OVERVIEW

The Company's principal business is the design, manufacture, sales and leasingof projector systems for giant screen theaters for customers includingcommercial theaters, museums and science centers, and destination entertainmentsites. In addition, the Company designs and manufactures high-end sound systemsand produces and distributes large format films. There are more than 235 IMAXtheaters operating in 34 countries worldwide as of March 31, 2004. IMAXCorporation is a publicly traded company listed on both the TSX and NASDAQ.

ACCOUNTING POLICIES AND ESTIMATES

The Company reports its results under United States Generally AcceptedAccounting Principles ("U.S. GAAP"). The financial statements and resultsreferred herein are reported under U.S. GAAP. Significant differences betweenUnited States and Canadian Generally Accepted Accounting Principles aredescribed in note 19 of the Consolidated financial statements.

The preparation of these financial statements requires management to makeestimates and judgements that affect the reported amounts of assets,liabilities, revenues and expenses. On an ongoing basis, management evaluatesits estimates, including those related to accounts receivable, net investment inleases, inventories, fixed and film assets, investments, intangible assets,income taxes, contingencies and litigation. Management bases its estimates onhistorical experience, future expectations and other assumptions that arebelieved to be reasonable at the date of the financial statements. Actualresults may differ from these estimates due to uncertainty involved inmeasuring, at a specific point in time, events which are continuous in nature.The Company's significant accounting policies are discussed in note 2 of theConsolidated Financial Statements in the Company's most recent annual report onForm 10-K/A for the year ended December 31, 2003 and are summarized below.

SIGNIFICANT ACCOUNTING POLICIES

Management considers the following critical accounting policies to have the mostsignificant effect on its estimates, assumptions and judgements:

REVENUE RECOGNITION

SALES-TYPE LEASES OF THEATER SYSTEMS

Theater system leases that transfer substantially all of the benefits and risksof ownership to customers are classified as sales-type leases as a result ofmeeting the criteria established by FASB Statement of Financial AccountingStandards No. 13, "Accounting for Leases" ("FAS 13"). When revenue isrecognized, the initial rental fees due under the contract, along with thepresent value of minimum ongoing rental payments, are recorded as revenues forthe period, and the related theater system costs including installation expensesare recorded as cost of goods and services. Additional ongoing rentals in excessof minimums are recognized as revenue when reported by the theater operator,provided that collection is reasonably assured.

The Company recognizes revenues from sales-type leases upon installation of thetheater system. Revenue associated with a sales-type lease is recognized whenall of the following criteria are met: persuasive evidence of an agreementexists; the price is fixed or determinable; and collection is reasonablyassured.

The timing of installation of the theater system is largely dependent on thetiming of the construction of the customer's theater. Therefore, while revenuefor theater systems is generally predictable on a long-term basis, it can varyfrom quarter to quarter or year to year depending on the timing of installation.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

REVENUE RECOGNITION (cont'd)

SALES-TYPE LEASES OF THEATER SYSTEMS (cont'd)

The Company monitors the performance of the theaters to which it has leasedequipment. When facts and circumstances indicate that it may need to change theterms of a lease which had previously been recorded as a sales-type lease, theCompany evaluates the likely outcome of such negotiations. A provision isrecorded against the net investment in leases if the Company believes that it isprobable that the negotiation will result in a reduction in the minimum leasepayments such that the lease will be reclassified as an operating lease. Theprovision is equal to the excess of the carrying value of the net investment inlease over the fair value of the equipment.

In the ordinary course of its business, the Company will from time to timedetermine that a provision it had previously taken against the net investment inleases in connection with a customer's lease agreement should be reversed due toa change in the circumstances that led to the original provision.

If the Company and a lessee agree to change the terms of the lease, other thanby renewing the lease or extending its terms, management evaluates whether thenew agreement would be classified as a sales-type lease or an operating leaseunder the provisions of FAS 13. Any adjustments which result from a change inclassification from a sales-type lease to an operating lease are reported as acharge to income during the period the change occurs.

In the normal course of its business, the Company each year will have customerswho, for a number of reasons including the inability to obtain certain consents,approvals or financing, are unable to proceed with theater construction. Inthese instances, where customers of the Company are not in compliance with theterms of their leases for theater systems not yet installed, the leases are indefault. There is typically deferred revenue associated with these leases,representing initial lease payments collected prior to the default. Theseinitial lease payments are recognized as revenue when the Company exercises itsrights to terminate the lease and the Company is released legally and/or byvirtue of an agreement with the customer from its obligations under the leasearrangement. When settlements are received, the Company will allocate the totalsettlement to each of the elements based on their relative fair value.

OPERATING LEASES OF THEATER SYSTEMS

Leases that do not transfer substantially all of the benefits and risks ofownership to the customer are classified as operating leases. For these leases,initial rental fees and minimum lease payments are recognized as revenue on astraight-line basis over the lease term. Additional rentals in excess of minimumannual amounts are recognized as revenue when reported by theater operators,provided that collection is reasonably assured.

ACCOUNTS RECEIVABLE AND FINANCING RECEIVABLES

The allowance for doubtful accounts receivable and provision against thefinancing receivables are based on the Company's assessment of thecollectibility of specific customer balances and the underlying asset value ofthe equipment under lease where applicable. If there is a deterioration in acustomer's credit worthiness or actual defaults under the terms of the leasesare higher than the Company's historical experience, the Company's estimates ofrecoverability for these assets could be adversely affected.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

INVENTORIES

In establishing the appropriate provisions for theater systems inventory,management must make estimates of future events and conditions including theanticipated installation dates for the current backlog of theater systemcontracts, potential future signings, general economic conditions, technologyfactors, growth prospects within the customers' ultimate marketplace and themarket acceptance of the Company's current and pending projection systems andfilm library. If management estimates of these events and conditions prove to beincorrect, it could result in inventory losses in excess of the provisionsdetermined to be adequate as at the balance sheet date.

GOODWILL

The Company performs an impairment test on at least an annual basis andadditionally, whenever events or changes in circumstances suggest that thecarrying amount may not be recoverable. Impairment of goodwill is tested at thereporting unit level by comparing the reporting unit's carrying amount,including goodwill, to the fair value of the reporting unit. The fair values ofthe reporting units are estimated using a discounted cash flows approach. If thecarrying amount of the reporting unit exceeds its fair value, then a second stepis performed to measure the amount of impairment loss, if any. Any impairmentloss would be expensed in the statement of operations.

FIXED ASSETS

Management reviews the carrying values of its fixed assets for impairmentwhenever events or changes in circumstances indicate that the carrying amount ofan asset might not be recoverable. In performing its review for recoverability,management estimates the future cash flows expected to result from the use ofthe asset and its eventual disposition. If the sum of the expected future cashflows is less than the carrying amount of the asset, an impairment loss isrecognized. Measurement of impairment losses is based on the excess of thecarrying amount of the asset over the fair value calculated using discountedexpected future cash flows. If the actual future cash flows are less than theCompany's estimates, future earnings could be adversely affected.

TAX ASSET VALUATION

As at March 31, 2004, the Company had net deferred income tax assets of $3.9million, comprised of tax credit carryforwards, net operating loss and capitalloss carryforwards and other deductible temporary differences, which can beutilized to reduce either taxable income or taxes otherwise payable in futureyears. The Company's management assesses realization of these net deferredincome tax assets based on all available evidence and has concluded that it ismore likely than not that these net deferred income tax assets will be realized.Positive evidence includes, but is not limited to, the Company's historicalearnings, projected future earnings, contracted sales backlog at March 31, 2004,and the ability to realize certain deferred income tax assets through loss andtax credit carryback strategies. If and when the Company's operations in somejurisdictions were to reach a requisite level of profitability or where theCompany's future profitability estimates increase due to changes in positiveevidence, the Company would reduce all or a portion of the applicable valuationallowance in the period when such determination is made. This would result in anincrease to reported earnings and a decrease to the Company's effective tax ratein such period. However, if the Company's projected future earnings do notmaterialize, or if the Company operates at a loss in certain jurisdictions, orif there is a material change in actual effective tax rates or time periodwithin which the Company's underlying temporary differences become taxable ordeductible, the Company could be required to increase the valuation allowanceagainst all or a significant portion of the Company's deferred tax assetsresulting in a substantial increase to the Company's effective tax rate for theperiod of the change and a material adverse impact on its operating results forthe period. As at March 31, 2004, the Company had a gross deferred income taxasset of $50.9 million, against which the Company is carrying a $47.0 millionvaluation allowance.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

TAX ASSET VALUATION (cont'd)

The Company is subject to ongoing tax examinations and assessments in variousjurisdictions. Accordingly, the Company may incur additional tax expense basedupon the outcomes of such matters. In addition, when applicable, the Companyadjusts tax expense to reflect both favorable and unfavorable examinationresults. The Company's ongoing assessments of the probable outcomes ofexaminations and related tax positions require judgement and can materiallyincrease or decrease its effective rate as well as impact operating results.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2004 VERSUS THREE MONTHS ENDED MARCH 31, 2003

The Company reported net losses from continuing operations of $1.1 million or$0.02 per share on a diluted basis for the first quarter of 2004, compared tonet earnings from continuing operations of $2.5 million or $0.07 per share on adiluted basis for the first quarter of 2003.

REVENUE

The Company's revenues for the first quarter of 2004 decreased 26.1% to $24.9million from $33.6 million in the same period last year.

IMAX systems revenue decreased approximately 28.2% to $16.0 million in the firstquarter of 2004 from $22.3 million in the same period last year. The Companyinstalled 2 theater systems, as scheduled, in the first quarter of 2004, versus8 theater systems in the first quarter of 2003, one of which was an operatinglease. In the normal course of its business, the Company each year will havecustomers who, for a number of reasons including the inability to obtain certainconsents, approvals or financing, are unable to proceed with theaterconstruction. Once the determination is made that the customer will not proceedwith installation, the lease agreement with the customer is generallyterminated. Upon the Company being released from its future obligations underthe agreement, the initial lease payments that the customer previously made tothe Company are recognized as revenue. Settlements relating to terminated leaseagreements with customers who were unable to proceed with theater constructionincluded in revenue for the first quarter of 2004 total $4.5 million compared to$2.6 million in the corresponding period last year. A significant portion ofsuch revenue in the first quarter of 2004 related to an existing customer whichrestructured its lease agreement and ordered the Company's new IMAX(R) MPX(TM)projection system.

Films revenue decreased 34.3% to $4.5 million in the first quarter of 2004 from$6.8 million in the same period last year largely due to the strong comparativeperformance of the Company's film, Space Station in the first quarter of 2003 asthe Company focused its efforts in the quarter on its DMR productions.

Theater operations revenue increased to $3.7 million in the first quarter of2004 from $3.2 million in the same period last year primarily due to theconsolidation of the Company's Tempe theater in the first quarter of 2004compared to equity-accounting treatment in same period last year when thetheater was only 50% owned.

Other revenues decreased 52.9% to $0.6 million in the first quarter of 2004 from$1.3 million in the same period last year.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED MARCH 31, 2004 VERSUS THREE MONTHS ENDED MARCH 31, 2003
(cont'd)

GROSS MARGIN

Gross margin for the first quarter of 2004 was $12.4 million, or 49.7% of totalrevenue, compared to $16.0 million, or 47.6% of total revenue, in the sameperiod last year. The decrease in gross margin in dollar terms is due to thetiming of theater system installations which resulted in 2 installations in thefirst quarter of 2004 as compared to 8 installations in the first quarter of2003, one of which was an operating lease. The decrease in gross margin is alsoattributed to the decline in film revenue during the first quarter of 2004largely due to the strong comparative performance of the Company's film, SpaceStation in the first quarter of 2003. The increase in margin as a percentage ofrevenue for 2004 is due primarily to $4.5 million included in IMAX settlementrevenues for the first quarter of 2004 compared to $2.6 million in thecorresponding period last year for terminated lease agreements with customers. Asignificant portion of such revenue in the first quarter of 2004 related to anexisting customer which restructured its lease agreement and ordered theCompany's new IMAX MPX projection system.

In addition, the Company improved its gross margin in its owned and operatedtheater segment due to the higher attendance levels over the same period lastyear.

OTHER

Selling, general and administrative expenses were $8.3 million in the firstquarter of 2004 compared to $8.1 million in the corresponding period last year.The Company recorded a foreign exchange loss of $0.3 million in the firstquarter of 2004 compared to a gain of $0.4 million in the first quarter of 2003.The foreign exchange gains and losses resulted primarily from fluctuations inexchange rates on Canadian dollar cash balances and Canadian dollar, Euro dollarand Japanese Yen denominated net investment in leases. The Company also recordeda recovery to stock based compensation of $0.3 million in the first quarter of2004 due the decrease in the Company's share price compared to an expense of$0.3 million in the first quarter of 2003.

The Company no longer has any interests in equity-accounted investees as ofDecember 31, 2003.

Amortization of intangibles was $0.2 million in the first quarter of 2004compared to $0.1 million in the same period last year.

Receivable provisions net of recoveries amounted to as a net recovery of $0.9million in the first quarter of 2004 compared to a net provision of $0.6 millionin the same period last year. The Company recorded an accounts receivablerecovery of $0.2 million as compared to a provision of $0.6 million in the sameperiod last year. There was a net recovery of $0.7 million in the first quarterof 2004 on financing receivables as compared to $nil in the same period lastyear due to a favorable outcome on lease amendments.

Interest income decreased to $0.1 million in the first quarter of 2004 from $0.3million in the same period last year primarily due to a decrease in the averagebalance of cash and cash equivalents held.

Interest expense decreased to $4.1 million in the first quarter of 2004 from$4.3 million in the same period last year due largely to lower average debtbalances in 2004. The Company retired and repaid an aggregate of $170.8 millionof the Company's Old Senior Notes in December 2003 and $9.1 million of 5.75%convertible subordinated notes due April 1, 2003 (the "Subordinated Notes"). Asat March 31, 2004, the Company had $160.0 million aggregate principal of 9.625%senior notes due December 1, 2010 (the "New Senior Notes"). Included in interestexpense is the amortization of deferred finance costs in the amount $ 0.1million in the first quarter of 2004 as compared to $ 0.2 million for 2003. TheCompany's policy is to defer and amortize all the costs relating to a debtfinancing over the life of the debt instrument.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED MARCH 31, 2004 VERSUS THREE MONTHS ENDED MARCH 31, 2003
(cont'd)

OTHER (cont'd)

The effective tax rate on earnings differs significantly from the statutory ratedue to the effect of permanent differences, income taxed at differing rates inforeign and other provincial jurisdictions and changes in the Company'svaluation allowance on deferred tax assets. The income tax expense (recovery)for the quarter is calculated by applying the estimated average annual effectivetax rate to quarterly pre-tax income. The Company recorded an income taxprovision of $nil in the current quarter from $0.1 million in the same periodlast year primarily due to the application of its estimate average annualeffective tax rate to the quarterly pre-tax loss. As at March 31, 2004, theCompany had a gross deferred tax asset of $50.9 million, against which theCompany is carrying a $47.0 million valuation allowance.

RESEARCH AND DEVELOPMENT

Research and development expenses were $1.1 million in the first quarter of 2004versus $0.7 million in the same period last year. The higher level of expensesin 2004 primarily reflects research and development activities pertaining to theCompany's new IMAX MPX theater projection system. Through research anddevelopment, the Company continues to design and develop cinema-based equipmentand software to enhance its product offering. The Company believes that themotion picture industry will be affected by the development of digitaltechnologies, particularly in the areas of content creation (image capture),post-production (editing and special effects), digital re-mastering distributionand display. Consequently, the Company has made significant investments indigital technologies, including the development of a proprietary, patent-pendingtechnology to digitally enhance image resolution and quality of 35mm motionpicture films and has a number of patents pending and intellectual propertyrights in these areas. However, there can be no assurance that the Company willbe awarded patents covering this technology or that competitors will not developsimilar technologies.

LOSS ON RETIREMENT OF NOTES

During the first quarter of 2004, the Company recorded a loss of $0.8 millionrelated to costs associated with the redemption of $29.2 million of theCompany's Old Senior Notes. This transaction had the effect of fullyextinguishing the Old Senior Notes.

DISCONTINUED OPERATIONS

On December 23, 2003, the Company closed its owned and operated Miami IMAXtheater. The Company abandoned and/or removed all of its assets from the theaterin the first quarter of 2004. The Company is involved in an arbitrationproceeding with the landlord of the theater with respect to the amount owing tothe landlord by the Company for lease and guarantee obligations. The amount ofloss to the Company has been estimated at between $0.8 million and $2.3 million,of which the Company has accrued $0.8 million. As the Company is uncertain as tothe outcome of the proceeding no additional amount has been recorded.

Effective December 11, 2001, the Company completed the sale of its wholly-ownedsubsidiary, Digital Projection International, including its subsidiaries(collectively "DPI"), to a company owned by members of DPI management. As partof the transaction, the Company restructured its advances to DPI, releasing DPIfrom obligations to repay any amounts in excess of $12.7 million previouslyadvanced by the Company, and reorganized the remaining $12.7 million of debtowing to the Company into two separate loan agreements. During the first quarterof 2004, the Company received $0.2 million in cash towards the repayment of thisdebt, and has recorded a corresponding gain in net earnings (loss) fromdiscontinued operations (2003 - $0.2 million). As of March 31, 2004, theremaining balance is $11.7 million, which has been fully provided for.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)

LIQUIDITY AND CAPITAL RESOURCES

CREDIT FACILITY

On February 6, 2004, the Company entered into a loan agreement for a securedrevolving credit facility with Congress Financial Corporation (Canada) (the"Credit Facility") The Credit Facility is a three-year revolving credit facilitywith yearly renewal options thereafter, permitting maximum aggregate borrowingsof $20.0 million, subject to a borrowing base calculation which includes theCompany's financing receivables, and certain reserve requirements. The CreditFacility bears interest at Prime + 0.25% per annum or Libor + 2.0% per annum andis collateralized by a first priority security interest in all of the currentand future assets of the Company. The Credit Facility contains typicalaffirmative and negative covenants, including covenants that restrict theCompany's ability to: incur certain additional indebtedness; make certain loans,investments or guarantees; pay dividends; make certain asset sales; incurcertain liens or other encumbrances; conduct certain transactions withaffiliates and enter into certain corporate transactions or dissolve. Inaddition, the Credit Facility contains customary events of default, includingupon an acquisition or a change of control that has a material adverse effect onthe Company's financial condition. The Credit Facility also requires the Companyto maintain a minimum level of earnings before interest, taxes, depreciation andamortization, and cash collections. As at March 31, 2004, no amount isoutstanding on the facility.

CASH AND CASH EQUIVALENTS

As at March 31, 2004, the Company's principal sources of liquidity included cashand cash equivalents of $23.2 million, trade accounts receivable of $16.2million and net investment in leases due within one year of $4.6 million. InFebruary 2004, the Company entered into a loan agreement with Congress FinancialCorporation (Canada) for a three-year revolving credit facility (the "CreditFacility") permitting maximum borrowings of $20.0 million, subject to aborrowing base calculation and reserve requirements. As at March 31, 2004, theCompany did not have any borrowings outstanding under the line. In January 2004,the Company retired the remaining $29.2 million in Old Senior Notes usingexisting cash balances.

The Company believes that cash flow from operations together with existing cashand borrowing available under the Credit Facility will be sufficient to meetoperating needs for the foreseeable future. However, if management's projectionsof future signings and installations are not realized, there is no guarantee theCompany will continue to be able to fund its operations through cash flows fromoperations. Under the terms of the Company's typical theater system leaseagreement, the Company receives substantial cash payments before the Companycompletes the performance of its obligations. Similarly, the Company receivescash payments for some of its film productions in advance of related cashexpenditures.

The Company's net cash provided by (used in) operating activities is impacted bya number of factors including the proceeds associated with new signings oftheater system lease and sale agreements in the year, the box office performanceof large format films distributed by the Company and/or exhibited in theCompany's theaters, increases or decreases in the Company's operating expenses,and the level of cash collections received from its customers.

Cash provided by operating activities amounted to $5.8 million for the periodended March 31, 2004. Changes in other non-cash operating assets as compared toDecember 31, 2003 include a decrease of $0.6 million in inventories, a decreaseof $0.5 million in financing receivables, a $1.8 million increase in accountsreceivable and a $1.5 million increase in prepaid expenses which relates toprepaid film print costs which will be expensed over the period to be benefited.Changes in other non-cash operating liabilities as compared to December 31, 2003include a decrease in deferred revenue of $3.2 million, a decrease in accountspayable of $0.8 million and an increase of $7.1 million in accrued liabilities.Included in operating activities for the first quarter of 2004 were $5.0 millionin film finance proceeds which are required to be spent on a specific filmproject, and $0.6 million in premiums paid to retire $29.2 million of principalof the Company's remaining Old Senior Notes. Net cash used in operatingactivities increased by $3.7 million in the first quarter of 2004 primarily due. . .