Early Report Expressed Concern Over Digital Domain. More Recent Report Did Not.
Both Reports are available here for the public to read.
(West Palm Beach, FL) – Today the City of West Palm Beach released to the public two more documents that were part of the mountain of information used to evaluate Digital Domain.The release is part of the City’s effort to provide the public with as much information as it can at this time.
The first document is an independent auditors’ report published June, 2009 which examined two years worth of financial history. The second document is an independent auditors’ report published one year later which examined the following year’s numbers.
The agreement between Digital Domain and the City of West Palm Beach was signed approximately three months after the release of that second auditors’ report. The reports paint a significantly different picture of Digital Domain’s financial health from one year to the next.
The June, 2009 report was prepared by the independent accounting firm of Deloitte Touche Tohmatsu. The later July 2010 report was prepared by the independent accounting firm of Singer Lewak.
While the earlier report showed Digital Domain with a net loss of approximately $15 million dollars per year, the later report showed Digital Domain with a net income of almost $8 million dollars. The $23 million dollar difference included $6.8 million dollars given to Digital Domain by governmental agencies. (The City of West Palm Beach had not given Digital Domain any money at that point.)
The early report mentioned “substantial doubt about [Digital Domain’s] ability to continue as a going concern.” The report prepared a year later no longer included such language. The City’s deal with Digital Domain was signed three months after the second report was released.
While the first report clearly raised the issue of Digital Domain’s ability to continue as a company, the later report did not. (The phrase “going concern” is an accounting term that means a “continuing company.” The use of the word “concern” in this case is an accounting term and is not used to convey “worry” or “distress.”)
According to an article written in January 2009 by the ICAEW, an internationally recognized accounting association, the mention of a going concern warning “does not necessarily indicate crisis. Investors, lenders and the press should not panic – it’s the directors being transparent about uncertainty.”
In addition, according to an article published April, 2012 in the Wall Street Journal, nearly half (48%) of all companies starting out and issuing Initial Public Offerings (IPOs) in 2011 had similar “going concern” notices.
“Anyone reading that first report would have had questions. So did the City, which asked those questions, and didn’t make any commitments based on those early numbers. Even so, this is a perfect example of why we protected ourselves. The City did not hand over a single dollar until the FSU program, which is still here, was up and running. It’s also why we made sure to include language regarding the return of the land,” said City spokesman Elliot Cohen.
Here is a timeline of events:
June 10, 2009: Deloitte independent auditors’ report released
July 15, 2010: Singer Lewak independent auditors’ report released
November 1, 2010: Agreement between DDI & the City of WPB is signed.