Available information from Movie Gallery's 2005 10-K and Q2 2006 10-Q was used to prepare this evaluation. The website to locate Movie Gallery's 10-K Movie Gallery's 2005 and second quarter 2006 (10-Q) reports are available in the "investor relations" section of Movie Gallery's website at www.moviegallery.com. Movie Gallery, Inc. (the Company) most recent annual report was for the year ending January 1, 2006 (the 2005 annual report year). The Company operates on a 52/53 week year with the year end date being the Sunday following 30 December. This results in some years with 53 weeks of reported income even though the Company reflects depreciation on a twelve month (52 week) basis. At the end of the most recent year, the Company reported a pre-tax net loss of nearly $550 million. This loss is inconsistent with historical amounts reported by the Company. Two significant factors contribute to the loss. One was the acquisition of Hollywood Video. Hollywood was struggling with large amounts of debt, resulting in the Company's interest expense increasing by nearly $68 million over the previous fiscal year. Additionally, following the Hollywood Acquisition, the Company reversed Hollywood's pre-acquisition deferred tax balances and created new deferred tax balances. These new balances were based on differences between the amounts of assets and liabilities recorded for financial statement purposes and the underlying tax basis of such assets and liabilities, including amounts assigned to Hollywood carryover tax attributes. The net impact of this resulted in a decrease in deferred tax assets of $13.1 million. Additionally, all acquisition transactions initiated after June 30, 2001 require the use of purchase accounting for financial reporting purposes. FAS 141 addresses purchase accounting and requires that price be allocated to all assets acquired and liabilities assumed based on their fair market values. The excess purchase price is then allocated to goodwill and instead of being amortized, it is tested annually for impairment. This brings us to the other major factor that contributed to the 2005 net loss. This was a significant $523 million goodwill impairment charge. and other intangible assets at fair market value in accordance with SFAS No. 142, "Goodwill and other intangible assets". Because most acquisitions by the Company, including the Hollywood Acquisition, are completed by acquiring the shares of the target company, the tax attributes of the target companies are transferred to the Company..