Montreal: Now that Cinar Corp. has reached an agreement with federal and Quebec tax authorities, the next immediate step in its recovery program is to sort out its dealings with Telefilm Canada.

The federal funding agency has asked Cinar to reply to several questions, and until those issues are cleared up to Telefilm's satisfaction, Cinar can not access any discretionary funding nor the benefits of the production tax-credits.

"We now have to start the process with Telefilm," says Barrie Usher, Cinar president and ceo. "They've asked us a number of questions that we have to answer and we're able to do that and we're going to do that...That will be one of our number-one priorities."

Usher says Cinar is preparing a new production schedule, pending agreements with production partners. "It's an important thing that we get Telefilm on side, but it's not vital to pushing ahead with our new slate," he says.

Cinar has agreed to pay $13.1 million in back taxes, interest and penalties - close to $5.1 million to Canada Customs and Revenue Agency and just over $7.9 million to the Ministere du Revenu du Quebec. Close to $4 million is payable immediately.

As part of the deal, Cinar also reported relinquishing tax credit claims totaling $9.7 million, including $6 million in federal tax credit claims. The company says it has additional tax liabilities of over $4.7 million, payable over five years. The total bill in owed and relinquished taxes and other liabilities is in the order of $27.5 million.

Some of the decertified productions - not identified in Cinar's Dec. 19 press release (decertified because of improper claims in respect to scriptwriting, foreign technical costs, labor and other issues) - are eligible for production service tax credits.

Cinar faces several legal suits including those filed by disgruntled shareholders in Canada and the u.s. It is also conducting an ongoing investigation into "related third-party" transactions involving former senior executives, and is still owed close to $45 million of the original "unauthorized" $122 million invested in Bahamian investment funds.

In March 2000, trading of Cinar shares was halted on both the tse and nasdaq. The stock was subsequently delisted by nasdaq. *

www.cinar.com