Cinar Explains Reasons For Delaying Financial Reports

files/pictures/picture-35.jpgOn Friday, October 6, 2000, Cinar Corp. released a letter by company president and CEO Barrie Usher to its investors chronicling the reasons behind their delayed reporting of financial statements dating as far back as 1997. Currently, the Montreal-based production firm is under investigation for allegedly using false Canadian names on scripts, written by Americans, to obtain lucrative Canadian tax credits. The company has been investigating these charges and "reviewing files for all productions, including many which were completed years ago, and for which information was not readily at hand." Regarding the findings, the letter went on to say, "Resolution will include the payment of taxes owing and penalties. The parties expect to resolve this matter imminently. Once resolved, we expect the company will again be in a position to become eligible for all available federal and provincial government incentives." As part of the scandal, Cinar’s government funds from Telefilm Canada, the Canadian Television Fund and Revenue Canada were halted. In another area of the animation house’s ongoing problems, US$122 million of Cinar money was invested in three Bahamas-based subsidiaries of investment firm Norshield International, without board approval, which lead to the firing of chief financial officer Hasanan Panju. In regards to this matter, the company is still in negotiations with Norshield about the recovery of the remaining $60 million of non-retrieved funds, which are set to mature over varying points in November. Without being specific, the letter stated that investigations into "related party transactions" uncovered "hundreds of instances of transactions involving company funds which were processed through accounts maintained on the company’s books for the three former senior officers of the company or companies controlled by them. We expect shortly to ascertain what amounts the company is owed by these former officers." Besides Panju it was discovered that former president and co-CEO Ronald Weinberg signed off on the Norshield investments. In August, Cinar co-founders Weinberg and his wife, Micheline Charest, former Cinar co-CEO and chairman, were fired from their posts as advisers to the company. Previously, in light of the scandal, the couple had stepped down from their CEO, president and chairman posts. The remaining issues the company says it must iron out before finalizing its reports are the timing and amount of entertainment revenues, the ownership of title to various productions and amortization of film costs. Usher’s letter also said that Merrill Lynch & Company is still working on Cinar’s behalf to help maximize shareholder value, including any proposed business combination, partnership, merger or sale. However, the recent Nasdaq Stock Exchange delisting and the Toronto Stock Exchange trading suspension of Cinar’s stock has made it very difficult to find acquisition partners.