TORONTO — Imax Corp. Wednesday reported net earnings were $4.2 million or 14¢ a share for the first quarter of 1998, an increase of 14%, over earnings of $3.7 million or 12¢ per share (diluted) for the first quarter of 1998.

The Toronto-based large-format film company’s gross revenue was $36.1 million, up 11% from $32.5 million in the corresponding quarter of 1997.

The majority of Imax’s revenue comes from two sources: the lease, sale and maintenance of its various large format projection systems, and from the production and distribution of large format films –those Imax produces itself and those produced by third parties.

Despite a recent shift in focus in film production from third-party films to its own projects (which have a higher profit margin), film revenue for the first quar-ter of 1998 is 43% lower than the corresponding quarter last year, at $7.1 million versus $12.3 million.

Simple lag explains the drop, said Brad Wechsler, chairman and co-CEO of Imax. “We’ve escalated our financial commitment to making films kind of dramatically, and those revenues probably won’t start showing up until the fourth quarter and into 1999,” he explained.

A 47% increase in systems revenues, up from $17.9 million in 1997 to $26.4 million in the first quarter of ’98, more than offsets the drop in film revenue.

“I think the fundamentals are all in place,” one analyst said. Imax has not been free of controversy north of the border, however.

Eyebrows shot skyward in the Canuck financial markets when, in accordance with Canada’s mandatory compensation disclosure rules, it was revealed earlier this year that in 1997 Imax’s two head honchos, Wechsler and Richard Gelfond, were among the top corporate earners for 1997 — with $5.7 million each — a whopping 277% raise over the previous year. That and their combined sale of close to a million shares since the beginning of 1998 fired up departure rumors.

Wechsler said that neither he nor Gelfond have any intention of moving on. “As you can imagine, we had a very large portion of our net worth focused in and around one stock, Imax,” he explained. “We have families, we want to diversify our holdings. We think Imax is a fabulous company, but we need diversification.”

He pointed out that more than half of the two toppers’ compensation came from exercised options.

Looking at the flip side, he added, “On an adjusted basis, Imax went public at roughly $6 a share, and now it’s trading in the high $20s. It’s gone up between 400% and 500% since going public (in 1994). We’re pretty pleased about what we’ve done for shareholders.”

Wechsler then pointed to the company’s record sales backlog. The systems sales backlog is a good indicator of future revenues. At March 31 the backlog was for 82 theaters systems, worth $185.8 million, a 6% increase from the 1997 year end at December 31, and a 25% increase over the first period of 1997.

The company is also experiencing record attendance levels due to the success of its recently released film “Everest,” and is in talks with several major studios to produce more of their own films.

As of March 31, there were more than 160 permanent Imax theatres in 22 countries.