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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.D. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
--------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-24216
IMAX CORPORATION
(Exact name of registrant as specified in its charter)
Canada 98-0140269
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2525 Speakman Drive, Mississauga, Ontario, Canada L5K 1B1
--------------------------------------------------- -------------
(Address of principal executive offices) (Postal Code)
Registrant's telephone number, including area code (905) 403-6500
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NONE
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(Former name or former address, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:
Class Outstanding as of April 30, 1998
- -------------------------- --------------------------------
Common stock, no par value 29,486,074
Page 1 of 16
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IMAX CORPORATION
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
FORWARD LOOKING INFORMATION
Certain statements in this Report on Form 10-Q under the captions "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Legal Proceedings" may constitute forward looking statements that involve
certain risks and uncertainties which could cause actual results to differ
materially from future results expressed or implied by such forward looking
statements. Important factors that could effect these statements include the
timing of theater system deliveries, the mix of theater systems shipped, the
timing of the recognition of revenues and expenses on film production and
distribution agreements, and foreign currency fluctuations. These factors and
other risks and uncertainties are discussed in the Company's Annual Report on
Form 10-K for the year ended December 31, 1997 filed by the Company with the
Securities and Exchange Commission.
Page 2
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IMAX CORPORATION
Page
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following condensed consolidated financial statements are filed as
part of this Report:
Condensed Consolidated Balance Sheets as at March 31, 1998
and December 31, 1997 4
Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 1998 and 1997 5
Condensed Consolidated Statements of Cash Flow
for the three month periods ended March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial Statements 7
Page 3
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IMAX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Amounts in accordance with U.S. Generally Accepted Accounting Principles
(in thousands of U.S. dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- -------------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 63,729 $ 64,069
Short-term marketable securities 18,279 10,184
Accounts receivable 32,011 32,401
Current portion of net investment in leases 6,086 6,007
Inventories and systems under construction (note 2) 23,083 21,922
Prepaid expenses 3,412 2,474
-------- --------
Total current assets 146,600 137,057
Long-term marketable securities 4,133 16,277
Net investment in leases 59,838 51,825
Film assets 44,576 42,036
Capital assets 42,641 41,360
Goodwill 43,287 43,915
Other assets 11,640 11,889
-------- --------
Total assets $352,715 $344,359
======== ========
Liabilities
Current liabilities
Accounts payable $ 5,446 $ 7,129
Accrued liabilities 22,230 24,220
Current portion of deferred revenue 34,654 29,067
Income taxes payable 398 318
-------- --------
Total current liabilities 62,728 60,734
Deferred revenue 12,459 13,618
Senior notes 65,000 65,000
Convertible subordinated notes 100,000 100,000
Deferred income taxes 21,796 19,596
-------- --------
Total liabilities 261,983 258,948
-------- --------
MINORITY INTEREST 3,170 2,950
-------- --------
Redeemable preferred shares 1,387 1,344
-------- --------
COMMITMENTS AND CONTINGENCIES (notes 3 and 4)
SHAREHOLDERS' EQUITY
Capital stock 53,521 52,604
Retained earnings 32,754 28,642
Cumulative translation adjustment (100) (129)
-------- --------
Total shareholders' equity 86,175 81,117
-------- --------
Total liabilities and shareholders' equity $352,715 $344,359
======== ========
</TABLE>
(See accompanying notes to the condensed consolidated financial statements on
pages 7 to 9.)
Page 4
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IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Amounts in accordance with U.S. Generally Accepted Accounting Principles
(in thousands of U.S. dollars, except per share data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
--------- --------
<S> <C> <C>
Revenue
Systems $26,364 $17,918
Films 7,062 12,299
Other 2,674 2,325
------- -------
36,100 32,542
Costs and expenses 15,323 14,665
------- -------
GROSS MARGIN 20,777 17,877
Selling, general and administrative expenses 9,434 7,340
Research and development 729 499
Amortization of intangibles 629 661
------- -------
EARNINGS FROM OPERATIONS 9,985 9,377
Interest income 1,262 1,494
Interest expense (3,287) (3,299)
Foreign exchange loss (73) (76)
------- -------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST 7,887 7,496
Provision for income taxes (3,468) (3,544)
------- -------
EARNINGS BEFORE MINORITY INTEREST 4,419 3,952
Minority interest (220) (254)
------- -------
Net earnings $ 4,199 $ 3,698
======= =======
EARNINGS PER SHARE (NOTE 5)
Basic $0.14 $0.13
Diluted $0.14 $0.12
</TABLE>
(See accompanying notes to the condensed consolidated financial statements on
pages 7 to 9.)
Page 5
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IMAX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Amounts in accordance with U.S. Generally Accepted Accounting Principles
(in thousands of U.S. dollars)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
------- -------
<S> <C> <C>
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net earnings $ 4,199 $ 3,698
Items not involving cash:
Depreciation and amortization 3,548 3,165
Deferred income taxes 2,287 2,517
Minority interest 220 254
Amortization of discount on senior notes -- 311
Other (168) 92
Change in net investment in leases (8,090) (5,294)
Change in deferred revenue on film production 2,538 (5,984)
Changes in non-cash operating assets and liabilities (2,528) (5,509)
------- --------
Net cash provided by (used in) operating activities 2,006 (6,750)
------- --------
INVESTING ACTIVITIES
Decrease (increase) in marketable securities 4,042 (7,965)
Increase in film assets (3,758) (1,566)
Purchase of capital assets (2,869) (3,379)
Increase in other assets (260) (3,225)
------- --------
Net cash used in investing activities (2,845) (16,135)
------- --------
FINANCING ACTIVITIES
Repayment of long-term debt -- (1,130)
Class C preferred shares dividends paid (386) --
Common shares issued 917 114
------- --------
Net cash provided by (used in) financing activities 531 (1,016)
------- --------
Effect of exchange rate changes on cash (32) 130
------- --------
DECREASE IN CASH AND CASH EQUIVALENTS DURING THE PERIOD (340) (23,771)
Cash and cash equivalents, beginning of period 64,069 102,589
------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $63,729 $ 78,818
======= ========
</TABLE>
(See accompanying notes to the condensed consolidated financial statements on
pages 7 to 9.)
Page 6
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three Month Periods Ended March 31, 1998 and 1997
(Tabular amounts in thousands of U.S. dollars unless otherwise stated)
(unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Imax
Corporation and its wholly-owned and majority owned subsidiaries. The
nature of the Company's business is such that the results of operations for
the interim periods presented are not necessarily indicative of results to
be expected for the fiscal year. In the opinion of management, the
information contained herein reflects all adjustments necessary to make the
results of operations for the interim periods a fair statement of such
operations. All such adjustments are of a normal recurring nature.
These financial statements should be read in conjunction with the Company's
most recent annual report on Form 10-K for the year ended December 31,
1997 which should be consulted for a summary of the significant accounting
policies utilized by the Company.
2. INVENTORIES AND SYSTEMS UNDER CONSTRUCTION:
March 31, December 31,
1998 1997
--------- ------------
Raw materials $ 8,122 $ 6,943
Work-in-process 14,448 14,508
Finished goods 513 471
------- -------
$23,083 $21,922
======= =======
3. FINANCIAL INSTRUMENTS
From time to time the Company engages in hedging activities to reduce the
impact of fluctuations in foreign currencies on its profitability and cash
flow. The credit risk exposure associated with these activities would be
limited to all unrealized gains on contracts based on current market
prices. The Company believes that this credit risk has been minimized by
dealing with highly rated financial institutions.
To fund Canadian dollar costs through October, 1999, the Company had
entered into forward exchange contracts as at March 31, 1998 to hedge the
conversion of $43.0 million of its cash flow into Canadian dollars at an
average exchange rate of Canadian $1.39 per U.S. dollar.
The Company has also entered into foreign currency swap transactions to
hedge minimum lease payments receivable under sales-type lease contracts
denominated in Japanese Yen and French Francs. These swap transactions fix
the foreign exchange rates on conversion of 168 million Yen at 98 Yen per
U.S. dollar through September 2004 and on 17.4 million Francs at 5.1 Francs
per U.S. dollar through September 2005.
These hedging contracts are expected to be held to maturity; however, if
they were terminated on March 31, 1998, the Company would have realized a
gain of approximately $0.3 million based on the then prevailing exchange
rates.
Page 7
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
For the Three Month Periods Ended March 31, 1998 and 1997
(unaudited)
4. CONTINGENCIES
(a) In July 1997, Debra B. Altman filed a claim against the Company, and
certain unidentified individuals, in the Superior Court of the State of
California for the County of Los Angeles, alleging breach of contract,
breach of implied covenant of good faith and fair dealing, breach of
implied-in-fact contract, breach of confidence, constructive fraud, quantum
meruit, unjust enrichment and constructive trust with respect to a film
project the Plaintiff claims to have pursued with the Company. The
Plaintiff is seeking unquantified damages exceeding $5 million. The
Company disputes this claim and has removed it to the U.S. District Court
for the Central District of California, Western Division, and intends to
vigorously defend this action. Trial is anticipated in September 1998. The
amount of loss, if any, cannot be determined at this time.
(b) On February 26, 1996, Iwerks Entertainment, Inc. filed a complaint against
the Company alleging violations under the Sherman Act, the Clayton Act,
tortious interference with contracts and prospective economic advantage,
and unfair competition. The plaintiff was seeking unquantified damages,
injunctive relief and restitution. All claims against the Company were
dismissed in a summary judgment in April, 1998. In May, 1998, Iwerks
Entertainment, Inc. filed an appeal of this decision. The amount of the
loss, if any, cannot be determined at this time.
(c) In addition to the litigation described above, the Company is currently
involved in other litigation which, in the opinion of the Company's
management, will not materially affect the Company's financial position or
future operating results, although no assurance can be given with respect
to the ultimate outcome for any such litigation.
5. EARNINGS PER SHARE
(a) Pursuant to shareholders' approval at the Annual and Special Meeting held
on May 6, 1997, the Company's shares were split on a 2-for-1 basis in May
1997. Common share and earnings per share data for the three months ended
March 31, 1997 give retroactive effect to the stock split as if it had
taken place at the beginning of the period.
(b) Reconciliations of the numerators and denominators of the basic and diluted
per-share computations are as follows:
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
------ ------
<S> <C> <C>
Net earnings available to common shareholders:
Net earnings $4,199 $3,698
less:
accrual of dividends on preferred shares (43) (42)
accretion of discount of preferred shares (44) (38)
------ ------
$4,112 $3,618
====== ======
</TABLE>
Page 8
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IMAX CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (cont'd)
For the Three Month Periods Ended March 31, 1998 and 1997
(unaudited)
5. EARNINGS PER SHARE -- (CONTINUED)
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
------ ------
<S> <C> <C>
Weighted average number of common shares (000's):
Issued and outstanding at beginning of period 29,115 27,885
Weighted average shares issued in the period 54 17
------ ------
Weighted average used in computing basic earnings per share 29,169 27,902
Assumed exercise of stock options, net of shares assumed 1,232 1,862
acquired under the Treasury Stock Method ------ ------
Weighted average used in computing diluted earnings per share 30,401 29,764
====== ======
</TABLE>
Common shares potentially issuable pursuant to the Convertible Subordinated
Notes would have an antidilutive effect on earnings per share and have not
been included in the above computations.
6. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, became effective for the Company's 1998 fiscal year.
Comprehensive income items include certain gains and losses, such as
foreign currency translation adjustments, that bypass the Company's net
earnings and are accumulated directly in shareholders' equity.
Comprehensive income was $4,214,000 and $3,623,000 for the three months
ended March 31, 1998 and 1997, respectively.
Page 9
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IMAX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Theater Signings and Backlog
During the first quarter of 1998, the Company signed contracts for 13 IMAX
theater systems valued at $31.6 million, a 24% increase over the $25.6 million
value of the nine contracts signed in the first quarter of 1997. The theater
signings for the first quarter of 1998 included contracts with conventional
cinema exhibitors Famous Players, United Cinemas International (a European
theater chain co-owned by Viacom Inc. and Universal Studios) and Gaumont of
France. As a result of these theater signings, the Company's sales backlog grew
to $185.8 million at March 31, 1998, a 6% increase from $175.4 million at
December 31, 1997.
Page 10
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IMAX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (CONT'D)
The Company's sales backlog at March 31, 1998 represents contracts for 82
theater systems, including two upgrades of existing theaters to IMAX 3D. The
Company's sales backlog will vary from quarter to quarter depending on the
signing of new systems which adds to backlog and the delivery of systems which
reduces backlog. Sales backlog represents the minimum revenues under signed
system sale and lease agreements that will be recognized as revenue as the
associated theater systems are delivered. The minimum revenue comprises the
upfront fees plus the present value of the minimum royalties due under sales-
type lease agreements for the first 10 years of the initial lease term. The
value of sales backlog does not include revenues from theaters in which the
Company has an equity interest, letters of intent, IMAX(R) Ridefilm(TM) system
contracts or long-term conditional theater commitments.
As of March 31, 1998, there were 24 IMAX Ridefilm theaters in operation and
a backlog of 17 IMAX Ridefilm systems, including six upgrades.
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997
The Company reported net earnings of $4.2 million or $0.14 per share on a
diluted basis for the first quarter of 1998 compared to $3.7 million or $0.12
per share on a diluted basis for the first quarter of 1997. Earnings per share
information for the prior year period has been adjusted for the 2-for-1 stock
split which became effective by May 27, 1997 and the adoption of Financial
Accounting Standards No. 128 which became effective by December 15, 1997.
The Company's revenues for the first quarter of 1998 increased 11% to $36.1
million from $32.5 million in the corresponding quarter last year as a result of
strong growth in systems revenue which more than offset a decline in film
production revenue.
Systems revenue, which includes revenue from theater system sales and leases,
royalties and maintenance fees, increased approximately 47% to $26.4 million in
the first quarter of 1998 from $17.9 million in the same quarter last year. The
Company delivered eight theater systems in the first quarter of 1998 compared to
four theater systems in the first quarter of 1997. Recurring revenues from
royalties and maintenance fees increased 13% in the first quarter of 1998 over
the corresponding period last year as a result of growth in the IMAX theater
network.
Film revenue comprises revenue recognized from film production, film
distribution and film post-production activities. Film revenue decreased 43% to
$7.1 million in the first quarter of 1998 from $12.3 million in the same quarter
last year. The decline in film revenue occurred primarily as a result of a $5.7
million decline in film production revenue as the Company shifted its film
production resources from third party films to its own film projects. Film
distribution revenues declined 15% in the first quarter of 1998 compared to the
corresponding quarter last year since the Company's major 1998 film releases
won't occur until later in the year. Film post-production revenues increased 47%
in the first quarter of 1998 over the same period in 1997, largely attributable
to post-production work on the release of MacGillivray Freeman Films' Everest in
early March 1998.
Page 11
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IMAX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (CONT'D)
THREE MONTHS ENDED MARCH 31, 1998 VERSUS THREE MONTHS ENDED MARCH 31, 1997
(CONT'D)
Other revenues increased 15% to $2.7 million in the first quarter of 1998 from
$2.3 million in the prior year quarter as the Company delivered one IMAX
Ridefilm system in the first quarter of 1998 versus none in the first quarter
of last year.
Gross margin for the first quarter of 1998 was $20.8 million compared to $17.9
million in the corresponding quarter last year, an increase of 16%. Gross
margin was approximately 58% of total revenue in the first quarter of 1998
compared to approximately 55% of total revenue in the same quarter in 1997 due
mainly to the higher proportion of systems revenue (which is generally higher
margin than film and other revenues) in the first quarter of 1998.
Selling, general and administrative expenses were $9.4 million in the first
quarter of 1998 compared to $7.3 million in the corresponding quarter last year.
The increase in selling, general and administrative expenses resulted from
several factors including an increase in performance-based compensation,
including compensation tied to the Company's share price, staffing additions to
the Company's film area, particularly in marketing and distribution, increased
affiliate relations initiatives, and international sales and marketing efforts.
Research and development expenses were $0.7 million in the first quarter of 1998
compared to $0.4 million in the same period last year. The higher level of
expenses thus far in 1998 reflects costs associated with the development of a
new sound system scheduled for release in mid-1998. The research and
development expenses incurred in the first quarter of 1997 were lower than
historical levels as some of the Company's technical staff had been redirected
to the design and production of the new IMAX 3D SR system and were not engaged
in research and development activities.
The effective tax rate on earnings before taxes differs from the statutory tax
rate and will vary from quarter to quarter primarily as a result of the
amortization of goodwill, which is not deductible for tax purposes, and the
provision of income taxes at different tax rates in foreign and other provincial
jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company's principal source of liquidity included cash and
cash equivalents of $63.7 million, trade accounts receivable of $32.0 million,
net investment in leases of $6.1 million due within one year, marketable
securities of $22.4 million, and the amounts receivable under contracts in
backlog which are not yet reflected on the balance sheet. The Company also has
unused lines of credit under a working capital facility of Canadian $3.2
million.
The Senior Notes due March 1, 2001 are subject to redemption by the Company, in
whole or in part, at any time on or after March 1, 1998 at redemption prices
expressed as percentages of the principal amount (1998 - 104.29%; 1999 -
102.86%; 2000 - 101.43%) together with interest accrued thereon to the
redemption date. Subject to market conditions, the Company may elect to redeem
some or all of the Senior Notes prior to their maturity as part of a refinancing
of its capital structure.
Page 12
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IMAX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (CONT'D)
LIQUIDITY AND CAPITAL RESOURCES (CONT'D)
The 5 3/4% Convertible Subordinated Notes (the "Subordinated Notes") due April
1, 2003 are convertible into common shares of the Company at the option of the
holder at a conversion price of $21.406 per share (equivalent to a conversion
rate of 46.7154 shares per $1,000 principal amount of Subordinated Notes) at any
time prior to maturity. The Subordinated Notes are redeemable at the option of
the Company on or after April 1, 1999 at redemption prices expressed as
percentages of the principal amount (1999 - 103.286%; 2000 - 102.464%; 2001 -
101.643%; 2002 - 100.821%) plus accrued interest. The Subordinated Notes may
only be redeemed by the Company between April 1, 1999 and April 1, 2001 if the
last reported market price of the Company's common shares is equal to or greater
than $30 per share for any 20 of the 30 consecutive trading days prior to the
notice of redemption. The Subordinated Notes may be redeemed at any time on or
after April 1, 2001 without limitation.
The Company partially funds its operations through cash flow from operations.
Under the terms of the Company's typical theater system lease agreement, the
Company receives substantial cash payments before it completes the performance
of its obligations. Similarly, the Company typically receives cash payments for
film production in advance of related cash expenditures. These cash flows have
generally been adequate to finance the ongoing operations of the Company.
In the first quarter of 1998, cash provided by operating activities amounted to
$2.0 million after the payment of interest on the Senior Notes of $3.3 million,
payment of $1.2 million of income taxes and an $8.1 million increase in net
investment in leases related to the theater systems delivered under sales-type
lease agreements during the quarter. Cash provided by operating activities also
included a $2.5 million increase in funds held for a third party sponsored film
production.
Cash used in investing activities in the first quarter of 1998 included a
decrease in marketable securities of $4.0 million, an increase in film assets of
$3.8 million, primarily related to T.rex: Back to The Cretaceous, and
expenditures totaling $2.9 million on capital assets, principally wholly-owned
theaters, cameras and other assets under construction.
During the first quarter of 1998, cash provided by financing activities included
$0.9 million of proceeds from common shares issued under the Company's stock
option plan partially reduced by a payment of accrued dividends on the Class C
preferred shares totaling $0.4 million.
The Company believes that cash flows from operations together with existing cash
and marketable securities balances and the working capital facility will
continue to be sufficient to meet cash requirements in the foreseeable future.
Page 13
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IMAX CORPORATION
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In April 1994, Compagnie France Film Inc. filed a claim against the Company in
the Superior Court in the District of Montreal, in the Province of Quebec,
alleging breach of contract and bad faith in respect of an agreement which the
plaintiff claimed it entered into with the Company for the establishment of an
IMAX theater in Quebec City, Quebec, Canada. Until December 1993, Predecessor
Imax was in negotiations with the plaintiff and another unrelated party for the
establishment of an IMAX theater in Quebec City. In December 1993, Predecessor
Imax executed a system lease agreement with the other party. During the
negotiations, both parties were aware of the other party's interest in also
establishing an IMAX theater in Quebec City. The plaintiffs were claiming
damages of Canadian $4.6 million, representing the amount of profit they claimed
they were denied due to their inability to proceed with an IMAX theater in
Quebec City, together with expenses incurred in respect of this project and pre-
judgement interest. The Company disputed this claim and filed a defense in
response. Compagnie France Film had also incorporated a shell company, 3101-
8450 Quebec Inc. ("3101"). 3101 was to, among other things, enter into a lease
for the proposed IMAX theater site. In November 1993, while negotiations
between Compagnie France Film and the Company were still ongoing, 3101 entered
into a lease for the site. 3101 defaulted on the lease and the landlord sued
3101 in an unrelated action to which the Company was not a party. In February
1996, 3101 was found liable to pay the landlord damages in the amount of
Canadian $2.5 million. Subsequent to that judgment 3101 intervened in the
lawsuit between Compagnie France Film and the Company in order to claim from the
Company damages in the amount of Canadian $2.5 million. The Company disputed
this claim and the suit went to trial in January 1998. In a decision rendered
in April, 1998, the Court dismissed the plaintiff's claims with costs.
The Company filed a complaint in August 1994 in the U.S. District Court for
the Northern District of California claiming that Neil Johnson, NJ Engineering
Inc. and Cinema Technologies Inc. have misappropriated the Company's trade
secrets in the design and manufacture of the defendant's 70mm 15-perforation
projection systems. The Company is seeking an injunction against Cinema
Technologies Inc. to prevent shipment of projectors, which incorporate the
Company's trade secrets in addition to damages. The defendant brought two
motions for summary judgement, one of which was based on the defendant's statute
of limitations defense and the other based on, among others, the defendant's
contention that the trade secrets at issue were not trade secrets. The court
denied the motion based on the statute of limitations defense, granted the
motion based on the trade secret status issue, and entered a judgement for the
defendants. The Company filed an appeal of this decision to the U.S. Court of
Appeals for the Ninth Circuit. The appeal was heard in February, 1998. The
Court has reserved its decision.
Iwerks Entertainment, Inc. ("Iwerks") filed a complaint against the Company on
February 26, 1996 in the U.S. District Court for the Central District of
California alleging violations under the Sherman Act, the Clayton Act, and
tortious interference with contracts and prospective economic advantage. Iwerks
was seeking unquantified damages, injunctive relief and restitution. All claims
against the Company were dismissed in a summary judgment in April, 1998. In
May, 1998, Iwerks filed an appeal of this decision to the U.S. Court of Appeals
for the Ninth Circuit. The amount of the loss, if any, cannot be determined at
this time.
In July 1997, Debra B. Altman filed a claim against the Company, and certain
unidentified individuals, in the Superior Court of the State of California for
the County of Los Angeles, alleging breach of contract, breach of implied
covenant of good faith and fair dealing, breach of implied-in-fact contract,
breach of confidence, constructive fraud, quantum meruit, unjust enrichment and
constructive trust with respect to a film project the plaintiff claims to have
pursued with the Company. The Plaintiff is seeking unquantified damages
exceeding $5 million. The Company disputes this claim and has removed it to the
U.S. District Court for the Central District of California, Western Division,
and intends to vigorously defend this action. Trial is anticipated for
September 1998. The amount of the loss, if any, cannot be determined at this
time.
Page 14
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IMAX CORPORATION
ITEM 1. LEGAL PROCEEDINGS (CONT'D)
On March 5, 1998, Rosalini Film Productions Inc. filed a claim against the
Company in the U.S. District Court for the Central District of California,
alleging breach of written agreement, breach of implied convenant of good faith
and fair dealing, fraud and deceit, negligent misrepresentation, unfair
competition, unjust enrichment, quantum meruit, constructive trust and
declaratory relief with respect to a film project the Plaintiff claimed to have
pursued with the Company. The Plaintiff was seeking unquantified damages. The
Company disputed this claim and intended to vigorously defend this action. In
April, 1998, the Plaintiff filed a voluntary dismissal of its claim.
In addition to the litigation described above, the Company is currently
involved in other litigation which, in the opinion of the Company's management,
will not materially affect the Company's financial position or future operating
results, although no assurance can be given with respect to the ultimate outcome
for any such litigation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) REPORTS ON FORM 8-K
There were no reports filed on Form 8-K in the three month period ended
March 31, 1998.
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SIGNATURES IMAX CORPORATION
Date: May 14, 1998 By: / S / John M. Davison
- -------------------- ----------------------
John M. Davison
Executive Vice President, Operations
and Chief Financial Officer
(Principal Financial Officer)
By: / S / Michael M. Davies
------------------------
Michael M. Davies
Vice President and Corporate Controller
(Principal Accounting Officer)
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