Shares in Imax Corp. took a major hit following news on Aug. 9 that a five-month auction process failed to unearth a buyer willing to meet the company's price.

Stock in the large-format giant dropped to below $7 from a recent high of more than $12 on the Toronto Stock Exchange, and below US$6 on the NASDAQ, not far off its 52-week low of US$5.48, and well off the high of US$10.63.

Analysts had predicted Imax would fetch US$600 million to US$700 million, or roughly US$12 to US$14 a share.

But when that failed to materialize, investors fled the Mississauga, ON-based company despite its concurrent announcement that it had roughly tripled its second-quarter profit - $3.5 million in net earnings for the three months ended June 30, up from $1.1 million in last year's second quarter.

Imax said in a statement that its sales process had elicited "significant initial interest" but no suitable offers.

"Because interest remains from several parties at a lower valuation, however, the board has authorized the company's bankers to explore these opportunities," the company said. "This process is ongoing."

Contributing to the stock sell-off was Imax's statement that it is co-operating with a casual inquiry from the U.S. Securities and Exchange Commission into the company's timing of revenue recognition.

Imax has been on the block since March, following strong annual results for 2005, which stood out against a few years of listless earnings and sluggish stock movement.

Last month, the stock price rose about 6% after a widely cited story in The Globe and Mail reported that four suitors were sizing up the company. They were said to include: Sony, the South Korean theater chain CJCGV, and a couple of private equity funds, including San Francisco-based Elevation Partners, partly backed by U2 frontman Bono. Subsequent news reports mentioned other potential buyers: Warner Bros., Texas Instruments and U.S. cinema operator Regal Entertainment Group. But Imax co-CEO Brad Gelfond said Aug. 9 that only private equity funds were still interested.

The world leader in large-format films had been brimming with good news in recent weeks: two new Imax theaters to be built in the Ukraine, two in Minnesota, another in Louisiana, and a deal to expand into Russia.

Moreover, the box office for Imax's partial-3D version of Superman Returns earned US$20.7 million in Imax theaters worldwide through its fourth weekend, becoming "the fastest-grossing digitally re-mastered Imax release in the Company's history, with a worldwide per screen average of $201,000." The film's total box office to that date was US$290 million.

Imax and Sony Pictures Entertainment have since announced that the highly anticipated Spider-Man 3 will be simultaneously released in both conventional theaters and Imax theaters on May 4, 2007.

These developments show how far Imax has penetrated into mainstream entertainment since 1996, when the New York firm Gelfond and Wechsler took control of the Ontario-born company, charting a course away from the museums and institutions that first housed Imax theaters. But the tepid response to the Imax auction shows how far the company still has to go.

The company's revenues come from licensing its technology to theaters that build Imax theaters. To get to the next level of commercial penetration, it needs a larger network of theaters and a larger slate of current, mass-appeal films. This year Imax is releasing large-format versions of six Hollywood films - including The Ant Bully and Open Season - up from four in 2005.

In his June report, analyst Eric Wold of San Francisco-based Merriman Curhan Ford & Co. said Imax must spend up to US$75 million annually to open as many as 50 new screens.

There is growing recognition among exhibitors that the disaffected moviegoing public must be lured back to the multiplex with special attractions. Last year, Hollywood ticket sales around the world dropped 7%, but box-office returns for movies shown in Imax theaters increased 35%.

www.imax.com