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The Information in this prospectus is not complete and may be changed. We and the selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED FEBRUARY 4, 2008

        Shares
Common Stock

Digital Domain is selling             shares of our common stock, and the selling stockholders identified in this prospectus are selling             shares of our common stock. We will not receive any of the proceeds from the sale of the shares by the selling stockholders. We and the selling stockholders have granted the underwriters a 30-day option to purchase up to an additional             shares from us to cover over-allotments, if any.

This is an initial public offering of our common stock. We currently expect the initial public offering price to be between $     and $     per share. We have applied to have our common stock listed on The NASDAQ Global Market under the symbol “DTWO”.

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE “RISK FACTORS” BEGINNING ON PAGE 11.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is , 2008

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Summary Historical Consolidated and Pro Forma Financial Information

The following table contains summary historical consolidated financial information regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Selected Historical Consolidated Financial Information”, “Unaudited Pro Forma Financial Information”, our consolidated financial statements and related notes and our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus.

On May 12, 2006, DD Acquisition Subsidiary, Inc., a wholly-owned subsidiary of Digital Domain, merged with and into Digital Domain Productions, Inc. (formerly Digital Domain, Inc.), or Digital Domain Productions, which we refer to as the Acquisition. DD Acquisition Subsidiary, Inc. ceased to exist and Digital Domain Productions continued the operation of its business as a wholly-owned subsidiary of Digital Domain. We refer to ourselves as the Predecessor for all periods prior to Digital Domain’s acquisition of Digital Domain Productions. We refer to ourselves as the Successor for all periods following Digital Domain’s acquisition of Digital Domain Productions.

Our consolidated statements of operations information for the period from January 1, 2006 to May 12, 2006, the period from May 13, 2006 to December 31, 2006, and the years ended December 31, 2005 and 2004 and our consolidated statements of financial condition information as of December 31, 2006 and 2005 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. We derived our consolidated statements of operations information for the period from May 13, 2006 to September 30, 2006 and the nine months ended September 30, 2007 and our consolidated statements of financial condition information as of September 30, 2007 from our unaudited condensed consolidated financial statements which are included elsewhere in this prospectus. We derived our consolidated statements of financial condition information as of December 31, 2004 from our audited consolidated financial statements which are not included in this prospectus. We derived our consolidated statements of financial condition information as of May 12, 2006 and September 30, 2006 from our unaudited condensed consolidated financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments that we consider necessary for a fair presentation of our consolidated financial position and results of operations for all periods presented.

The following table also presents summary pro forma statement of operations information for the year ended December 31, 2006 and for the nine months ended September 30, 2007. The pro forma statement of operations information gives effect to (i) the Acquisition and our acquisition of The Foundry Visionmongers Ltd., or The Foundry, as if those transactions occurred on January 1, 2006, and (ii) the issuance by Digital Domain Productions of notes payable in 2006 and 2007 as if those issuances occurred on, respectively, March 12, 2006 and February 23, 2006. The pro forma statement of operations information is not necessarily indicative of either future results of operations or the results that might have occurred if the Acquisition and our acquisition of The Foundry had been consummated on January 1, 2006, or if these notes payable had been issued on such respective dates. We cannot assure you that assumptions used in the preparation of the pro forma statement of operations information will prove to be correct.

The financial statements included in this prospectus may not reflect our results of operations, financial position and cash flows as if we had operated as a stand-alone company during all periods presented. Accordingly, our historical results should not be relied upon as an indicator of our future performance.

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(1)

Includes impact of the acquisition of The Foundry (see Note 15 of our Notes to Consolidated Financial Statements included elsewhere in this prospectus).

(2)

Includes acquisition costs in the amount of $2.5 million expensed by the Predecessor for the period January 1, 2006 to May 12, 2006. Also includes $0.4 million resulting from the recording of an allowance against a loan receivable made to a potential video game acquisition target for the period ended September 30, 2007. (See Note 14 of our Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this prospectus.) Additionally included in selling, general and administrative expenses for the nine months ended September 30, 2007 is $5.5 million of compensation expense related to the notes payable and shares of restricted stock issued to The Foundry’s former shareholders.

(3)

Includes an aggregate of stock-based compensation expense of $1.2 million for the nine months ended September 30, 2007 and $286,000 for the period May 13, 2006 to December 31, 2006. There was no stock-based compensation expense prior to these periods.

(4)

Basic and diluted net income (loss) per share was the same for each period, as the impact of all potentially dilutive securities outstanding was anti-dilutive.

(5)

The Predecessor’s and Successor’s preferred shares are participating securities due to their participation rights related to dividends (see Note 1 of our Notes to Consolidated Financial Statements included elsewhere in this prospectus). As a result, net income allocated to shares of our common stock for net income (loss) per share purposes is decreased due to accretion, deemed dividends, and income participation rights of the preferred stockholders as follows:

(6)

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a description of depreciation and amortization included in cost of revenues and selling, general and administrative expenses.

(7)

Represents total current assets less total current liabilities.

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Risk Factors

This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before making a decision to invest in our common stock. If any of the following risks were to actually occur, our business, results of operations and financial condition could be adversely affected. In those cases, the trading price of our common stock could decline and you may lose all or part of your investment.

Risks Related to Our Business and Industry

The entertainment and commercial production industries are highly competitive and we may not be able to compete successfully.

The entertainment industry, generally, and the visual effects and animation, software and video game segments thereof, in particular, are highly competitive. Although most feature films require some element of visual effects and animation, there are many visual effects and animation companies competing to provide their services, certain of which are companies that have greater financial, creative and managerial resources than we do. The commercial production industry is also highly competitive. In addition, we believe foreign competitors and competitors with operations or subcontractors in countries such as South Korea, China and India may become an increasing source of competition, due largely to their access to low-cost, high-skilled labor. We may not be able to compete successfully against either current or future competitors. Increased competition could result in reduced revenues, lower margins, and/or loss of market share, any of which could significantly harm our business.

The software and video game segments of the entertainment industry have limited barriers to entry, which allows for vigorous competition both through the entry into the industry of competitors with innovative technologies and by consolidation of companies with complementary products and technologies. As the software and video game segments of the entertainment industry are highly competitive, it may be difficult for us to establish ourselves in these markets. We believe that our future results in these areas depend largely upon our ability to offer products that compete favorably with respect to reliability, performance, ease of use, range of useful features, continuing product enhancements and price. The failure to offer software and video game products meeting these criteria may have an adverse effect on the growth and profitability of our business.

Our operating results may fluctuate significantly, which may cause the market price of our common stock to decrease significantly.

Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Each of the risk factors described in this “— Risks Related to Our Business and Industry” section, and the following factors, may affect our operating results:

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our ability to continue to attract clients for our services and products;

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the amount and timing of operating costs and capital expenditures related to the maintenance and expansion of our businesses, operations and infrastructure;

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our focus on long-term goals over short-term results;

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the results of our investments in high risk projects, such as film production and video game development projects;

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general economic conditions and those economic conditions specific to our business lines; and

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geopolitical events such as war, threat of war or terrorist actions.

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In response to these fluctuations, the market price of our common stock could decrease significantly in spite of our operating performance. In addition, our business has historically been cyclical and seasonal in nature, reflecting overall economic conditions as well as client budgeting and buying patterns in the advertising and entertainment industries generally. The cyclicality and seasonality in our business could become more pronounced and may cause our operating results to fluctuate more widely.

We have a history of losses.

Since 2004, we have been unable to generate revenues sufficient to be profitable. We had a net loss of $1,546,000, or $0.03 per share, for the Successor period May 13, 2006 to December 31, 2006 and a net loss of $132,000, or $0.06 per share, for the Predecessor period January 1, 2006 to May 12, 2006, compared to a net loss of $4,177,000, or $2.10 per share, for the year ended December 31, 2005, and a net loss of $15,035,000, or $0.21 per share, for the nine months ended September 30, 2007. We will need to increase revenues to achieve profitability, and we may not be able to do so. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. We also may be unable to accurately estimate our increased operating expenses as we grow. If our operating expenses exceed our expectations, our financial performance will be adversely affected. For more information, see “Selected Historical Consolidated Financial Information” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Our success depends on certain key personnel.

Our success depends on the continued service and performance of our senior management and key technical personnel, particularly Mark Miller, our President and Chief Executive Officer, Cliff Plumer, our Chief Technology Officer, and Ed Ulbrich, our Executive Vice President and President of our Commercials Division, whom we rely on for management of our company, development of our business strategy and management of our strategic relationships. Our executive officers are bound by employment and noncompetition agreements. However, while it is customary in the entertainment industry to rely on employment agreements as a method of retaining the services of key personnel, these agreements do not guarantee us the continued services of such employees. The loss of any such key personnel, particularly with little or no notice, could cause delays on certain projects and may also have an adverse impact on our relationship with certain clients. Our employment agreements with our named executive officers are summarized under “Compensation of Executive Officers — Employment Agreements”.

To be successful, we must continue to attract and retain qualified personnel.

Our success depends to a significant extent on our ability to identify, attract, hire, train and retain qualified creative, technical and managerial personnel. Competition for the caliber of talent required to make our products and provide our services, particularly for creative and technical personnel, will continue to intensify as film studios build or expand in-house visual effects and animation capabilities, and as the markets for video games and visual effects software continue to develop. Often we hire individuals on a project-by-project basis, and individuals who work on one or more projects for us may not be available to work on future projects. We may not be successful in identifying, attracting, hiring, training and retaining such qualified personnel in the future and our failure to do so could have an adverse effect on our business.

Investment in feature film and video game projects involves substantial financial risk.

As part of our growth strategy, we may invest substantial capital in feature film and video game projects. We cannot predict the financial success of any such project because the revenue derived from the production and distribution of a feature film or video game depends primarily upon its acceptance by the public, which cannot be accurately forecast. The financial success of a feature film or video game also depends upon the public’s acceptance of competing feature films and video games, critical reviews, the availability of alternative forms of entertainment and leisure time activities, piracy and unauthorized copying and distribution of feature films and video games, general economic conditions, and other tangible and intangible factors, none of which can be predicted with certainty. We expect to invest in a limited number of such projects per year as part of our growth strategy. The commercial failure of just one of those projects could have a material adverse effect on our results of operations, both in the year of release and in future years.

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We may not be able to implement our strategies of entering into the film production and video game development businesses effectively or at all.

Our growth strategy depends on our ability to successfully develop visual effects-driven and animated feature films and video games by leveraging the talents of our key artistic personnel and their experience with visual effects and animation production and our proprietary software technology. As a company, however, we have no experience producing or releasing visual effects-driven or animated feature films and no recent experience developing video games. Entry into each of the film production and video game development and production businesses presents significant challenges and subjects our business to significant risks, including those risks set forth below, and the inability to successfully manage these challenges could adversely affect our successful entry into one or both of these markets. Such failures would significantly limit our ability to grow our business while at the same time diverting significant resources from our digital imagery and software services businesses.

Film Production

Our successful production, completion and distribution of visual effects-driven and animated feature films are subject to a number of risks and uncertainties, including:

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the success of our film production business will be primarily dependent on audience acceptance of our films, which is extremely difficult to predict;

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only a relatively few “hit” films account for a significant portion of total revenue in the film industry and any failure by us to produce “hit” films could cause revenue generated from our proposed film production business to fall below expectations;

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the production and marketing of visual effects-driven and animated films is capital-intensive and our capacity to generate cash from our films may be insufficient to meet our anticipated capital requirements;

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delays and increased expenditures due to creative problems, technical difficulties, talent availability, accidents, natural disasters or other events beyond the control of the production companies and distributors;

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the entrance of additional film studios into the visual effects-driven and animated film market, which may result in increased competition for visual effects-driven and animated film audiences and for talented computer graphics animators and technical staff;

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the costs of producing and marketing feature films have steadily increased and may increase in the future, which may make it more difficult for a film to generate a profit or compete against other films;

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film production is subject to seasonal variations based on the timing of theatrical motion picture and home entertainment releases and a short-term negative impact on our business during a time of high seasonal demand (such as might result from a natural disaster or a terrorist attack during the time of one of our theatrical or home entertainment releases) could have a disproportionate effect on our results for the year;

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a strike by one or more of the labor unions or similar groups that provide personnel essential to the production of feature films, including the current strike by Hollywood writers that began on November 5, 2007, or a strike by Hollywood actors which may potentially occur in the summer of 2008, could delay or halt our proposed film production activities;

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we have no experience producing or releasing visual effects-driven and/or animated feature films and the strain on our personnel from the effort required to produce such feature films and the time required for creative development of future feature films may hinder our ability to consistently release visual effects-driven and animated feature films; and

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the profitable distribution of a motion picture depends in large part on the availability of one or more capable distributors who are able to arrange for appropriate advertising and promotion, proper release dates and bookings in first-run and other theaters and any decision by those distributors not to distribute or promote one of the motion pictures which we may produce or to promote competitors’ motion pictures to a greater extent than they promote ours, or our inability to enter into profitable distribution arrangements with such distributors, could have an adverse effect on our proposed film production business.

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Video Game Development and Production

Our successful development, manufacture and distribution of video games are subject to a number of risks and uncertainties, including:

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the life cycle of a video game title is relatively short, generally involving a relatively high level of sales during the first few months after production followed by a rapid decline in sales, making it important for us to be able to develop high quality new products that are popularly received and that have significant potential to become franchise brand properties;

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the video game business is highly seasonal, with the highest levels of consumer demand occurring in the December quarter, and if we miss this key selling period, or other key selling periods such as the release of a game in conjunction with the release of the related movie, for any reason, including product delays or delayed introduction of a new platform for which we have developed products, our sales will suffer disproportionately;

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only a relatively few “hit” titles account for a significant portion of total revenue in the video game industry, and hit titles offered by competitors in the video game industry may take a larger share of consumer spending than we anticipate, which could cause revenue generated from our proposed video game business to fall below expectations;

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the video game industry is subject to increasing regulation of content, consumer privacy, distribution and online hosting and delivery in the key territories in which we conduct or plan to conduct business and such regulation could harm our business by limiting the size of the potential market for our products and by requiring additional differentiation between products for different territories to address varying regulations;

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while we intend to implement preventative measures designed to reduce the possibility of hidden, objectionable content from appearing in the video games we propose to publish, these preventative measures will be subject to human error, circumvention, overriding, and reasonable resource constraints and if a video game we published were found to contain hidden, objectionable content, the Entertainment Software Ratings Board could demand that we recall a game and change its packaging to reflect a revised rating, retailers could refuse to sell it and demand we accept the return of any unsold copies or returns from customers and consumers could refuse to buy it or demand that we refund their money; and

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video games are extremely complex software programs that are difficult to develop, manufacture and distribute and the quality controls and preventative measures we have in place may not be effective in detecting defects in our products before they have been reproduced and released into the marketplace, in which case we could be required to recall a product, or we may find it necessary to voluntarily recall a product and/or scrap defective inventory.

We intend to undertake acquisitions to expand our business, which may pose risks to our business and result in dilution to our stockholders.

A key component of our business strategy includes strengthening our competitive position through internal development and growth. However, we intend to selectively pursue strategic acquisitions of companies in our industry and contiguous industries. To finance any acquisition, it may be necessary for us to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable to us, and, in the case of equity financings, would result in dilution to our stockholders. We may not be able to consummate any acquisitions, or if any such acquisitions are consummated, we may not be able to successfully integrate the operations and management of future acquired companies. If we are unable to attract and consummate acquisitions, our growth could be adversely impacted. Furthermore, any acquisition that is consummated presents several financial and operational risks that could have adverse effects on our operating results. These risks include:

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costs associated with integrating the acquired businesses;

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potential liabilities of the acquired businesses;

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possible adverse tax and accounting effects of the acquisition;

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diversion of our management’s attention from the day-to-day operation of our business to the integration of the acquired businesses;

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key employees of the acquired businesses leaving after the acquisition; and

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the acquired businesses not performing at the level we projected when we determined the purchase price.

Interruption or failure of our information technology systems could impair our ability to effectively provide our services and products, which could damage our reputation.

Our continued success will depend on our ability to meet our clients’ tight schedules, and our provision of our services and products depends on the continuing operation of our information technology and communications systems. Our systems are vulnerable to damage or interruption from earthquakes, terrorist attacks, floods, fires, power loss, telecommunications failures, computer viruses or other attempts to harm our systems, and similar events. Our facility is located in an area with a high risk of major earthquakes and is also subject to break-ins, sabotage and intentional acts of vandalism. Some of our systems are not fully redundant, and our disaster recovery planning cannot account for all eventualities. The occurrence of a natural disaster or other unanticipated problems at our Venice, California facility could result in lengthy interruptions in our projects and our ability to deliver services. Interruptions in our projects could hinder our ability to retain and attract clients and our brand could be damaged if clients believe we are unreliable, either of which, given our reliance on our core strategic client relationships, could result in a decrease in our revenues and otherwise adversely affect our business and operating results.

We depend on advanced technology and computer systems and we cannot predict the effect that rapid technological change or alternative forms of entertainment may have on us or our industry.

The entertainment industry in general, and the visual effects and animation, software and video game segments thereof in particular, continue to undergo significant changes, primarily due to technological developments. The rapid growth of technology and shifting consumer tastes prevent us from being able to accurately predict the overall effect that technological growth or the availability of alternative forms of entertainment may have on the potential revenue from and profitability of our operating units’ services and products. Furthermore, because we are required to provide advanced digital imagery products to continue to win business we must ensure that our production environment integrates the latest tools and techniques developed in the industry. This requires us to either develop these capabilities by upgrading our own proprietary software, which can result in substantial research and development costs and substantial capital expenditures for new equipment, or to purchase third-party licenses, which can result in significant expenditures. In the event we seek to obtain third-party licenses, we cannot guarantee that they will be available or, once obtained, will continue to be available on commercially reasonable terms, or at all. Furthermore, any error or defect in our software, a failure of our hardware or a failure of our backup facilities may result in a delay in delivery of products and services that could result in significantly increased production costs and may affect our ability to complete the work in a timely fashion. Such delays could have an adverse effect on our brand name and our relationship with our clients, which, given our reliance on our core strategic client relationships, could result in a decrease in our revenues and otherwise adversely affect our business and operating results.

Our revenue may be adversely affected if we fail to protect our proprietary technology or enhance or develop new technology.

We depend on our proprietary technology to develop and produce our products and provide our services. Although we have applied for six patents with the United States Patent and Trademark Office, we currently have not been issued any patents. We rely on a combination of copyright and trade secret protection and non-disclosure agreements to establish and protect our proprietary rights. In addition, we also rely on third-party software which is readily available to others. Failure of our copyrights and trade secret protection, non-disclosure agreements or other measures to provide protection of our technology, and the availability of third-party software, may make it easier for our competitors to obtain technology equivalent to or superior to our technology. Such failures may cause us to seek patents on our proprietary technology. No patents may issue from any patent applications we have filed or may file; if patents do so issue, any claims allowed may not be sufficiently broad to protect our technology, and any such patents may be challenged, invalidated or circumvented. Furthermore, if our competitors develop or license technology that is superior to ours or that makes our technology obsolete, we may be required to incur significant costs to enhance our technology or acquire new technology so that our technology remains competitive. The incurring of such costs may have an adverse effect on our operating results.

We generally enter into non-disclosure or license agreements with our employees, consultants and vendors, and generally control access to and distribution of our software, documentation and other proprietary information.

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Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our proprietary information, products or technology without authorization, or to develop similar or superior technology independently. Policing unauthorized use of our products is difficult. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. We generally rely on “electronically delivered” software licenses that include an electronic acceptance by the purchaser, which may be unenforceable under the laws of certain jurisdictions. The steps we take may not prevent misappropriation of our technology, and our non-disclosure and license agreements may not be enforceable.

In addition, we may be required to litigate in the future to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Any such litigation could result in substantial costs and diversion of resources and could have an adverse effect on our business and/or our operating results.

Third-party technology licenses may not continue to be available to us in the future.

We also rely on certain technology that we license from third parties, including software that is integrated and used with internally developed software. These third-party technology licenses may not in the future be available to us on commercially reasonable terms, or at all. The loss of or inability to maintain any of these technology licenses could result in delays in performance of work until such time as equivalent technology is identified, licensed and integrated, and we may not be able to identify, license or integrate any such equivalent technology timely or at all. Any such delays in performance of work could cause us reputational damage and result in a decrease in our revenues during the period of delay, either of which could materially adversely affect our business, operating results and/or financial condition.

Others may assert intellectual property infringement claims against us.

Companies in the visual effects and animation, software and video game segments of the entertainment industry are constantly subject to the possibility of claims that their products, services or techniques misappropriate or infringe the intellectual property rights of third parties. Infringement or misappropriation claims (or claims for indemnification resulting from such claims) may be asserted or prosecuted against us, and any such assertions or prosecutions may adversely affect our business and/or our operating results. Irrespective of the validity or the successful assertion of such claims, we would incur significant costs and diversion of resources with respect to the defense thereof, which could have an adverse effect on our business and/or our operating results. If any claims or actions are asserted against us, we may seek to obtain a license of a third-party’s intellectual property rights; however, under such circumstances a license may not be available on reasonable terms or at all.

If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud and, as a result, current and potential stockholders could lose confidence in our financial reporting.

Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our operating results could be misstated and our reputation may be harmed. We have in the past discovered, and may in the future discover, areas of our internal controls that need improvement.

In connection with the audit of our financial statements for the year ended December 31, 2006, our independent registered public accounting firm identified certain material weaknesses in our internal controls over financial reporting, as defined by the standards established by the Public Company Accounting Oversight Board. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses identified by our independent registered public accounting firm in connection with their audit of our financial statements for the year ended December 31, 2006 are summarized below:

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We did not have adequate controls and procedures with respect to the recording and analysis of our accounts relating to loss contracts as of December 31, 2006. As a result of this material weakness, we recorded a material post-closing adjustment to our financial statements for the year ended December 31, 2006. There were no loss contracts in prior years.

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We did not have adequate controls and procedures with respect to the recording and analysis of our accounts relating to amortization of the discount and issuance costs on notes payable at December 31, 2006. As a result of this material weakness, we recorded a material post-closing adjustment to our financial statements for the year ended December 31, 2006. This material weakness related specifically to the accounting for a financing transaction that occurred in 2006.

For a description of our remediation efforts with respect to these material weaknesses, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Internal Control over Financial Reporting.” Additional deficiencies in our internal controls may be discovered in the future. Any failure to develop or maintain effective controls, or any difficulties encountered in their implementation or improvement, could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of our prior period financial statements. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock.

Motion picture and software piracy may affect our ability to maximize our revenues.

Motion picture piracy is extensive in many parts of the world, including South America, Asia (including South Korea, China and Taiwan), the countries of the former Soviet Union and other former Eastern bloc countries. The Motion Picture Export Association, the American Motion Picture Marketing Association and the American Motion Picture Export Association monitor the progress and efforts made by various countries to limit or prevent piracy. In the past, these various trade associations have enacted voluntary embargoes on motion picture exports to certain countries in order to pressure the governments of those countries to become more aggressive in preventing motion picture piracy. In addition, the U.S. government has publicly considered implementing trade sanctions against specific countries which, in the opinion of the U.S. government, do not prevent copyright infringement of U.S.-produced motion pictures; however, future voluntary industry embargoes or U.S. government trade sanctions may not be enacted. If enacted, such actions could impact the amount of revenue that we realize from the international exploitation of motion pictures, depending upon the countries subject to such action and the duration of such action. If not enacted or if other measures are not taken, the motion picture industry (including us) may continue to lose an indeterminate amount of revenue as a result of motion picture piracy.

In addition, the proliferation of technology designed to circumvent the protection measures used in software products, the availability of broadband access to the Internet, the ability to download pirated copies of software from various Internet sites, and the widespread proliferation of Internet cafes using pirated copies of software, have all contributed to ongoing and expanding piracy. Though we plan to take steps to make the unauthorized copying and distribution of our products more difficult, these efforts may not be successful in controlling the piracy of our software and proposed video game products. This could have a negative effect on our growth and profitability in the future.

We could be adversely affected by strikes or other union job actions.

Our visual effects and animation projects generally utilize actors, directors, and writers who are members of the Screen Actors Guild, Directors Guild of America, and Writers Guild of America, respectively, pursuant to industry-wide collective bargaining agreements. Many projects also employ members of a number of other unions, including, without limitation, the International Alliance of Theatrical and Stage Employees. A strike by one or more of the unions that provide personnel essential to the production of our projects could delay or halt our ongoing production activities. A union-related halt or delay, including the current strike by Hollywood writers that began on November 5, 2007, or a strike by Hollywood actors which may potentially occur in the summer of 2008, could cause a delay or interruption in our work on visual effects and animation projects that could result in a decrease in our revenues and otherwise have a material adverse effect on our business, operating results or financial condition.

Film production incentives and subsidies offered by foreign countries and states where we do not have operations could affect our ability to secure work on visual effects and animation projects.

Production incentives and subsidies for feature film production are widely used throughout the industry and are important in helping film studios and production companies to offset production costs. Many countries and states have programs designed to attract feature film production. Incentives and subsidies are used to reduce feature film production costs and such incentives and subsidies take different forms, including direct government rebates, sale and

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leaseback transactions or transferable tax credits. Although we currently believe that being based in Venice, California puts us at a competitive advantage due to Venice’s proximity to Hollywood, film studios and production companies may send their visual effects and animation work to companies in foreign countries and states where we do not have operations in order to take advantage of the incentives and subsidies offered there. Any diminution in our ability to secure work on visual effects and animation projects due to such incentives and subsidies could have a material adverse effect on our business, operating results or financial condition.

We depend on revenues from a few significant relationships and any loss, cancellation, reduction, or delay in these relationships could harm our business.

We have historically derived a material portion of our revenues from a limited number of customers and large projects in our feature films segment. These large projects, which usually extend over six to 18 months, have generally been with major motion picture studios in the United States. Different studios have represented greater than 10 percent of our consolidated revenues in different years. Significant customers over the last few years have included Walt Disney Pictures, Columbia Pictures, Paramount Pictures, 20th Century Fox, Universal Pictures, New Regency Productions and Warner Bros. Pictures. We expect that in future periods we will continue to enter into contracts with customers which represent a significant concentration of our revenues. If such contracts were terminated, our revenues and net income could significantly decline. Our success will depend on our continued ability to develop and manage relationships with our significant customers. For example, during the Successor period May 13, 2006 through December 31, 2006, contracts with two major studios for work in connection with feature films accounted for approximately 47% of our revenues for that period.

Any adverse change in our relationship with any of the major motion picture studios or other of our principal customers could have an adverse effect on our business. Although we are attempting to expand our customer base, we expect that our customer concentration will not change significantly in the near future. The markets in which we sell our services and products are dominated by a relatively small number of customers. We may not be able to retain our largest customers, we may not be able to attract additional customers, and our customers may not continue to buy our products and services in the same amounts as in prior years. The loss of one or more of our largest customers, any reduction in revenues from these customers or our inability to successfully develop relationships with additional customers each could significantly harm our business.

We do not have an agreement with Michael Bay for the development or production of visual effects-driven and animated films or video games and he has no contractual obligation to direct business to us.

We do not have an agreement with Michael Bay, our Co-Chairman and a film director and producer who has directed such films as Transformers and Armageddon, for the development or production of visual effects-driven and animated films or video games. While Mr. Bay has indicated that he intends to work with us in developing projects in these areas in the future, he is under no contractual obligation to do so and he may decide to do so with one or more of our competitors. We also do not have an agreement with Mr. Bay to provide visual effects and animation on films he will direct in the future. While Mr. Bay may recommend that we provide the visual effects and animation to the studio producing a film he is directing, the studio will make the final decision on who provides the visual effects and animation for that film and such studio may not follow Mr. Bay’s recommendation. The failure to capitalize on our relationship with Mr. Bay through the development or production of visual-effects driven and animated feature films or video games, or through our engagement to provide visual effects and animation on films he is producing, could harm our reputation in the industries in which we operate and have an adverse impact on the growth of our business.

The inability to successfully manage the growth of our business may have an adverse effect on our operating results.

We expect to experience growth in the number of employees and the scope of our operations. Such growth will result in increased responsibilities for our management. Since our acquisition of Digital Domain Productions on May 12, 2006, we have begun to implement improvements to its financial, inventory, management and reporting controls and to hire additional numbers of technical, administrative and management personnel. While necessary, these improvements involve expenses that limit our management’s ability to pursue potential market opportunities. If our management is unable to successfully manage expenses in a manner that allows us to both improve operations and at the same time pursue potential market opportunities, the growth of our business could be adversely impacted, which may, in turn, negatively affect our operating results or financial condition.

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We may not be able to comply with certain financial covenants under our secured notes.

As of September 30, 2007, we had approximately $20.0 million in principal and accrued interest outstanding under our secured notes, which are secured by substantially all of our assets. Pursuant to the terms of these notes, we are subject to a number of financial covenants, including with respect to maintaining (i) a specified maximum ratio of our consolidated indebtedness to our trailing twelve-month consolidated earnings before interest, taxes, depreciation and amortization, and all other non-cash charges to consolidated net income, or consolidated EBITDA, and (ii) our specified minimum ratio of our trailing twelve-month consolidated EBITDA (less unfinanced capital expenditures) to interest expense and other fixed charges, such as payments on our indebtedness and income taxes, over the same twelve-month period, in each case on specified quarterly test dates commencing with September 30, 2008. We intend to use the proceeds of this offering to pay off in full our secured notes, whereupon these covenants will cease to have any effect. In the event that this offering were not consummated prior to September 30, 2008, we may be required to take other actions in order to be in compliance with these covenants as of September 30, 2008 and subsequent test dates. In such event, we would explore the full range of options available to us for avoiding a default with respect to these covenants, including attempting to do one or more of the following: (i) raising equity capital in a private financing; (ii) obtaining from the holder of these notes an amendment to or waiver of one or both of these covenants; and (iii) in combination with one or both of the foregoing actions, reconfiguring our business model to reduce the amount or timing of our expenditures. We may not be successful in any of these attempts. In the event that we fail to comply with either of these covenants on any applicable test date, and fail to cure the resulting default as permitted by the terms of our agreements with the lender, the holder of our secured notes would have the right to declare the secured notes and all amounts outstanding thereunder immediately due and payable. The holder would then have the right to enforce its security interest in our assets, which would have a material adverse effect on our business and financial condition. For more information, see Note 8 of the Notes to Consolidated Financial Statements included elsewhere in this prospectus, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”.

Changes in U.S., regional or global economic conditions could adversely affect our profitability.

Our services, and the products we plan to offer, are luxuries that are dependent on the amount of disposable income available to consumers. A decrease in economic activity in the United States or in other regions of the world in which we do business could adversely affect demand for films and video games. In addition, an increase in price levels generally, or in price levels in a particular sector such as the energy sector, could result in a shift in consumer demand away from entertainment products such as films and video games. Such events could cause a decrease in the demand for both the visual effects and animation services we offer as well as for the films and video games we propose to produce, either of which would have an adverse effect on our profitability and operating results.

Risks Related to this Offering and Ownership of Our Common Stock

Our common stock has not been publicly traded, and we expect that the price of our common stock will fluctuate substantially.

Before this offering, there has been no public market for shares of our common stock. An active public trading market may not develop after the consummation of this offering or, if developed, may not be sustained. The price of the shares of common stock sold in this offering will not necessarily reflect the market price of the common stock after this offering. The market price for the common stock after this offering will be affected by a number of factors, some of which are beyond our control, including those described above under “— Risk Related to Our Business and Industry” and the following:

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announcements by us or our competitors of significant contracts, productions, projects, acquisitions or capital commitments;

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changes in financial estimates by analysts;

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variations in quarterly operating results;

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general economic conditions;

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terrorist acts;

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future sales of our common stock; and

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investor perception of us and the industries in which we operate.

In addition, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated to and disproportionate to the operating performance of companies in the visual effects and animation, software and video game segments of the entertainment industry. These broad market and industry factors may materially reduce the market price of our common stock, regardless of our operating performance.

Securities analysts may not initiate coverage of our common stock or may issue negative reports, either of which may have a negative impact on the market price of our common stock.

Securities analysts may elect not to provide research coverage of our common stock after the consummation of this offering. If securities analysts do not cover our common stock after the consummation of this offering, the lack of research coverage may adversely affect the market price of our common stock. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about us or our business. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline rapidly. If one or more of these analysts ceases coverage of our company, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, rules mandated by the Sarbanes-Oxley Act of 2002 and a global settlement reached in 2003 between the Securities and Exchange Commission, or SEC, other regulatory agencies and a number of investment banks have led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms will be required to contract with independent financial analysts for their stock research. It may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.

A limited number of our stockholders will continue to own a large percentage of our voting stock after this offering, which will allow them to exercise significant influence over matters subject to stockholder approval.

After this offering, our executive officers, directors and their affiliated entities will beneficially own or control approximately    % of the outstanding shares of our common stock (   % if the underwriters exercise their over-allotment option in full). Accordingly, these executive officers, directors and their affiliated entities, acting as a group, will have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction. These stockholders may also delay or prevent a change of control or otherwise discourage a potential acquirer from attempting to obtain control of us, even if such a change of control would benefit our other stockholders. This significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise.

We do not intend to pay dividends on our common stock.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future. We currently anticipate that we will retain all of our available cash, if any, for use as working capital and for other general corporate purposes. Any payment of future cash dividends will be at the discretion of our board of directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations that our board of directors deems relevant. Investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment. Investors seeking cash dividends should not purchase shares of our common stock.

Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our stockholders.

Prior to the consummation of the offering, we will file an amended and restated certificate of incorporation and amended and restated bylaws with the Secretary of State of the State of Delaware. Provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions of Delaware law, could make it more difficult for a third-party to acquire us, even if doing so would benefit our stockholders. These provisions will:

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permit our board of directors to issue up to 25,000,000 shares of preferred stock, with any rights, preferences and privileges as they may designate, including the right to approve an acquisition or other change in our control;

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provide that all vacancies on our board of directors, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum;

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not provide for cumulative voting rights, thereby allowing the holders of a majority of the shares of common stock entitled to vote in any election of directors to elect all of the directors standing for election, if they should so choose; and

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provide that special meetings of our stockholders may be called only by the chairman or vice chairman of the board, our president, the board of directors or one or more stockholders holding shares of our common stock representing at least 50% of the combined voting power of our common stock.

In addition, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in a broad range of business combinations with any stockholder who owns, or at any time in the prior three years owned, 15% or more of its outstanding voting stock for a period of three years following the date on which the stockholder became such an “interested stockholder”. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to our stockholders.

Future sales of shares of our common stock by existing stockholders could depress the market price of our common stock.

Upon completion of this offering, there will be       shares of our common stock outstanding assuming no exercise of the over-allotment option by the underwriters (or       shares of our common stock if the underwriters exercise their over-allotment option in full). The       shares being sold in this offering (or      shares, if the underwriters exercise their over-allotment option in full) will be freely tradable immediately after this offering (except for shares purchased by our affiliates). Of the remaining        shares not sold in this offering,       shares are held by our directors, officers and certain of our stockholders who have entered into 180-day lock-up agreements. Those parties will be able to sell their respective shares in the public market upon termination of the lock-up period, subject to the applicable volume, manner of sale, holding period and limitations of Rule 144 under the Securities Act of 1933, as amended. The remaining       shares outstanding are not subject to lock-up periods and will be tradable in the public market upon termination of this offering, subject to applicable Rule 144 limitations. In addition, as of       , 2008, there are outstanding options to purchase       shares of our common stock and outstanding warrants to purchase       shares of our common stock, which, if exercised, will result in additional shares becoming available for sale upon expiration of the lock-up period. Thomas Weisel Partners LLC and Oppenheimer & Co. Inc. may consent to the release of some or all of the shares subject to lock-up agreements for sale prior to the expiration of the applicable lock-up agreement. A large portion of these shares and options are held by a small number of persons and investment funds. Sales by these stockholders, option holders or warrant holders of a substantial number of shares after this offering could significantly reduce the market price of our common stock. Moreover, after this offering, holders of shares of our common stock will have rights, subject to some conditions, to require us to file registration statements covering the shares they currently hold, or to include these shares in registration statements that we may file for ourselves or other stockholders.

We also intend to register all shares of our common stock reserved for issuance under our 2006 General Common Stock Equity Plan. Upon the completion of this offering, an aggregate of       shares of our common stock will be reserved for future issuance under this plan. Once we register these shares, which we plan to do shortly after the completion of this offering, they can be freely sold in the public market upon issuance, subject to the Rule 144 volume limitations and other requirements applicable to our affiliates and the applicable lock-up agreements referred to above. If a large number of these shares are sold in the public market, the sales could reduce the trading price of our common stock. See “Shares Eligible for Future Sale” for a more detailed description of sales that may occur in the future.

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You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future.

If you purchase shares of our common stock in this offering, you will pay more for your shares than the amounts paid by existing stockholders for their shares. As a result, you will incur immediate and substantial dilution of $     per share, representing the difference between our pro forma as adjusted net tangible book value per share after giving effect to this offering and an assumed initial public offering price of $     , the mid-point of the price range on the cover page of this prospectus. Investors purchasing shares of our common stock in this offering will contribute approximately     % of the total amount we have raised to fund our company, but will own only approximately     % of the shares outstanding immediately following the consummation of this offering. In the past, we issued certain options to acquire our common stock at prices significantly below the assumed initial public offering price. As of       , 2008, we had       options outstanding with exercise prices ranging from $     to $     and with a weighted average exercise price of $     per share and a weighted average remaining contractual life of     years. As of       , 2008, we had       warrants outstanding to purchase common stock with a weighted average exercise price of $     per share. In addition, as of       , 2008,       shares of our common stock are reserved for issuance in connection with potential future grants of stock options and restricted stock under our 2006 General Common Stock Equity Plan. To the extent the holders exercise those outstanding options and/or warrants, or we issue additional options that are then exercised or restricted stock under our 2006 General Common Stock Equity Plan, you will sustain further dilution. In addition, as of         , 2008, there are outstanding options to purchase        shares of common stock in Digital Domain Productions, Inc. under its 1995 Stock Option Plan, which, if exercised in full, would reduce our percentage ownership of this currently wholly-owned subsidiary by less than 1%. If we raise additional funding by issuing equity securities or convertible debt, or if we acquire other companies or technologies or finance strategic alliances by issuing equity, the newly issued or issuable shares will further dilute your percentage ownership and may also reduce the value of your investment.

We will incur significant increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and The NASDAQ Global Market, have imposed various new requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage.

The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. As a result of our required compliance with Section 404 of the Sarbanes-Oxley Act, we will incur substantial accounting expense and expend significant management efforts and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to ensure such compliance. Furthermore, if we identify any issues in complying with the requirements of the Sarbanes-Oxley Act (for example, if we or our independent registered public accounting firm identify a material weakness or significant deficiency in our internal controls over financial reporting), we could incur additional costs rectifying those issues, and the existence of those issues could adversely affect us, our reputation, investor perceptions of us and the trading price of our common stock.

We have broad discretion in the use of the net proceeds from this offering, and we may not use these proceeds effectively.

We have not determined the specific allocation for the majority of the net proceeds of this offering. Our management will have broad discretion in the application of the net proceeds from this offering and could spend the proceeds in ways that do not necessarily improve our results of operations or enhance the value of our common stock. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business or financial condition, cause the price of our common stock to decline and delay product development.

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Forward-Looking Statements

This prospectus contains forward-looking statements that involve risks and uncertainties relating to future events or our future financial performance. These statements involve known and unknown risks, uncertainties and other factors that may cause the actual results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include, but are not limited to:

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the anticipated benefits and risks associated with our business strategy;

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our ability to expand into the visual effects-driven and animated feature film production business and the video game development and production business;

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our future operating results and the future value of our common stock;

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the anticipated size or trends of the markets in which we compete and the anticipated competition in those markets;

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our ability to attract customers in a cost-efficient manner;

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our ability to attract and retain qualified management and technical personnel;

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potential government regulation;

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our future capital requirements and our ability to satisfy our capital needs;

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the anticipated use of the proceeds realized from this offering;

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the potential for additional issuances of our securities;

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the possibility of future acquisitions of businesses or assets; and

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possible expansion into international markets.

Furthermore, in some cases, you can identify forward-looking statements by terminology such as “may,” “could,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. These statements are only predictions. In evaluating these statements, you should specifically consider various factors, including the risks outlined in the “Risk Factors” section above. These factors may cause our actual results to differ materially from any forward-looking statement.

Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

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Use of Proceeds

At an assumed initial public offering price of $     per share, which is the midpoint of the range set forth on the cover page of this prospectus, we will receive approximately $     million from our sale of       shares of our common stock in this offering, after deducting estimated offering expenses of approximately $     and the underwriting discounts and commissions payable to the underwriters. If the underwriters exercise their over-allotment option in full, we estimate that our net proceeds from this offering will be approximately $     million.

A $1.00 increase (decrease) in the assumed initial public offering price of $     per share would increase (decrease) the net proceeds to us from this offering by approximately $     million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

We intend to use approximately $     million of our net proceeds from this offering to prepay in full our existing secured notes; which notes (i) carry an interest rate of 15% per annum, (ii) require quarterly interest payments in arrears on March 30, June 30, September 30, and December 30, (iii) are due on July 21, 2011 and (iv) are reflected at $8,538,000 in our unaudited condensed consolidated financial statements at and for the nine months ended September 30, 2007 included elsewhere in this prospectus (the face amount is $20,033,000 due to the fact the notes are reflected net of discounts and issuance costs in such financial statements). In order to prepay these notes, we are required to pay the holders thereof, in addition to the face amount, a redemption premium equal to a declining percentage of the outstanding principal amount thereof as the maturity date of the notes approaches, as follows: from July 21, 2007 to July 20, 2008, 125.0% of the outstanding principal amount; from July 21, 2008 to July 20, 2009, 110.0% of the outstanding principal amount; from July 21, 2009 to July 20, 2010, 105.0% of the outstanding principal amount; and from July 21, 2010 to July 20, 2011, 102.5% of the outstanding principal amount.

We will use our remaining net proceeds from this offering to implement our growth strategy by, among other things, expanding our technology development and licensing program and attempting to enter into the production of animated and visual effects-driven feature films and the development and production of video games, as well as for general corporate purposes, including working capital and capital expenditures. We expect that the implementation of our growth strategy may also take place through the acquisition of, or investment in, complementary businesses, technologies or other assets, and through investment in joint ventures, although we have no present agreement to make any such acquisitions or investments. Pending use of the net proceeds of this offering, we intend to invest the funds in cash, cash equivalents (which may include Treasury Bills, certificates of deposit, money market accounts, money market mutual funds, and other liquid investments), or short-term investment grade securities. Management’s plans for the proceeds of this offering are subject to change due to unforeseen circumstances. We cannot specify with certainty the particular uses for the net proceeds to be received by us upon consummation of this offering. Accordingly, our management will have broad discretion in using the net proceeds of this offering.

Dividend Policy

We have never declared or paid any cash dividends on our common stock. We currently expect to retain future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends on such stock in the foreseeable future. Investors seeking cash dividends should not purchase shares of our common stock.

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Capitalization

The following table sets forth our capitalization as of September 30, 2007:

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on an actual basis; and

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on a pro forma basis to give effect to the conversion of all outstanding shares of our preferred stock into an aggregate of 1,000,000 shares of our common stock, and the removal of the put option feature of certain of the warrants issued by us, resulting in a reclassification of the related warrant liability to additional paid-in capital; and

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on a pro forma as adjusted basis to give effect to the sale of       shares of common stock by us in this offering at the offering price of $      per share, the mid-point of the price range set forth on the cover page of this prospectus, after deducting the underwriting discounts and commissions payable to the underwriters, the non-accountable expense allowance for the underwriters and the other estimated offering expenses payable by us.

You should read this table in conjunction with our unaudited condensed consolidated financial statements and the related notes as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this prospectus. All share numbers reflect a     for     stock split of our common stock to be effected prior to the consummation of this offering.

(1)

A $1.00 increase (decrease) in the assumed initial public offering price of $____ per share would increase (decrease) by $___ million each of additional paid-in capital, total stockholders’ equity and total capitalization, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discounts and commissions payable to the underwriters, the non-accountable expense allowance for the underwriters and the other estimated offering expenses payable by us.

(2)

Notes payable is net of discount and issuance costs of $11,495,000 at September 30, 2007. The difference between the carrying amount and the principal amount of $20,033,000 is being recorded as interest expense from the date of issuance to the maturity date of July 21, 2011 using the effective interest method of accounting.

(3)

See Note 9 of our Notes to Unaudited Condensed Consolidated Financial Statements included elsewhere in this prospectus.

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The number of shares shown as outstanding as of September 30, 2007 above excludes:

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9,861,800 shares of our common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $1.15 per share;

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13,179,370 shares of our common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $0.24 per share; and

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4,435,370 shares of our common stock reserved for issuance in connection with potential future grants of options and restricted stock under our 2006 General Common Stock Equity Plan.

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Dilution

Purchasers of shares of our common stock in this offering will experience an immediate and substantial dilution in net tangible book value per share. Dilution is the amount by which the initial public offering price paid by purchasers of shares of our common stock in this offering exceeds the net tangible book value per share immediately following the consummation of this offering. Net tangible book value represents our total tangible assets reduced by our total liabilities. Net tangible book value per share represents our net tangible book value divided by the number of shares of our common stock outstanding.

As of September 30, 2007 our net tangible book value was $2.2 million and our net tangible book value per share was $0.03. As of September 30, 2007, after giving effect to the conversion of all outstanding shares of our preferred stock and the reclassification of our warrant liability, the pro forma net tangible book value would have been $17.6 million and the pro forma net tangible book value per share would have been $0.23. As of         , 2008 after giving effect to the sale of the shares of our common stock offered by this prospectus at an assumed initial public offering price of $     per share, the mid-point of the price range set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions, the non-accountable expense allowance for the underwriters and other estimated offering expenses payable by us, the pro forma as adjusted net tangible book value per share of our common stock would have been $     per share. Therefore, new investors in our common stock would have been diluted by approximately $     per share. At the same time, our existing stockholders would have realized an increase in pro forma as adjusted net tangible book value of $     per share after this offering. The following table illustrates this per share dilution:

A $1.00 increase (decrease) in the assumed initial public offering price of $     per share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value as of       , 2008 by approximately $     million, the pro forma as adjusted net tangible book value per share after this offering by $     and the dilution in pro forma as adjusted net tangible book value per share to new investors in this offering by $     per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions, the non-accountable expense allowance for the underwriters and other estimated offering expenses payable by us.

The following table summarizes, as of September 30, 2007 as described above, the number of shares of our common stock purchased by our existing stockholders and estimated to be purchased by our new investors in this offering, and the total consideration paid and the average price per share paid by existing and new stockholders:

(1)

Assumes conversion of 1,000,000 shares of our convertible preferred stock to 1,000,000 shares of our common stock.

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A $1.00 increase (decrease) in the assumed initial public offering price of $     per share, the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) total consideration paid to us by investors participating in this offering by approximately $     million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions, the non-accountable expense allowance for the underwriters and other estimated offering expenses payable by us.

If the underwriters exercise their over-allotment option to purchase additional shares in this offering in full, our existing stockholders would own     % and our new investors would own     % of the total number of shares of our common stock outstanding after this offering.

The number of shares shown as outstanding as of September 30, 2007 above excludes:

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9,861,800 shares of our common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $1.15 per share;

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13,179,370 shares of our common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $0.24 per share; and

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4,435,370 shares of our common stock reserved for issuance in connection with potential future grants of options and restricted stock under our 2006 General Common Stock Equity Plan.

Because we expect the exercise prices of outstanding options and warrants to purchase shares of our common stock to be significantly below the initial public offering price of $     per share, the midpoint of the price range set forth on the cover page of this prospectus, investors purchasing shares of our common stock in this offering will suffer additional dilution when and if these options or warrants are exercised, or if we issue additional options that are then exercised or restricted stock under our 2006 General Common Stock Equity Plan.

In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. To the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities could result in further dilution to our stockholders.

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Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information has been derived by the application of pro forma adjustments to our historical consolidated financial statements and the historical consolidated financial statements of our predecessor company.

The unaudited pro forma condensed consolidated statement of operations information gives effect to (i) the acquisition on May 12, 2006 of Digital Domain Productions, Inc. (formerly Digital Domain, Inc.), or Digital Domain Productions, by Digital Domain and the acquisition on March 23, 2007 by Digital Domain of The Foundry Visionmongers Ltd., or The Foundry, as if those transactions occurred on January 1, 2006, and (ii) the issuance by Digital Domain Productions of notes payable on July 21, 2006 (the proceeds from which partially financed our acquisition of Digital Domain Productions) and on May 16, 2007 (the proceeds from which partially financed our acquisition of The Foundry) as if those issuances occurred on, respectively, March 12, 2006 and February 23, 2006. In the case of each of these notes payable issuances, the number of days by which the pro forma related acquisition date of January 1, 2006 precedes the pro forma notes payable issuance date is equal to the number of days by which the actual related acquisition date precedes the actual notes payable issuance date (70 days, in the case of our acquisition of Digital Domain Productions, corresponding to the period commencing with the actual related acquisition date of May 12, 2006 and ending with the actual notes payable issuance date of July 21, 2006; and 54 days, in the case of our acquisition of The Foundry, corresponding to the period commencing with the actual related acquisition date of March 23, 2007 and ending with the actual notes payable issuance date of May 16, 2007). All financial effects resulting from those acquisition transactions and the issuance of those notes payable are already reflected in our unaudited condensed consolidated balance sheet as of September 30, 2007 included elsewhere in this prospectus, and accordingly no pro forma condensed consolidated balance sheet is presented.

The Acquisition

On May 12, 2006, DD Acquisition Subsidiary, Inc., a wholly-owned subsidiary of Digital Domain, merged with and into Digital Domain Productions, which we refer to as the Acquisition. As a result of the Acquisition, DD Acquisition Subsidiary, Inc. ceased to exist and Digital Domain Productions continued the operation of its business as a wholly-owned subsidiary of Digital Domain. The merger has been accounted for using the purchase method of accounting. The consideration consisted of (i) cash in the aggregate amount of $4,500,000 paid on May 12, 2006 and (ii) an aggregate amount of $30,000,000 in original principal amount of promissory notes, which we refer to as the Sellers’ Notes. The notes had a maturity date of December 31, 2006, accrued interest at a rate of 10% per annum, were secured by the shares of Digital Domain Productions common stock owned by Digital Domain and were guaranteed by certain of our officers and directors, who are also stockholders, in the aggregate amount of $9,000,000. Pursuant to the terms of the Sellers’ Notes, we made a mandatory prepayment on such notes in the amount of $4,500,000 on May 13, 2006, the first business day following the date the merger was effective. There were certain optional prepayment provisions under the terms of these notes that allowed the notes to be deemed paid-in-full and automatically cancelled if we paid the holders of the notes a total amount equal to (i) 80% of the original principal amount, without interest, on or before the 60th day from the date the notes were issued or (ii) 90% of the original principal amount, with interest, after the 60th day and on or before the 90th day from the date the notes were issued. We received an extension of time to pay off the notes at 80% of the original principal amount, without interest. On July 21, 2006, the notes were subsequently paid off in full for a total amount of $24,000,000 (80% of the original principal amount, without interest). The fair value of the purchase consideration was determined to be $28,500,000, consisting of $4,500,000 in cash and $24,000,000 in notes. The total purchase price, including acquisition costs of $500,000, was $29,000,000. The purchase price was allocated as follows: $13,827,000 to net tangible assets acquired, $1,430,000 to identified intangibles with definite lives, $1,870,000 to internally developed software, $4,300,000 to Digital Domain Productions trademarks with indefinite lives and $7,573,000 to goodwill. The weighted average amortization period for the identifiable intangible assets with definite lives is estimated to be 3.8 years. Goodwill is not expected to be deductible for income tax purposes.

The estimated fair value of the guarantees was $180,000 and was recorded as other expense and an increase in additional paid-in-capital in the consolidated financial statements for the Successor period from May 13, 2006 through December 31, 2006.

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The Foundry Acquisition

On March 23, 2007, we acquired the entire outstanding capital stock of The Foundry, a company incorporated and registered in England and Wales and whose principal office is located in London, England. We refer to this transaction as the Foundry Acquisition. The Foundry is a visual effects software developer with expertise in image vision and optical flow and specializing in sophisticated plug-ins that are compatible with compositing software packages. The consideration for the transaction consisted of (i) cash in the amount of approximately £550,000 ($1,084,000) which was paid on March 28, 2007, (ii) promissory notes, which we refer to as the Foundry Notes, payable in the aggregate initial principal amount of £2,500,000 ($4,908,000) due upon the earlier of: (a) January 25, 2008 or (b) the completion of an equity offering by us in excess of $10,000,000, and (iii) restricted shares of our common stock having an aggregate value of £2,000,000 ($3,922,000). As of August 3, 2007, as a result of our 2007 private placement of common stock (see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments — 2007 Private Placement of Common Stock”), we paid in full all amounts owing under the Foundry Notes, as required by the terms thereof.

The cash and expenses related to the Foundry Acquisition, aggregating $1,453,000, plus a note payable of $58,000 and restricted stock valued at $47,000 that were issued to a former shareholder of The Foundry who was not subject to continuing employment, have been accounted for as the purchase price of the acquisition. The purchase price of $1,558,000 was allocated to the assets acquired, with $157,000 allocated to acquired software, $27,000 allocated to amortizable intangibles and $64,000 allocated to indefinite life intangibles. In addition, the original principal amount of the Foundry Notes (excluding the Foundry Note issued to the former shareholder of The Foundry not subject to continuing employment), in the amount of $4,850,000, and $3,875,000, the value of the restricted shares of our common stock issued in the transaction (other than to the former shareholder of The Foundry not subject to continuing employment), computed in relation to the portion of the vesting period falling in 2007, will be included in our expenses as compensation expense in 2007.

Falcon Financing Transactions

On July 21, 2006, we entered into a Purchase Agreement with Falcon Mezzanine Partners II, LP, or Falcon, whereby we sold to Falcon $12,500,000 in principal amount of senior secured notes, or the senior secured notes. On May 16, 2007, we entered into an Amended and Restated Purchase Agreement with Falcon, amending and restating this Purchase Agreement, whereby we sold to Falcon $7,000,000 in principal amount of Series B Senior Secured Notes due in 2011, or the Series B Notes. The senior secured notes and the Series B Notes (i) have an interest rate of 15.0% per annum; (ii) require quarterly interest payments in arrears on March 30, June 30, September 30, and December 30, commencing September 2006 and June 2007, respectively; and (iii) are due on July 21, 2011. On each interest payment date, we may, at our option, in lieu of the payment in whole or in part of interest due on the senior secured notes and the Series B Notes which is in excess of 12.0% per annum, pay such amount in excess of 12.0% per annum on such notes by adding such amount to the outstanding principal amount thereof. In order to prepay these notes, we are required to pay the holders, in addition to the repayment amount, a redemption premium equal to a declining percentage of the outstanding principal amount thereof as the maturity date of the notes approaches, as follows: from July 21, 2007 to July 20, 2008, 125.0% of the outstanding principal amount; from July 21, 2008 to July 20, 2009, 110.0% of the outstanding principal amount; from July 21, 2009 to July 20, 2010, 105.0% of the outstanding principal amount; and from July 21, 2010 to July 20, 2011, 102.5% of the outstanding principal amount.

In connection with the sale to Falcon of the senior secured notes and the Series B Notes, we issued to Falcon warrants for the purchase of, respectively, 7,323,077 and 2,500,000, shares of our common stock (see “Description of Capital Stock–Warrants” for additional details). All of these warrants have a put option feature that becomes exercisable on July 21, 2011, whereby we are required to purchase the warrants at the then current fair market value of the underlying common stock, less the exercise price ($0.0001 per warrant share) thereof. This put option feature expires on the earlier of (x) July 21, 2016 and (y) the consummation of a qualified initial public offering, or QIPO, that raises gross proceeds to the company of not less than $25 million. Due to the put option feature of the warrants, the warrants have been recorded as a liability on our balance sheet and are adjusted to the current fair value at each reporting date. The adjustments are recorded as increases or decreases to interest expense. This offering of shares of our common stock, when consummated, constitutes a QIPO for purposes of these warrants. Due to the expiration of the put

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feature of the warrants upon the consummation of this offering, we will no longer record these warrants as a liability or make any further related adjustments to interest expense following this offering.

The Adjustments

The pro forma adjustments reflect the acquisitions described above and include increased interest expense for the issuance and adjustment of the senior secured notes and the Series B Notes, and increased depreciation and amortization due to the additional periods included in the calculations for purposes of the pro forma analysis.

The unaudited pro forma condensed consolidated statements of operations are for informational purposes only and are not necessarily indicative of the results of operations that would have been achieved had the acquisitions and related transactions for which we are giving pro forma effect actually occurred on the dates indicated as described above and in the accompanying notes, nor are such unaudited pro forma condensed consolidated statements of operations necessarily indicative of the results to be expected for the full year or any future period.

The pro forma adjustments are based on currently available information and assumptions that our management believes are reasonable. The notes to the unaudited pro forma condensed consolidated statements of operations provide a detailed discussion of how such adjustments were derived and presented in the unaudited pro forma condensed consolidated statements of operations. The unaudited pro forma condensed consolidated statements of operations should be read in conjunction with “Selected Historical Consolidated Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, our consolidated financial statements and related notes thereto and our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this prospectus.

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Unaudited Pro Forma Condensed Consolidated Statements of Operations
Year Ended December 31, 2006

(1)

Represents the historical results of The Foundry adjusted to conform to U.S. GAAP.  Weighted average exchange rate obtained from the website of the Federal Reserve Bank of New York.

(2)

Adjustments to costs of revenues and selling, general and administrative expenses consist of: (i) additional consulting expenses to John C. Textor, Co-Chairman of our board of directors, and Jonathan Teaford, Vice President of Digital Domain, of $94,000 and $34,000, respectively, pursuant to consulting agreements; (ii) additional compensation expense to Carl Stork, Vice Chairman of our board of directors and our former Chief Executive Officer, including assumed fringe benefits, of $122,000 pursuant to an employment agreement; (iii) estimated additional staff expenses for travel, entertainment, office expenses and miscellaneous costs of $25,000; (iv) additional compensation expense of $1,357,000 for stock options and restricted stock grants to The Foundry employees related to the Foundry Acquisition determined to be compensation expense rather than purchase price (these adjustments do not include the effects of exchange rate fluctuations between the actual and pro forma periods); and (v) additional compensation expense of $245,000 for the increased salaries of The Foundry’s key employees dated back to January 1, 2006. Additional pro forma expense adjustments include additional amortization of intangible assets valued at the time of the Acquisition for the additional pro forma period. Our management has assumed that the $1,870,000 valuation attached to the acquired software, $400,000 for Titanic rights, and $130,000 for customer lists at the date of the consummation of the Acquisition remained unchanged for purposes of this pro forma analysis. Our management has not included an adjustment for the $900,000 of project backlog as that amount was fully amortized at December 31, 2006. Similarly for the Foundry Acquisition, our management has calculated increased amortization expense for the additional pro forma periods assuming that the $185,000 valuation attached to the acquired software and customer list at the date of the consummation of the Foundry Acquisition remained unchanged for purposes of this pro forma analysis. Our management has assumed the same estimated useful life of these items in its amortization calculation as used in our historical consolidated financial statements. Our management determined additional compensation expense of $4,850,000 for the Foundry Notes related to the Foundry Acquisition to be allocable to compensation expense rather than purchase price (these adjustments do not include the effects of exchange rate fluctuations between the actual and pro forma periods), and such amount has not been included in the 2006 adjustments, as these non-recurring charges will be reflected in 2007.

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A summary of the above adjustments is as follows:

(3)

Adjustment consists of additional interest expense on the $12,500,000 in principal amount of senior secured notes issued in July 2006, or the senior secured notes, and on the $7,000,000 in principal amount of Series B Notes issued in May 2007, or the Series B Notes, as if such notes were issued on, respectively, March 12, 2006 and February 23, 2006. The original $30,000,000 in principal amount of Sellers’ Notes is reflected as outstanding for the same number of days (70) in the pro forma analysis as in the actual financial statements, albeit beginning on January 1, 2006 rather than May 12, 2006. Therefore, our management has not included additional interest expense related to the Sellers’ Notes. Our management calculated interest expense attributable to the senior secured notes, assuming the same terms as the original senior secured notes and for an additional 131 days of interest (calculated as the same number of days between the pro forma senior secured notes issue date, March 12, 2006, and the actual senior secured notes issue date of July 21, 2006). Our management also calculated interest expense attributable to the Series B Notes, assuming the same terms as the original Series B Notes and for an additional 311 days of interest (calculated as one year less the same number of days between the actual Series B Notes issue date, May 16, 2007 and the Foundry Acquisition date, March 23, 2007). Additional pro forma expense adjustments include additional amortization of the discount on the senior secured notes and the Series B Notes and certain deferred issuance costs associated with such notes. Our management has assumed that the estimated fair values of the financial instruments issued in connection with the 2006 financing transaction described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Recent Developments — Falcon Financing Transaction” remain unchanged.

A summary of the above adjustments is as follows:

(4)

The weighted average shares outstanding represents the shares outstanding for the Successor and all shares issued in connection with the financing of the Acquisition as if they were issued on January 1, 2006. Basic and diluted net income (loss) per share are the same for the period, as including the effect of any potentially dilutive securities (options, warrants and preferred stock) was anti-dilutive.

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Unaudited Pro Forma Condensed Consolidated Statements of Operations
Nine Months Ended September 30, 2007

(1)

Represents the historical results of The Foundry adjusted to conform to U.S. GAAP.  Weighted average exchange rate obtained from the website of the Federal Reserve Bank of New York.

(2)

Adjustments to cost of revenues and selling, general and administrative expenses consist of: (i) an additional $65,000 of compensation expense for increased salaries paid to key employees of The Foundry as incentive to remain with us after the consummation of the Foundry Acquisition, and $311,000 in compensation expense for stock option and restricted stock amortization for the pro forma period; and (ii) a net $9,000 in increased amortization expense on intangible assets utilizing the same valuations as at the transaction date for software ($157,000) and customer list ($28,000), amortized using the same estimated useful life for the additional pro forma period as in our unaudited condensed consolidated financial statements included elsewhere in this prospectus.

A summary of the above adjustments is as follows:

(3)

Management has included no additional interest expense incurred with respect to the Foundry Notes, assuming the notes remained outstanding for the same number of days in the pro forma period as in the unaudited condensed consolidated financial statements included elsewhere in this prospectus, as the penalty terms applicable to a breach of the principal payment terms of such notes motivate a decision to pay off the notes as soon as practicable. Additional interest expense of $146,000 has been assumed for the additional days of interest on the $7,000,000 in principal amount of Series B Notes that we issued in part to pay down the Foundry Notes (assuming such Series B Notes have the same terms as the senior secured notes).

(4)

The weighted average shares outstanding represents the weighted average shares outstanding for the Successor. Basic and diluted net income (loss) are the same for the period, as including the effect of any potentially dilutive securities (options, warrants and preferred stock) was anti-dilutive.

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Selected Historical Consolidated Financial Information

The following table contains selected historical consolidated financial information regarding our business and should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Unaudited Pro Forma Financial Information”, and our consolidated financial statements and related notes and our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus.

We refer to ourselves as the Predecessor for all periods prior to our acquisition of Digital Domain Productions on May 12, 2006. We refer to ourselves as the Successor for all periods following our acquisition of Digital Domain Productions.

Our consolidated statements of operations information for the period from January 1, 2006 to May 12, 2006, the period from May 13, 2006 to December 31, 2006, and the years ended December 31, 2005 and 2004 and our consolidated statements of financial condition information as of December 31, 2006 and 2005 are derived from our audited consolidated financial statements, which are included elsewhere in this prospectus. We derived our consolidated statements of operations information for the period from May 13, 2006 to September 30, 2006 and the nine months ended September 30, 2007 and our consolidated statements of financial condition information as of September 30, 2007 from our unaudited condensed consolidated financial statements which are included elsewhere in this prospectus. We derived our consolidated statements of operations information for the years ended December 31, 2002 and 2003 (excluding net income (loss) per share data) and our consolidated statements of financial condition information as of December 31, 2002, 2003 and 2004 from our audited consolidated financial statements which are not included in this prospectus. The net income (loss) per share data for the years ended December 31, 2002 and 2003 has been derived from our financial accounting records. We derived our consolidated statements of financial condition information as of May 12, 2006 and September 30, 2006 from our unaudited condensed consolidated financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements have been prepared on substantially the same basis as the audited consolidated financial statements and include all adjustments that we consider necessary for a fair presentation of our consolidated financial position and results of operations for all periods presented.

The financial statements included in this prospectus may not reflect our results of operations, financial position and cash flows as if we had operated as a stand-alone company during all periods presented. Accordingly, our historical results should not be relied upon as an indicator of our future performance.

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