The beleaguered Cinar Corp issued a warning late Friday that its financial statements for fiscal 1997, 1998 and the three reported quarters of 1999 "should not be relied upon".

The company said in a news release that it "appears likely" that its audited financial statements will need to be restated for reasons related to "tax incentives and the disclosure of related party transactions".

The latest bombshell comes after a string of damaging events for Cinar over the last two weeks, including the resignation of its founders, Micheline Charest and Ronald Weinberg from their roles as co-CEOs, the firing of executive vice-president Hasanain Panju over the alleged unauthorised investment of $122m, the filing of class-action suits by angry investors and share values that tumbled by almost two-thirds.

Meanwhile, a group of writers in Montreal have accused the international French agency Societe des Auteurs et Compositeurs Dramatiques (SACD) of paying out nearly C$1m in royalties to a fake name made up by Cinar. The groups claims that the name - Erika Alexandre - is a pseudonym for the sister of co-founder Micheline Charest, Helene Charest, who has not done any writing for Cinar, but allegedly received the royalties and reimbursed SACD with C$980,000 in December.

The internal investigation that led to Friday's announcement began last autumn after allegations emerged that the company had credited Canadian writers for the work of American scriptwriters in order to fraudulently claim Canadian tax credits. The company is also currently under police investigation for alleged tax fraud related to the same allegations.