Montreal: Following the examination period set up for potential buyers to peruse the highly confidential ‘book’ on Cinar Corp.’s financial status, management, board and the company’s strategic advisor Merrill Lynch & Co. have moved into a second phase, anticipating a wide range of diverse bids and offers on the company’s assets.

Word on the street has it many major Canadian and multinational entertainment companies are among the potential buyers.

It is now clear the 24-year-old company will emerge with a new strategic partner, but in what form, if any, and with what future remains unknown.

The company operates entertainment and education divisions, has rights to a 2,074 half-hour library, a 20% interest in the successful Canadian Teletoon specialty channel, and operates a state-of-the-art production/post-production facility in Montreal. Cinar employs 600. Unaudited top-line revenues for the 12-month period ending Nov. 30, 2000 were $153.1 million.

Cinar is reporting total revenues of $24.7 million for the three months ended Feb. 29, $9.9 million from the entertainment division and $14.7 million from the high-margin (55%) education division. The net loss for the quarter is $6.4 million, mainly due to a marked increase in selling, general and administrative costs, up sharply to $14.5 million made up foreign tax costs not likely to be recouped, and the one-time acquisition charge for U.S. music publisher Twin Sisters. Overall gross margins are healthy at $10.2 million.

Second-quarter results for 2001 will be presented to the Cinar board the week of July 9, bringing the reporting schedule up to date.

In its unaudited consolidated balance sheet (Feb, 28, 2001) Cinar reports assets of $385.2 million, highlights of which include $9.2 million in cash, $97.5 million in marketable securities, $17.6 million in educational inventories, $74.6 million in film costs (capitalized production costs) and $106.1 million in ‘goodwill,’ the difference between the book value of the education division companies and the paid price.

Cinar has significantly paid down its bank debt, reporting total liabilities of $65.2 million. Shareholders’ equity (41 million shares outstanding and issued) is valued at $320 million.

Importantly, Cinar also announced it has reached an agreement with Telefilm Canada allowing the company to newly apply for official coproduction certification, and to apply for tax credits and another investments related to coproduction. In the agreement, Cinar will repay restitution to Telefilm of approximately $2.6 million in full reimbursement of investments and subsidies including interest. Cinar applications for coproduction certification have not been processed since November 1999.

In the same agreement, Telefilm has imposed a five-year suspension, effective Nov. 9, 1999, on Cinar in respect to investments, subsidies and other financial assistance. Terms and conditions of the suspension may be reviewed by the federal funding agency in January 2002. *

-www.cinar.com