Imagination's stock, which Apple owns eight percent of, had plunged more than 70 percent in early trade this morning.
Apple is the London-listed firm's largest customer and the loss of the tech giant as a client could see more than half of Imagination's revenue disappear.
Imagination currently licenses it graphic technology to Apple, which the firm uses in its iPhones, iPads and Apple Watch.
The British firm receives a royalty for every graphics chip used in an Apple product but that arrangement is slated to come to an end in two years.
Apple paid Imagination $76 million in royalties for the year to end-April 2016, half the company's revenue.
Apple will develop its own graphics technology but Imagination said it will be difficult for them to do so without violating Imagination patents, intellectual property and confidential information.
"This evidence has been requested by Imagination but Apple has declined to provide it," it said today.
The firm added that Apple's decision had triggered talks on alternative commercial arrangements for the current license and royalty agreement.