease in prepaid income taxes	0	2,000
(Increase) decrease in other assets	5,000	(2,000)
Increase (decrease) in accounts payable	(73,000)	64,000
Increase in accrued wages and benefits	221,000	124,000
Increase in other accrued expenses	82,000	76,000
Net cash provided by (used in) operating activities	(620,000)	632,000
Cash flows from investing activities:
Capital expenditures	(77,000)	(72,000)
Net cash (used in) investing activities	(77,000)	(72,000)
Cash flows from financing activities:
Repayment of notes payable	(55,000)	(86,000)
Repayments Of Capital Lease Obligations	(47,000)	(36,000)
Net cash (used in) financing activities	(102,000)	(122,000)
Net increase (decrease) in cash and cash equivalents	(799,000)	438,000
Cash and cash equivalents at beginning of period	2,346,000	1,696,000
Cash and cash equivalents at end of period	1,547,000	2,134,000
Cash payments for income taxes (net of refunds)	0	2,000
Cash payments for interest	46,000	73,000
Acquisition of capital leases	$ 0	$ 116,000

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INCOME TAXES

3 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 5- INCOME TAXES

The Company reviewed its Accounting Standards Codification (“ASC”) 740-10 documentation for the periods through September 30, 2014 to ascertain if any changes should be made with respect to tax positions previously taken. In addition, the Company reviewed its income tax reporting through September 30, 2014. Based on Company’s review of its tax positions as of September 30, 2014, no new uncertain tax positions have been identified; nor has new information become available that would change management’s judgment with respect to tax positions previously taken.

As of September 30, 2014, the Company had no net deferred tax assets.  No tax benefit was recorded during the three month period ended September 30, 2014 because future realizability of such benefit was not considered to be more likely than not. 

The ASC prescribes a recognition and measurement of a tax position taken or expected to be taken in a tax return and provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure, and transition.

The Company files income tax returns in the U.S. federal jurisdiction, and various state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal state or local income tax examinations by tax authorities for years before 2008.

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Stock Option Plan, Stock-Based Compensation - Additional Information (Detail) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended	1 Months Ended	12 Months Ended					1 Months Ended
	Sep. 30, 2014	Nov. 30, 2010 2007 Equity Incentive Plan	Jun. 30, 2010 2007 Equity Incentive Plan	Sep. 30, 2014 2007 Equity Incentive Plan	May 31, 2007 2007 Equity Incentive Plan	Sep. 30, 2014 2010 Incentive Plan	Nov. 30, 2010 2010 Incentive Plan	Nov. 30, 2010 2010 Incentive Plan Minimum	Nov. 30, 2010 2010 Incentive Plan Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options originally available	6,000,000			2,000,000	2,000,000	4,000,000	4,000,000
Options expiration period		10 years						1 year	5 years
Compensation cost related to non-vested awards to be expensed, recognition period	4 years
Restricted stock issued			10,000
Restricted stock issued, weighted average fair value			$ 0.58
Share Based Compensation Arrangement By Share Based Payment Award Options Grants In Period Aggregate Fair Value	$ 0.5
Share-Based Compensation Arrangement By Share-Based Payment Award, Options, Grants In Period, Gross	5,000
Share-Based Compensation Arrangements By Share-Based Payment Award, Options, Grants In Period, Weighted Average Exercise Price	$ 0.57

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SEGMENT INFORMATION: (Tables)

3 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Revenues, Operating Loss and Total Assets

Segment revenues, operating loss and total assets were as follows (in thousands):

Revenue	Three Months Ended September 30,
	2013		2014
Point.360	$	6,662	$	5,039
Movie>Q		110		92
Consolidated revenue	$	6,772	$	5,131

Operating loss	Three Months Ended September 30,
	2013		2014
Point.360	$	(844)	$	(1,132)
Movie>Q		(168)		(105)
Operating loss	$	(1,012)	$	(1,237)

Total Assets	June 30,		September 30,
	2014		2014
Point.360	$	16,204	$	15,127
Movie>Q		845		817
Consolidated assets	$	17,049	$	15,944