UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): | July 8, 2015 | ||||
POINT.360 | |||||
(Exact name of registrant as specified in its charter) | |||||
California | 0-21917 | 01-0893376 | |||
(State or Other Jurisdiction of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) | |||
2701 Media Center Drive, Los Angeles, California 90065 (Address of Principal Executive Offices) |
|||||
(818) 565-1400 | |||||
(Registrant’s Telephone Number) | |||||
________________________________________
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Explanatory Note
On July 14, 2015, Point.360, a California corporation (the “Company”), filed with the Securities and Exchange Commission a Current Report on Form 8-K (the “Initial Report”) in connection with the completion on July 8, 2015 of the previously announced purchase of certain assets of Modern VideoFilm, Inc.. In response to Items 9.01(a) and 9.01(b) of the Initial Report, the Company indicated that it would file the required financial information by amendment, as permitted by Items 9.01(a)(4) and 9.01(b)(2) to Form 8-K. This amendment to the Current Report on Form 8-K/A (this “Amendment”) amends Items 9.01(a) and 9.01(b) of the Initial Report to provide the required financial information. The information reported in the Initial Report is incorporated by reference into this Amendment.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The audited financial statements of Modern VideoFilm, Inc. as of and for the two years ended May 31, 2014 and 2015 are attached as Exhibit 99.1 to this Amendment.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed combined financial information reflecting the Company’s acquisition of certain assets of Modern VideoFilm, Inc. as of and for the year ended June 30, 2015 is attached as Exhibit 99.2 to this Amendment. The pro forma unaudited financial statements are presented for illustrative purposes only. They are not necessarily indicative of the operating results or financial position that would have been achieved had the acquisition been consummated as of the dates indicated or of the results that may be obtained for future periods.
(d) Exhibits.
Exhibit No. | Description | |
2.1 | Sale Agreement Pursuant to Article 9 of the Uniform Commercial Code, dated as of July 8, 2015, among Point.360, Haig S. Bagerdjian, Medley Capital Corporation, Medley Opportunity Fund II LP, Congruent Credit Opportunities Fund II, LP and Main Street Equity Interests, Inc. (previously filed by the Company on July 14, 2015 as Exhibit 2.1 to the Company’s Current Report on Form 8-K, and incorporated herein by reference). | |
99.1 | Audited consolidated financial statements of Modern VideoFilm, Inc. as of and for the years ended May 1, 2014 and 2015.* | |
99.2 | Unaudited pro forma condensed combined balance sheet as of June 30, 2015 and the related unaudited pro forma condensed combined statements of operations for the year ended June 30, 2015, and the notes related thereto.* | |
*Filed herewith
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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 hereunto duly authorized.
September 22, 2015 | By: | /s/ ALAN STEEL |
Alan Steel | ||
Executive Vice President, Finance and | ||
Administration, and Chief Financial Officer | ||
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Exhibit 99.1
Modern VideoFilm, Inc. and Subsidiaries
Index
Page | |
Independent Auditor’s Report | 2-3 |
Consolidated Balance Sheets | |
as of May 31, 2015 and 2014 | 4 |
Consolidated Statements of Operations | |
for the years ended May 31, 2015 and 2014 | 5 |
Consolidated Statements of Stockholder’s Deficit | |
for the years ended May 31, 2015 and 2014 | 6 |
Consolidated Statements of Cash Flows | |
for the years ended May 31, 2015 and 2014 | 7 |
Notes to Consolidated Financial Statements | 8 - 16 |
Independent Auditor’s Report
To the Shareholder, Lender and Management of
Modern VideoFilm, Inc. and Subsidiaries
Los Angeles, California
We have audited the accompanying consolidated financial statements of Modern VideoFilm, Inc. and Subsidiaries, which comprise the consolidated balance sheets as of May 31, 2015 and 2014, and the related consolidated statements of operations, stockholder’s deficit, and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Modern VideoFilm, Inc. and Subsidiaries as of May 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
The accompanying financial statements have been prepared assuming that Modern VideoFilm, Inc. and Subsidiaries will continue as a going concern. As described in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
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During the year ended May 31, 2015, Modern VideoFilm, Inc. and Subsidiaries’ primary creditor exercised its rights under the loan agreement and replaced the Company’s board of directors with its nominee. As described in Note 1, the new director then engaged a restructuring firm to manage the daily affairs of the Company. During this time Modern VideoFilm, Inc. and Subsidiaries were not meeting their obligations to other parties in the normal course of business and subsequent to May 31, 2015, the primary creditor took possession of all assets as a result of the Company’s continuing defaults under the loan agreement. Subsequent to May 31, 2015, certain assets of the Company were sold to an unrelated party and operations ceased. Our opinion is not modified with respect to this matter.
/s/ BDO USA, LLP
Los Angeles, California
September 14, 2015
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Modern VideoFilm, Inc. and Subsidiaries
Consolidated Balance Sheets
(dollar amounts in thousands)
May 31, | 2015 | 2014 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 990 | $ | 1,433 | ||||
Accounts receivable, net of allowance of $225 and $262, respectively | 4,541 | 6,431 | ||||||
Inventories | 94 | 169 | ||||||
Prepaid expenses | 247 | 291 | ||||||
Other current assets | 1,028 | 1,260 | ||||||
Total current assets | 6,900 | 9,584 | ||||||
Property and equipment, net | 5,684 | 26,268 | ||||||
Receivable from officer and affiliated company, net of allowance of $3,657 and $3,587, respectively | - | - | ||||||
Deposits and other assets | 1,275 | 2,191 | ||||||
Total assets | $ | 13,859 | $ | 38,043 | ||||
Liabilities and Stockholder’s Deficit | ||||||||
Current portion of notes and credit facility obligations | $ | 73,772 | $ | 974 | ||||
Accounts payable | 1,737 | 1,327 | ||||||
Accrued liabilities | 2,552 | 3,614 | ||||||
Total current liabilities | 78,061 | 5,915 | ||||||
Notes and credit facility obligations, less current portion | - | 60,831 | ||||||
Other long-term liabilities | 9,978 | 10,432 | ||||||
Total liabilities | 88,039 | 77,178 | ||||||
Commitments and Contingencies (Notes 7 and 12) | ||||||||
Stockholder’s deficit | ||||||||
Preferred stock, par value of $0.001; 10,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, par value of $0.001; 250,000 shares authorized, 55,000 shares issued and outstanding | - | - | ||||||
Additional paid-in capital | 6,180 | 6,180 | ||||||
Accumulated deficit | (80,360 | ) | (45,315 | ) | ||||
Total stockholder’s deficit | (74,180 | ) | (39,135 | ) | ||||
Total liabilities and stockholder’s deficit | $ | 13,859 | $ | 38,043 |
See accompanying notes to consolidated financial statements.
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Modern VideoFilm, Inc. and Subsidiaries
Consolidated Statements of Operations
(dollar amounts in thousands)
Years ended May 31, | 2015 | 2014 | ||||||
Revenues | $ | 43,569 | $ | 51,226 | ||||
Cost of revenues | (37,236 | ) | (41,474 | ) | ||||
Gross profit | 6,333 | 9,752 | ||||||
Selling, general and administrative expenses | (6,556 | ) | (10,580 | ) | ||||
Restructuring costs | (3,539 | ) | - | |||||
Depreciation and amortization expenses | (7,588 | ) | (7,567 | ) | ||||
Impairment expense | (13,346 | ) | - | |||||
Loss from operations | (24,696 | ) | (8,395 | ) | ||||
Interest expense | (10,360 | ) | (8,755 | ) | ||||
Other income, net | 13 | 1,470 | ||||||
Net loss before provision for income taxes | (35,043 | ) | (15,680 | ) | ||||
Provision for income taxes | (2 | ) | (8 | ) | ||||
Net loss | $ | (35,045 | ) | $ | (15,688 | ) |
See accompanying notes to consolidated financial statements.
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Modern VideoFilm, Inc. and Subsidiaries
Consolidated Statements of Stockholder’s Deficit
(dollar amounts in thousands)
Common Stock | Additional | Accumulated | Total Stockholder’s | |||||||||||||||||
Shares | Amount | Paid-in Capital | Deficit | Deficit | ||||||||||||||||
Balance at May 31, 2013 | 55 | $ | - | $ | 6,180 | $ | (29,627 | ) | $ | (23,447 | ) | |||||||||
Net loss | - | - | - | (15,688 | ) | (15,688 | ) | |||||||||||||
Balance at May 31, 2014 | 55 | - | 6,180 | (45,315 | ) | (39,135 | ) | |||||||||||||
Net loss | - | - | - | (35,045 | ) | (35,045 | ) | |||||||||||||
Balance at May 31, 2015 | 55 | $ | - | $ | 6,180 | $ | (80,360 | ) | $ | (74,180 | ) |
See accompanying notes to consolidated financial statements.
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Modern VideoFilm, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(dollar amounts in thousands)
Years ended May 31, | 2015 | 2014 | ||||||
Cash flows from operating activities | ||||||||
Net loss | $ | (35,045 | ) | $ | (15,688 | ) | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 7,588 | 7,567 | ||||||
Impairment of property and equipment | 13,346 | - | ||||||
Change in fair value of warrant liabilities | - | (1,470 | ) | |||||
Non-cash interest expense | 8,941 | 6,523 | ||||||
Amortization of deferred financing costs | 660 | 660 | ||||||
Amortization of debt discount | 418 | 418 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 1,890 | 2,853 | ||||||
Inventories | 75 | 72 | ||||||
Prepaids and other current assets | 276 | (180 | ) | |||||
Deposits and other assets | 256 | 92 | ||||||
Accounts payable | 774 | 36 | ||||||
Accrued liabilities | (1,516 | ) | (2,557 | ) | ||||
Net cash used by operating activities | (2,337 | ) | (1,674 | ) | ||||
Cash flows from investing activities | ||||||||
Proceeds from the sale of property and equipment | 13 | - | ||||||
Purchases of property and equipment | (727 | ) | (1,599 | ) | ||||
Net cash used in investing activities | (714 | ) | (1,599 | ) | ||||
Cash flows from financing activities | ||||||||
Proceeds from notes and credit facilities | 6,108 | 1,763 | ||||||
Payments on notes and credit facilities | (3,500 | ) | - | |||||
Net cash provided by financing activities | 2,608 | 1,763 | ||||||
Decrease in cash and cash equivalents | (443 | ) | (1,510 | ) | ||||
Cash and cash equivalents, beginning of year | 1,433 | 2,943 | ||||||
Cash and cash equivalents, end of year | $ | 990 | $ | 1,433 | ||||
Supplemental disclosures of cash flow information | ||||||||
Cash paid during the year: | ||||||||
Interest | $ | 17 | $ | 901 | ||||
Taxes | - | - |
See accompanying notes to consolidated financial statements.
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Modern VideoFilm, Inc. and Subsidiaries
Notes to Consolidating Financial Statements
1. | Organization |
Modern VideoFilm, Inc. (the “Company” or “MVF”) was formed in October 1979 as a California corporation and in July 1998 changed to its current form as a Delaware corporation. The Company provides a full range of post-production and content management services to the entertainment industry including editorial, color grading, digital intermediate finishing, visual effects, restoration, quality control, encoding/transcoding, metadata packaging, content aggregation, archiving and digital distribution. Clients include major film and television studios, online distribution platforms, independent producers and content owners from around the world.
During December 1998, the Company acquired MVF Worldwide Services, Inc. (“WSI”), which operates under a commitment contract with Warner Bros. Entertainment Inc. (“Warner Bros.”) to provide duplication and worldwide distribution across the Warner Bros. product library.
During the fiscal year ended May 31, 2015, the Company’s primary creditor exercised its rights under the Medley Loan (see Note 5) and replaced the Company’s board of directors with its nominee. The new director then engaged a restructuring firm to manage the daily affairs of the Company.
Subsequent to May 31, 2015, the Company’s primary creditor foreclosed on the Company’s assets and simultaneously sold those assets (see Note 13). These consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
2. | Going Concern |
The Company generated net losses of $30,045 and $15,688 for the years ended May 31, 2015 and 2014, respectively. Additionally, the Company used $2,337 and $1,674 of net cash for operating activities for the years ended May 31, 2015 and 2014, respectively. The Company has an accumulated deficit of $80,360 and $45,315 as of May 31, 2015 and 2014, respectively, as well as negative working capital of $71,161 and minimal working capital of $3,669 as of May 31, 2015 and 2014, respectively.
As of May 31, 2015, the Company’s business plan included provisions to improve liquidity, cash management practices and reduce operational inefficiencies. Subsequent to May 31, 2015, the Company continued to fall short in respect to its obligations to the primary creditor and other parties in the normal course of business. This severely impacted the Company’s ability to sustain business. See Note 13.
As a result of the Company’s continued failure to meet obligations, the Company may be exposed to greater than normal legal claims in the ordinary course of business, in addition to those described in Note 12.
3. | Summary of Significant Accounting Policies |
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned Subsidiaries. Significant intercompany transactions and balances are eliminated upon consolidation.
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Accounting Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. Cash and cash equivalents are stated at market value if readily determinable, or at cost, which approximates market value.
Investments
Investments recorded at cost included certificates of deposit and are included in other current assets on the accompanying consolidated balance sheets. Investments carried at cost are not required to be classified in one of the levels prescribed by the fair value hierarchy. Investments carried at cost were $382 and $517, as of May 31, 2015 and 2014, respectively.
Allowance for Bad Debts
The allowance for bad debts is maintained at a level that, in management’s opinion, is adequate to absorb potential losses related to trade receivables. The allowance for bad debts is based upon management’s continuous evaluation of the collectability of outstanding receivables.
Management’s evaluation takes into consideration such factors as past bad debt experience, economic conditions, and information about specific receivables. The allowance for bad debts is based on estimates and ultimate losses may vary from current estimates. As adjustments to these estimates become necessary, they are reported in earnings in the periods that they become known. The allowance is increased by bad debt provisions charged to operating expense and reduced by direct write-offs, net of recoveries.
Concentration of Credit Risk and Credit Risk Evaluations
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of demand deposit accounts, and trade accounts receivable. Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances.
Inventories
Inventories include audio and videotape stock and are stated at the lower of cost (first-in, first-out method) or net realizable value.
Property and Equipment
The Company records property and equipment at cost, net of accumulated depreciation and amortization. Depreciation is computed under the straight-line method based on a useful life of three to six years. When assets are retired or sold, the assets and accumulated depreciation are removed from the respective accounts and any gain or loss is recognized. The cost of maintenance and repairs is charged to expense as incurred whereas significant renewals and betterments that extend the useful lives of the equipment are capitalized.
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Leasehold improvements are amortized based on the useful life of the improvement or the remaining period of the lease, whichever is shorter.
Impairment of Long-Lived Assets
Management periodically reviews the Company’s long-lived assets to determine if there are any events that would cause them to believe that expected future cash flows (undiscounted and without interest charges) from each long-lived asset would not result in the recovery of the carrying amounts of such assets. Should the expected future cash flows be less than the carrying value, an impairment charge is recognized to write down the related asset to its estimated fair value.
Revenue Recognition
Revenues and cost of revenues are recognized when the service provided for a particular job is completed. Any amounts billed prior to completion of the related work are recorded as deferred revenue in the accompanying consolidated balance sheets until such time as the related work is completed and revenue is realized.
Income Taxes
The Company accounts for income taxes in accordance with Accounting Standards Codification (“ASC”) 740, Income Taxes. Under ASC 740, deferred income tax assets or liabilities are computed based on the temporary difference between the financial statement and income tax bases of assets and liabilities using the enacted marginal income tax rate in effect for the year in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period.
ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Accounting Standard also provides guidance on derecognition, classification, interest and penalties, and disclosure. The Company adopted a policy to recognize interest and penalties on taxes, if any, within operations as income tax expense.
The Company had no material uncertain tax positions as of May 31, 2015.
Restructuring Costs
The Company defines restructuring costs as a one-time cost that is paid to reorganize. Restructuring costs were $3,539 and $0 for the years ended May 31, 2015 and 2014, respectively. As of May 31, 2015 and 2014, the Company owed $242 and $0 to restructuring consultants, respectively.
4. | Fair Value of Financial Instruments |
The Company’s financial instruments consists primarily of cash, accounts receivable, accounts payable, accrued expenses, and debt. The fair value of cash, accounts receivable, accounts payable and accrued expenses closely approximate their carrying value due to their short maturities. The carrying amount of debt approximates the fair value of the financial instrument, as the interest rate is variable and approximates the interest rate presently available to the Company.
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Property and Equipment
Property and equipment consists of the following:
May 31, | 2015 | 2014 | ||||||
Furniture, equipment and motor vehicles | $ | 56,337 | $ | 56,193 | ||||
Computers and hardware | 2,946 | 2,925 | ||||||
Leasehold improvements | 13,416 | 13,542 | ||||||
72,699 | 72,660 | |||||||
Accumulated depreciation and amortization | (53,669 | ) | (46,392 | ) | ||||
Impairment | (13,346 | ) | - | |||||
$ | 5,684 | $ | 26,268 |
Depreciation and amortization expense for the years ended May 31, 2015 and 2014 was $7,588 and $7,567, respectively.
Subsequent to the fiscal year ended May 31, 2015, the assets of the Company were foreclosed upon by Medley Capital Corporation and Medley Opportunity Fund II (“Medley”) and sold to another entity on July 8, 2015 (see Note 13). The fair value of equipment sold was determined using an independent appraisal performed by the buyer of the assets, which was then compared to the carrying amount of the assets. The Company adjusted its equipment assets to the appraised fair value as of May 31, 2015 and recorded impairment expense of $7,469 and $0 for the years ended May 31, 2015 and 2014, respectively. The Company also recorded impairment expense for leasehold improvements of $5,877 and $0 for the years ended May 31, 2015 and 2014, respectively.
5. | Notes and Credit Facility |
For the years ended May 31, 2015 and 2014, the Company had term debt facilities pursuant to debt agreements with Medley. The September 25, 2012 Medley debt agreements during the years ended May 31, 2015 and 2014 are summarized as follows:
The $50,000 Medley loan was negotiated to replace $80,651 of then outstanding debt and resulted in the forgiveness of $30,651 which the Company recorded as a gain in other income on the Statement of Operations for the 2013 fiscal year. In addition, as consideration for the refinancing agreement, the Company issued warrants to Medley which are exercisable into the Company’s common stock (see Note 8). The warrants have been classified as a liability and a discount to the Medley loan in the accompanying consolidated balance sheets. The debt discount is amortized to interest expense over the term of the loan and the Company recorded amortization expense of $418 for the years ended May 31, 2015 and 2014. The remaining unamortized debt discount is $1,050 and $1,468 as of May 31, 2015 and 2014, respectively. The Medley loan agreement also requires the Company to meet certain financial and reporting covenants with monthly principal and interest payments as defined by the agreement. As of May 31, 2015 and 2014, the Company was in default with these covenants.
The Medley Term Note bears interest at a combined 9.00% cash interest rate and 3.00% PIK rate, plus an applicable margin of the greater of 1.50% and LIBOR and matures on September 25, 2017. As of May 31, 2015 and 2014, the outstanding balance is $73,772 and $61,805, respectively.
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On November 7, 2012, the Company obtained a revolving credit facility with One West Bank (“OWB”). This facility has a maximum revolving advance of the lower of $9,000 and other criteria as defined by the agreement. This bears interest at LIBOR plus 3.50%. At May 31, 2015 and 2014, the outstanding balance is $0 and $3,500, respectively. The loan agreement also requires the Company to meet certain financial and reporting covenants. As of May 31, 2014, the Company was in default with these covenants. Effective May 31, 2013, the Company entered into an amended agreement which reduced the maximum available balance to $5,500. The Company paid $50 as consideration for the amended agreement. On July 9, 2014, OWB revolving balance of $3,500 was paid off by Medley.
In May 2013, the Company amended its financing agreement with Medley. This amendment included a revision to the principal repayment terms with the first payment due in May 2014. The amendment also includes revisions to financial and reporting covenants and a debt waiver through May 31, 2014. As consideration for the amendment the Company paid fees of $397 and issued the financial institution additional warrants which are exercisable into the Company’s common stock (see Note 8).
Future debt payment commitments based on the terms of the debt, are as follows:
Years ending May 31, | Amount | |||
2016 | $ | 73,772 |
6. | Income Taxes |
The provision for income taxes is comprised of the following:
May 31, | 2015 | 2014 | ||||||
Current: | ||||||||
Federal | $ | - | $ | - | ||||
State | 2 | 8 | ||||||
Deferred: | ||||||||
Federal | - | - | ||||||
State | - | - | ||||||
Total provision for income taxes | $ | 2 | $ | 8 |
The primary differences between the statutory federal tax rate and effective tax rate of 0% and 0% for the years ended May 31, 2015 and 2014, respectively, are due to state taxes, officers’ life insurance, meals and entertainment and valuation allowances.
(The remainder of this page intentionally left blank.)
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The components of the net deferred tax asset are as follows:
May 31, | 2015 | 2014 | ||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 24,082 | $ | 16,355 | ||||
Bad debts allowance | 1,541 | 1,541 | ||||||
Accrued vacation | 484 | 484 | ||||||
Other | 463 | 463 | ||||||
Total deferred tax assets | 26,570 | 18,843 | ||||||
Deferred tax liability: | ||||||||
Depreciation | (2,467 | ) | (4,937 | ) | ||||
Other | (1,028 | ) | (1,028 | ) | ||||
Total net deferred tax assets | 23,075 | 12,878 | ||||||
Less valuation allowance | (23,075 | ) | (12,878 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
The Federal and California net operating loss carryforwards are approximately $98,367 and $72,526 for the years ended May 31, 2015 and 2014, respectively. These federal and California net operating losses expire in various tax years through 2027 and 2017, respectively.
The Company has recorded a full valuation allowance against the realization of its net deferred tax assets as of May 31, 2015 and 2014. The valuation allowance is based on management’s estimates and analyses, which include the impact of tax laws which may limit the Company’s ability to utilize its net deferred tax assets.
7. | Commitments and Contingencies |
Lease Obligations
The Company leases its main operating facility under an operating lease agreement. In January 2012, the Company relocated its main operating facility and signed a new 11-year operating lease agreement with two 5-year extension options. As part of the agreement, the Company received a $7,159 tenant improvement allowance and $3,064 rent abatement.
In June 2011, the Company opened an additional operating facility with an initial lease term of 10 years. As part of the agreement, the Company received a $1,048 tenant improvement allowance and $101 rent abatement.
The tenant improvement allowances and rent abatements have been recorded as deferred rent and are included in other long-term liabilities on the accompanying consolidated balance sheets. The deferred rent balance as of May 31, 2015 and 2014 was $9,871 and $10,378, respectively.
The Company also leases one other operating facility. The leases have various terms with expiration dates through 2023.
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The following is a schedule by year of future minimum lease payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of May 31, 2015:
Years ending May 31, | Operating Leases | |||
2016 | $ | 4,740 | ||
2017 | 4,850 | |||
2018 | 4,724 | |||
2019 | 4,865 | |||
2020 | 5,128 | |||
Thereafter | 12,260 | |||
Total | $ | 36,567 |
Certain lease agreements contain provisions for annual rent adjustments in relation to changes in the Consumer Price Index. Some leases also contain provisions requiring the Company to pay real and personal property taxes on the property being leased.
Rent expense was $4,096 and $4,247 for the years ended May 31, 2015 and 2014, respectively.
8. | Common Stock Warrants |
In conjunction with a financing contract in September 2012 and an amendment to the financing contract in May 2013, the Company issued common stock warrants to Medley Opportunity Fund II LP, Medley Capital Corporation, Main Street Capital Corporation and Congruent Credit Opportunity Fund II, LP (collectively “warrant holders”).
The warrants are convertible at the warrant holders’ option into 13,750 common shares of the Company at any time on or prior to September 25, 2017. The warrants have an exercise price of $0.0001 per share and are exercisable through either a cash purchase, through a customary net-share settlement formula or reduction of outstanding principal balance of any debt.
The warrants also have a put option whereby the warrant holders can request, at any time and from time to time, the Company to purchase the warrants and warrant shares. The purchase of the warrants and warrant shares is to be settled in cash, and therefore, the warrants have been recorded as a liability. The estimated fair value of the warrants as of May 31, 2015 and 2014 is $0. The warrants will continue to be carried at their fair value with subsequent changes in fair value recorded in other income (expense) in the Statements of Operations at each reporting period.
9. | Employee Benefit Plan |
The Company maintains a 401(k) plan for all full-time employees. The Company made a non-discretionary match to its employees’ accounts of the 401(k) plan in the amounts of $49 and $82 for the years ended May 31, 2015 and 2014, respectively. The trustee of the 401(k) plan is Fidelity Management Trust Company.
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10. | Major Customers |
Most of the Company’s business activity is with entertainment customers located within California, and a significant portion of this business relates to three customers. Approximate revenues and accounts receivable for customers in which revenues or receivables amount to 10% or more of the Company’s revenues or receivables for the years ended May 31, 2015 and 2014, respectively, are as follows:
May 31, 2015 | Amount | Percent | ||||||
Revenues: | ||||||||
Warner Bros. | $ | 10,153 | 23 | % | ||||
FOX | 8,166 | 19 | ||||||
Accounts receivable: | ||||||||
Warner Bros. | $ | 1,131 | 27 | % | ||||
FOX | 649 | 16 | ||||||
NBC/Universal | 524 | 13 | ||||||
May 31, 2014 | Amount | Percent | ||||||
Revenues: | ||||||||
Warner Bros. | $ | 11,861 | 23 | % | ||||
FOX | 9,603 | 19 | ||||||
Apple | 5,300 | 10 | ||||||
Accounts receivable: | ||||||||
Warner Bros. | $ | 1,403 | 24 | % | ||||
FOX | 1,027 | 18 | ||||||
Apple | 592 | 10 |
11. | Related Parties |
The Company has various interest and non-interest bearing advances due from the former President of the Company of $3,657 and $3,587 as of May 31, 2015 and 2014, respectively, all of which have been fully reserved. Included in the receivable from officer and affiliated company is $515 and $515 as of May 31, 2015 and 2014, respectively, due from Sidan Engineering LP, d.b.a. GB Engineering, a partnership in which the former President of the Company is the controlling partner. This amount has also been fully reserved as of May 31, 2015 and 2014.
None of the receivables from officers and affiliated company are secured.
12. | Legal Contingencies |
In May 2015, Moshe Barkat, founder and former chief executive officer of the Company, filed a lawsuit against Medley, Deloitte Restructuring Group, Company director Charles Sweet, Medley affiliated companies and Modern VideoFilm, Inc. The lawsuit claims that the defendants breached their fiduciary duty to the Company, and breached Barkat’s employment agreement with the Company. The complaint includes causes of action against the defendants for defamation, unfair competition, and other claims. Barkat claimed that the defendants destroyed Barkat’s life work, valued at more than $100 million at the time of their wrongdoing. The Company cannot predict the outcome of the lawsuit. The CFO has also filed for arbitration against the company for wrongful termination.
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The Company is party to various other legal proceedings in the ordinary course of business, which, in the opinion of management, will not have a material adverse impact on its financial position or results of operations.
13. | Subsequent Events |
On July 8, 2015, Medley took possession of the Company’s assets as a result of the Company’s continuing defaults under the loan agreement. Concurrent with the repossession, Medley sold the repossessed assets, the Company terminated all active employees, and ceased operations. The Company then notified creditors that the Company had insufficient assets that could be liquidated to pay the remaining portion of the claims held by Medley or any other creditor (including landlords).
On July 31, 2015, the restructuring firm resigned from the Company.
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Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The accompanying unaudited pro forma condensed combined financial statements present the pro forma consolidated financial position and results of operations of the combined company based upon the historical financial statements of Point.360 (“we,” “us,” “our,” "Point.360," or the “Company”) and Modern VideoFilm, Inc. (“MVF”), after giving effect to the purchase of certain MVF assets and the assumption of certain liabilities of MVF and adjustments described in the following footnotes, and are intended to reflect the impact of this asset acquisition on the Company on a pro forma basis.
On July 8, 2015, Point.360 entered into a Sale Agreement Pursuant to Article 9 of the Uniform Commercial Code (the “Sale Agreement”) with Medley Capital Corporation, a Delaware corporation (“Medley”), Medley Opportunity Fund II LP, a Delaware limited partnership (“MOF II”), Congruent Credit Opportunities Fund II, LP, a Delaware limited partnership (“Congruent”), Main Street Equity Interests, Inc., a Delaware corporation (“Main Street”), and Haig S. Bagerdjian. Medley, MOF II, Congruent and Main Street are referred to in this Exhibit 99.2 as the “Lenders.” The closing under the Sale Agreement occurred on July 8, 2015, concurrently with the execution of the Sale Agreement.
Pursuant to the Sale Agreement, among other things:
· | Point.360 acquired (the "Acquisition") from the Lenders certain assets of MVF, and its affiliated entities, including, but not limited to, MVF's equipment, inventory, and accounts receivable, in a private sale conducted under applicable provisions of the New York Uniform Commercial Code following the default by MVF of its obligations under secured loans made by the Lenders, and assumed no debts, obligations or liabilities except for agreeing to pay a portion of the rent for each facility of MVF to its landlord on a per diem basis based on the number of days post-closing, if any, that we occupy such facility to complete the relocation of certain acquired assets, and paid time off owed to former MVF employees employed by us in connection with the closing to the extent (i) accrued and unused as of the closing, and (ii) such employees have not requested such paid time off to be paid by MVF. |
· | We issued to the Lenders, as consideration for the assets described in the preceding paragraph, 2,000,000 shares of our common stock (the "Common Shares"), and five-year warrants (the "Sale Agreement Warrants") to purchase an aggregate of 800,000 shares of our common stock (the "Sale Agreement Warrant Shares") at an exercise price of $0.75 per share, which may be exercised in a cashless exercise. We also issued to Medley and MOF II warrants to purchase an aggregate of 500,000 shares of our common stock (the “Term Loan Warrants”) under the same terms as in the previous sentence in consideration for the Term Loan described elsewhere in this Exhibit 99.2. |
The other material terms of the Sale Agreement and the Term Loan were previously disclosed in our Current Report on Form 8-K filed with the Securities and Exchange Commission on July 14, 2015. The unaudited pro forma condensed combined balance sheet reflects the Acquisition as if it had been consummated on June 30, 2015, the date of the Company’s last fiscal year end. The financial statements of MVF are based on MVF’s balance sheets of May 31, 2015, its last fiscal year end. The unaudited pro forma condensed combined balance sheet includes pro forma adjustments to reflect the account balances as of the July 8, 2015 purchase date and for valuations by Company management of certain tangible and intangible assets as of that date.
The unaudited pro forma condensed combined statement of operations for the year ended June 30, 2015 combines the Company’s historical results for the year ended June 30, 2015 with MVF’s historical results for the year ended May 31, 2015. The unaudited pro forma statement of operations gives effect to the Acquisition as if it had been consummated at the beginning of the fiscal year except for the imputation of a pro forma debt structure for MVF as of the beginning of the fiscal year since such an estimate would not be factually supported.
The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only. They do not purport to represent what Point.360’s consolidated results of operations and financial position would have been had the transaction actually occurred as of the dates indicated, and they do not purport to project Point.360’s future consolidated results of operations or financial position.
Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the purchase price and to reflect the amounts related to MVF’s tangible and intangible assets and liabilities at an amount equal to the estimate of their fair values. The historical consolidated financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the Acquisition and (2) factually supportable and reasonable under the circumstances.
The pro forma adjustments reflecting the completion of the Acquisition are based upon the acquisition method of accounting in accordance with Accounting Standards Codification, or ASC 805 “Business Combinations” and the assumptions set forth in the notes to the unaudited pro forma condensed combined financial statements. The unaudited pro forma condensed combined balance sheet has been adjusted to reflect the allocation of the purchase price to identifiable assets and liabilities acquired, including an addition to retained earnings representing the difference between fair value of the identifiable assets and liabilities and the purchase price.
The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable under the circumstances.
You should read this information in conjunction with:
· | the separate historical audited consolidated financial statements of MVF as of May 31, 2015 and for the year then ended, included as Exhibit 99.1 to this Current Report on Form 8-K/A; |
· | the accompanying notes to the unaudited pro forma condensed combined financial statements included in this Exhibit 99.2 to this Current Report on Form 8-K/A; and |
· | the separate historical audited financial statements of Point.360 as of June 30, 2015 and 2014 and for the years then ended included in Point.360’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on September 17, 2015. |
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POINT.360 AND MVF
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2015 (in thousands)
Point.360 |
MVF | Pro Forma Adjustment (a) | Pro Forma Adjustment (b) | Pro Forma Adjustment (c) | Pro Forma Combined | |||||||||||||||||||
Assets | ||||||||||||||||||||||||
Current assets: | ||||||||||||||||||||||||
Cash and cash equivalents | $ | 22 | $ | 990 | $ | (990 | ) | $ | - | $ | 1,000 | $ | 1,022 | |||||||||||
Accounts receivables, net of allowance for doubtful accounts | 3,067 | 4,541 | (4,541 | ) | 3,074 | - | 6,141 | |||||||||||||||||
Inventories | 135 | 94 | (94 | ) | 99 | - | 234 | |||||||||||||||||
Other current assets | 315 | 1,275 | (1,275 | ) | 33 | - | 348 | |||||||||||||||||
Total current assets | 3,539 | 6,900 | (6,900 | ) | 3,206 | 1,000 | 7,745 | |||||||||||||||||
Property and equipment, net | 9,226 | 5,684 | (5,684 | ) | 5,359 | - | 14,585 | |||||||||||||||||
Intangible assets, net | - | - | - | 350 | - | 350 | ||||||||||||||||||
Other assets | 615 | 1,275 | (1,275 | ) | 250 | - | 865 | |||||||||||||||||
Total assets | 13,380 | 13,859 | (13,859 | ) | 9,165 | 1,000 | 23,545 | |||||||||||||||||
Liabilities and Equity | ||||||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||||||
Accounts payable | 714 | 1,737 | (1,737 | ) | - | - | 714 | |||||||||||||||||
Other accrued expenses | 1,385 | 2,552 | (2,552 | ) | 770 | - | 2,155 | |||||||||||||||||
Current portion of notes payable and credit facilities | 5,117 | 73,772 | (73,772 | ) | - | - | 5,117 | |||||||||||||||||
Total current liabilities | 7,216 | 78,061 | (78,061 | ) | 770 | - | 7,986 | |||||||||||||||||
Long-term debt, less current portion | 88 | - | - | - | 1,000 | 1,088 | ||||||||||||||||||
Other long-term liabilities | 1,838 | 9,978 | (9,978 | ) | - | - | 1,838 | |||||||||||||||||
Total liabilities | 9,142 | 88,039 | (88,039 | ) | 770 | 1,000 | 10,912 | |||||||||||||||||
Equity: | ||||||||||||||||||||||||
Point.360: | ||||||||||||||||||||||||
Common stock | 21,715 | - | - | 1,155 | - | 22,870 | ||||||||||||||||||
Additional paid-in capital | 11,175 | 6,180 | (6,180 | ) | 427 | - | 11,602 | |||||||||||||||||
Retained earnings (Accumulated deficit) | (28,652 | ) | (80,360 | ) | 80,360 | 6,813 | - | (21,839 | ) | |||||||||||||||
Total equity | 4,238 | (74,180 | ) | 74,180 | 8,395 | - | 12,633 | |||||||||||||||||
Total liabilities and equity | $ | 13,380 | $ | 13,859 | $ | (13,859 | ) | $ | 9,165 | $ | 1,000 | $ | 23,545 |
See accompanying notes to unaudited pro forma condensed combined financial statements.
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POINT.360 AND MVF
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(in thousands)
Point.360 (1) | MVF (2) | Pro Forma Adjustments | Pro Forma Combined | |||||||||||||
Revenue | $ | 21,581 | $ | 43,569 | $ | - | $ | 65,150 | ||||||||
Cost of services sold | (14,206 | ) | (37,236 | ) | - | (51,442 | ) | |||||||||
Gross profit | 7,375 | 6,333 | - | 13,708 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | (10,329 | ) | (10,095 | ) | 1,388 (d) | (19,036 | ) | |||||||||
Impairment expense | - | (13,346 | ) | 13,346 (e) | - | |||||||||||
Depreciation and amortization expense | - | (7,588 | ) | 6,453 (f) | (1,135 | ) | ||||||||||
Operating income (loss) | (2,954 | ) | (24,696 | ) | 21,187 | (6,463 | ) | |||||||||
Interest expense | (256 | ) | (10,360 | ) | 10,297 (g) | (319 | ) | |||||||||
Other income, net | 324 | 13 | - | 337 | ||||||||||||
Loss before income taxes | (2,886 | ) | (35,043 | ) | 31,484 | (6,445 | ) | |||||||||
Provision for income taxes | - | (2 | ) | - | (2 | ) | ||||||||||
Net loss | $ | (2,886 | ) | $ | (35,045 | ) | $ | 31,484 | $ | (6,447 | ) | |||||
Loss per common share - basic | $ | (0.27 | ) | $ | (0.51 | ) | ||||||||||
Loss per common share - diluted | $ | (0.27 | ) | $ | (0.51 | ) | ||||||||||
Basic and diluted weighted average shares outstanding | 10,537 | 2,000 | 12,537 |
(1) | Represents the statement of operations for the fiscal year ended June 30, 2015. |
(2) | Represents the statement of operations for the year ended May 31, 2015. |
See accompanying notes to unaudited pro forma condensed combined financial statements.
4 |
POINT.360
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The unaudited pro forma condensed combined financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, management believes that the disclosures are adequate to make the information presented not misleading.
The acquisition method of accounting under U.S. GAAP requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values at the Acquisition date. Fair value is defined under U.S. GAAP as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Market participants are assumed to be buyers and sellers in the principal (or most advantageous) market for the asset or liability. Fair value measurements for an asset assume the highest and best use by these market participants. Fair value measurements can be highly subjective and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. Accordingly, the assets acquired and liabilities assumed were recorded at their respective fair values and added to those of Point.360.
Dollar amounts in these footnotes are in thousands.
Note 2 - Acquisition of Assets of MVF
On July 8, 2015, Point.360 entered into a Sale Agreement Pursuant to Article 9 of the Uniform Commercial Code (the “Sale Agreement”) with the Lenders and Haig S. Bagerdjian. The closing under the Sale Agreement occurred on July 8, 2015, concurrently with the execution of the Sale Agreement.
Pursuant to the Sale Agreement, among other things, Point.360 acquired from the Lenders certain assets of MVF and its affiliated entities, including, but not limited to, MVF's equipment, inventory, and accounts receivable, in a private sale conducted under applicable provisions of the New York Uniform Commercial Code following the default by MVF of its obligations under secured loans made by the Lenders, and assumed no debts, obligations or liabilities except for agreeing to pay a portion of the rent for each facility of MVF to its landlord on a per diem basis based on the number of days post-closing, if any, that we occupy such facility to complete the relocation of certain acquired assets, and paid time off owed to former MVF employees employed by us in connection with the closing to the extent (i) accrued and unused as of the closing, and (ii) such employees have not requested such paid time off to be paid by MVF. We issued to the Lenders, as consideration for the assets described above, the Common Shares and the Sale Agreement Warrants.
In connection with the Acquisition, on July 8, 2015, the Company entered into a Term Loan Agreement (the “Loan Agreement”), as borrower, with the Lenders. The Loan Agreement is comprised of a five-year term loan facility in the amount of $6,000, $1,000 of which was funded on the July 8, 2015 closing date (the “Closing Date Term Loan”). Under the Loan Agreement, we may, by notice to the Lenders, request one or more additional term loans (each, a “Delayed Draw Term Loan” together with the Closing Date Term Loan, each a “Term Loan” and collectively, the “Term Loans”) in an aggregate amount for all Delayed Draw Term Loans not to exceed $5,000, until the third anniversary of the closing date. On July 8, 2015, in connection with the consummation of the transactions contemplated by the Loan Agreement, we issued to Medley and MOF II the Term Loan Warrants.
5 |
The pro forma condensed combined balance sheet has been adjusted to reflect the allocation by Point.360 management of the MVF purchase price to identifiable tangible and intangible assets and liabilities acquired, and the excess of the asset value over the purchase price to retained earnings. The purchase price allocation is based upon an estimated total purchase price of approximately $1,400 and liabilities assumed for accrued expenses totaling approximately $770.
Under the acquisition method of accounting, the total estimated purchase price is allocated to MVF’s tangible and intangible assets and liabilities based on their estimated fair values at the date of the completion of the Acquisition (July 8, 2015). The following table summarizes the preliminary allocation of the purchase price for MVF:
Assets acquired | $ | 8,650 | ||
Liabilities assumed | (770 | ) | ||
Acquired intangibles: | ||||
Trade name | 150 | |||
Customer relationships | 200 | |||
Retained earnings | (6,813 | ) | ||
Fair value of common stock and warrants | $ | 1,417 |
Note 3 - Pro Forma Condensed Combined Financial Statements
The accompanying unaudited pro forma condensed combined financial statements present the pro forma consolidated financial position and results of operations of the combined company based upon the historical financial statements of Point.360 and MVF, after giving effect to the Acquisition and adjustments described in the following footnotes, and are intended to reflect the impact of the Acquisition on Point.360 as if it was completed at the beginning of the fiscal year ended June 30, 2015.
The unaudited pro forma condensed combined balance sheet reflects the Acquisition as if it has been consummated on June 30, 2015 and includes pro forma adjustments for valuations by Point.360 management of certain tangible and intangible assets as of the July 8, 2015 Acquisition date. These adjustments are based on fair value determinations.
The unaudited pro forma condensed combined statement of operations for the year ended June 30, 2015 combines Point.360 historical results for the year ended June 30, 2015 with MVF’s historical results for the year ended May 31, 2015.
The accompanying unaudited pro forma condensed combined financial statements are presented for illustrative purposes only.
Note 4 - Pro Forma Adjustments
Pro forma adjustments are necessary to reflect the estimated purchase price and to reflect amounts related to MVF’s net tangible and intangible assets and liabilities at an amount equal to their fair values. Identified intangible assets were customer relationships valued at $200, and trade names of MVF valued at $150. Under the guidance of ASC 805, the fair value of these assets has been capitalized on the balance sheet and the Company will begin amortizing the fair value over their estimated useful life.
6 |
There were no intercompany balances and transactions between Point.360 and MVF at the dates and for the periods of these pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements do not include any adjustments for liabilities that will result from integration activities related to the Acquisition. Additional assets or liabilities may be recorded that could affect amounts in the unaudited pro forma condensed combined financial statements.
The pro forma adjustments included in the unaudited pro forma condensed combined financial statements are as follows:
(a) To reverse the balance sheet accounts of MVF.
(b) To reflect (i) the fair value the acquired MVF assets (including trade-name and customer relationship intangibles of $350, and prepaid Term Loan interest of $165 equal to the fair value of the Term Loan Warrants) and the MVF liabilities assumed, (ii) the fair value of the Common Shares, the Sale Agreement Warrants and the Term Loan Warrants given as consideration for the MVF assets and Term Loan, and (iii) a credit to retained earnings for $6,813 representing the difference between (x) the aggregate fair values assigned to the tangible and intangible assets acquired (less liabilities assumed), and (y) the fair value of the Common Shares and the Sale Agreement Warrants given as consideration for the purchase.
(c) To reflect $1,000 borrowed under the Term Loan in connection with the transaction.
(d) To reduce selling, general and administrative expenses for (i) Point.360 transaction costs of approximately $137 incurred in the three months ended June 30, 2015 in connection with the Acquisition, and (ii) MVF costs of $1,251 incurred in the 12 months ended May 31, 2015 in connection with the intent to restructure MVF.
(e) To reverse the MVF fixed asset impairment of $13,346 for equipment and leasehold improvements.
(f) To reduce MVF depreciation and amortization expense by $6,453 for the twelve months ended June 30, 2015 for the amount of the difference between previously recorded MVF depreciation and amortization, and the amount calculated based on the fair value of the acquired assets and intangibles. MVF depreciation expense is shown separately for illustration purposes.
(g) To eliminate interest expense related to liabilities that Point.360 did not assume, to record interest expense related to the Term Loan and amortization of the prepaid Term Loan interest for one year.
Note 5 - Pro Forma Net Loss per Share
Shares used to calculate unaudited pro forma combined basic and diluted net loss per share are based on the sum of the following:
· | The number of Point.360 weighted-average shares used in computing historical net loss per share, basic and diluted; and |
· | The number of Point.360 Common Shares issued on July 8, 2015, as consideration for the Acquisition. |
7 |
Note 6 - Transaction Costs
For the three months ended June 30, 2015, Point.360 transaction costs incurred related to the Acquisition totaled $137. MVF incurred costs of $1,251 in the 12 months ended May 31, 2015 in connection with the intent to restructure MVF. These costs have been recorded as a pro forma adjustment to reduce general and administrative expenses in the statement of income for the 12 months ended June 30, 2015. The combined company expects to incur approximately $300 of additional direct transaction costs in connection with the Acquisition which are expected to be incurred and expensed in the first and second quarters of the fiscal year ending June 30, 2016.
The combined company may incur charges to operations that Point.360 cannot reasonably estimate, in the quarter in which the Acquisition is completed or the following quarters, to reflect costs associated with integrating the two businesses. In addition, the combined company may incur additional charges relating to the transaction in subsequent periods, which could have a material impact on the combined company’s financial position or results of operations.
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