Montreal: The 16-month-old crisis at Cinar Corp. lurched a step forward last week as management prepared to release new and revised financial reporting information for periods covering fiscal 1997 through to May 31, 2000, and announced it had begun legal proceedings in Quebec Superior Court against the company’s cofounders and principal shareholders and its former cfo.

Regulatory authorities and shareholders have been asking for the financial information since Cinar suspended reporting in mid-1999.

The financials were expected to be out by Friday, Feb. 2, and represent a best-effort compliance on the part of Cinar management and cfo George Rossi, but the reports are unaudited. Management has told the company’s longtime auditors, Ernst & Young llp, it is unlikely to be able to make fully accurate, auditable financial statements ‘until at least the completion of fiscal 2001.’ As a result, Ernst & Young submitted their resignation.

Under the circumstances, a spokesperson for the company told Playback, management couldn’t undertake the formal audit without the certainty ‘there are no other skeletons in the closet.’

In a 47-page suit filed in Quebec Superior Court, Cinar and certain subsidiaries claim they are owed $28.6 million as a result of a litany of related party transactions between company cofounders Micheline Charest and Ron Weinberg, companies related to them, and former cfo Hasanain Panju.

In a response made through Joseph Groia of Groia & Company Lawyers, Toronto, Charest says, ‘The Company’s lawsuit against us comes only days after we served a demand on the Company, that based on the extensive work carried out by our professional advisors, the Company owed us in excess of $8.2 million.’

Charest says she and Weinberg, who together control 64% of Cinar’s voting shares, are distressed by the ‘adversarial’ position taken by the company. ‘[We had] shared the details of our work [with company management] and we had believed that a resolution of our claims was possible,’ she says.

The cofounders also revealed they had met with Merrill Lynch, the financial advisor and investment bank charged with managing inquiries from prospective buyers, at the specific request of Cinar management.

Cinar’s revised financial statements cover the fiscal ’97 and ’98 periods and part of fiscal ’99, while first-report statements cover the balance of ’99 and the six-month period ending May 31, 2000. The full financial statement for 2000, ending Nov. 30, is expected to follow without undue delay, perhaps in a matter of weeks.

In December, Cinar announced it had reached settlements with both federal and provincial tax authorities, agreeing to pay out $27.5 million in ill-gotten tax credits, fines and interest. •

-www.cinar.com