1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): SEPTEMBER 17, 1999 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 N/A Former Name or Former Address (If Changed Since Last Report) ================================================================================
2 ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL STATEMENTS DIGITAL PROJECTION INTERNATIONAL PLC CONSOLIDATED REPORT AND FINANCIAL STATEMENTS 31 DECEMBER 1998 DELOITTE & TOUCHE PO BOX 500 201 DEANSGATE MANCHESTER M60 2AT 2
3 DIGITAL PROJECTION INTERNATIONAL PLC CONTENTS PAGE OFFICERS AND PROFESSIONAL ADVISERS 4 DIRECTORS' REPORT 5 STATEMENT OF DIRECTORS' RESPONSIBILITIES 7 AUDITORS' REPORT 8 CONSOLIDATED PROFIT AND LOSS ACCOUNT 9 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS 10 CONSOLIDATED BALANCE SHEET 11 COMPANY BALANCE SHEET 12 CONSOLIDATED CASH FLOW STATEMENT 13 NOTES TO THE ACCOUNTS 14 3
4 DIGITAL PROJECTION INTERNATIONAL PLC OFFICERS AND PROFESSIONAL ADVISERS DIRECTORS J M Blackburn B R Critchley T J Cronin D Green M N Levi D J Quinn R Raworth * (Chairman) C J Tennant * * Non executive SECRETARY Mrs J M Humphreys REGISTERED OFFICE Greenside Way Middleton Manchester M24 1XX BANKERS Lloyds Bank plc PO Box 349 53 King Street Manchester M60 2LE The British Linen Bank Limited Ship Canal House 98 King Street Manchester M2 4WU SOLICITORS Garrett & Co. Bank House 9 Charlotte Street Manchester M1 4EU AUDITORS Deloitte & Touche Chartered Accountants 201 Deansgate Manchester M60 2AT 4
5 DIGITAL PROJECTION INTERNATIONAL PLC DIRECTORS' REPORT The directors present their annual report and the audited financial statements for the year ended 31 December 1998. ACTIVITIES The principal activity of the group is the research, design, manufacture and sale of electronic projectors. REVIEW OF DEVELOPMENTS AND FUTURE PROSPECTS Digital Projection International produces and sells high brightness, large screen electronic projectors. These projectors utilise the Digital Micromirror Device produced by Texas Instruments, Dallas, USA. The company's headquarters are in Middleton, Manchester where products are developed and manufactured. Digital Projection Incorporated based in Atlanta, Georgia provides full sales and marketing, product service and support to the North American market. The results for the second year following the management buyout from the Rank Group shows turnover more than double the previous year. The results further reflect the investment and expenses incurred in establishing and developing the company's worldwide operations. During the year the company expended its product range through the launch of an XGA resolution range of projectors. Digital Projection's products continue to be widely acclaimed with a number of awards being received including two prestigious "Emmy" awards. The company will continue to expand and develop its products capitalising on its reputation for product innovation and performance. DIVIDENDS AND TRANSFERS TO RESERVES Details of the result for the year can be found on page 9. A dividend of (pound)872,700 (1998 - (pound)582,000) has accrued to the preference shareholders at 31 December 1998 and this has been charged in these accounts. The Directors do not recommend a final dividend on the `A' ordinary or ordinary shares. FIXED ASSETS Details of movements in fixed assets are set out on page 18. SHARE CAPITAL During the year the company issued 110,000 "A" ordinary shares to investors for a total consideration of (pound)82,500. In addition 2,417,500 "B" preference shares were issued for a consideration of (pound)2,417,500. YEAR 2000 Digital Projection's business systems and products are planned to be Year 2000 compliant. To this end, the board reviews the status on compliance at each board meeting. The following information is provided to indicate the importance Digital Projection place on these potential issues but it is provided without any warranty express or implied as to the effectiveness of our own or our business partners' actions to mitigate Year 2000 issues. All our business computer systems have been tested and either have been or are in the process of being upgraded to products stated to be Year 2000 compliant. Certain non-compliant hardware is in the process of being replaced. None of our products embody real time clocks and therefore there is no impact from the date issues. We are in continuing dialogue with all our suppliers on their status for compliance. All key sub-systems suppliers are at an advanced stage of their compliance programmes. We have taken all reasonable and prudent steps to ensure our systems and our suppliers systems are compliant and continue to act on new information as it becomes available. The costs involved in this exercise are not considered to be significant. 5
6 DIGITAL PROJECTION INTERNATIONAL PLC DIRECTORS' REPORT RESEARCH AND DEVELOPMENT The group has devoted substantial resources to research and development during the period. This, together with contracts with outside parties, will enable the company to maintain its leading position in technology and design. SUPPLIER CREDIT Through its subsidiaries the company's policy is to follow the CBI Code of Practice regarding the prompt payment of suppliers. In particular, for all trade creditors it is the company's policy to: o Agree the terms of payment at the start of business with the supplier. o Ensure suppliers are aware of the terms of trade. o Pay in accordance with its contractual and other legal obligations. As the company itself does not trade the number of creditors days is nil. DIRECTORS AND THEIR INTERESTS The current directors of the Company together with their beneficial interest in the share capital of the Company are set out below: 1998 1997 ORDINARY SHARES OF 3P EACH J M Blackburn 333,900 333,900 B R Critchley 1,780,000 1,780,800 T J Cronin 185,500 111,300 D Green 333,900 333,900 M N Levi 333,900 333,900 R Raworth (non-executive) 333,900 333,900 C J Tennant (non-executive) - - D J Quinn 333,900 333,900 Mr. R Raworth has, in addition to the above shareholding, a beneficial interest in 18,000 "A" Ordinary Shares and in 436,500 `A' Preference Shares which were held at 31 December 1997 and at the end of the financial year. Mr. C J Tennant has a beneficial interest in 863 "A" Ordinary Shares and in 1,714 `A' Preference shares which were held at 31 December 1997 and at the end of the financial year. Under the Articles of Association none of the directors are required to retire by rotation. No director had any interest in a contract to which the Company or a subsidiary undertaking was a party during the accounting period. AUDITORS A resolution for the reappointment of Deloitte & Touche as auditors of the company is to be proposed at the forthcoming Annual General Meeting. Approved by the Board of Directors and signed on behalf of the Board Date: November 11, 1999 - ------------------------------------------ By: / S / T J Cronin --------------------------------- T J Cronin Director 6
7 DIGITAL PROJECTION INTERNATIONAL PLC STATEMENT OF DIRECTORS' RESPONSIBILITIES Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the group and company as at the end of the financial year and of the profit or loss of the group for that year. In preparing those financial statements, the directors are required to: |X| select suitable accounting policies and then apply them consistently; |X| make judgements and estimates that are reasonable and prudent; |X| state whether applicable accounting standards have been followed; |X| prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and company will continue in business. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the group and company and to enable them to ensure that the financial statements comply with the Companies Act. They are also responsible for safeguarding the assets of the group and company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. 7
8 DIGITAL PROJECTION INTERNATIONAL PLC AUDITORS' REPORT TO THE MEMBERS We have audited the financial statements on pages 9 to 26 which have been prepared under the accounting policies set out on pages 14 and 15. RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As described on page 7 the company's directors are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. BASIS OF OPINION We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. OPINION In our opinion the financial statements: - give a true and fair view of the state of affairs of the group and company as at 31 December 1998 and of the loss of the group for the year then ended and have been properly prepared in accordance with the Companies Act 1985; - present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 1998 and 31 December 1997 and the results of their operations, total recognised gains and their cash flows for the years ended 31 December 1997 and 31 December 1998 in conformity with accounting principles generally accepted in the United Kingdom. The principles differ in certain respects from accounting principles generally accepted in the United States. The effect of the differences in determination of net income, shareholders' equity and cash flows is shown in note 23 to the financial statements. DELOITTE & TOUCHE Chartered Accountants and Registered Auditors 12 August 1999 (15 November 1999 for Notes 23 and 24) 8
9 DIGITAL PROJECTION INTERNATIONAL PLC NOTE YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (pound) (pound) TURNOVER 2 19,486,258 8,371,615 ---------- ---------- OPERATING LOSS 2,4 (3,801,275) (3,468,724) ---------- ---------- Interest receivable and similar income 43,584 45,275 Interest payable and similar charges 5 (743,107) (248,466) ---------- ---------- (699,523) (203,191) ---------- ---------- LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (4,500,798) (3,671,915) Tax on loss on ordinary activities 6 - - ---------- ---------- LOSS ON ORDINARY ACTIVITIES AFTER TAXATION FOR THE FINANCIAL PERIOD (4,500,798) (3,671,915) Preference dividends on non equity shares 7 (872,700) (582,000) ---------- ---------- LOSS ATTRIBUTABLE TO ORDINARY SHAREHOLDERS (5,373,498) (4,253,915) Ordinary dividends on equity shares 7 - - ---------- ---------- TRANSFERRED FROM RESERVES 17 (5,373,498) (4,253,915) ========== ========== The above results all relate to continuing operations. Other than the result for the year there were no other recognised gains or losses. 9
10 DIGITAL PROJECTION INTERNATIONAL PLC YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (pound) (pound) Loss for the financial year attributable to the members (4,500,798) (3,671,915) Share capital issued 2,500,000 10,137,358 Goodwill written off - (5,779,429) ---------- ---------- Net (reduction)/increase in shareholders' funds (2,000,798) 686,014 Shareholders' funds brought forward 686,014 - ---------- ---------- Shareholders' funds carried forward (1,314,784) 686,014 ========== ========== 10
11 DIGITAL PROJECTION INTERNATIONAL PLC CONSOLIDATED BALANCE SHEET 31 DECEMBER 1998 NOTE 1998 1997 (pound) (pound) (pound) (pound) FIXED ASSETS Tangible assets 9 2,522,947 2,413,174 CURRENT ASSETS Stocks 11 5,094,175 3,043,238 Debtors 12 4,606,705 2,983,128 Cash at bank and in hand 1,696,412 644,511 ---------- --------- 11,397,292 6,670,877 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 13 (7,235,023) (3,398,037) ---------- --------- NET CURRENT ASSETS 4,162,269 3,272,840 ----------- ----------- TOTAL ASSETS LESS CURRENT LIABILITIES 6,685,216 5,686,014 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR Loans 14 (8,000,000) (5,000,000) PROVISIONS FOR LIABILITIES AND CHARGES 15 - - ----------- ----------- (1,314,784) 686,014 =========== =========== CAPITAL AND RESERVES Called up share capital - equity 16 162,300 151,300 - non-equity 16 12,118 9,700 Share premium account 17 12,462,940 9,976,358 Other reserve 17 1,454,700 582,000 Profit and loss account 17 (15,406,842) (10,033,344) ----------- ----------- (1,314,784) 686,014 =========== =========== Equity shareholders' funds (14,958,484) (9,595,986) Non-equity shareholders' funds 13,643,700 10,282,000 ----------- ----------- (1,314,784) 686,014 =========== =========== These financial statements were approved by the board of Directors on 12 August 1999 Signed on behalf of the Board of Directors By: / S / T J Cronin --------------------------------------- T J Cronin Director 11
12 DIGITAL PROJECTION INTERNATIONAL PLC COMPANY BALANCE SHEET 31 DECEMBER 1998 NOTE 1998 1997 (pound) (pound) (pound) (pound) FIXED ASSETS Investments 10 100 100 CURRENT ASSETS Debtors 12 9,859,179 13,983,619 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 13 (2,799,913) (29,533) ---------- ---------- NET CURRENT ASSETS 7,059,266 13,954,086 ----------- ----------- TOTAL ASSETS LESS CURRENT LIABILITIES 7,059,366 13,954,186 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 14 (8,000,000) (5,000,000) PROVISIONS FOR LIABILITIES AND CHARGES 15 - - ----------- ----------- (940,634) 8,954,186 =========== =========== CAPITAL AND RESERVES Called up share capital - equity 16 162,300 151,300 - non-equity 16 12,118 9,700 Share premium account 17 12,462,940 9,976,358 Other reserve 17 1,454,700 582,000 Profit and loss account 17 (15,032,692) (1,765,172) ----------- ----------- (940,634) 8,954,186 =========== =========== Equity shareholders' funds (14,584,334) (1,327,814) Non-equity shareholders' funds 13,643,700 10,282,000 ----------- ----------- (940,634) 8,954,186 =========== =========== These financial statements were approved by the Board of Directors on 12 August 1999 Signed on behalf of the Board of Directors By: / S / T J Cronin --------------------------------------- T J Cronin Director 12
13 DIGITAL PROJECTION INTERNATIONAL PLC COMPANY BALANCE SHEET 31 DECEMBER 1998 YEAR ENDED 58 WEEKS ENDED 31 DECEMBER 1998 31 DECEMBER 1997 NOTE (pound) (pound) (pound) (pound) NET CASH OUTFLOW FROM OPERATING ACTIVITIES 19 (5,743,330) (6,525,501) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received 43,584 45,275 Interest paid (514,007) (248,466) ---------- ---------- Net cash outflow from returns on investments and servicing of finance (470,423) (203,191) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Purchase of tangible fixed assets (757,219) (1,533,620) Disposal of tangible fixed assets - 13,190 ---------- ---------- Net cash outflow for capital expenditure and financial investment (757,219) (1,520,430) ACQUISITIONS AND DISPOSALS Purchase of business - (6,244,367) Net cash acquired with subsidiaries - 299 ---------- ---------- Net cash outflow for acquisitions and disposals - (6,244,068) FINANCING Issue of ordinary share capital 82,500 450,000 Issue of preference share capital 2,417,500 9,700,000 New medium term bank loans 3,000,000 5,000,000 Expenses paid in connection with shares issued - (12,642) ---------- ---------- Net cash inflow from financing 5,500,000 15,137,358 ----------- ----------- (DECREASE)/INCREASE IN CASH 20 (1,470,972) 644,168 =========== =========== 1998 1997 (pound) (pound) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Decrease in cash (1,470,972) 644,168 Cash inflow from change in debt (3,000,000) (5,000,000) ----------- ----------- Change in net debt (4,470,972) (4,355,832) Net debt at 31 December 1997 (4,355,832) - ----------- ----------- Net debt at 31 December 1998 (8,826,804) (4,355,832) =========== =========== 13
14 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 1. ACCOUNTING POLICIES The financial statements are prepared in accordance with applicable accounting standards. The particular accounting policies adopted are described below. ACCOUNTING CONVENTION The financial statements are prepared under the historical cost convention. CONSOLIDATION AND RESULTS For all subsidiary undertakings the accounts include the results of those companies controlled throughout the period or to the date of disposal or from the date of acquisition as appropriate. ACQUISITIONS In accordance with FRS6 and 7, on the acquisition of a business, fair values are attributed to the assets and liabilities of the acquired business. Any excess of purchase consideration over the fair value of the assets acquired is purchased goodwill. Prior to the issue of FRS10 goodwill was permitted to be written off directly to reserves. As a matter of accounting policy this is the treatment adopted by the company on its acquisitions prior to 1 January 1998. TANGIBLE FIXED ASSETS Depreciation is provided on cost in equal annual instalments over the estimated useful lives of the assets. The rates of depreciation are as follows: Short-term leasehold improvements Over the term of the lease Plant and machinery 15% per annum Motor vehicles 25% per annum Experimental and test equipment 20% per annum Fixtures, fittings, tools and Between 7.5% and 33.3% per annum computer equipment INVESTMENTS Investments held as fixed assets are stated at cost less provision for any permanent diminution in value. Those held as current assets are stated at the lower of cost and net realisable value. STOCKS Stocks and work-in-progress are stated at the lower of cost and net realisable value. Net realisable value is based on estimated selling price less all further costs to completion and all relevant marketing, selling and distribution costs. DEFERRED TAXATION Deferred taxation is provided on timing differences, arising from the different treatment of items for accounts and taxation purposes, which are expected to reverse in the future, calculated at rates at which it is estimated that tax will arise. LEASES Operating lease rentals are charged to income in equal annual amounts over the lease term. 14
15 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 1. ACCOUNTING POLICIES (CONTINUED) RESEARCH AND DEVELOPMENT Expenditure is charged to the profit and loss account in the year it is incurred. PENSION COSTS The expected cost of providing pensions, as calculated periodically by professionally qualified actuaries, is charged to the profit and loss account so as to spread the cost over the service lives of employees in the scheme in such a way that the pension cost is a substantially level percentage of current and expected future pensionable payroll. FOREIGN CURRENCIES Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the year end or related forward contract rates. Trading results are translated at the average exchange rates for the year. Profits and losses arising in the normal course of trading and realised exchange differences arising on the conversion or repayment of foreign currency borrowings are dealt with in the profit and loss account. Unrealised exchange differences arising on the translation of overseas net assets are taken direct to reserves. 2. TURNOVER AND OPERATING LOSS Turnover represents amounts derived from the provision of goods and services which fall within the Group's ordinary activities after deduction of trade discounts and value added tax. The turnover and pre-tax profit, is attributable to one activity. A geographical analysis of the turnover and profit has not been provided due to commercial sensitivity. The operating loss is arrived at as follows: YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (pound) (pound) Cost of sales 12,562,450 4,787,305 ---------- --------- Gross profit 6,923,808 3,584,310 ---------- --------- Distribution costs 2,312,731 2,624,180 Administrative expenses 8,412,352 4,428,854 15
16 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 3. INFORMATION REGARDING DIRECTORS AND EMPLOYEES YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (pound) (pound) DIRECTORS' EMOLUMENTS Salaries 434,174 421,448 Benefits in kind 51,404 34,100 ------- ------- 485,578 455,548 ======= ======= Four of the directors were members of the group's defined benefit scheme. The company contributes to a defined contribution scheme in respect of two of the directors. Total contributions were (pound)10,236. The remuneration of the highest paid director was(pound)126,048 (1997 -(pound)114,198). The highest paid director was not a member of the defined benefit scheme. YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 NO NO AVERAGE NUMBER OF PERSONS EMPLOYED Production 33 27 Sales and distribution 31 14 Administration 13 7 --------- --------- 77 48 ========= ========= (pound) (pound) STAFF COSTS DURING THE YEAR (INCLUDING DIRECTORS) Wages and salaries 2,485,399 1,642,516 Social security costs 232,061 124,190 Pension costs 143,643 115,879 --------- --------- 2,861,103 1,882,585 ========= ========= 16
17 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 4. OPERATING LOSS YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (POUND) (POUND) Operating loss is after charging: Management buyout and financing costs - 795,000 Depreciation and amortisation Owned assets 647,446 468,357 Rentals under operating leases Hire of plant and machinery 28,404 8,185 Other operating leases 196,277 52,419 Auditors' remuneration - audit 13,000 12,500 - non audit 15,000 7,259 ======= ======= 5. INTEREST PAYABLE AND SIMILAR CHARGES YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (POUND) (POUND) Bank loans, overdrafts and other loans repayable within five years 743,107 248,466 ======= ======= 6. TAX ON LOSS ON ORDINARY ACTIVITIES There is no tax charge in the current year due to losses within the Group. 7. DIVIDENDS YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (POUND) (POUND) Dividend on `A' and `B' preference shares at 8 pence per share 872,700 582,000 ======= ======= No dividend has been paid or is proposed to be paid to the holders of the `A' ordinary or ordinary shares. 8. PARENT COMPANY'S PROFIT AND LOSS ACCOUNT The company has taken advantage of the exemption contained in section 230 of the Companies Act 1985 in not disclosing the profit and loss account of the parent company. The parent company's loss for the financial year was (pound)12,394,820 (1997 - (pound)1,183,172). 17
18 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 9. TANGIBLE FIXED ASSETS The Group has tangible fixed assets as detailed below: MOTOR VEHICLES, SHORT-TERM DEVELOP- FIXTURES, LEASEHOLD MENT FITTINGS, GROUP IMPROVE- PLANT AND AND TEST TOOLS AND MENTS MACHINERY EQUIPMENT EQUIPMENT TOTAL (POUND) (POUND) (POUND) (POUND) (POUND) Cost At 1 January 1998 372,553 698,379 1,569,001 238,554 2,878,487 Additions 20,230 320,857 107,604 308,528 757,219 ------- --------- --------- ------- --------- At 31 December 1998 392,783 1,019,236 1,676,605 547,082 3,635,706 ------- --------- --------- ------- --------- Accumulated depreciation At 1 January 1998 57,048 79,596 298,284 30,385 465,313 Charge for the year 77,688 145,020 325,119 99,619 647,446 ------- --------- --------- ------- --------- At 31 December 1998 134,736 224,616 623,403 130,004 1,112,759 ------- --------- --------- ------- --------- Net book value At 31 December 1998 258,047 794,620 1,053,202 417,078 2,522,947 ======= ======= ========= ======= ========= At 31 December 1997 315,505 618,783 1,270,717 208,169 2,413,174 ======= ======= ========= ======= ========= The company has no tangible fixed assets. 10. INVESTMENTS HELD AS FIXED ASSETS SHARES IN SUBSIDIARIES (POUND) Cost and net book value Additions 100 --- At 31 December 1998 100 === INTERESTS IN SUBSIDIARIES The investment represents 100% of the issued ordinary share capital of Digital Projection Limited, a company registered in England and Wales. The principal activity of Digital Projection Limited is the design, manufacture and sale of electronic projectors. The company also owns, through Digital Projection Limited, 100% of the issued ordinary share capital of Digital Projection Inc., a company registered in the United States of America whose principal activity is the sale of electronic projectors. 18
19 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 11. STOCKS GROUP GROUP 1998 1997 (POUND) (POUND) Raw materials and consumables 3,232,431 1,992,455 Finished goods and goods for resale 1,861,744 1,050,783 --------- --------- 5,094,175 3,043,238 ========= ========= There is no stock in the company. 12. DEBTORS GROUP COMPANY 1998 1997 1998 1997 (POUND) (POUND) (POUND) (POUND) Trade debtors 4,085,967 2,371,676 -- -- Amounts owed by subsidiary undertakings -- -- 9,859,179 13,983,544 Other debtors 321,259 520,653 -- 75 Prepayments and accrued income 199,479 90,799 -- -- ---------- ---------- ---------- ---------- 4,606,705 2,983,128 9,859,179 13,983,619 ========== ========== ========== ========== 13. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR GROUP COMPANY 1998 1997 1998 1997 (POUND) (POUND) (POUND) (POUND) Bank overdraft 2,523,216 343 2,523,216 343 Trade creditors 3,734,383 2,475,026 -- 4,400 Other creditors including taxation and social security 476,860 663,091 21,604 24,790 Accruals and deferred income 500,564 259,577 255,093 -- --------- --------- --------- 7,235,023 3,398,037 2,799,913 29,533 ========= ========= ========= ========= 19
20 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 14. LOANS AND OVERDRAFTS GROUP AND GROUP AND COMPANY COMPANY 1998 1997 (POUND) (POUND) Due within one year 2,523,216 343 Due after more than one year 8,000,000 5,000,000 ---------- --------- 10,523,216 5,000,343 ========== ========= The above secured obligations are the subject of a fixed and floating charge over the company's assets. The overdraft and loans are repayable as follows: Within one year 2,523,216 343 Between one and two years - - Between two and five years 8,000,000 5,000,000 After five years - - ---------- --------- 10,523,216 5,000,343 ========== ========= 15. PROVISIONS FOR LIABILITIES AND CHARGES DEFERRED TAXATION There is no deferred taxation to be provided in the group or company. The amounts of unprovided deferred taxation are as follows: GROUP COMPANY NOT NOT PROVIDED PROVIDED 1998 1998 (POUND) (POUND) Capital allowances in advance of depreciation 81,232 - Other timing differences (2,292,307) (343,400) ---------- -------- (2,211,075) (343,400) ========== ======== 20
21 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 16. CALLED UP SHARE CAPITAL 1998 1997 (POUND) (POUND) Authorised 8,000,000 ordinary shares of 3 pence each 240,000 240,000 1,000,000 `A' ordinary shares of 10 pence each 100,000 100,000 50,000,000 `A' preference shares of 0.1 pence each 50,000 50,000 2,500,000 `B' preference shares of 0.1 pence each 2,500 - ------- --------- 392,500 390,000 ======= ========= Called up, allotted and fully paid 3,710,000 ordinary shares of 3 pence each 111,300 111,300 510,000 `A' ordinary shares of 10 pence each 51,000 40,000 9,700,000 `A' preference shares of 0.1 pence each 9,700 9,700 2,417,500 `B' preference shares of 0.1 pence each 2,418 - ------- --------- 174,418 161,000 ======= ========= Movements in share capital during the year were: `A' `B' ORDINARY PREFERENCE NO NO Allotment on funding by directors/investors 110,000 2,417,500 ======= ========= (POUND) (POUND) The consideration for the shares issued was as follows 82,500 2,417,500 ======= ========= The respective rights of the shares are as follows: `A' preference shares - to receive a fixed cumulative preferential net cash dividend of 8 pence per annum on each share. - on a winding up of the company to receive (pound)1 per share together with a sum equal to any arrears on accruals of the preference dividend. - provided all `B' preference shares have been redeemed, 15% of `A' preference shares will be redeemed at the paid up amount on 31 December 2003 with the balance on 31 December 2004, although earlier redemption is provided for in the Articles. - to vote only on those matters affecting the rights of the `A' preference shareholders. 21
22 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 16. CALLED UP SHARE CAPITAL (CONTINUED) `B' preference shares - to receive a fixed cumulative preferential net cash dividend of 8 pence per annum on each share. - on a winding up of the company to receive(pound)1 per share together with a sum equal to any arrears on accruals of the preference dividend. - to vote only on those matters affecting the rights of the `B' preference shareholders. - to be redeemed at the paid up amount on 31 December 2003 although provisions are made in the company's Articles to redeem earlier if permitted. `A' ordinary shares and ordinary shares - to receive, after payment of the `A' preference dividend, a cumulative preferential net cash dividend based on the relationship between 20% of net profit and the preference dividend. - after distribution to the `A' preference shareholders, the remaining capital is distributed to the holders of the `A' and ordinary shares in the proportion that the two classes are entitled to vote at general meetings. - the shares are not redeemable - the `A' ordinary shareholders have one vote per share, the ordinary shareholders having 1/18.55 of the vote per share. 17. RESERVES GROUP SHARE PROFIT PREMIUM OTHER AND LOSS ACCOUNT RESERVE ACCOUNT TOTAL (POUND) (POUND) (POUND) (POUND) Brought forward at 1 January 1998 9,976,358 582,000 (10,033,344) 525,014 Premium on shares issued in the year 2,486,582 -- -- 2,486,582 Retained loss for the year -- -- (5,373,498) (5,373,498) Dividend on non equity shares -- 872,700 -- 872,700 ----------- ----------- ----------- ----------- 12,462,940 1,454,700 (15,406,842) (1,489,202) =========== =========== =========== =========== (POUND) Total reserves can be split as follows: Available for distribution (10,205,355) Not available for distribution 8,716,153 ----------- (1,489,202) =========== 22
23 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 17. RESERVES (CONTINUED) COMPANY SHARE PROFIT PREMIUM OTHER AND LOSS ACCOUNT RESERVE ACCOUNT TOTAL (POUND) (POUND) (POUND) (POUND) Brought forward at 1 January 1998 9,976,358 582,000 (1,765,172) 8,793,186 Premium on shares issued in period 2,486,582 - - 2,486,582 Retained loss for the period - - (13,267,520) (13,267,520) Dividends on non equity shares - 872,700 - 872,700 ---------- --------- ----------- ---------- 12,462,940 1,454,700 (15,032,692) (1,115,052) ========== ========= =========== ========== 18. FINANCIAL COMMITMENTS 1998 1997 (POUND) (POUND) CAPITAL COMMITMENTS Contracted for but not provided 12,728 13,800 ======= ======= Authorised but not yet contracted for 122,872 316,635 ======= ======= OPERATING LEASE COMMITMENTS LAND AND BUILDINGS OTHER (POUND) (POUND) Leases which expire: Within one year - 68,631 Within 2 to 5 years 75,817 84,718 After 5 years - - ------- ------- 75,817 153,349 ======= ======= 19. RECONCILIATION OF OPERATING LOSS TO NET CASH FLOW FROM OPERATING ACTIVITIES YEAR 58 WEEKS ENDED 31 ENDED 31 DECEMBER DECEMBER 1998 1997 (POUND) (POUND) Operating loss (3,801,275) (3,468,724) Depreciation 647,446 468,357 Increase in stock (2,050,937) (3,043,238) Increase in debtors (1,623,577) (2,869,478) Increase in creditors 1,085,013 2,387,582 ---------- ---------- Net cash outflow from continuing operating activities (5,743,330) (6,525,501) ========== ========== 23
24 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 20. ANALYSIS OF NET DEBT 1998 1997 (POUND) (POUND) Cash at bank and in hand 1,696,412 644,511 Bank overdrafts (2,523,216) (343) ---------- ---------- (826,804) 644,168 Loans (8,000,000) (5,000,000) ---------- ---------- (8,826,804) (4,355,832) ========== ========== 21. RELATED PARTY TRANSACTIONS The company has taken advantage of the exemption contained in FRS8 "Related Party Disclosure", in not disclosing transactions with its wholly owned subsidiaries. There were no other related party transactions. 22. PENSIONS The Group operates a funded defined benefit scheme. The assets of the scheme are held in a separate trustee administered fund. The scheme is subject to a triennial valuation by independent actuaries, the last valuation having been performed at 5 April 1999 using the projected unit method. The following actuarial assumptions were applied: Investment returns 5.71% Salary growth 5.34% Pension increases 2.84% At 5 April 1999 the market value of the assets of UK scheme was (pound)957,018 and was sufficient to cover 87% of the benefits which had accrued to members. The employers contributions rate over the average remaining service lives of the members takes account of the deficit. The total pension cost in the year was (pound)143,643. 23. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The group's consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United Kingdom (UK GAAP), which differs in certain respects from generally accepted accounting principles in the United States (US GAAP). Differences which have a significant effect on the consolidated net income and shareholders' equity of the group are set out below. While this is not a comprehensive summary of all differences between UK and US GAAP, other differences would not have a significant effect on the consolidated net income or shareholders' equity of the group. (A) PENSIONS Under UK and US GAAP, pension costs are determined on a systematic basis over the length of service of employees. US GAAP is more prescriptive in the application of the actuarial method, actuarial assumptions to be applied in the calculation of pension costs and the allocation of costs to accounting periods. 24
25 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 23. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) (B) GOODWILL Under UK GAAP, goodwill arising on acquisitions after 1 January 1998 will be treated in accordance with Financial Reporting Standard 10 and capitalised and amortised as it would be in accordance with US GAAP. Prior to that date goodwill was and remains written off against retained earnings in the consolidated balance sheet in the year of acquisition. Under US GAAP, goodwill is capitalised on the balance sheet and amortised by charges against income over its estimated useful life, not to exceed 40 years. For US GAAP, goodwill has been amortised over 20 years. (C) SOFTWARE DEVELOPMENT COSTS Under UK GAAP costs incurred in the development of computer software are written off as incurred. Under US GAAP, costs incurred internally in creating a computer software product to be sold, leased or otherwise are expensed as incurred until technological feasibility is established. After that, all software production costs are capitalised. Amortisation of these costs is based on current and future revenue. Capitalisation ceases when the product is available for general release to customers. (D) EFFECT ON NET INCOME OF DIFFERENCES BETWEEN UK AND US GAAP For the year/period ending 31 December NOTE 1998 1997 (POUND)'000 (POUND)'000 Net loss in accordance with UK GAAP (4,501) (3,672) US GAAP adjustments - Pension costs 23(a) (15) (21) Amortisation of goodwill 23(b) (289) (289) Software development costs 23(c) 131 - ------ ------ Net loss in accordance with US GAAP (4,674) (3,982) ====== ====== (E) CUMULATIVE EFFECT ON SHAREHOLDER'S EQUITY OF DIFFERENCES BETWEEN UK AND US GAAP At 31 December NOTE 1998 1997 (POUND)'000 (POUND)'000 Shareholders' equity in accordance with UK GAAP (14,958) (9,596) UK GAAP adjustments - Pensions 23(a) (36) (21) Goodwill 23(b) 5,201 5,490 Software development costs 23(c) 131 - ------ ------ Shareholders' equity in accordance with US GAAP (9,662) (4,127) ====== ====== 25
26 DIGITAL PROJECTION INTERNATIONAL PLC NOTES TO THE ACCOUNTS YEAR ENDED 31 DECEMBER 1998 23. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) (F) CLASSIFICATION DIFFERENCES BETWEEN UK AND US GAAP Dividends on preferred shares Under UK GAAP, dividends on preferred shares of (pound)1.45m are included as an `other reserve' as the group does not have the ability to pay the dividend in the next accounting period. Under US GAAP these dividends would be included in accruals. Preferred shares Under UK GAAP preference shares are included as part of total shareholders' funds. Under US GAAP these shares are disclosed between liabilities and shareholders' equity. (G) CASH FLOWS Under UK GAAP the group complies with Financial Reporting Standard No.1 (FRS1), the objective and principles of which are similar to those set out in Statement of Financial Accounting Standard No.95 (SFAS95). The principal difference between the two standards is in respect of classification. Set out below, for illustrative purposes, is a summary consolidated statement of cash flows under US GAAP. 1998 1997 (POUND)'000 (POUND)'000 Net cash provided by operating activities (6,066) (6,729) Net cash used in investing activities (905) (7,764) Net cash provided in financing activities 5,500 15,137 ------ ------ Net (decrease)/increase in cash and cash equivalents (1,471) 644 Cash and cash equivalent at start of year 644 - ------ ------ Cash and cash equivalents at end of year (827) 644 ====== ====== 24. POST BALANCE SHEET EVENT On 3 September 1999, Imax Corporation, a company incorporated in Canada, acquired the whole of the issued share capital of Digital Projection International plc. 26
27 IMAX CORPORATION UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS On September 3, 1999, Imax Corporation (the "Company") acquired all of the outstanding common and preferred shares of Digital Projection International ("DPI") in a transaction accounted for under the purchase method. The following unaudited pro forma consolidated statements of operations combine the historical results of the Company and DPI for the year ended December 31, 1998 and the six months ended June 30, 1999, adjusted to give effect to the transaction in both cases as if the acquisition had occurred on January 1, 1998. The unaudited pro forma consolidated statements of operations are presented for informational purposes only. They do not purport to be indicative of the financial results that actually would have resulted had the transaction occurred on January 1, 1998, nor the results that may result from future operations. The unaudited pro forma consolidated statements of operations should be read in conjunction with the historical financial statements and notes thereto of DPI included elsewhere in the 8-K/A of the Company, the Company's form 10-K for the year ended December 31, 1998, and the Company's forms 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999. 27
28 IMAX CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR THE SIX MONTHS ENDED JUNE 30, 1999 (in thousands of U.S. dollars) (unaudited) PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA COMPANY DPI COMBINED (NOTE 2) CONSOLIDATED ------------- ------------- ------------- ------------- -------------- REVENUE Systems $ 41,309 $ $ 41,309 $ $ 41,309 Films 19,066 19,066 19,066 Other 10,626 12,753 23,379 23,379 ------------- ------------- ------------- ------------- ------------- 71,001 12,753 83,754 83,754 COSTS AND EXPENSES 38,757 11,867 50,624 (d) (38) 50,586 ------------- ------------- ------------- -------------- ------------- GROSS MARGIN 32,244 886 33,130 38 33,168 Loss from equity accounted investees 162 162 162 Selling, general and administrative expenses 16,258 3,321 19,579 (d) (13) 19,566 Research and development 1,287 893 2,180 2,180 Amortization of intangibles 945 233 1,178 (a) (233) 1,584 (b) 436 (c) 203 ------------- ------------- ------------- ------------- ------------- EARNINGS (LOSS) FROM OPERATIONS 13,592 (3,561) 10,031 (355) 9,676 Interest income 5,269 5,269 5,269 Interest expense (11,014) (806) (11,820) (e) 806 (11,014) Foreign exchange gain (loss) 213 213 213 ------------- ------------- ------------- ------------- ------------- EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 8,060 (4,367) 3,693 451 4,144 Provision for income taxes (3,144) (3,144) (f) 1,044 (2,100) -------------- ------------- -------------- ------------- -------------- NET EARNINGS (LOSS) BEFORE MINORITY INTEREST 4,916 (4,367) 549 1,495 2,044 Minority interest (707) (707) (707) -------------- ------------- -------------- ------------- -------------- NET EARNINGS (LOSS) $ 4,209 $ (4,367) $ (158) $ 1,495 $ 1,337 ============ ============= ============= ============ ============ NET EARNINGS (LOSS) PER SHARE Basic $ 0.14 $ 0.05 Diluted $ 0.14 $ 0.04 WEIGHTED AVERAGE NUMBER OF SHARES Basic 29,581 29,581 Diluted 30,435 30,435 28
29 IMAX CORPORATION PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES FOR THE YEAR ENDED DECEMBER 31, 1998 (in thousands of U.S. dollars) (unaudited) PRO-FORMA HISTORICAL ADJUSTMENTS PRO FORMA COMPANY DPI COMBINED (NOTE 2) CONSOLIDATED ------------- ------------- ------------- ------------- -------------- REVENUE Systems $ 140,874 $ $ 140,874 $ $ 140,874 Films 30,824 30,824 30,824 Other 18,657 32,357 51,014 51,014 ------------- ------------- ------------- ------------- ------------- 190,355 32,357 222,712 222,712 COSTS AND EXPENSES 111,784 29,569 141,353 (d) (78) 141,275 ------------- ------------- ------------- -------------- ------------- GROSS MARGIN 78,571 2,788 81,359 78 81,437 Loss from equity accounted investees 6,763 6,763 6,763 Selling, general and administrative expenses 38,777 6,813 45,590 (d) (27) 45,563 Research and development 2,745 1,966 4,711 4,711 Amortization of intangibles 5,948 797 6,745 (a) (797) (b) 900 (c) 420 7,268 ------------- ------------- ------------- ------------- ------------- EARNINGS (LOSS) FROM OPERATIONS 24,338 (6,788) 17,550 (418) 17,132 Interest income 5,320 5,320 5,320 Interest expense (14,646) (1,161) (15,807) (e) 1,161 (14,646) Foreign exchange gain 588 588 588 ------------- ------------- ------------- ------------- ------------- EARNINGS (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST 15,600 (7,949) 7,651 743 8,394 Provision for income taxes (9,810) (9,810) (f) 1,892 (7,918) -------------- ------------- -------------- ------------- -------------- EARNINGS (LOSS) BEFORE MINORITY INTEREST 5,790 (7,949) (2,159) 2,635 476 Minority interest (1,895) (1,895) (1,895) -------------- ------------- -------------- ------------- -------------- EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM 3,895 (7,949) (4,054) 2,635 (1,419) Extraordinary loss on early retirement of debt, net of income tax benefit of $ 1,588 (2,095) (2,095) (2,095) -------------- ------------- --------------- ------------- -------------- NET EARNINGS (LOSS) $ 1,800 $ (7,949) $ (6,149) $ 2,635 $ (3,514) ============ ============= ============= ============ ============= EARNINGS (LOSS) PER SHARE EARNINGS (LOSS) BEFORE EXTRAORDINARY ITEM Basic $ 0.10 $ (0.05) Diluted $ 0.09 $ (0.05) NET EARNINGS (LOSS) Basic $ 0.03 $ (0.12) Diluted $ 0.03 $ (0.12) WEIGHTED AVERAGE NUMBER OF SHARES Basic 29,281 29,281 Diluted 30,474 29,281 29
30 IMAX CORPORATION NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND THE YEAR ENDED DECEMBER 31, 1998 (in U.S. dollars) (unaudited) 1. ACQUISITION On September 3, 1999, the Company paid $27.2 million to acquire all of the Ordinary and Preference Shares of DPI in an acquisition accounted for as a purchase. The excess of the purchase price over the book value of the net assets acquired has been allocated to assets and liabilities to record them at their preliminary estimated fair values at September 3, 1999 as follows: 000's ------------- Cash $ 1,526 Accounts receivable 3,875 Inventory 6,771 Capital assets 3,056 Other assets 4,000 Accounts payable and accrued liabilities (11,104) Deferred income tax 1,714 Goodwill 17,412 ------------- $ 27,250 ============= 2. PRO FORMA ADJUSTMENTS The unaudited pro forma consolidated statements of operations for the six months ended June 30, 1999 and the year ended December 31, 1998 reflect: (a) the elimination of the amortization of DPI's acquired goodwill of $233,000 and $797,000 respectively; (b) the amortization of goodwill on a straight line basis over 20 years being $436,000 and $900,000 respectively; (c) the amortization of other assets on a straight line basis over 7 and 13 years, being $203,000 and $420,000 respectively; (d) a decrease in the amortization of capital assets on a straight line basis over 5 years, being $51,000 and $105,000 respectively; (e) the elimination of interest expense of $806,000 and $1,161,000 respectively on DPI's long-term debt extinguished at acquisition; and, (f) the tax effect of the above entries and the tax effect of the six month and annual loss of DPI not previously tax effected. 30
31 SIGNATURES 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. IMAX CORPORATION Date: November 16, 1999 By: / S / John M. Davison - ------------------------- ---------------------- John M. Davison Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) By: / S / Mark J. Thornley ---------------------- Mark J. Thornley Vice President, Finance (Principal Accounting Officer) 31