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IMAX Corporation (NYSE:IMAX)

Business Update Call

March 16, 2007 8:30 am ET

Executives

Brad Wechsler - Co-Chairman and Co-CEO

Rich Gelfond - Co-Chairman and Co-CEO

Ed MacNeil - Interim CFO

Rob Lister - General Counsel

Analysts

Eric Wold - Merriman Curhan Ford

Marla Backer - Soleil Securities

Michael Kelman - Susquehanna

Ken Silver - CRT Capital

Mark Major - Morgan Stanley

Bob Friend - Plainfield Asset Management

Robert Hoffman - Candlewood Capital

Presentation

Operator

Welcome to the IMAX Corporation's Conference Call. This call is being recorded. At this time, I will turn the conference over to Mr. Brad Wechsler for opening remarks and introduction.

Brad Wechsler

Thank you, operator. Good morning and thank you very much for joining us today. Joining me is my partner, Co-Chairman and Co-CEO, Rich Gelfond. Also with us are our Interim CFO, Ed MacNeil and General Counsel, Rob Lister.

Before we begin, let me remind you of the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking, in that they pertain to future results or occurrences. Actual future results or occurrences may differ materially from these forward-looking statements. Please refer to the risk factors in our SEC filings for a more detailed discussion of some of the factors that could affect our future results and occurrences.

We are obviously disappointed to have to announce today our decision to delay the filing of our 10-K, particularly at a time when our business is showing significant positive momentum.

We announced this morning that as a result of certain identified accounting errors with an estimated net effect of approximately $2.5 million over the prior six years, the company intends to file restated financial statements for certain periods during those years. As a result, the company will not file its Form 10-K today, but intends to file on or before March 30, within the 15-day grace period for annual filings.

We will host our regular quarterly call to discuss results at that time. While we will not be able to address financials on this call, we felt that it was important to take you through the details of the accounting errors and provide as much transparency as possible with regards to these issues.

None of these accounting errors are related to theater system component revenue recognition nor do they change the future cash flows. In addition, none of these issues arise out of the informal SEC/OSC investigations. They were principally discovered in connection with our year-end audit and impacts various periods between 2001 and 2006.

We are still in the process with our auditors of analyzing which specific periods during those years need to be adjusted, and we'll put out a release with these details as soon as we complete this analysis.

Before Rich provides more details of both about the current tenure of our business and the accounting errors, I want to emphasize that we fully recognize that the delay in filing the 10-K and the underlying causes are unacceptable. And we are committed to improving our financial controls and systems. All of the identified errors relating to the current situation arise from prior quarters and prior years.

In August '06, our Chief Financial Officer resigned. Since then, we have been ably led by our acting CFO, Ed MacNeil. We've also been engaged in the process of hiring a permanent CFO and have interviewed several strong candidates in the recent weeks. We will keep you posted on that process, but can assure you that we have no higher priority than the smooth functioning of our finance area.

The timing of these accounting issues is particularly unfortunate, because it masks significant developments which have affected our business in a very positive way. Specifically, the record breaking performance of 300, along with our recent Regal joint venture and announcement of the Dickinson Theatres five-theater lease deal, are all cause for a significant optimism about the business.

We just returned from ShoWest, the Entertainment Conference in Las Vegas where there was substantial interest in IMAX from both the exhibitor and studio constituencies.

We continue to think that there is a lot to be excited about as our business, supported by the key initiatives that we are implementing, continues to make progress. For example, we signed nine theater deals during Q4, bringing total signings for fiscal '06 to 34. Of this 34, four were conditional deals, where the condition, however, was not met and are thus not included in our backlog.

Even more encouraging, we already had nine signings completed in the first quarter to date.

Our positive momentum has been helped by the significant early performance of 300. This film generated a tremendous amount of word-of-mouth before it opened, particularly from an audience segment that we've been cultivating, the elusive 15- to 24-year-old techie crowd, since its release a week ago. Its performance in IMAX theaters has significantly exceeded expectations.

So far, this film has grossed $6.1 million in seven days on only 62 screens. And its opening weekend per screen average was $58,000, a new record for a Hollywood IMAX title.

Perhaps more significantly in its first few weekdays, the film has averaged over $630,000 per day and accounted for more than 10% of the film's domestic box-office, again on only 62 screens. This further strengthens IMAX's appeal to the exhibitors.

300 has certainly played a role in driving recent exhibitor interest. But I should point out, that past film performance and the anticipated performance of future films are both key factors.

Looking at our recent film performance of the 37 films released domestically by the studios during the holiday season, the top two, Happy Feet, and Night At The Museum, were both released in IMAX and grossed a combined $35 million plus in our network.

And looking ahead, exhibitors are eagerly anticipating Sony Pictures' Spider-Man 3 and Warner Brothers' Harry Potter and the Order of the Phoenix, two of the most important film franchises in the industry.

We believe this positions us very well to leverage our momentum and further cultivate the interest in IMAX that drives network growth.

Turning to installs, we installed seven systems during the fourth quarter which was within our guided range of five to eight installs. Our backlog at the end of December consisted of 69 systems with a total value of roughly $109 million.

I would also like to mention that we ended the year with $27.2 million in cash, cash equivalents and short-term investments, approximately $2 million over our guided number versus the $32.5 million at the beginning of the year.

While this represents a $5 million decrease for the year, cash expenses related to our strategic alternatives process and the informal regulatory inquiries account for roughly $2 million of that decrease.

I'd now like to turn it over to Rich to discuss the details of some of the accounting issues in other recent progress and developments.

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Rich Gelfond

Thanks Brad. As you know, we are all extremely focused on an IMAX digital product launch in late 2008, mid-2009. For the first time, we have been able to see IMAX digital images and IMAX geometry and are very pleased with the visual experience.

We've made solid progress on the technical front and are encouraged by recently completed albeit very preliminary consumer research, administered by a third party to approximately 150 participants.

In particular, consumer response to a prototype digital projection system we created indicates more than 85% of those queried thought that the digital experience in an IMAX venue was as good as or better than the IMAX film experience.

Needless to say, with a response like that, we feel we are definitely on the right track in terms of keeping IMAX's 'wow' factor, and ensuring that our digital product provides a premium brand of consistent, truly differentiated experience to the moviegoer.

The incredible numbers from 300, a 2D IMAX film, bear out the fact that people are seeking out the differentiated IMAX experience more than ever before.

Our mission is to ensure that the IMAX digital experience provides exactly the same promise of differentiation for the moviegoer and these early results are promising. We will provide more color on our digital initiative on our call in two weeks.

With regards to our joint ventures, we formally launched this initiative in early January. I am pleased to report that we have just signed a very significant deal and are currently engaged in a number of encouraging preliminary discussions.

As many of you know, earlier this week, we announced a joint venture agreement for the installation of two IMAX MPX theatre systems at Regal Cinemas' multiplexes in San Diego and Portland and a third system installation in Orlando, all hopefully in-time for Spider-Man 3.

These are three markets currently lacking day-and-date IMAX runs. We believe this agreement is an early indication that exhibitors see joint ventures as an attractive option in addition to traditional leases. And we are optimistic that this agreement is the first of many that will help us expand the network more quickly.

Regal, the largest exhibitor in the world, had not expanded its IMAX footprint since 2003, and we believe this structure as well as their box-office success in their existing 13 IMAX sites over the past couple of years, has helped them to get comfortable with additional theaters.

We also announced a five-system sales agreement with Dickinson Theatres, a Midwest exhibitor, underscoring how our new commercial strategy and business model is built on a combination of both profit-sharing JVs and traditional lease and sale agreements.

Now, I would like to take a moment to walk you through the accounting issues that have resulted in our decision to delay filing the 10-K.

The identified estimated $2.5 million in errors, as Brad mentioned, relates primarily to three specific factors. First, expenses totaling around $1.4 million that were incurred over the last six years and paid to a law firm that helped us source theater deals in Asia were capitalized and allocated to cost of goods sold when those installations were recognized.

That was incorrect accounting, and what we should have done was to expense the fees in the periods they were incurred. This results in an adjustment upon restatement of approximately $800,000 relating to prior periods, of which approximately $150,000 is related to the first three quarters of 2006. The effect of this adjustment is not expected to be above $400,000 in any prior year.

Second, we have found mistakes in our film accounting area, which we are correcting. We did not appropriately track certain film marketing expenses, which caused us to mistakenly capitalize certain expenditures related to the co-produced films Deep Sea 3D and Magnificent Desolation that should have been expensed as they were incurred.

The adjustment relating to these films approximates $150,000 for the first three quarters of 2006 and $750,000 in prior periods. The company is continuing to evaluate the impact of these and other matters related to prior periods.

Finally, there is an adjustment we are making related to branch-level interest taxes, a very complex area of US tax law. In short, because of missed elections IMAX paid and expensed taxes in 2006 that should have been accrued at approximately $250,000 per year from 2003 through 2005.

So, those are the three principal identified errors, which, as we have noted, total an estimated $2.5 million over the course of six years. While we are committed to correcting them, these errors are still subject to some internal analysis and the conclusion of the audit by PricewaterhouseCoopers. And part of this analysis involves correcting any previously identified unadjusted errors that were not deemed material to correct in prior periods.

The result of this analysis will give us a clear insight as to the amount that needs to be corrected in each period. Regardless, we will use our best efforts to complete this analysis and file our 10-K within the allowed filing grace period or no later than March 30, 2007.

Before we open it up to questions, I think it's important to reiterate that we are encouraged by our progress to date and optimistic about IMAX's long-term growth prospects.

There are several reasons to be excited about the future. We remain very focused on developing our digital platform. And we believe, we will be able to introduce the system that delivers the premium differentiated IMAX Experience, that people have come to expect from the brand, as demonstrated most recently by the incredible per-screen numbers and overall box office gross we have seen for 300.

Seeing the digital images with our own eyes recently, has made us even more confident of this, a view preliminarily confirmed by consumer tests. We're aggressively implementing strategies designed to enhance network growth and improve network economics. And to that end, we are pleased with the positive initial reception to our joint venture initiative. Importantly, we think that the JV initiative will also enable us to recognize more recurring revenues going forward.

An exhibitor like Regal, the world's largest exhibitor, endorsing this initiative is a significant first step. We are also very encouraged about being able to follow the Regal two-system JV by announcing our five-system sales-type lease deal with Dickinson.

We think these deals taken together confirm the value proposition of each of the deal structures that underpin our commercial strategy: profit sharing JVs and traditional leases and sales.

Finally, we are enjoying positive studio and exhibitor sentiment towards IMAX on the heels of two of the top performing films of the holiday season and are entering 2007 encouraged by the early performance of 300.

We believe we have two blockbusters ahead on our '07 slate, Spider-Man 3 and Harry Potter 5 as well as other exciting opportunities to fill out that slate. IMAX never before has had five successful films in a row, and we believe that will be the case with the upcoming film slate. We look forward to keeping you apprised of our progress on all fronts.

With that, we'd like to thank you for listening and take any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions). We will take our first question from Eric Wold of Merriman Curhan Ford.

Eric Wold - Merriman Curhan Ford

Good morning guys.

Rich Gelfond

Good morning.

Eric Wold - Merriman Curhan Ford

A couple of questions, just on the install trends and what you are seeing there. Just wanted to make sure I'm clear, so that none of the Regal or Dickinson were included in the nine in Q4, correct?

Rich Gelfond

Correct, they were not, Eric.

Eric Wold - Merriman Curhan Ford

Okay. On the Q3 call, at the backlog at that time there were 24 theaters that could potentially be installed or that were scheduled to be installed in '07 along with another 8 that could possibly fall in the year. I know that three of the Regal and one of the Dickinson are looking like '07 installs. Can you update us on those numbers on what the '07 looked like?

Rich Gelfond

First of all, those are sales type lease we referred to, not joint ventures. If you remember in that call, we said in addition that we were going to try and install. Our target was 11 joint ventures during the year and I think what we would like to do -- we haven't revised that guidance at this point. And I think when we have the update call in two weeks at that point we will give you a better insight into '07.

Eric Wold - Merriman Curhan Ford

Okay. But there were a lot of concerns back in Q3 with some of the theaters that got delayed in the Q4 and Q1. Does that change the things that kind of getting a little bit better and those guys are kind of short of their opening dates?

Rich Gelfond

Well, we obviously have seven installs because we announced it in quarter four. And as I said, we haven't changed the guidance we gave on the last call. And I think we will update it with current information on the next call.

Brad Wechsler

And Eric, the other thing that I would add, obviously with what happened in the Q3 of last year, we are in the process of trying to dramatically improve our ability to prognosticate exactly when installs occur. And if that means incurring a little additional expense by sending somebody actually to go visit a site and to see what the construction is in a different place in the world, we are not doing things like that.

So, we are not seeing the type of weakness that you saw last year.

Eric Wold - Merriman Curhan Ford

Okay. And then last and I apologize if you have covered this. I got cut off for a second during your opening remarks. On the JV side, it's obviously great to see the Regal come back after a number of years and get three in there or I guess that was JVs in there.

Give us an update on, I don't know with specific names, but back in Q3 you guided to as many as your 20 JVs signings this year up with 10 being installed. I know you have changed your guidance. But as you think about if that is still the case and there's still another 17 or so potential signings that could happen this year of JVs. How many theater companies could that possibly encompass? Is it three or four? Doing three or four each or four or five each or is it much larger doing a much smaller number each?

Rich Gelfond

Obviously, Eric, it is very hard to say, because you don't know who is going to sign. But I can tell you that we are in JV discussions today with over half a dozen different exhibitors. And the size of the deals is between two at the downside to realistically probably five at the upside. And also not counting that, there are one or two wildcards which could be significantly larger. But they are in very, very early stages. So that gives you a scope of what is going on.

Eric Wold - Merriman Curhan Ford

Okay. Perfect, thanks guys.

Operator

At this time, we have a question from Marla Backer of Soleil.

Marla Backer - Soleil Securities

Thank you. And I apologize. I got on the call late, so if I missed this I apologize for redundancy. But the accounting issues that you talked about today, back in August when you originally announced the accounting issues that gave rise to the SEC investigation then, those were accounting issues that pertained to recognition of revenue on systems from 4Q '05, correct?

Brad Wechsler

That is correct.

Marla Backer - Soleil Securities

Okay. So I'm guessing that the scrutiny that you have put yourselves under now to ensure that you don't have accounting issues going forward, is what led to under-covering these other accounting issues. But these are two separate issues?

Brad Wechsler

They are unrelated issues. And increasingly, obviously, we always want to get our numbers right. And given that we were involved in these informal OSC/SEC inquiries on one area having to do with multiple element accounting and revenue recognition, I think both we and PwC are going through our accounts in even more detail than we do. And obviously every year we go through in detail. But I think in the process of going through these accounts, both PwC and we found these errors, which were unrelated to the OSC/SEC inquiries.

Marla Backer - Soleil Securities

Okay, so that is still an open issue? These are the previous ones that we talked about a few minutes ago, the SEC. That is still an open issue?

Rich Gelfond

Yes.

Marla Backer - Soleil Securities

Okay, thank you.

Operator

Our next question comes from Michael Kelman of Susquehanna

Michael Kelman - Susquehanna

Thanks. Can you talk a little bit about the digital strategy? I know at the last conference call you've talked about approximately $12 million of incremental expenses that you expect to incur regarding the development. I wanted to know, does that include any allocation of costs for potentially swapping out new or even existing systems from film-based projections to digital projections?

And then may be you could elaborate a little about your strategy going forward and how the economics will work for, I guess, upgrading to digital for current and existing systems?

Brad Wechsler

I think Rich and I can both split the answers. The numbers that we gave with respect to the $12 million is aggregate, and I think we gave you some current period guidance. That did not include swap-out costs. One of the things, I would footnote is, from our perspective in terms of operating priorities, transition to digital, transition to digital, and then transition to digital. It's a key strategic operating priority. So, actually I think that we are going to accelerate expenditure of some of our R&D funds to get us to the finish line as rapidly as possible, because we want to make the transition as rapidly as possible, because the economics to IMAX and our exhibitor partners become even more compelling in a digital world.

Part two of your question, does that include swap-out costs? No, it does not include swap-out costs. Our current estimates of a swap-out would probably be around of $350,000 range. We hope to sort of emulate the system that is developing in conventional world of 35 mm and digital, whereby the studios help to underwrite the cost of transitioning to digital by paying virtual print fees, which is another way of saying they take some percentage of their print savings and they allocate that over to subsidize the transition. Rich, you want to add?

Rich Gelfond

The only thing I would add is, we mentioned in the call about seeing digital images on the screen. And you could talk about these strategies all that you want, until you put something up in the screen in an IMAX type theater. And our whole managing team saw it, besides audiences, and I think it was really extremely special. It really was The IMAX Experience. And we are hoping to build a prototype viewing site in the next several months, where our customers can go see it, some filmmakers can see it, and potentially even some of our analysts can go see it. I think you'll be all very impressed and encouraged by the road we are on.

Michael Kelman - Susquehanna

With regard to that $350,000 cost, can you reconcile the difference between -- I know at the current system film-based projections, I believe you said would cost around $700,000. I think you had previously mentioned that a digital would cost about $100,000 less. With the $600,000 versus the $350,000, would that account for the cost of the screen, is that's the difference?

Rich Gelfond

Exactly, the screen, the sound system, project management, and things like that.

Michael Kelman - Susquehanna

And I've one other question. Can you talk a little bit about the film slate for the rest of the year, potential candidates that you are looking at? Or are there films that you are targeting beyond Harry Potter?

Rich Gelfond

Yes, we actually have a lot of interest. Harry Potter is going to open, as you know, in July. And I'd say I just want to do this. Off the top of the head, we are discussing somewhere around five films to fall into the final couple of slots, five or six.

And at this point, it's not really a question of do we have films. It's a question of which film we decide to play, of course in conjunction with the studio. But there has been a shift in dynamic where years ago we really have to go source films and convince the studios to allow us to play them.

Now, because the numbers and the returns have been so strong, the studios are calling us and offering us films, and we have to sort through them. And we made somewhat of a strategic decision because the slate was so strong early in the year with 300, Spider-Man and Harry Potter rather than rush into a film later in the year. We were going to wait until we saw some of the creative materials like, in some cases the trailer and in some cases more of the completed movie, and then we will nail down the latest slot.

So, I would think over the next couple of months, you will start to see us make announcements. But that's the reason we haven't, because we are in a position to be more selective.

Michael Kelman - Susquehanna

Is that a strategy going forward that you will probably sign them up closer to the date just so you can see a finished product?

Rich Gelfond

I think it depends on the movie, if it's Harry Potter 6, no. I am sure we will agree to do that if Warner is interested in us doing it, which I think will be the case. If it's a film that's unknown or untested, I think that would be the case that we would sign it up closer.

Michael Kelman - Susquehanna

Great, thanks very much.

Operator

Our next question comes from Ken Silver from CRT Capital.

Ken Silver - CRT Capital

Hi good morning. Brad, I just wanted to clarify a couple of things that you said. I think you gave a percentage for 300. What the IMAX box office was as a percentage of the overall box office? I just didn't hear what you said.

Brad Wechsler

Yes, what I was referring to something that we're very pleased in seeing. I mean, obviously, this movie opened very, very strong, great for IMAX and great for the opening weekend. It continues to play beautifully in 35 mm and IMAX.

But when we look at the weekdays subsequent to the weekends, our percentage of box-office has gone up somewhat and is running roughly 10% of the box office when we look at the previous weekdays, which is sort of over-indexing. And that is something we always love to see.

Ken Silver - CRT Capital

And the 6 million number that you gave, is that accumulative?

Brad Wechsler

Yes.

Ken Silver - CRT Capital

Do you know what that is as a percentage of the overall accumulative box office?

Brad Wechsler

I do not know what the accumulative is today in 35 mm. Rich, maybe you do?

Rich Gelfond

What I do know is it did about 5% over the weekends, Ken. And it has done 10 to 12% during the week. And remember on this one, it is on 60 screens and it opened on something like 3,500 locations. But locations have multiple prints in them.

So, it is probably something like 6,000 prints, 7,000 prints. That's just a guess. But you can see that usually we're on 1% of the screens and do 5 to 6% of the box-office. In this instance, we're on less than 1% of the screens, maybe significantly less, and we're doing in excess of 5% or 6% of the box office because of the weekdays.

Ken Silver - CRT Capital

Okay. Thanks. I just wanted to clarify one other thing. You mentioned that four of the signings last year were conditional signings. And then I think conditions weren't met and they went up not being in backlog. Is that what you said?

Rich Gelfond

Yes. I will give you an example. We had a three-theater deal with a European exhibitor. And it was conditional. But things, having nothing to do with IMAX, have delayed the meeting of that condition. So it has not been met now. So we are not putting it into backlog now. Could it happen in the future? Yes, but we are not putting it in backlog for now.

Ken Silver - CRT Capital

Okay. So, nor have you gotten any money upfront from them?

Rich Gelfond

Correct.

Ken Silver - CRT Capital

So should we view signings really as 30 last year? Not 34?

Rich Gelfond

I think. That's correct, Ken.

Brad Wechsler

Yes.

Ken Silver - CRT Capital

Alright. Okay. Thanks.

Operator

(Operator Instructions). We will take our next question from Mark Major of Morgan Stanley.

Mark Major - Morgan Stanley

Hey guys. How are you doing?

Brad Wechsler

Good. Thank you.

Mark Major - Morgan Stanley

Alright. Just a quick question. You mentioned there were nine signings in Q4 and nine in Q1. How many of those had the swap-out feature for the digital?

Rich Gelfond

The digital upgrade -- I'm going by memory a little bit, Mark. But I think maybe two or three in the fourth quarter had it. And in the first quarter, I think most of them had it, not all of them but most of them.

But actually, I would want to pause on that because it is really an important point. One thing that we put into our contracts that we haven't had to discuss previously on these calls is that in some cases the installation will take place in 2008 or 2009 for a system that we're signing now.

And what that means is that by the time we install the system, we may have a digital product in place. And we are putting in our contracts rather than delivering a film system, and then upgrading to digital. We have the option of just delivering the digital system.

So if you try to analyze what the nature of the contingent liability would be, it's smaller than you think, because some of these deals that I just responded to you, will actually install only a digital system and not a film system upgraded to digital. Is that clear, Mark?

Mark Major - Morgan Stanley

Yes, that actually answered my question well. One follow-up to that would be as far as inventory goes with your projectors what will you be doing with your inventory?

Brad Wechsler

I think that is the right follow-up question to the one you just asked Rich. The reason why we are inserting these clauses into our contracts that gives us some flexibility with respect to delivery is because of inventory management.

One of the things we're going to add and Brian Bonnick, who runs our technology area and Ed as the acting CFO, are keeping a very, very close eye of not building film systems ahead of ourselves and trying to minimize inventory expense and any inventory exposure with respect to the film systems. It's a very important element going forward.

Mark Major - Morgan Stanley

Great. Thanks a lot guys.

Operator

We now have a question from Bob Friend of Plainfield Asset Management.

Rich Gelfond

Operator, we can't hear you. You need to speak up please.

Operator

We now have question from Bob Friend of Plainfield Asset Management.

Bob Friend - Plainfield Asset Management

Hi guys. Congratulations on a good start to the quarter. Brad, I didn't hear what you said at the very beginning of the call, but are you able to give us any estimated operating metrics from the fourth quarter sales, EBITDA, that sort of thing?

Brad Wechsler

No, we're going to wait two weeks or so on that. We want to just nail down and be able to do that on the basis of having audited numbers. And in that context, I think our view is that we're going to hold off on some of the operating metrics as well, although I think we did say there were the seven installs, which is obviously a key operating metric and nine signings.

Bob Friend - Plainfield Asset Management

Are you going to hold another call on the 30th?

Brad Wechsler

Yes, we will.

Bob Friend - Plainfield Asset Management

Great.

Operator

Our next question comes from Robert Hoffman of Candlewood Capital.

Robert Hoffman - Candlewood Capital

Good morning guys. Just a couple of clarification on some things. I guess I didn't realize, with the numbers of screens are you saying that if my local multiplex is showing 300, but they're showing it every half an hour. So effectively they have it on four screens. In terms of count, industry count that counts as one screen because it is in one location or does that count as four screens?

Rich Gelfond

When you read the paper, Variety, that said the film had averaged $22,000 per theater, they counted it as one. Those four screens they counted as one. But we are counting it as four, because if you're going to do an apples-to-apples between an IMAX theater and a 35 mm screen, you count it as four. But it is locations versus prints.

Robert Hoffman - Candlewood Capital

Okay. You made it clear. I just wanted to make sure I understood that. Yes, so it makes your impact that much better. The recent installs, the fourth quarter install of seven, how many were domestic and how many were international?

Brad Wechsler

They are roughly 50-50, going a little more towards actually the US in the fourth quarter.

Robert Hoffman - Candlewood Capital

So, four US and three international?

Brad Wechsler

Let me pull the numbers. One, two, three, four. I think five of them were US-based.

Robert Hoffman - Candlewood Capital

Okay. And are all of the international screens applicable ones and not the institutional ones? Are they all going to be showing 300 or a good percentage of them?

Brad Wechsler

I don't --

Rich Gelfond

What was your question? Sorry.

Robert Hoffman - Candlewood Capital

The international screens, how many of them are going to be showing 300?

Rich Gelfond

It is about 20 to 25, somewhere in that range. Just to add to that, only one of them opened so far which is in Taiwan and performed consistently with North America, right on the nose actually. It did $58,000 the last weekend. This weekend, Korea is opening, and then next weekend is a broader opening with Mexico and a number of other territories.

Robert Hoffman - Candlewood Capital

Can you tell us who drives that strategy? Is it the studio deciding that? And if so, are they waiting to see how it does to decide how many of these are not cheap prints to make? Can you walk us through, how they decide that?

Rich Gelfond

Well, when we strike a deal with a studio we typically agree to a minimum number of international prints. And then once you go down the road and the film is about to launch, they decide their distribution strategy. That is when they are opening in different markets, what the dates are. And our distribution department goes through with their distribution department and figures out where it makes sense to show the film, when and on what basis.

And that's generally all agreed to an advance. Now a film like this, 300, which opens so strong domestically, you might be able to pick up a couple of international prints, where it is delayed later in the run, but it is pretty much agreed to in advance.

Robert Hoffman - Candlewood Capital

Now is there any liability on your part if you sell a system to let's say Germany. Or maybe that's a wrong example, because they may get it automatically. But any countries that they think they are going to get these first-run movies and then the studio decides not to?

Brad Wechsler

We have no liability in that. When people buy theater systems, they do due diligence. They not only talk to us, they often have relationships with the studios. They loop back to the studios. And our contracts make no guarantees with respect to a film product. So there is no liability if a given theater can't get a film.

Now that said, we are in the business of trying to satisfy our customers. And we want our customers to do as well as possible. So if they are not getting a print for a particular reason, we will endeavor to work with the studio to make sure they do get a print; because that obviously impacts the business and the bottom line of our customer.

Rich Gelfond

And even out-of-the-box, when someone orders an IMAX theater, we say to them, go and talk to the studios, because we have no interest in putting a theater in a territory where they're not going to show the Hollywood films. As you know, a part of our model is getting revenue on the DMR side. So that's something we really encourage.

Robert Hoffman - Candlewood Capital

Well and it is obviously why digital is so important because then it doesn't become an issue at all I would assume.

Rich Gelfond

Among other reasons, yes.

Robert Hoffman - Candlewood Capital

And then finally on digital when you had that focus group, can you just explain a little bit of what happened? You sent 150 people in there and you showed a digital and you showed a regular and didn't tell them, which one was which and asked them to tell you which was better?

Rich Gelfond

We actually had three groups of 50 each, evenly split between men and women. We created a mock IMAX theater, which means we created the screen and the seating and the perspective of an IMAX theater. We used a standard 2-K digital projector, the kind that traditional theaters are starting to show today. We showed them that image and then we showed them the IMAX image.

And then we asked, what were their reactions to both? And then we asked what Brad referred to or I referred to in the opening remarks. Compare this image to the IMAX image you saw to other IMAX images. Is it as good, better, not as good and tabulate the question.

Robert Hoffman - Candlewood Capital

So you were comparing your IMAX image with a standard digital image, not an IMAX film image versus an IMAX digital image?

Brad Wechsler

One of the groups [found] when we segmented the audiences. We also go to IMAX users and we deal with people that are frequent IMAX users that are very conversant with what "The IMAX Experience" is. And obviously test it against that database as well, and the results were very consistent.

Rich Gelfond

Yes, so let's be clear. We showed them what a regular 35 mm 2-K image would look like. We showed them what the IMAX digital image would look like. And then as Brad said, we also subdivided the audience when we looked at the data; because some of them were heavy IMAX users. Some had gone to IMAX, some hadn't. But across all categories, people thought this was an IMAX Experience.

Robert Hoffman - Candlewood Capital

And then finally, when you slice and dice the backlog and the new signings and all of that, can you give us any sense of how many theaters are at least gunning to try and install Harry Potter? Any sort of a range?

Rich Gelfond

No, you obviously read our press release about Regal trying to do three more, the three that recently signed. But I don't think we sliced and diced it that way. Maybe Rob, we can try to look at that by the call or the update call in two weeks and see if we could be helpful.

Robert Hoffman - Candlewood Capital

Yeah. I think that would be helpful because it shows how much of the backlog is trying to rush through the process or accelerate the process. And how much of the backlog may be held up to zoning issues or construction issues that they have no control over.

Rich Gelfond

All right, well, thanks, Rob. Operator, is there anything else?

Operator

There are no further questions at this time. I would like to turn the conference back over to Mr. Gelfond for closing remarks.

Brad Wechsler

Well, I think both Rich and I may have similar things to say which is we are obviously disappointed, regret, and are sorry that we could not file the financials on time. I think we have been able to scale the errors for you in terms of scale and scope and what they refer to.

Our hope is that people can also appreciate a very, very nice fundamental momentum in our business that has been occurring over the last couple of months as evidenced in our announcements and some of the things that we discussed in today's call. I'm sure Rich has some remarks as well.

Rich Gelfond

Yeah, I just wanted to say that this call was very much a conflict for us because on the one hand, as Brad said, we are still cleaning up a number of issues coming from past years. And as Brad said, we're not happy about that and frankly, we're disappointed and sorry to be a part of all of that.

On the other hand in the last several years, I really have not felt IMAX's business feel better. And by feel better, I mean the tangible results that you have seen from 300, the Regal signing and the Dickinson signing. But I also mean our own phone ringing with people calling us about theater deals and about film deals.

And the time I have been here that really hasn't happened very much, but it's happening now. And being out in Las Vegas and seeing the level of enthusiasm among exhibitors and studios, and I'm seeing our sales staff which is out in the field walking around in a different attitude than I have seen in a very long time.

So I think from my point of view, the world is a little bit surreal, but I have as good a feeling about the business right now as I have in the last couple of years. And, again, thank you all for your support.

Operator

That concludes today's conference. We thank you for your participation. Please have a good day.

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