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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934

                For the quarterly period ended September 30, 2005

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                         Commission File Number 0-24216

                                IMAX CORPORATION
             (Exact name of registrant as specified in its charter)


                                                       
                      Canada                                    98-0140269
         (State or other jurisdiction of                     (I.R.S. Employer
          incorporation or organization)                  Identification Number)



                                                            
2525 Speakman Drive, Mississauga, Ontario, Canada                 L5K 1B1
     (Address of principal executive offices)                  (Postal Code)


        Registrant's telephone number, including area code (905) 403-6500

                                       N/A
          (Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                                 Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

                                 Yes [X] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

                                 Yes [ ] No [X]

Indicate the number of shares of each of the issuer's classes of common stock,
as of the latest practicable date:



Class                        Outstanding as of October 15, 2005
-----                        ----------------------------------
                          
Common stock, no par value               40,208,743


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                                     Page 1



                                IMAX CORPORATION

                                TABLE OF CONTENTS



                                                                            PAGE
                                                                            ----
                                                                         
PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements............................................     3

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations...................    28

Item 3.  Quantitative and Qualitative Factors about Market Risk..........    45

Item 4.  Controls and Procedures.........................................    45

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings...............................................    46

Item 6.  Exhibits........................................................    48

Signatures...............................................................    49


SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

     Certain statements included in this quarterly report may constitute
"forward-looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include, but are not limited to, references to future capital expenditures
(including the amount and nature thereof), business strategies and measures to
implement strategies, competitive strengths, goals, expansion and growth of
business and operations, plans and references to the future success of IMAX
Corporation together with its wholly-owned subsidiaries (the "Company") and
expectations regarding the Company's future operating results. These
forward-looking statements are based on certain assumptions and analyses made by
the Company in light of its experience and its perception of historical trends,
current conditions and expected future developments, as well as other factors it
believes are appropriate in the circumstances. However, whether actual results
and developments will conform with the expectations and predictions of the
Company is subject to a number of risks and uncertainties, including, but not
limited to, general economic, market or business conditions; the opportunities
(or lack thereof) that may be presented to and pursued by the Company;
competitive actions by other companies; conditions in the in-home and
out-of-home entertainment industries; changes in laws or regulations; conditions
in the commercial exhibition industry; the acceptance of the Company's new
technologies; risks associated with investments and operations in foreign
jurisdictions and any future international expansion, including those related to
economic, political and regulatory policies of local governments and laws and
policies of the United States and Canada; the potential impact of increased
competition in the markets the Company operates within; and other factors, many
of which are beyond the control of the Company. Consequently, all of the
forward-looking statements made in this quarterly report are qualified by these
cautionary statements, and actual results or anticipated developments by the
Company may not be realized, and even if substantially realized, may not have
the expected consequences to, or effects on, the Company. The Company undertakes
no obligation to update publicly or otherwise revise any forward-looking
information, whether as a result of new information, future events or otherwise.

                                   ----------

IMAX(R), IMAX(R) Dome, IMAX(R) 3D, IMAX(R) 3D Dome, The IMAX Experience(R), An
IMAX Experience(R), IMAX DMR(R), IMAX MPX(R), IMAX think big(R) and think big(R)
are trademarks and trade names of the Company or its subsidiaries that are
registered or otherwise protected under laws of various jurisdictions.


                                     Page 2



                                IMAX CORPORATION



                                                                            PAGE
                                                                            ----
                                                                      
PART I  FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

        The following Condensed Consolidated Financial Statements are
        filed as part of this Report:

        Condensed Consolidated Balance Sheets as at September 30, 2005
        and December 31, 2004............................................     4

        Condensed Consolidated Statements of Operations for the three
        and nine month periods ended September 30, 2005 and 2004.........     5

        Condensed Consolidated Statements of Cash Flows for the nine
        month periods ended September 30, 2005 and 2004..................     6

        Notes to Condensed Consolidated Financial Statements.............     7



                                     Page 3



                                IMAX CORPORATION
                      CONDENSED CONSOLIDATED BALANCE SHEETS
    IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
                         (in thousands of U.S. dollars)



                                                                               SEPTEMBER 30,
                                                                                    2005       DECEMBER 31,
                                                                                (UNAUDITED)        2004
                                                                               -------------   ------------
                                                                                         
ASSETS

Cash and cash equivalents                                                        $  22,052     $  28,964
Short-term investments                                                              12,232            --
Accounts receivable, net of allowance for doubtful accounts of $7,198
   (2004 - $8,390)                                                                  21,378        19,899
Financing receivables (note 3)                                                      61,189        59,492
Inventories (note 4)                                                                31,665        29,001
Prepaid expenses                                                                     5,121         2,279
Film assets                                                                          2,832           871
Fixed assets                                                                        28,258        28,712
Other assets                                                                        12,080        13,377
Deferred income taxes (note 12)                                                      6,470         6,171
Goodwill                                                                            39,027        39,027
Other intangible assets                                                              2,991         3,060
                                                                                 ---------     ---------
   Total assets                                                                  $ 245,295     $ 230,853
                                                                                 =========     =========

LIABILITIES

Accounts payable                                                                 $   6,821     $   5,827
Accrued liabilities (note 8(c))                                                     55,574        56,897
Deferred revenue                                                                    57,246        50,505
Senior Notes due 2010 (note 5)                                                     160,000       160,000
                                                                                 ---------     ---------
   Total liabilities                                                               279,641       273,229
                                                                                 ---------     ---------

COMMITMENTS AND CONTINGENCIES (notes 8 and 9)

SHAREHOLDERS' EQUITY (DEFICIT)

Capital stock - Common shares - no par value. Authorized -
   unlimited number. Issued and outstanding - 40,128,659 (2004 - 39,446,964)       121,260       116,281
Other equity                                                                         1,691         3,227
Deficit                                                                           (156,358)     (160,945)
Accumulated other comprehensive income (loss)                                         (939)         (939)
                                                                                 ---------     ---------
   Total shareholders' deficit                                                     (34,346)      (42,376)
                                                                                 ---------     ---------
   Total liabilities and shareholders' equity (deficit)                          $ 245,295     $ 230,853
                                                                                 =========     =========


         (the accompanying notes are an integral part of these condensed
                       consolidated financial statements)


                                     Page 4



                                IMAX CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
    IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
            (in thousands of U.S. dollars, except per share amounts)
                                   (UNAUDITED)



                                                            THREE MONTHS ENDED    NINE MONTHS ENDED
                                                               SEPTEMBER 30,        SEPTEMBER 30,
                                                            ------------------   --------   --------
                                                               2005      2004      2005       2004
                                                             -------   -------   --------   --------
                                                                                
REVENUE
IMAX systems (note 10(a))                                    $20,236   $21,309   $ 62,657   $ 57,811
Films                                                          8,047     6,076     18,295     17,166
Theater operations                                             4,311     3,689     12,325     11,203
Other                                                            780       753      2,343      2,276
                                                             -------   -------   --------   --------
                                                              33,374    31,827     95,620     88,456
COSTS OF GOODS AND SERVICES                                   17,600    17,356     47,832     47,014
                                                             -------   -------   --------   --------
GROSS MARGIN                                                  15,774    14,471     47,788     41,442

Selling, general and administrative expenses (note 10(b))      8,966     7,587     29,021     24,541
Research and development                                         890     1,019      2,429      3,034
Amortization of intangibles                                      164       240        481        545
Receivable provisions, net of (recoveries) (note 11)            (310)        2       (468)      (965)
                                                             -------   -------   --------   --------
EARNINGS FROM OPERATIONS                                       6,064     5,623     16,325     14,287

Interest income                                                  243       439        741        664
Interest expense                                              (4,185)   (4,378)   (12,584)   (12,566)
Loss on retirement of notes (note 6)                              --        --         --       (784)
                                                             -------   -------   --------   --------
NET EARNINGS FROM CONTINUING OPERATIONS BEFORE
   INCOME TAXES                                                2,122     1,684      4,482      1,601
Recovery of (provision for) income taxes (note 12)              (202)      (84)      (681)       255
                                                             -------   -------   --------   --------
NET EARNINGS FROM CONTINUING OPERATIONS                        1,920     1,600      3,801      1,856
Net earnings from discontinued operations (note 15)              360       200        786        600
                                                             -------   -------   --------   --------
NET EARNINGS                                                 $ 2,280   $ 1,800   $  4,587   $  2,456
                                                             =======   =======   ========   ========
EARNINGS PER SHARE (note 13(b)):
Earnings per share - basic:
   Net earnings from continuing operations                   $  0.05   $  0.04   $   0.10   $   0.05
   Net earnings from discontinued operations                 $  0.01   $  0.01   $   0.02   $   0.01
                                                             -------   -------   --------   --------
   Net earnings                                              $  0.06   $  0.05   $   0.12   $   0.06
                                                             =======   =======   ========   ========

Earnings per share - diluted:
   Net earnings from continuing operations                   $  0.04   $  0.04   $   0.09   $   0.05
   Net earnings from discontinued operations                 $  0.01   $  0.01   $   0.02   $   0.01
                                                             -------   -------   --------   --------
   Net earnings                                              $  0.05   $  0.05   $   0.11   $   0.06
                                                             =======   =======   ========   ========



         (the accompanying notes are an integral part of these condensed
                       consolidated financial statements)

                                     Page 5



                                IMAX CORPORATION
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
    IN ACCORDANCE WITH UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
                         (in thousands of U.S. dollars)
                                   (UNAUDITED)



                                                                         NINE MONTHS ENDED SEPTEMBER 30,
                                                                         -------------------------------
                                                                                2005        2004
                                                                               --------   --------
                                                                                    
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES
Net earnings                                                                   $  4,587   $  2,456
   Net (earnings) from discontinued operations                                     (786)      (600)
Items not involving cash:
   Depreciation and amortization                                                 11,490     10,537
   Write-downs (recoveries)                                                        (468)      (963)
   Change in deferred income taxes                                                 (299)      (788)
   Loss on retirement of notes                                                       --        784
   Stock and other non-cash compensation                                          3,554      2,264
   Non-cash foreign exchange loss (gain)                                            167        (12)
Premium on repayment of notes                                                        --       (576)
Investment in film assets                                                        (7,315)    (2,782)
Changes in restricted cash                                                           --      4,961
Changes in other non-cash operating assets and liabilities                       (7,239)   (10,606)
                                                                               --------   --------
Net cash provided by operating activities                                         3,691      4,675
                                                                               --------   --------

INVESTING ACTIVITIES
Increase in short-term investments                                              (12,232)        --
Purchase of fixed assets                                                         (1,194)      (693)
Increase in other assets                                                           (562)      (857)
Increase in other intangible assets                                                (412)      (271)
                                                                               --------   --------
Net cash used in investing activities                                           (14,400)    (1,821)
                                                                               --------   --------

FINANCING ACTIVITIES
Repayment of Old Senior Notes due 2005                                               --    (29,234)
Financing costs related to Senior Notes due 2010                                     --       (681)
Common shares issued                                                              3,219         44
Net cash provided by financing activities from discontinued operations              429        400
                                                                               --------   --------
Net cash provided by (used in) financing activities                               3,648    (29,471)
                                                                               --------   --------
Effects of exchange rate changes on cash                                            149         (1)
                                                                               --------   --------
DECREASE IN CASH AND CASH EQUIVALENTS FROM CONTINUING OPERATIONS                 (7,341)   (27,018)
Increase in cash and cash equivalents from discontinued
   operations                                                                       429        400
                                                                               --------   --------
DECREASE IN CASH AND CASH EQUIVALENTS, DURING THE PERIOD                         (6,912)   (26,618)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                   28,964     47,282
                                                                               --------   --------
CASH AND CASH EQUIVALENTS, END OF PERIOD                                       $ 22,052   $ 20,664
                                                                               ========   ========


         (the accompanying notes are an integral part of these condensed
                       consolidated financial statements)


                                     Page 6



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION

     The Condensed Consolidated Financial Statements include the accounts of
     IMAX Corporation together with its wholly-owned subsidiaries (the
     "Company"). The nature of the Company's business is such that the results
     of operations for the interim periods presented are not necessarily
     indicative of results to be expected for the fiscal year. In the opinion of
     management, the information contained herein reflects all adjustments
     necessary to make the results of operations for the interim periods a fair
     statement of such operations.

     The Company reports its results under United States Generally Accepted
     Accounting Principles ("U.S. GAAP"). Significant differences between United
     States and Canadian Generally Accepted Accounting Principles are described
     in note 19.

     These financial statements should be read in conjunction with the financial
     statements included in the Company's most recent annual report on Form 10-K
     for the year ended December 31, 2004 which should be consulted for a
     summary of the significant accounting policies utilized by the Company.
     These interim financial statements are prepared following accounting
     policies consistent with the Company's financial statements for the year
     ended December 31, 2004. During the first quarter of 2005, the Company
     purchased short-term investments. These investments are classified as held
     to maturity based on the Company's positive intent and ability to hold the
     securities to maturity, and are carried at amortized cost.

     EMPLOYEE STOCK-BASED COMPENSATION

     The Company currently follows the intrinsic value method of accounting for
     employee stock options as prescribed by Accounting Principles Board Opinion
     No. 25 "Accounting for Stock Issued to Employees", ("APB 25"). If the fair
     value methodology prescribed by FASB Statement, "Accounting for Stock Based
     Compensation" ("FAS 123") had been adopted by the Company, pro forma
     results for the three and nine months ended September 30, would have been
     as follows:



                                              THREE MONTHS ENDED   NINE MONTHS ENDED
                                                SEPTEMBER 30,        SEPTEMBER 30,
                                              ------------------   -----------------
                                                2005      2004      2005      2004
                                               ------   -------    -------   -------
                                                                 
Net earnings as reported                       $2,280   $ 1,800    $ 4,587   $ 2,456
Stock based compensation expense, if the
   methodology prescribed by FAS 123 had
   been adopted                                  (723)   (1,930)    (2,247)   (5,292)
                                               ------   -------    -------   -------
Adjusted net earnings (loss)                   $1,557   $  (130)   $ 2,340   $(2,836)
                                               ======   =======    =======   =======

Earnings (loss) per share - basic:
   Net earnings as reported                    $ 0.06   $  0.05    $  0.12   $  0.06
   FAS 123 stock based compensation expense    $(0.02)  $ (0.05)   $ (0.06)  $ (0.13)
                                               ------   -------    -------   -------
Adjusted net earnings (loss)                   $ 0.04   $    --    $  0.06   $ (0.07)
                                               ======   =======    =======   =======
Earnings (loss) per share - diluted:
   Net earnings as reported                    $ 0.05   $  0.05    $  0.11   $  0.06
   FAS 123 stock based compensation expense    $(0.01)  $ (0.05)   $ (0.05)  $ (0.13)
                                               ------   -------    -------   -------
   Adjusted net earnings (loss)                $ 0.04   $    --    $  0.06   $ (0.07)
                                               ======   =======    =======   =======


In accordance with FAS 123, the total expense reflected in the above pro forma
charge represents amortization of stock option charges that were valued at the
grant date using an option-pricing model with assumptions that were valid at the
time with no further update of current stock trends and assumptions.


                                     Page 7



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

1.   BASIS OF PRESENTATION (cont'd)

     EMPLOYEE STOCK-BASED COMPENSATION (cont'd)

     The weighted average fair value of common share options granted to
     employees for the three and nine months ended September 30, 2005 at the
     time of grant was $3.70 and $3.60 per share, respectively (2004 - $2.11 and
     $2.07 per share). The Company uses a Binomial option-pricing model to
     determine the fair value of common share options at the grant date. For the
     three and nine months ended September 30, the following assumptions were
     used:



                                       THREE MONTHS ENDED            NINE MONTHS ENDED
                                          SEPTEMBER 30,                SEPTEMBER 30,
                                  ---------------------------   ---------------------------
                                      2005           2004           2005           2004
                                  ------------   ------------   ------------   ------------
                                                                   
Average risk-free interest rate           4.14%          4.07%          4.14%          4.84%
Equity risk premium               6.79% - 6.93%  5.54% - 6.25%  5.57% - 7.38%  3.82% - 6.25%
Beta                                      1.27    1.04 - 1.11    1.06 - 1.31    0.95 - 1.11
Expected option life (in years)    5.37 - 5.43    4.44 - 5.36    2.23 - 5.43    2.57 - 5.36
Average expected volatility                 62%            62%            62%            62%
Annual termination probability    8.06% - 9.62%  8.06% - 9.62%  8.06% - 9.62%  8.06% - 9.62%
Dividend yield                               0%             0%             0%             0%


2.   VARIABLE INTEREST ENTITIES

     In January 2003, the FASB issued Financial Interpretation 46 ("FIN 46"),
     Consolidation of Variable Interest Entities ("VIEs"), in an effort to
     expand and clarify existing accounting guidance that addresses when a
     company should include in its financial statements the assets, liabilities
     and activities of another entity. FIN 46 was effective immediately for all
     enterprises with variable interests in VIEs created after January 31, 2003
     and on January 1, 2004 for all previously existing variable interest
     entities. Under FIN 46, if an entity is determined to be a variable
     interest entity, it must be consolidated by the enterprise that absorbs the
     majority of the entity's expected losses if they occur, receives a majority
     of the entity's expected residual returns if they occur, or both. On
     December 24, 2003, the FASB issued a revised FIN 46, defined as FIN 46R.
     Commencing January 1, 2004, the Company was required to consolidate the
     accounts of all VIEs for which it is the primary beneficiary ("PB"), as
     required by FIN 46R. The Company has evaluated its various variable
     interests to determine whether they are in VIE's. The Company reviewed its
     management agreements relating to theaters which the Company manages, and
     has no equity interest, and concluded that such arrangements were not
     variable interests since the Company's fees are commensurate with the level
     of service and the theater owner retains the right to terminate the
     service. The Company has also reviewed its financial arrangements with
     theaters where it shares in the profit or losses of the theater. The
     Company has not considered these arrangements under FIN 46R as the
     arrangements meet the scope exceptions defined in the pronouncement. The
     Company has determined that certain of its film production companies are
     VIEs. Since in one case the Company absorbs a majority of the VIE's losses,
     the Company has determined that it is the PB of the entity. The Company
     continues to consolidate this entity with no material impact on the
     operating results or financial condition of the Company as the production
     company has total assets of $nil and total liabilities of $nil as at
     September 30, 2005. The Company also has interests in three other film
     production companies which are VIEs, however the Company did not
     consolidate these film entities since it does not bear the majority of the
     expected losses or expected residual returns. As of September 30, 2005,
     these three VIEs have total assets of $2.3 million and total liabilities of
     $2.4 million.


                                     Page 8



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

3.   FINANCING RECEIVABLES

     The Company generally provides its theater systems to customers on a
     long-term lease basis, typically with initial lease terms of 10 to 20
     years. Financing receivables consisting of net investment in leases and
     long term receivables are comprised of the following:



                                                    SEPTEMBER 30,   DECEMBER 31,
                                                         2005           2004
                                                    -------------   ------------
                                                              
NET INVESTMENT IN LEASES
Gross minimum lease amounts receivable                $ 90,728        $ 98,666
Residual value of equipment                                645             637
Unearned finance income                                (34,414)        (39,844)
                                                      --------        --------
Present value of minimum lease amounts receivable       56,959          59,459
Accumulated allowance for uncollectible amounts         (2,704)         (4,435)
                                                      --------        --------
Net investment in leases                                54,255          55,024
                                                      --------        --------
Long-term receivables                                    6,934           4,468
                                                      --------        --------
Total financing receivables                           $ 61,189        $ 59,492
                                                      ========        ========


4.   INVENTORIES



                  SEPTEMBER 30,   DECEMBER 31,
                       2005           2004
                  -------------   ------------
                            
Raw materials        $ 9,557         $ 7,375
Work-in-process        9,529           6,512
Finished goods        12,579          15,114
                     -------         -------
                     $31,665         $29,001
                     =======         =======


5.   SENIOR NOTES DUE 2010

     In November 2004, the Company completed an exchange offer wherein $159.0
     million of the Company's 9.625% senior notes due December 1, 2010 (the
     "Unregistered Senior Notes") were exchanged for 9.625% senior notes
     registered under the Securities Act of 1933, as amended (the "Registered
     Senior Notes"), pursuant to a registration statement on Form S-4 that had
     been declared effective by the Securities and Exchange Commission on
     September 30, 2004. Apart from the fact that the Registered Senior Notes
     have been registered under the Securities Act, the Unregistered Senior
     Notes and the Registered Senior Notes are substantially identical and are
     referred to herein as the "Senior Notes". The Senior Notes are
     unconditionally guaranteed, jointly and severally, by certain of the
     Company's wholly-owned subsidiaries.

     As at September 30, 2005, the Company had outstanding $159.0 million
     aggregate principal of Registered Senior Notes and $1.0 million aggregate
     principal of Unregistered Senior Notes.


                                     Page 9



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

6.   OLD SENIOR NOTES DUE 2005

     In December 1998, the Company issued $200.0 million of senior notes due
     December 1, 2005 bearing interest at a rate of 7.875% per annum (the "Old
     Senior Notes").

     During 2003, the Company retired an aggregate of $47.2 million principal
     amount of the Old Senior Notes. In December 2003, the Company completed a
     tender offer and consent solicitation for its remaining $152.8 million of
     the Old Senior Notes. In December 2003, $123.6 million in principal of the
     Old Senior Notes were redeemed pursuant to the tender offer. Notice of
     Redemption for all remaining outstanding Old Senior Notes was delivered on
     December 4, 2003 and the remaining $29.2 of outstanding Old Senior Notes
     were redeemed on January 2, 2004 using proceeds from its Senior Notes (see
     note 5). In January 2004, the Company recorded a loss of $0.8 million
     related to the retirement of the Company's Old Senior Notes.

7.   CREDIT FACILITY

     On February 6, 2004, the Company entered into a loan agreement for a
     secured revolving credit facility (the "Credit Facility") The Credit
     Facility is a three-year revolving credit facility with yearly renewal
     options thereafter, permitting maximum aggregate borrowings of $20.0
     million, subject to a borrowing base calculation which includes the
     Company's financing receivables, and certain reserve requirements and
     further reduced by outstanding letters of credit. The Credit Facility bears
     interest at Prime + 0.25% per annum or Libor + 2.0% per annum and is
     collateralized by a first priority security interest in all of the current
     and future assets of the Company. The Credit Facility contains typical
     affirmative and negative covenants, including covenants that restrict the
     Company's ability to: incur certain additional indebtedness; make certain
     loans, investments or guarantees; pay dividends; make certain asset sales;
     incur certain liens or other encumbrances; conduct certain transactions
     with affiliates and enter into certain corporate transactions. In addition,
     the Credit Facility contains customary events of default, including upon an
     acquisition or a change of control that has a material adverse effect on
     the Company's financial condition. The Credit Facility also requires the
     Company to maintain a minimum level of earnings before interest, taxes,
     depreciation and amortization, and cash collections. As at September 30,
     2005, the Company has not drawn down on the Credit Facility, and has
     letters of credit for $9.2 million secured by the Credit Facility
     arrangement.

8.   COMMITMENTS

(A)  The Company's total minimum annual rental payments to be made under
     operating leases for premises as of September 30, 2005 for each of the
     years ended December 31, are as follows:


                             
2005 (three months remaining)   $ 1,282
2006                              5,667
2007                              5,344
2008                              5,041
2009                              5,033
Thereafter                       24,207
                                -------
                                $46,574
                                =======


(B)  As at September 30, 2005, the Company has letters of credit of $9.2 million
     (December 31, 2004 - $5.5 million) secured by the Company's Credit Facility
     arrangement (see note 7).


                                    Page 10



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

8.   COMMITMENTS (cont'd)

(C)  In March 2004, the Company received $5.0 million in cash under a film
     financing arrangement which was included in accrued liabilities. In the
     second quarter of 2005, the Company received another $3.8 million under the
     same film financing arrangement. The Company was required to expend these
     funds towards the production and distribution of a motion picture title.
     During the third quarter, the Company spent $1.9 million towards the
     production. The film was released in the third quarter of 2005 and the
     Company no longer has a film financing commitment as at September 30, 2005.

9.   CONTINGENCIES

     The Company is involved in lawsuits, claims, and proceedings, including
     those identified below, which arise in the ordinary course of business. In
     accordance with SFAS 5, "Accounting for Contingencies," the Company will
     make a provision for a liability when it is both probable that a loss has
     been incurred and the amount of the loss can be reasonably estimated. The
     Company believes it has adequate provisions for any such matters. The
     Company reviews these provisions in conjunction with any related provisions
     on assets related to the claims at least quarterly and adjusts these
     provisions to reflect the impacts of negotiations, settlements, rulings,
     advice of legal counsel and other pertinent information related to the
     case. Should developments in any of these matters outlined below cause a
     change in our determination as to an unfavorable outcome and result in the
     need to recognize a material provision, or, should any of these matters
     result in a final adverse judgement or be settled for significant amounts,
     they could have a material adverse effect on our results of operations,
     cash flows, and financial position in the period or periods in which such a
     change in determination, settlement or judgement occurs.

(A)  In March 2005, the Company, together with Three-Dimensional Media Group,
     Ltd. ("3DMG"), filed a complaint in the U.S. District Court for the Central
     District of California, Western Division, against In-Three, Inc.
     ("In-Three") alleging patent infringement and seeking injunctive relief and
     damages. In April 2005, In-Three filed an Answer denying infringement and
     asserting counterclaims that seek a declaratory judgment of
     non-infringement, invalidity, and unenforceability of the patent in suit,
     and damages for alleged false advertising, false designation of origin,
     breach of contract, interference with prospective economic advantage and/or
     unfair competition, and further sought a stay of the proceedings pending a
     review of the patent in suit by the U.S. Patent and Trademark Office
     ("PTO"), which review was granted by the PTO on August 5, 2005. On June 7,
     2005, In-Three moved to dismiss the Company's and 3DMG's claims against it
     for lack of jurisdiction and on July 21, 2005, In-Three's claims were
     amended to assert counterclaims against the Company for willful
     infringement of In-Three's patents, and to seek an injunction against the
     Company to enjoin it from practicing its film conversion technology. On
     July 21 and July 29, 2005, the Court issued orders: (i) rejecting
     In-Three's motion to dismiss the proceedings, (ii) rejecting In-Three's
     motion for a preliminary injunction against the Company, (iii) rejecting
     In-Three's motion to stay the proceedings for an examination by the PTO and
     (iv) rejecting the Company's motion for a preliminary injunction against
     In-Three. Accordingly the Company believes the case will proceed to trial,
     and the Court informed the parties that it intends to oversee a swift
     resolution of the proceedings. On October 21, 2005, In-Three and the
     Company agreed to engage in mandatory private mediation of the matter
     pursuant to Local Rule 16-14 of the District Court. The Company will
     continue to vigorously pursue its claims and believes that all of the
     allegations made by In-Three are without merit. The Company further
     believes the amount of the loss, if any, suffered in connection with the
     counterclaims would not have a material impact on the financial position or
     results of operations of the Company, although no assurance can be given
     with respect to the ultimate outcome of any such litigation.


                                    Page 11



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

9.   CONTINGENCIES (cont'd)

(B)  In November 2001, the Company filed a complaint with the District Court of
     Munich against Big Screen, a German large-screen cinema owner in Berlin
     ("Big Screen"), demanding payment of rental payments and certain other
     amounts owed to the Company. Big Screen has raised a defense based on
     alleged infringement of German antitrust rules, relating mainly to an
     allegation of excessive pricing. Big Screen had brought a number of motions
     for restraining orders in this matter relating to the Company's provision
     of films and maintenance, all of which have been rejected by the courts,
     including the Berlin Court of Appeals, and for which all appeals have been
     exhausted. The Company believes that all of the allegations in Big Screen's
     individual defense are entirely without merit and will accordingly continue
     to prosecute this matter vigorously. The Company believes that the amount
     of the loss, if any, suffered in connection with this dispute would not
     have a material impact on the financial position or results of operations
     of the Company, although no assurance can be given with respect to the
     ultimate outcome of any such litigation.

(C)  In May 2002, the Company filed a complaint with the District Court of
     Nuremberg-Furth, Germany against Siewert Holding in Wuerzburg ("Siewert"),
     demanding payment of rental obligations and other amounts owed to the
     Company. Siewert raised a defense based on alleged infringement of German
     antitrust rules. By judgement of December 20, 2002, the District Court
     rejected the defense and awarded judgement in documentary proceedings in
     favor of the Company and added further amounts that had fallen due. Siewert
     applied for leave to appeal to the German Supreme Court on matters of law,
     which was rejected by the German Supreme Court in March 2004. Siewert
     subsequently made a partial payment of amounts awarded to the Company.
     Siewert has filed follow up proceedings to the documentary proceedings in
     the District Court, essentially repeating the claims rejected in the
     documentary proceeding. On September 30, 2004, Siewert filed for insolvency
     with the Local Court in Wuerzburg. In a recent criminal matter before the
     District Court of Wuerzburg, unrelated to the above-referenced proceedings,
     Mr. Siewert was convicted of credit fraud, delaying the filing for
     insolvency and other charges, and was sentenced to 30 months in prison.

(D)  In January 2004, the Company and IMAX Theater Services Ltd., a subsidiary
     of the Company, commenced an arbitration seeking damages of approximately
     $3.7 million before the International Court of Arbitration of the
     International Chambers of Commerce (the "ICC") with respect to the breach
     by Electronic Media Limited ("EML") of its December 2000 agreement with the
     Company. In April 2004, EML filed an answer and counterclaim seeking the
     return of funds EML has paid to the Company, incidental expenses and
     punitive damages. In June 2004, the Company commenced a related arbitration
     before the ICC against EML's affiliate, E-CITI Entertainment (I) PVT
     Limited ("E-Citi"), seeking $17.8 million as a result of E-Citi's breach of
     a September 2000 lease agreement. The arbitration hearing has been set for
     the week of November 14, 2005.

(E)  In June 2004, Robots of Mars, Inc. ("Robots") initiated an arbitration
     proceeding against the Company in California with the American Arbitration
     Association pursuant to an arbitration provision in a 1994 film production
     agreement between Robots' predecessor-in-interest and a subsidiary of the
     Company, asserting claims for breach of contract, fraud, breach of
     fiduciary duty and intentional interference with contract. Robots is
     seeking an accounting of the Company's revenues and an award of all sums
     alleged to be due to Robots under the production agreement, as well as
     punitive damages. The Company filed a cross claim for indemnity against a
     third party, SIMEX, Inc. ("SIMEX"). In response, SIMEX filed an application
     in Toronto, Ontario, Canada, seeking a declaration that it is not subject
     to the arbitration provision or payment obligations in the production
     agreement. The Ontario Superior Court dismissed SIMEX's application, with
     costs. SIMEX has appealed this decision to the Ontario Court of Appeal
     which has heard the case but not yet rendered a decision. The Company
     intends to vigorously defend these actions and believes the amount of the
     loss, if any, suffered in connection with these proceedings would not have
     a material impact on the financial position or results of operations of the
     Company, although no assurance can be given with respect to the ultimate
     outcome of any such litigation or arbitration.


                                    Page 12



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

9.   CONTINGENCIES (cont'd)

(F)  In addition to the matters described above, the Company is currently
     involved in other legal proceedings which, in the opinion of the Company's
     management, will not materially affect the Company's financial position or
     future operating results, although no assurance can be given with respect
     to the ultimate outcome of any such proceedings.

10.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS SUPPLEMENTAL INFORMATION

(A)  The Company generally enters into multi-year theater system lease
     agreements with customers that typically contain customer payment
     obligations prior to the scheduled installation of the theater system.
     During the period of time between lease signing and system installation,
     certain customers each year generally are unable, or elect not, to proceed
     with system installation for a number of reasons, including business
     considerations, or the inability to obtain certain consents, approvals or
     financing. Once the determination is made that the customer will not
     proceed with installation, the customer and the Company may enter into a
     consensual lease buyout, whereby the parties are released from their future
     obligations under the lease and the geographic territory granted to the
     customer reverts to the Company. Once an agreement is reached by both
     parties, the initial lease payments that the customer previously made to
     the Company are typically recognized as revenue. In addition, since the
     introduction of its new IMAX MPX theater system in 2003, the Company has
     agreed with several customers to terminate their original agreements and to
     sign new system agreements for the MPX system. Upon finalizing the new
     agreement, the total consideration received under both the terminated
     agreements and the new MPX arrangement is allocated first to the MPX system
     and the residual amount to settlement revenue. Included in IMAX systems
     revenue for the three and nine months ended September 30, 2005 are the
     following types of settlement arrangements: $0.4 million and $0.6 million
     respectively related to MPX conversion agreements (2004 - $1.8 million,
     $5.1 million); $0.6 million and $11.4 million respectively related to
     consensual lease buyouts (2004 - $0.2 million, $3.6 million); and $1.4
     million for both three and nine months ended September 30, 2005 related to
     termination of agreements after customer default (2004 - $0.8 million, $0.8
     million). In aggregate: three and nine months ended September 30, 2005 -
     $2.4 million and $13.4 million respectively, three and nine month ended
     September 30, 2004 - $2.8 million and $9.5 million respectively.

(B)  Included in selling, general and administrative expenses for the three and
     nine months ended September 30, 2005 is a $0.2 million gain and $0.5
     million loss respectively (2004 - $0.3 million gain, $0.1 million loss) for
     net foreign exchange gains or losses related to the translation of foreign
     currency denominated monetary assets, liabilities and integrated
     subsidiaries.

11.  RECEIVABLE PROVISIONS, NET OF (RECOVERIES)



                                                        THREE MONTHS ENDED   NINE MONTHS ENDED
                                                           SEPTEMBER 30,       SEPTEMBER 30,
                                                        ------------------   -----------------
                                                            2005   2004         2005    2004
                                                           -----   ----        -----   -----
                                                                           
Accounts receivable provisions, net of (recoveries)        $(185)   $ 2        $(293)  $(240)
Financing receivables provisions, net of (recoveries)      $(125)   $--        $(175)  $(725)
                                                           -----    ---        -----   -----
Receivable provisions, net of (recoveries)                 $(310)   $ 2        $(468)  $(965)
                                                           =====    ===        =====   =====



                                    Page 13



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

12.  INCOME TAXES

     The effective tax rate on earnings differs significantly from the Canadian
     statutory rate due to the effect of permanent differences, income taxed at
     differing rates in foreign and other provincial jurisdictions, tax
     recoveries and charges relating to favourable or unfavourable tax
     examinations, and changes in the Company's valuation allowance on deferred
     tax assets. The income tax expense for the quarter is calculated by
     applying the estimated average annual effective tax rate of approximately
     10% for the 2005 year to quarterly pre-tax income.

     As at September 30, 2005, the Company has net deferred income tax assets of
     $6.5 million (December 31, 2004 - $6.2 million), comprised of tax credit
     carryforwards, net operating loss and capital loss carryforwards and other
     deductible temporary differences, which can be utilized to reduce either
     taxable income or taxes otherwise payable in future years. As of September
     30, 2005, the Company had a gross deferred income tax asset of $50.5
     million, against which the Company is carrying a $44.0 million valuation
     allowance.

13.  CAPITAL STOCK

(A)  STOCK BASED COMPENSATION

     In the three and nine months ended September 30, 2005, an aggregate of
     13,335 and 40,005 (2004 - 13,335 and 40,005) options with an average
     exercise price of $10.10 and $10.03, respectively, (2004 - $5.27 and $5.96)
     to purchase the Company's common stock were issued to certain advisors and
     strategic partners of the Company. The Company has calculated the fair
     value of these options to non-employees on the date of grant to be $0.1
     million and $0.2 million (2004 - $0.04 million and $0.1 million),
     respectively, using a Binomial option-pricing model with the following
     underlying assumptions:



                                  THREE MONTHS ENDED   NINE MONTHS ENDED
                                     SEPTEMBER 30,       SEPTEMBER 30,
                                  ------------------   -----------------
                                    2005      2004       2005      2004
                                  -------   -------    -------   -------
                                                     
Average risk-free interest rate      4.05%     3.49%      3.96%     3.37%
Expected option life              5 years   5 years    5 years   5 years
Average expected volatility            62%       62%        62%       62%
Dividend yield                          0%        0%         0%        0%


     In the three and nine months ended September 30, 2005, the Company has
     recorded a charge of $0.1 million and $0.2 respectively (2004 - $0.04
     million and $0.1 million) to film cost of sales related to these
     non-employee stock options.

     There were no warrants issued in the three and nine months ended September
     30, 2005 (2004 - $nil and $nil). 550,000 warrants were issued in 2003. In
     the first quarter of 2005, 80,872 common shares were issued upon exercise
     of 200,000 warrants. All remaining warrants have either expired or have
     been cancelled. Upon exercise of options and warrants in the three and nine
     months ended September 30, 2005, amounts of $0.2 million and $1.8 million,
     respectively, representing the fair value of the original options or
     warrants issued, were transferred from other equity to capital stock to
     reflect the value of the shares issued within capital stock.


                                    Page 14



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

13.  CAPITAL STOCK (cont'd)

(B)  EARNINGS (LOSS) PER SHARE

     Reconciliations of the numerators and denominators of the basic and diluted
     per-share computations, are comprised of the following:



                                                   THREE MONTHS ENDED   NINE MONTHS ENDED
                                                      SEPTEMBER 30,       SEPTEMBER 30,
                                                   ------------------   -----------------
                                                     2005       2004      2005      2004
                                                    -------   -------   -------   -------
                                                                      
Net earnings applicable to common
   shareholders:
Net earnings                                        $ 2,280   $ 1,800   $ 4,587   $ 2,456
                                                    =======   =======   =======   =======
Weighted average number of common shares
   (000's):
Issued and outstanding, beginning of period          39,916    39,316    39,447    39,302
Weighted average number of shares issued during
   the period                                           109        --       353         8
                                                    -------   -------   -------   -------
Weighted average number of shares used in
   computing basic earnings per share                40,025    39,316    39,800    39,310
Assumed exercise of stock options, net of shares
   assumed repurchased                                2,193       576     2,226       401
                                                    -------   -------   -------   -------
Weighted average number of shares used in
   computing diluted earnings per share              42,218    39,892    42,026    39,711
                                                    =======   =======   =======   =======


14.  SEGMENTED INFORMATION

     The Company has four reportable segments: IMAX systems, films, theater
     operations and other.

     There has been no change in the basis of measurement of segment profit or
     loss from the Company's most recent annual report on form 10-K for the year
     ended December 31, 2004. Inter-segment transactions are not significant.



                           THREE MONTHS ENDED    NINE MONTHS ENDED
                               SEPTEMBER 30,       SEPTEMBER 30,
                           ------------------   -------------------
                              2005      2004      2005       2004
                            -------   -------   --------   --------
                                               
REVENUE
IMAX systems                $20,236   $21,309   $ 62,657   $ 57,811
Films                         8,047     6,076     18,295     17,166
Theater operations            4,311     3,689     12,325     11,203
Other                           780       753      2,343      2,276
                            -------   -------   --------   --------
TOTAL                       $33,374   $31,827   $ 95,620   $ 88,456
                            =======   =======   ========   ========

EARNINGS FROM OPERATIONS
IMAX systems                $10,481   $11,725   $ 34,223   $ 33,271
Films                         1,084    (1,653)       521     (4,060)
Theater operations                3        (8)       (53)       886
Corporate and other          (5,504)   (4,441)   (18,366)   (15,810)
                            -------   -------   --------   --------
TOTAL                       $ 6,064   $ 5,623   $ 16,325   $ 14,287
                            =======   =======   ========   ========



                                     Page 15



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

15.  DISCONTINUED OPERATIONS

(A)  MIAMI THEATER LLC

     On December 23, 2003, the Company closed its owned and operated Miami IMAX
     theater. The Company completed its abandonment of assets and removal of its
     projection system from the theater in the first quarter of 2004, with no
     financial impact. The Company is involved in an arbitration proceeding with
     the landlord of the theater with respect to the amount owing to the
     landlord by the Company for lease and guarantee obligations. The amount of
     loss to the Company has been estimated at between $0.8 million and $2.3
     million. The Company paid out $0.8 million with respect to amounts owing to
     the landlord during 2003 and 2004. As the Company is uncertain as to the
     outcome of the proceeding, no additional amount has been recorded.

(B)  DIGITAL PROJECTION INTERNATIONAL

     Effective December 11, 2001, the Company completed the sale of its
     wholly-owned subsidiary, Digital Projection International, including its
     subsidiaries (collectively "DPI"), to a company owned by members of DPI
     management. As part of the transaction, the Company restructured its
     advances to DPI, releasing DPI from obligations to repay any amounts in
     excess of $12.7 million previously advanced by the Company, and reorganized
     the remaining $12.7 million of debt owing to the Company into two separate
     loan agreements. The loans receivable are collateralized by fixed and
     floating charges over all DPI assets including intellectual properties. One
     of the loans is convertible, upon the occurrence of certain events, into
     shares representing 49% of the total share capital of DPI. During the three
     and nine months ended September 30, 2005, the Company recognized $0.4
     million and $0.8 million (2004 - $0.2 million and $0.6 million) in income
     from discontinued operations. As of September 30, 2005 the remaining
     balance of the loans and interest receivable is $13.5 million, of which
     $13.1 million has been allowed for.

(C)  CONSOLIDATED STATEMENT OF OPERATIONS FOR DPI

     The net earnings from discontinued operations summarized in the
     Consolidated Statements of Operations, for the three and nine months ended
     September 30, was comprised of the following:



                                            THREE MONTHS ENDED   NINE MONTHS ENDED
                                               SEPTEMBER 30,       SEPTEMBER 30,
                                            ------------------   -----------------
                                                2005   2004         2005   2004
                                                ----   ----         ----   ----
                                                               
Net earnings from discontinued operations       $360   $200         $786   $600
                                                ====   ====         ====   ====



                                     Page 16



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

16.  DEFINED BENEFIT PLAN

     The Company has a U.S. defined benefit pension plan covering its two
     Co-Chief Executive Officers. As the plan is unfunded, the Company has not
     paid any contributions in the period ended September 30, 2005 and does not
     expect to pay any contributions in the remainder of the year. The Company
     intends to use the proceeds of life insurance policies taken on its
     Co-Chief Executive Officers to be applied towards the benefits due and
     payable under the plan, although there can be no assurance that the Company
     will ultimately do so. The following table provides disclosure of pension
     expense for the defined benefit plan for the three and nine months ended
     September 30:



                                     THREE MONTHS ENDED   NINE MONTHS ENDED
                                        SEPTEMBER 30,       SEPTEMBER 30,
                                     ------------------   ----------------
                                        2005     2004       2005      2004
                                       ------   ------     ------   -------
                                                        
Service cost                           $  604   $  516     $1,812   $1,548
Interest cost                             390      317      1,169      951
Amortization of prior service cost        349      349      1,048    1,047
                                       ------   ------     ------   ------
Pension expense                        $1,343   $1,182     $4,029   $3,546
                                       ======   ======     ======   ======


17.  IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In December 2004, FASB issued a revision to Financial Accounting Standards
     No. 123 ("FAS 123R"). FAS 123R is focused primarily on the accounting for
     transactions in which a company obtains employee services in exchange for
     stock options or share-based payments. Currently, the Company grants stock
     options to its employees and discloses the pro forma effect of compensation
     expense for these stock options. Under FAS 123R, the Company will be
     required to record this compensation expense in the Company's results of
     operations. FAS 123R is effective for the beginning of the first annual
     reporting period that begins after December 31, 2005. The Company has
     evaluated the effect the adoption of FAS 123R and expects to adopt the
     pronouncement beginning on January 1, 2006. The Company estimates that
     based on the currently issued options, and not including any further grants
     which may occur in 2005, the additional compensation expense for the year
     ended December 31, 2006 will approximate $0.8 million before taxes.

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION

     The Company's Senior Notes are fully and unconditionally guaranteed,
     jointly and severally by specific wholly-owned subsidiaries of the Company
     (the "Guarantor Subsidiaries"). The main Guarantor Subsidiaries are David
     Keighley Productions 70 MM Inc., Sonics Associates Inc., and the
     subsidiaries that own and operate certain theaters. These guarantees are
     full and unconditional. The information under the column headed
     "Non-Guarantor Subsidiaries" relates to the following subsidiaries of the
     Company: IMAX Japan Inc. and IMAX B.V. (the "Non-Guarantor Subsidiaries")
     which have not provided any guarantees of the Senior Notes.

     Investments in subsidiaries are accounted for by the equity method for
     purposes of the supplemental consolidating financial data. Some
     subsidiaries may be unable to pay dividends due to negative working
     capital.


                                     Page 17



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Balance Sheets as at September 30, 2005:



                                                  IMAX        GUARANTOR    NON-GUARANTOR   ADJUSTMENTS AND   CONSOLIDATED
                                              CORPORATION   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                              -----------   ------------   -------------   ---------------   ------------
                                                                                              
ASSETS
Cash and cash equivalents                      $  17,415      $  4,544        $    93         $     --        $  22,052
Short-term investments                            12,232            --             --               --           12,232
Accounts receivable                               19,350         1,747            281               --           21,378
Financing receivables                             59,120         2,069             --               --           61,189
Inventories                                       31,343           238             84               --           31,665
Prepaid expenses                                   4,349           680             92               --            5,121
Intercompany receivables                          12,959        33,027         11,390          (57,376)              --
Film assets                                        2,832            --             --               --            2,832
Fixed assets                                      26,817         1,441             --               --           28,258
Other assets                                      12,080            --             --               --           12,080
Deferred income taxes                              6,391            79             --               --            6,470
Goodwill                                          39,027            --             --               --           39,027
Other intangible assets                            2,991            --             --               --            2,991
Investments in subsidiaries                       31,698            --             --          (31,698)              --
                                               ---------      --------        -------         --------        ---------
   Total assets                                $ 278,604      $ 43,825        $11,940         $(89,074)       $ 245,295
                                               =========      ========        =======         ========        =========

LIABILITIES
Accounts payable                                   3,773         3,031             17               --            6,821
Accrued liabilities                               54,099         1,289            186               --           55,574
Intercompany payables                             44,211        34,946          6,675          (85,832)              --
Deferred revenue                                  51,785         5,365             96               --           57,246
Senior Notes due 2010                            160,000            --             --               --          160,000
                                               ---------      --------        -------         --------        ---------
   Total liabilities                             313,868        44,631          6,974          (85,832)         279,641
                                               ---------      --------        -------         --------        ---------

SHAREHOLDER'S DEFICIT
Common stock                                     121,260            --            117             (117)         121,260
Other equity/Additional paid in
    capital/Contributed surplus                      657        46,960             --          (45,926)           1,691
Deficit                                         (156,856)      (47,152)         4,849           42,801         (156,358)
Accumulated other comprehensive income
   (loss)                                           (325)         (614)            --               --             (939)
                                               ---------      --------        -------         --------        ---------
   Total shareholders' equity (deficit)        $ (35,264)     $   (806)       $ 4,966         $ (3,242)       $ (34,346)
                                               ---------      --------        -------         --------        ---------
   Total liabilities & shareholders' equity
      (deficit)                                $ 278,604      $ 43,825        $11,940         $(89,074)       $ 245,295
                                               =========      ========        =======         ========        =========


     In certain Guarantor Subsidiaries, accumulated losses have exceeded the
     original investment balance. As a result of applying equity accounting, the
     parent company has consequently reduced intercompany receivable balances
     with respect to these Guarantor Subsidiaries in the amounts of $28.5
     million as at September 30, 2005.


                                     Page 18



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Balance Sheets as at December 31, 2004:



                                                  IMAX        GUARANTOR    NON-GUARANTOR   ADJUSTMENTS AND   CONSOLIDATED
                                              CORPORATION   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                              -----------   ------------   -------------   ---------------   ------------
                                                                                              
ASSETS
Cash and cash equivalents                      $  23,683      $  5,058        $   223         $     --        $  28,964
Accounts receivable                               16,492         3,029            378               --           19,899
Financing receivables                             57,769         1,723             --               --           59,492
Inventories                                       28,661           233            107               --           29,001
Prepaid expenses                                   1,712           464            103               --            2,279
Inter-company receivables                         13,407        31,146         12,100          (56,653)              --
Film assets                                          871            --             --               --              871
Fixed assets                                      27,184         1,527              1               --           28,712
Other assets                                      13,377            --             --               --           13,377
Deferred income taxes                              6,104            67             --               --            6,171
Goodwill                                          39,027            --             --               --           39,027
Other intangible assets                            3,060            --             --               --            3,060
Investments in subsidiaries                       31,693            --             --          (31,693)              --
                                               ---------      --------        -------         --------        ---------
   Total assets                                $ 263,040      $ 43,247        $12,912         $(88,346)       $ 230,853
                                               =========      ========        =======         ========        =========

LIABILITIES
Accounts payable                                   3,238         2,583              6               --            5,827
Accrued liabilities                               54,674         2,086            137               --           56,897
Inter-company payables                            43,000        34,440          7,597          (85,037)              --
Deferred revenue                                  45,422         4,918            165               --           50,505
Senior Notes due 2010                            160,000            --             --               --          160,000
                                               ---------      --------        -------         --------        ---------
   Total liabilities                             306,334        44,027          7,905          (85,037)         273,229
                                               ---------      --------        -------         --------        ---------

SHAREHOLDER'S DEFICIT
Capital stock                                    116,281            --            117             (117)         116,281
Other equity/Additional paid in
capital/Contributed surplus                        2,193        46,960             --          (45,926)           3,227
Deficit                                         (161,443)      (47,126)         4,890           42,734         (160,945)
Accumulated other comprehensive income
   (loss)                                           (325)         (614)            --               --             (939)
                                               ---------      --------        -------         --------        ---------
   Total shareholders' equity (deficit)        $ (43,294)     $   (780)       $ 5,007         $ (3,309)       $ (42,376)
                                               ---------      --------        -------         --------        ---------
   Total liabilities & shareholders' equity
      (deficit)                                $ 263,040      $ 43,247        $12,912         $(88,346)       $ 230,853
                                               =========      ========        =======         ========        =========


In certain Guarantor Subsidiaries accumulated losses have exceeded the original
investment balance. As a result of applying equity accounting, the parent
company has consequently reduced inter-company receivable balances with respect
to these Guarantor Subsidiaries in the amounts of $28.5 million.


                                    Page 19



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Statements of Operations for the three months ended
September 30, 2005:



                                                   IMAX        GUARANTOR    NON-GUARANTOR   ADJUSTMENTS AND   CONSOLIDATED
                                               CORPORATION   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                               -----------   ------------   -------------   ---------------   ------------
                                                                                               
REVENUE
IMAX systems                                     $19,885        $  244          $205             $ (98)         $20,236
Films                                              6,650         1,634             2              (239)           8,047
Theater operations                                   192         4,147            --               (28)           4,311
Other                                                780            --            --                --              780
                                                 -------        ------          ----             -----          -------
                                                  27,507         6,025           207              (365)          33,374
COST OF GOODS AND SERVICES                        12,119         5,742           104              (365)          17,600
                                                 -------        ------          ----             -----          -------
GROSS MARGIN                                      15,388           283           103                --           15,774
Selling, general and administrative expenses       8,602           256           108                --            8,966
Research and development                             890            --            --                --              890
Amortization of intangibles                          164            --            --                --              164
Loss (income) from equity-accounted
   investees                                         954            --            --              (954)              --
Receivable provisions, net of (recoveries)        (1,287)          977            --                --             (310)
                                                 -------        ------          ----             -----          -------
EARNINGS (LOSS) FROM OPERATIONS                    6,065          (950)           (5)              954            6,064
Interest income                                      243            --            --                --              243
Interest expense                                  (4,186)            1            --                --           (4,185)
                                                 -------        ------          ----             -----          -------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS BEFORE INCOME TAXES                  2,122          (949)           (5)              954            2,122
Provision for income taxes                          (202)           --            --                --             (202)
                                                 -------        ------          ----             -----          -------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS                                      1,920          (949)           (5)              954            1,920
Net earnings from discontinued operations            360            --            --                --              360
                                                 -------        ------          ----             -----          -------
NET EARNINGS (LOSS)                              $ 2,280        $ (949)         $ (5)            $ 954          $ 2,280
                                                 =======        ======          ====             =====          =======




                                    Page 20



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Statements of Operations for the three months ended
September 30, 2004:



                                                                                             ADJUSTMENTS
                                                   IMAX        GUARANTOR    NON-GUARANTOR        AND       CONSOLIDATED
                                               CORPORATION   SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS       TOTAL
                                               -----------   ------------   -------------   ------------   ------------
                                                                                            
REVENUE
IMAX systems                                     $21,001        $  168          $ 222          $ (82)        $21,309
Films                                              5,159         1,399              3           (485)          6,076
Theater operations                                   136         3,578             --            (25)          3,689
Other                                                753            --             --             --             753
                                                 -------        ------          -----          -----         -------
                                                  27,049         5,145            225           (592)         31,827
COST OF GOODS AND SERVICES                        13,089         4,710            149           (592)         17,356
                                                 -------        ------          -----          -----         -------
GROSS MARGIN                                      13,960           435             76             --          14,471

Selling, general and administrative expenses       7,219           221            147             --           7,587
Research and development                           1,019            --             --             --           1,019
Amortization of intangibles                          240            --             --             --             240
Loss (income) from equity-accounted
   investees                                         (68)           --             --             68              --
Receivable provisions (recoveries), net                2            --             --             --               2
                                                 -------        ------          -----          -----         -------
EARNINGS (LOSS) FROM OPERATIONS                    5,548           214            (71)           (68)          5,623

Interest income                                      439            --             --             --             439
Interest expense                                  (4,372)           (6)            --             --          (4,378)
                                                 -------        ------          -----          -----         -------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS BEFORE INCOME TAXES                  1,615           208            (71)           (68)          1,684
Provision for income taxes                           (17)           --            (67)            --             (84)
                                                 -------        ------          -----          -----         -------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS                                      1,598           208           (138)           (68)          1,600
Net earnings from discontinued operations            200            --             --             --             200
                                                 -------        ------          -----          -----         -------
NET EARNINGS (LOSS)                              $ 1,798        $  208          $(138)         $ (68)        $ 1,800
                                                 =======        ======          =====          =====         =======



                                     Page 21



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Statements of Operations for the nine months ended
September 30, 2005:



                                                                                             ADJUSTMENTS
                                                   IMAX        GUARANTOR    NON-GUARANTOR        AND       CONSOLIDATED
                                               CORPORATION   SUBSIDIARIES    SUBSIDIARIES   ELIMINATIONS       TOTAL
                                               -----------   ------------   -------------   ------------   ------------
                                                                                            
REVENUE
IMAX systems                                    $ 61,483       $ 2,197          $642          $(1,665)       $ 62,657
Films                                             14,494         4,823            16           (1,038)         18,295
Theater Operations                                   634        11,773            --              (82)         12,325
Other                                              2,318            --            25               --           2,343
                                                --------       -------          ----          -------        --------
                                                  78,929        18,793           683           (2,785)         95,620
COST OF GOODS AND SERVICES                        33,133        17,176           308           (2,785)         47,832
                                                --------       -------          ----          -------        --------
GROSS MARGIN                                      45,796         1,617           375               --          47,788

Selling, general and administrative expenses      27,937           666           418               --          29,021
Research and development                           2,429            --            --               --           2,429
Amortization of intangibles                          481            --            --               --             481
Loss (income) from equity-accounted investees         67            --            --              (67)             --
Receivable provisions, net of (recoveries)        (1,445)          977            --               --            (468)
                                                --------       -------          ----          -------        --------
EARNINGS (LOSS) FROM OPERATIONS                   16,327           (26)          (43)              67          16,325

Interest income                                      739            --             2               --             741
Interest expense                                 (12,584)           --            --               --         (12,584)
                                                --------       -------          ----          -------        --------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS BEFORE INCOME TAXES                  4,482           (26)          (41)              67           4,482
Provision for income taxes                          (681)           --            --               --            (681)
                                                --------       -------          ----          -------        --------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS                                      3,801           (26)          (41)              67           3,801
Net earnings from discontinued operations            786            --            --               --             786
                                                --------       -------          ----          -------        --------
NET EARNINGS (LOSS)                             $  4,587       $   (26)         $(41)         $    67        $  4,587
                                                ========       =======          ====          =======        ========



                                     Page 22



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Statements of Operations for the nine months ended
September 30, 2004:



                                                   IMAX        GUARANTOR    NON-GUARANTOR   ADJUSTMENTS AND   CONSOLIDATED
                                               CORPORATION   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                               -----------   ------------   -------------   ---------------   ------------
                                                                                               
REVENUE
IMAX systems                                     $ 56,408       $   793         $881            $  (271)        $ 57,811
Films                                              15,209         4,183           18             (2,244)          17,166
Theater operations                                    456        10,823           --                (76)          11,203
Other                                               2,275            --            1                 --            2,276
                                                 --------       -------         ----            -------         --------
                                                   74,348        15,799          900             (2,591)          88,456
COST OF GOODS AND SERVICES                         34,144        15,087          374             (2,591)          47,014
                                                 --------       -------         ----            -------         --------
GROSS MARGIN                                       40,204           712          526                 --           41,442

Selling, general and administrative expenses       23,554           537          450                 --           25,541
Research and development                            3,034            --           --                 --            3,034
Amortization of intangibles                           545            --           --                 --              545
Loss (income) from equity-accounted
   investees                                         (210)           --           --                210               --
Receivable provisions (recoveries), net              (889)          (76)          --                 --             (965)
                                                 --------       -------         ----            -------         --------
EARNINGS (LOSS) FROM OPERATIONS                    14,170           251           76               (210)          14,287

Interest income                                       664            --           --                 --              664
Interest expense                                  (12,516)          (20)         (30)                --          (12,566)
Loss on retirement of notes                          (784)           --           --                 --             (784)
                                                 --------       -------         ----            -------         --------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS BEFORE INCOME TAXES                   1,534           231           46               (210)           1,601
Recovery of (provision for) income taxes              322            --          (67)                --              255
                                                 --------       -------         ----            -------         --------
NET EARNINGS (LOSS) FROM CONTINUING
   OPERATIONS                                       1,856           231          (21)              (210)           1,856
Net earnings from discontinued operations             600            --           --                 --              600
                                                 --------       -------         ----            -------         --------
NET EARNINGS (LOSS)                              $  2,456       $   231         $(21)           $  (210)        $  2,456
                                                 ========       =======         ====            ========        ========



                                     Page 23



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Statements of Cash Flows for the nine months ended
September 30, 2005:



                                                          IMAX        GUARANTOR    NON-GUARANTOR   ADJUSTMENTS AND   CONSOLIDATED
                                                      CORPORATION   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                                      -----------   ------------   -------------   ---------------   ------------
                                                                                                      
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES
Net earnings (loss)                                    $  4,587       $   (26)         $ (41)           $ 67           $  4,587
   Net (earnings) from discontinued operations             (786)           --             --              --               (786)
Items not involving cash:
   Depreciation and amortization                         11,086           403              1              --             11,490
   Write-downs                                           (1,445)          977             --              --               (468)
   Loss (income) from equity-accounted investees             67            --             --             (67)                --
   Change in deferred income taxes                         (287)          (12)            --              --               (299)
   Stock and other non-cash compensation                  3,554            --             --              --              3,554
   Unrealized foreign exchange loss                         167            --             --              --                167
Investment in film assets                                (7,315)           --             --              --             (7,315)
Changes in other non-cash operating assets and
   liabilities                                           (5,593)       (1,542)          (104)             --             (7,239)
                                                       --------       -------          -----            ----           --------
Net cash provided by (used in) operating activities       4,035          (200)          (144)             --              3,691
                                                       --------       -------          -----            ----           --------

INVESTING ACTIVITIES
Increase in short-term investments                      (12,232)           --             --              --            (12,232)
Purchase of fixed assets                                   (877)         (317)            --              --             (1,194)
Increase in other assets                                   (562)           --             --              --               (562)
Increase in other intangible assets                        (412)           --             --              --               (412)
                                                       --------       -------          -----            ----           --------
Net cash used in investing activities                   (14,083)         (317)            --              --            (14,400)
                                                       --------       -------          -----            ----           --------

FINANCING ACTIVITIES
Common shares issued                                      3,219            --             --              --              3,219
Net cash provided by financing activities from
   discontinued operations                                  429            --             --              --                429
                                                       --------       -------          -----            ----           --------
Net cash provided by financing activities                 3,648            --             --              --              3,648
                                                       --------       -------          -----            ----           --------

Effects of exchange rate changes on cash                    132             3             14              --                149
                                                       --------       -------          -----            ----           --------

DECREASE IN CASH AND CASH
   EQUIVALENTS FROM CONTINUING OPERATIONS                (6,697)         (514)          (130)             --             (7,341)
Increase in cash and cash equivalents
   from discontinued operations                             429            --             --              --                429
                                                       --------       -------          -----            ----           --------
DECREASE IN CASH AND CASH
   EQUIVALENTS, DURING THE PERIOD                        (6,268)         (514)          (130)             --             (6,912)

Cash and cash equivalents, beginning of period           23,683         5,058            223              --             28,964
                                                       --------       -------          -----            ----           --------
CASH AND CASH EQUIVALENTS, END OF PERIOD               $ 17,415       $ 4,544          $  93            $ --           $ 22,052
                                                       ========       =======          =====            ====           ========



                                     Page 24



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

18.  SUPPLEMENTAL CONSOLIDATING FINANCIAL INFORMATION (cont'd)

Supplemental Consolidating Statements of Cash Flows for the nine months ended
September 30, 2004:



                                                          IMAX       GUARANTOR     NON-GUARANTOR   ADJUSTMENTS AND   CONSOLIDATED
                                                      CORPORATION   SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS        TOTAL
                                                      -----------   ------------   -------------   ---------------   ------------
                                                                                                      
CASH PROVIDED BY (USED IN):

OPERATING ACTIVITIES
Net earnings (loss) from continuing operations         $  2,456       $   231          $ (21)           $(210)         $  2,456
   Net (earnings) from discontinued operations             (600)                                                           (600)
Items not involving cash:
   Depreciation and amortization                         10,133           403              1               --            10,537
   Write-downs (recoveries)                                (887)          (76)            --               --              (963)
   Loss (income) from equity-accounted
      investees                                            (210)           --             --              210                --
   Change in deferred income taxes                         (776)          (12)            --               --              (788)
   Loss on retirement of notes                              784            --             --               --               784
   Stock and other non-cash compensation                  2,264            --             --               --             2,264
   Non-cash foreign exchange gain                           (12)           --             --               --               (12)
Premium on repayment of notes                              (576)           --             --               --              (576)
Investment in film assets                                (3,969)        1,187             --               --            (2,782)
Changes in restricted cash                                4,961            --             --               --             4,961
Changes in other non-cash operating assets and
   liabilities                                           (7,497)       (2,931)          (178)              --           (10,606)
                                                       --------       -------          -----            -----          --------
Net cash provided by (used in) operating activities       6,071        (1,198)          (198)              --             4,675
                                                       --------       -------          -----            -----          --------

INVESTING ACTIVITIES
Purchase of fixed assets                                   (623)          (70)            --               --              (693)
Increase in other assets                                   (857)           --             --               --              (857)
Increase in other intangible assets                        (271)           --             --               --              (271)
                                                       --------       -------          -----            -----          --------
Net cash used in investing activities                    (1,751)          (70)            --               --            (1,821)
                                                       --------       -------          -----            -----          --------

FINANCING ACTIVITIES
Repayment of Senior Notes due 2005                      (29,234)           --             --               --           (29,234)
Financing costs related to Senior Notes due 2010           (681)           --             --               --              (681)
Common shares issued                                         44            --             --               --                44
Net cash provided by financing activities from
   discontinued operations                                  400            --             --               --               400
                                                       --------       -------          -----            -----          --------
Net cash used in financing activities                   (29,471)           --             --               --           (29,471)
                                                       --------       -------          -----            -----          --------
Effects of exchange rate changes on cash                     21           (16)            (6)              --                (1)
                                                       --------       -------          -----            -----          --------

DECREASE IN CASH AND CASH
   EQUIVALENTS FROM CONTINUING OPERATIONS               (25,530)       (1,284)          (204)              --           (27,018)
Increase in cash and cash equivalents
   from discontinued operations                             400            --             --               --               400
                                                       --------       -------          -----            -----          --------
DECREASE IN CASH AND CASH
    EQUIVALENTS, DURING THE PERIOD                      (25,130)       (1,284)          (204)              --           (26,618)
Cash and cash equivalents, beginning of period           41,311         5,696            275               --            47,282
                                                       --------       -------          -----            -----          --------
CASH AND CASH EQUIVALENTS, END OF PERIOD               $ 16,181       $ 4,412          $  71            $  --          $ 20,664
                                                       ========       =======          =====            =====          ========



                                     Page 25



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

19.  SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
     PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA

     The accounting principles followed by the Company conform with U.S. GAAP.
     Significant differences affecting the Company between U.S. GAAP and
     Canadian Generally Accepted Accounting Principles ("Canadian GAAP") are
     summarized below.

(A)  FIXED ASSET IMPAIRMENTS

     Fixed asset impairments under U.S. GAAP are calculated based on a
     discounted future cash flow basis. Under Canadian GAAP, prior to January 1,
     2002, impairments were calculated based on an undiscounted future cash flow
     basis. Any differences resulted in higher depreciation for the remaining
     useful life of the assets.

(B)  STOCK-BASED COMPENSATION

     Under U.S. GAAP, the Company accounts for stock-based compensation under
     the intrinsic value method set out in APB 25 and has made pro forma
     disclosures of net earnings (loss) and earnings (loss) per share as if the
     methodology prescribed by FAS 123 had been adopted. Under Canadian GAAP,
     the Company adopted the fair value provisions of CICA Section 3870,
     "Stock-based Compensation and Other Stock-based Payments", effective
     January 1, 2003. As of this date, stock options granted to employees or
     directors are recorded as an expense in the consolidated statement of
     operations and credited to other equity.

(C)  PENSION ASSET AND LIABILITIES

     Under U.S. GAAP, included in accrued liabilities is a minimum pension
     liability of $5.6 million as at September 30, 2005 and $6.6 million as at
     December 31, 2004, representing unrecognized prior service costs and
     unrecognized actuarial gains or losses. An amount of $4.0 million as at
     September 30, 2005, and $5.0 million as at December 31, 2004 is included in
     other assets, representing unrecognized prior service costs. In addition,
     under U.S. GAAP, an amount of $1.6 million as at September 30, 2005 and as
     at December 31, 2004 is recorded against accumulated other comprehensive
     income, resulting from an unrecognized actuarial loss. Under Canadian GAAP,
     the minimum pension liability, and the corresponding amounts recorded in
     other assets and accumulated other comprehensive income are not recorded.


                                     Page 26



                                IMAX CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        IN ACCORDANCE WITH U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
     (Tabular amounts in thousands of U.S. dollars unless otherwise stated)
                                   (UNAUDITED)

19.  SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING
     PRINCIPLES (GAAP) IN THE UNITED STATES AND CANADA (cont'd)

     RECONCILIATION TO CANADIAN GAAP

     CONSOLIDATED STATEMENTS OF OPERATIONS

     The following is a reconciliation of net earnings (loss) reflecting the
     differences between U.S. and Canadian GAAP:



                                                THREE MONTHS ENDED   NINE MONTHS ENDED
                                                   SEPTEMBER 30,       SEPTEMBER 30,
                                                ------------------   -----------------
                                                   2005     2004       2005     2004
                                                  ------   ------    -------   ------
                                                                   
Net earnings in accordance with U.S. GAAP         $2,280   $1,800    $ 4,587   $2,456
Depreciation of fixed assets(a)                       --      (40)        --     (122)
Stock-based compensation(b)                         (552)    (742)    (1,734)    (920)
                                                  ------   ------    -------   ------
Net earnings in accordance with Canadian GAAP     $1,728   $1,018    $ 2,853   $1,414
                                                  ======   ======    =======   ======

Earnings per share (note 13):
Earnings per share - basic and diluted:
   Net earnings from continuing operations        $ 0.03   $ 0.02    $  0.05   $ 0.02
   Net earnings from discontinued operations      $ 0.01   $ 0.01    $  0.02   $ 0.02
                                                  ------   ------    -------   ------
   Net earnings                                   $ 0.04   $ 0.03    $  0.07   $ 0.04
                                                  ======   ======    =======   ======


     CONSOLIDATED SHAREHOLDERS' EQUITY (DEFICIT)

     The following is a reconciliation of shareholders' equity (deficit)
     reflecting the difference between Canadian and U.S. GAAP:



                                                                  SEPTEMBER 30,   DECEMBER 31,
                                                                       2005           2004
                                                                  -------------   ------------
                                                                            
Shareholders' equity (deficit) in accordance with U.S. GAAP         $(34,346)       $(42,376)
Unrecognized actuarial loss(c)                                         1,584           1,584
                                                                    --------        --------
Shareholders' equity (deficit) in accordance with Canadian GAAP     $(32,762)       $(40,792)
                                                                    ========        ========



                                     Page 27



                                IMAX CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company's principal business is the design, manufacture, sale and lease of
projector systems for giant screen theaters for customers including commercial
theaters, museums and science centers, and destination entertainment sites. In
addition, the Company designs and manufactures high-end sound systems and
produces and distributes large format films. There are 261 IMAX theaters
operating in 38 countries worldwide as of September 30, 2005. IMAX Corporation
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 Accepted
Accounting Principles ("U.S. GAAP"). Significant differences between United
States and Canadian Generally Accepted Accounting Principles are summarized in
note 19 of the Consolidated Financial Statements.

The preparation of these financial statements requires management to make
estimates and judgements that affect the reported amounts of assets,
liabilities, revenues and expenses. On an ongoing basis, management evaluates
its estimates, including those related to accounts receivable, net investment in
leases, inventories, fixed and film assets, investments, intangible assets,
income taxes, contingencies and litigation. Management bases its estimates on
historical experience, future expectations and other assumptions that are
believed to be reasonable at the date of the financial statements. Actual
results may differ from these estimates due to uncertainty involved in
measuring, at a specific point in time, events which are continuous in nature.
The Company's significant accounting policies are discussed in note 2 of the
Consolidated Financial Statements in the Company's most recent annual report on
Form 10-K for the year ended December 31, 2004, and are summarized below.

SIGNIFICANT ACCOUNTING POLICIES

The Company considers the following critical accounting policies to have the
most significant 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 risks
of ownership to customers are classified as sales-type leases as a result of
meeting the criteria established by FASB Statement of Financial Accounting
Standards No. 13, "Accounting for Leases" ("FAS 13"). When revenue is
recognized, the initial rental fees due under the contract, along with the
present value of minimum ongoing rental payments, are recorded as revenues for
the period, and the related theater system costs including installation expenses
are recorded as cost of goods and services. Additional ongoing rentals in excess
of minimums are recognized in future periods as revenue when reported by the
theater operator, provided that collection is reasonably assured. Maintenance
revenues are recognized when the services are rendered.

The Company recognizes revenues from sales and sales-type leases generally upon
installation of the theater system. Revenue associated with a sale or sales-type
lease is recognized when all of the following criteria are met: persuasive
evidence of an agreement exists; the price is fixed or determinable; and
collection is reasonably assured.

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


                                     Page 28



                                IMAX CORPORATION

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 critical estimates that the Company considers with respect to the Company's
lease accounting are the determination of economic useful life and the fair
value of the projection equipment, including its residual value. These estimates
are based upon historical experience with all of our projection systems.
Residual values are established at lease inception using estimates of fair value
at the end of the lease term with consideration for forecasted supply and demand
for various systems, future product launch plans, end of lease customer
behavior, refurbishment strategies and changes in technology.

The Company monitors the performance of the theaters to which it has leased
equipment. When facts and circumstances indicate that it may need to change the
terms of a lease, which had previously been recorded as a sales-type lease, the
Company evaluates the likely outcome of such negotiations using the criteria
under FAS 13. A provision is recorded against the net investment in leases if
the Company believes that it is probable that the negotiation will result in a
reduction in the minimum lease payments such that the lease will be reclassified
as an operating lease. The provision is equal to the excess of the carrying
value of the net investment in lease over the fair value of the equipment. Any
adjustments which result from a change in classification from a sales-type lease
to an operating lease are reported as a charge to income during the period the
change occurs.

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

The Company generally enters into multi-year system lease agreements with
customers that typically contain customer payment obligations prior to the
scheduled installation of the system. During the period of time between lease
signing and system installation, certain customers each year generally are
unable, or elect not, to proceed with system installation for a number of
reasons including business considerations, or the inability to obtain certain
consents, approvals or financing. Once the determination is made that the
customer will not proceed with installation, the customer and the Company may
enter into a consensual lease buyout, whereby the parties are released from all
their future obligations under the lease, the initial lease payments that the
customer previously made to the Company are typically recognized as revenue and
the geographic territory granted to the customer reverts to the Company. For
this reason, the Company has a high degree of certainty of collecting a
substantial value of a signed contract, either through the installation of a
theater system or a consensual lease buyout. In addition, since the introduction
of its new IMAX MPX theater system in 2003, the Company has agreed with several
customers to terminate their existing lease agreements, which were in the
Company's backlog, and sign new MPX system agreements.

OPERATING LEASES OF THEATER SYSTEMS

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

MULTIPLE ELEMENT ARRANGEMENTS

On occasion, the Company will include film licenses or other specified elements
as part of system sales or lease agreements. When separate prices are listed in
a multiple element arrangement, these prices may not be indicative of the fair
values of those elements because the prices of the different components of the
arrangements may be modified through negotiation although the aggregate
consideration may not. Revenues under these arrangements are allocated based
upon the estimated relative fair values of each element.


                                     Page 29



                                IMAX CORPORATION

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)

MULTIPLE ELEMENT ARRANGEMENTS (cont'd)

In the normal course of its business, the Company will have customers who, for a
number of reasons are unable to proceed with theater construction or wish to
modify the terms of an existing arrangement. There is typically deferred revenue
involved with these arrangements representing initial cash payments in advance
of the default, settlement or modification of the arrangement. Where there are
multiple elements involved in these arrangements, pursuant to the policies
discussed above, the total consideration to be received in these situations is
allocated to each individual element of the settlement or modification
arrangement based on the relative fair values of each element. Upon allocation
of value to each element, each element is accounted for based on applicable
revenue recognition criteria.

SHORT-TERM INVESTMENTS

The Company has short-term investments, which generally have maturities of more
than three months and less than one year from the date of purchase. The
short-term investments are classified as held to maturity based on the Company's
positive intent and ability to hold the securities to maturity. The Company
invests primarily in Canadian and U.S. government securities and commercial
paper rated "A1+" by Standard & Poor's and these investments are stated at
amortized cost, which approximates fair market value. Income related to these
securities is reported as a component of interest income. At September 30, 2005,
the Company had $6.1 million invested in U.S. government securities, $2.0
million in Canadian government securities, and $4.1 million in commercial paper.

ACCOUNTS RECEIVABLE AND FINANCING RECEIVABLES

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

The evaluation of collectibility of customer accounts is typically done on an
individual account basis. If, based on an evaluation of accounts, the Company
concludes that it is probable that a customer will not be able to pay all
amounts due, the Company estimates the expected loss. In developing the
estimates for an allowance, the Company considers general and industry economic
and market conditions as well as other credit information available for the
customer. The Company only records recoveries of provisions when objective
verifiable evidence supports the change in the original provision.

INVENTORIES

In establishing the appropriate provisions for theater systems inventory,
management must make estimates of future events and conditions including the
anticipated installation dates for the current backlog of theater system
contracts, potential future signings, general economic conditions, technology
factors, growth prospects within the customers' ultimate marketplace and the
market acceptance of the Company's current and pending projection systems and
film library. If management estimates of these events and conditions prove to be
incorrect, it could result in inventory losses in excess of the provisions
determined to be adequate as at the balance sheet date.

FILM ASSETS

Estimates of ultimate revenues are prepared on a title by title basis and
reviewed regularly by management and revised where necessary to reflect the most
current information. Ultimate revenue for films includes estimates of revenues
over a period not to exceed 10 years following the date of initial release.


                                     Page 30



                                IMAX CORPORATION

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

SIGNIFICANT ACCOUNTING POLICIES (cont'd)

GOODWILL

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

FIXED ASSETS

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

TAX ASSET VALUATION

As at September 30, 2005, the Company had net deferred income tax assets of $6.5
million, comprised of tax credit carryforwards, net operating loss and capital
loss carryforwards and other deductible temporary differences, which can be
utilized to reduce either taxable income or taxes otherwise payable in future
years. The Company's management assesses realization of these net deferred
income tax assets based on all available evidence and has concluded that it is
more likely than not that these net deferred income tax assets will be realized.
Positive evidence includes, but is not limited to, the Company's historical
earnings, projected future earnings, contracted sales backlog at September 30,
2005, and the ability to realize certain deferred income tax assets through loss
and tax credit carryback strategies. If and when the Company's operations in
some jurisdictions were to reach a requisite level of profitability or where the
Company's future profitability estimates increase due to changes in positive
evidence, the Company would reduce all or a portion of the applicable valuation
allowance in the period when such determination is made. This would result in an
increase to reported earnings and a decrease to the Company's effective tax rate
in such period. However, if the Company's projected future earnings do not
materialize, or if the Company operates at a loss in certain jurisdictions, or
if there is a material change in actual effective tax rates or time period
within which the Company's underlying temporary differences become taxable or
deductible, the Company could be required to increase the valuation allowance
against all or a significant portion of the Company's deferred tax assets
resulting in a substantial increase to the Company's effective tax rate for the
period of the change and a material adverse impact on its operating results for
the period.

The Company is subject to ongoing tax examinations and assessments in various
jurisdictions. Accordingly, the Company may incur additional tax expense based
upon the outcomes of such matters. In addition, when applicable, the Company
adjusts tax expense to reflect both favorable and unfavorable examination
results. The Company's ongoing assessments of the probable outcomes of
examinations and related tax positions require judgement and can materially
increase or decrease its effective rate as well as impact operating results.


                                     Page 31



                                IMAX CORPORATION

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

IMPACT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

In December 2004, FASB issued a revision to Financial Accounting Standards No.
123 ("FAS 123R"). FAS 123R is focused primarily on the accounting for
transactions in which a company obtains employee services in exchange for stock
options or share-based payments. Currently, the Company grants stock options to
its employees and discloses the pro forma effect of compensation expense for
these stock options. Under FAS 123R, the Company will be required to record this
compensation expense in the Company's results of operations. FAS 123R is
effective for the beginning of the first annual reporting period that begins
after December 31, 2005. The Company has evaluated the effect the adoption of
FAS 123R and expects to adopt the pronouncement beginning on January 1, 2006.
The Company estimates that based on the currently issued options, and not
including any further grants which may occur in 2005, the additional
compensation expense for the year ended December 31, 2006 will approximate $0.8
million before taxes.

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
2004

The Company reported net earnings from continuing operations before income taxes
of $2.1 million or $0.05 per share on a diluted basis and net earnings from
continuing operations after taxes of $1.9 million or $0.05 per share on a
diluted basis for the third quarter of 2005. For the third quarter of 2004 the
Company reported net earnings from continuing operations before income taxes of
$1.7 million or $0.04 per share on a diluted basis and net earnings from
continuing operations after taxes of $1.6 million or $0.04 per share on a
diluted basis.

REVENUE

The Company's revenues for the third quarter of 2005 increased 4.9% to $33.4
million from $31.8 million in the same period last year.

Systems revenue decreased to $20.2 million in the third quarter of 2005 from
$21.3 million in the third quarter of 2004, a decrease of 5.0%. The Company
recognized revenue on six theater systems which qualified as either sales or
sales-type leases in the third quarters of both 2005 and 2004. In addition, the
Company installed and recognized revenue on two theater systems that qualified
as operating leases in the third quarter of 2005 versus nil in the same period
for 2004. Revenue from sales and leases decreased to $13.5 million in the third
quarter of 2005 from $15.7 million in 2004, a decrease of 13.9%.


                                     Page 32



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
2004 (cont'd)

REVENUE (cont'd)

Average revenue per system decreased due to a change in mix of the systems
outlined in the table below, geographic markets and lower pricing on primarily
refurbished GT systems.



                              THREE MONTHS ENDED
                                 SEPTEMBER 30,
                              ------------------
                                  2005   2004
                                  ----   ----
                                   
Sales and Sales-type leases
   IMAX 2D SR..............          1     --
   IMAX 3D GT..............          4      2
   IMAX 3D SR..............         --      3
   IMAX 3D MPX.............          1      1
                                   ---    ---
                                     6      6
Operating leases
   IMAX 3D MPX.............          2     --
                                   ---    ---
Total Recognitions.........          8      6
                                   ===    ===


The Company generally enters into multi-year system lease agreements with
customers that typically contain customer payment obligations prior to the
scheduled installation of the system. During the period of time between lease
signing and system installation, certain customers each year generally are
unable, or elect not, to proceed with system installation for a number of
reasons, including business considerations, or the inability to obtain certain
consents, approvals or financing. Once the determination is made that the
customer will not proceed with installation, the customer and the Company may
enter into a consensual lease buyout, whereby the parties are released from
their future obligations under the lease, the initial lease payments that the
customer previously made to the Company are typically recognized as revenue and
the geographic territory granted to the customer reverts to the Company. For
this reason, the Company has a high degree of certainty of collecting a
substantial value of a signed contract, either through the installation of a
theater system or a consensual lease buyout. In addition, since the introduction
of its new IMAX MPX theater system in 2003, the Company has agreed with several
customers to terminate their existing lease agreements, which were in the
Company's backlog, and sign new MPX system agreements. Amounts relating to
settlement revenue for the third quarter in 2005 total $2.4 million compared to
$2.8 million for the same period in 2004. The settlement amounts are detailed as
follows: $0.4 million in the third quarter of 2005 related to MPX conversion
agreements compared to $1.8 million for the same period in 2004, $0.6 million in
the third quarter of 2005 related to consensual lease buyouts compared to $0.2
million for the same period in 2004, and $1.4 million in the third quarter of
2005 related to terminations of agreements after customer default compared to
$0.8 million for the same period in 2004. The Company anticipates that, while
MPX conversion agreements may continue as MPX systems continue to prove popular
with commercial customers, overall revenue from consensual lease buyouts and
terminations of agreements by customer default will likely decrease in the last
quarter of 2005 in comparison to the same quarter in 2004.

Ongoing rental revenue and maintenance revenue in the third quarter of 2005
increased 35.6% and 7.8%, respectively, from the same period in 2004 due
primarily to growth of the IMAX theater network. The Company expects to see an
increase in the last quarter of 2005 compared to the same period in 2004 in both
ongoing rent and maintenance revenue as the Company's theater network continues
to grow in 2005.


                                     Page 33



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
2004 (cont'd)

REVENUE (cont'd)

Film revenues increased to $8.0 million in the third quarter of 2005 from $6.1
million in the third quarter of 2004, due to an increase in revenues in all
areas of the Company's film business. Film distribution revenues increased to
$3.3 million in the third quarter of 2005 from $2.7 million in the third quarter
of 2004, an increase of 21.4%, and film production revenues increased to $0.3
million in the third quarter of 2005 from $0.1 million in the third quarter of
2004, both increases primarily due to the production and release of Magnificent
Desolation: Walking on the Moon 3D in September 2005. Film post-production
revenues increased to $1.5 million in the third quarter of 2005 from $1.1
million in the third quarter of 2004, an increase of 39.1%, mainly due to an
increase in third party business at the Company's post-production unit. IMAX DMR
revenues increased by 30.8% in the third quarter of 2005, due to the continued
success of Batman Begins: The IMAX Experience and the release of Charlie and The
Chocolate Factory: The IMAX Experience in July 2005, which lead to a stronger
box office performance in the quarter.

The Company is releasing, in conjunction with studios, five new films in 2005:
Robots (March 2005), Batman Begins: The IMAX Experience (June 2005), Charlie and
The Chocolate Factory: The IMAX Experience (July 2005), Magnificent Desolation:
Walking on the Moon 3D (September 2005) and Harry Potter and the Goblet of Fire:
The IMAX Experience (to be released November 2005). In addition, the Company
plans to re-release the hit film The Polar Express: The IMAX 3D Experience in
December 2005.

Theater operations revenue increased to $4.3 million in the third quarter of
2005 from $3.7 million in the third quarter of 2004, primarily due to an
increase in average ticket prices of 11.6% and an overall increase in attendance
of 2.0%.

Other revenue remained consistent at $0.8 million in both the third quarter of
2005 and 2004. Other revenue primarily includes revenue generated from the
Company's camera and rental business and after market sales of projection system
parts.

Based on the Company's expectation of the remaining 2005 system installations
and its films to be released throughout the remainder of 2005, the Company
believes it will see higher revenues in the last quarter of 2005 in comparison
to the same period in 2004.

GROSS MARGIN

Gross margin in the third quarter of 2005 was $15.8 million, or 47.3% of total
revenue, compared to $14.5 million, or 45.5% of total revenue in the third
quarter of 2004.

Systems margins declined in the third quarter of 2005 by $1.8 million or 12.5%.
Average gross margin on sales and sales-type lease of projection systems
decreased in the third quarter of 2005 versus the same period in 2004 by 21.8%,
primarily due to the difference in the mix of projector systems recognized,
geographic markets and lower pricing on primarily refurbished GT systems.
Further contributing to the decline in systems gross margin was a total
settlement gross margin of $2.3 million in the third quarter of 2005 compared to
$2.8 million in the same period of 2004. The settlement amounts are detailed as
follows: $0.4 million in the third quarter of 2005 related to MPX conversion
agreements compared to $1.8 million for the same period in 2004, $0.6 million in
the third quarter of 2005 related to consensual lease buyouts compared to $0.2
million for the same period in 2004, and $1.3 million in the third quarter of
2005 related to terminations of agreements after customer default compared to
$0.8 million for the same period in 2004.


                                     Page 34



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
2004 (cont'd)

GROSS MARGIN (cont'd)

The Company's film gross margin increased in the third quarter of 2005 by $2.9
million, primarily due to the Company's IMAX DMR gross margin, which increased
by $2.3 million as a result of the 2005 releases of Batman Begins: The IMAX
Experience and Charlie and The Chocolate Factory: The IMAX Experience. The
Company's film distribution gross margin increased $0.6 million or 40.5%, due to
the release of Magnificent Desolation: Walking on the Moon 3D in September 2005,
and due to the continued success of Space Station. Film production margin also
increased in the third quarter of 2005, mainly due to the production and release
of Magnificent Desolation: Walking on the Moon 3D.

The Company's owned and operated theater gross margin remained consistent at
$0.2 million in both third quarters of 2005 and 2004.

Other gross margin increased by $0.2 million in the third quarter of 2005,
primarily due to increased rentals of 2D and 3D cameras.

The Company anticipates higher gross margins for the full year of 2005 in
comparison to 2004, due to a combination of higher system installations and DMR
film releases, as commercial exhibitors continue to install new projection
systems in their multiplexes.

OTHER

Selling, general and administrative expenses were $9.0 million in the third
quarter of 2005 versus $7.6 million in the same period of 2004. Legal fees for
the third quarter of 2005 increased by $0.9 million as the Company continued to
incur legal costs related to patent infringement matters. Compensation expense
increased by $0.5 million in the third quarter of 2005 in comparison to the same
period in 2004 due to a higher non-cash stock-based compensation charge in the
current quarter along with a higher Canadian dollar denominated salary expense
due to the strength of the Canadian dollar compared to the previous year
quarter. In addition, the Company has slightly higher staffing levels in the
current year quarter due to a higher level of anticipated theater system
signings and installations in the upcoming quarter. The Company recorded a
foreign exchange gain of $0.2 million in the third quarter of 2005 compared to a
gain of $0.3 million in the third quarter of 2004. The Company records foreign
exchange translation gains and losses primarily on a portion of its financing
receivable balances which are denominated in Canadian dollars, Euros and
Japanese Yen.

Receivable provisions net of recoveries for accounts receivable and financing
receivables amounted to a net recovery of $0.3 million in the third quarter of
2005 compared to $nil in the third quarter of 2004, due to a favorable outcome
on lease amendments.

Interest income decreased to $0.2 million in the third quarter of 2005 from $0.4
million in the third quarter of 2004, primarily due to interest income relating
to tax refunds received by the Company in the third quarter of 2004.

Interest expense decreased to $4.2 million in the third quarter of 2005 from
$4.4 million in the third quarter of 2004. The Company expensed an additional
$0.2 million in the third quarter of 2004 relating to special interest owed on
the registration rights of the Senior Notes due 2010. Included in interest
expense is the amortization of deferred finance costs in the amount of $0.2
million in the third quarters of 2005 and 2004 relating to the Senior Notes due
2010. The Company's policy is to defer and amortize all the costs relating to a
debt financing over the life of the debt instrument.


                                     Page 35



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
2004 (cont'd)

INCOME TAXES

The Company's effective tax rate differs from the statutory tax rate and will
vary from year to year primarily as a result of numerous permanent differences,
the Canadian manufacturing and processing profits deduction, investments and
other tax credits, the provision for income taxes at different rates in foreign
and other provincial jurisdictions, enacted statutory tax rate increases or
reductions in the year, changes in the Company's valuation allowance based on
the Company's recoverability assessments of deferred tax assets, and favorable
or unfavorable resolution of various tax examinations. The income tax expense
for the quarter is calculated by applying the estimated average annual effective
tax rate of approximately 10% for the 2005 year to quarterly pre-tax income. As
of September 30, 2005, the Company had a gross deferred income tax asset of
$50.5 million, against which the Company is carrying a $44.0 million valuation
allowance.

RESEARCH AND DEVELOPMENT

Research and development expenses decreased to $0.9 million in the third quarter
of 2005, compared to $1.0 million in 2004. The expenses primarily reflect
research and development activities pertaining to the Company's new IMAX MPX
theater projection system which is now complete. Through research and
development, the Company continues to design and develop cinema-based equipment,
software and other technologies to enhance its product offering, including the
continued enhancement of a method of generating stereoscopic (3D) imaging data
from a monoscopic (2D) source. The Company believes that the motion picture
industry will be affected by the development of digital technologies,
particularly in the areas of content creation (image capture), post-production
(editing and special effects), digital re-mastering distribution and display.
Consequently, the Company has made significant investments in digital
technologies, including the development of a proprietary, patent-pending
technology to digitally enhance image resolution and quality of motion picture
films, and the conversion of monoscopic (2D) to stereoscopic (3D) images, and
holds a number of patents, patents pending and intellectual property rights in
these areas. In addition, the Company holds numerous digital patents in the
large-format field of use. However, there can be no assurance that the Company
will be awarded patents covering its technology or that competitors will not
develop similar technologies.

DISCONTINUED OPERATIONS

On December 23, 2003, the Company closed its owned and operated Miami IMAX
theater. The Company abandoned or removed all of its assets from the theater in
the first quarter of 2004. The Company is involved in a legal proceeding with
the landlord of the theater with respect to the amount owing to the landlord by
the Company for lease and guarantee obligations. The amount of loss to the
Company has been estimated as between $0.8 million and $2.3 million. The Company
paid out $0.8 million with respect to amounts owing to the landlord during 2003
and 2004. As the Company is uncertain as to the outcome of the proceeding, no
additional amount has been recorded. The Company recorded $nil in net earnings
from discontinued operations related to Miami IMAX theater in the third quarters
of 2005 and 2004.


                                     Page 36



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

THREE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
2004 (cont'd)

DISCONTINUED OPERATIONS (cont'd)

Effective December 11, 2001, the Company completed the sale of its wholly-owned
subsidiary, Digital Projection International, including its subsidiaries
(collectively "DPI"), to a company owned by members of DPI management. As part
of the transaction, the Company restructured its advances to DPI, releasing DPI
from obligations to repay any amounts in excess of $12.7 million previously
advanced by the Company, and reorganized the remaining $12.7 million of debt
owing to the Company into two separate loan agreements. The loans receivable are
collateralized by fixed and floating charges over all DPI assets including
intellectual properties. One of the loans is convertible, upon the occurrence of
certain events, into shares representing 49% of the total share capital of DPI.
During the third quarter of 2005, the Company recognized $0.4 million (2004 -
$0.2 million) in income from discontinued operations. As of September 30, 2005
the remaining balance of the loans and interest receivable is $13.5 million, of
which $13.1 million has been allowed for.

NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2004

The Company reported net earnings from continuing operations before income taxes
of $4.5 million or $0.11 per share on a diluted basis and net earnings from
continuing operations after taxes of $3.8 million or $0.09 per share on a
diluted basis for the first nine months of 2005. For the first nine months of
2004 the Company reported net earnings from continuing operations before income
taxes of $1.6 million or $0.4 per share on a diluted basis and net earnings from
continuing operations after taxes of $1.9 million or $0.05 per share on a
diluted basis.

REVENUE

The Company's revenues for the first nine months of 2005 increased 8.1% to $95.6
million from $88.5 million in the same period last year.

Systems revenue increased to $62.7 million in the first nine months of 2005 from
$57.8 million in the first nine months of 2004, an increase of 8.4%. Revenue
from sales and leases increased to $43.9 million in the first nine months of
2005 from $40.6 million in 2004, an increase of 8.2%. This increase was due to a
greater number of system recognitions, and higher revenue from settlements in
the period, partially offset by lower average revenue per system. The Company
recognized revenue on 20 theater systems which qualified as either sales or
sales-type leases in the first nine months of 2005 versus 13 theater systems in
the first nine months of 2004. In addition, the Company installed and recognized
revenue on 5 theater systems that qualified as operating leases in the first
nine months of 2005 versus nil in the same period for 2004.

Five of the systems recognized in the first nine months of the year related to
the sale of used theater systems. More specifically, two customers exercised an
option to convert their operating leases into an outright purchase for a total
of three theater systems for additional cash consideration, and the Company sold
two used theater systems to new owner/operators upon termination of the
operating leases with the original lessees. As these transactions represent the
sale of used systems that were several years old, their average value is
substantially lower than that of a new theater system installation.


                                     Page 37



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2004
(cont'd)

REVENUE (cont'd)

Average revenue per system decreased as a result of a change in mix of the
systems outlined in the table below.



                              NINE MONTHS ENDED
                                SEPTEMBER 30,
                              -----------------
                                 2005   2004
                                 ----   ----
                                  
Sales and Sales-type leases
   IMAX 2D GT..............         1     --
   IMAX 2D SR..............         1     --
   IMAX 3D GT..............         9      6
   IMAX 3D SR..............         4      5
   IMAX 3D MPX.............         5      2
                                  ---    ---
                                   20     13
Operating leases
   IMAX 3D MPX.............         5     --
                                  ---    ---
Total Recognitions.........        25     13
                                  ===    ===


The Company generally enters into multi-year system lease agreements with
customers that typically contain customer payment obligations prior to the
scheduled installation of the system. During the period of time between lease
signing and system installation, certain customers each year generally are
unable, or elect not, to proceed with system installation for a number of
reasons, including business considerations, or the inability to obtain certain
consents, approvals or financing. Once the determination is made that the
customer will not proceed with installation, the customer and the Company may
enter into a consensual lease buyout, whereby the parties are released from
their future obligations under the lease, the initial lease payments that the
customer previously made to the Company are typically recognized as revenue and
the geographic territory granted to the customer reverts to the Company. For
this reason, the Company has a high degree of certainty of collecting a
substantial value of a signed contract, either through a consensual lease buyout
or the installation of a theater system. In addition, since the introduction of
its new IMAX MPX theater system in 2003, the Company has agreed with several
customers to terminate their existing lease agreements which were in the
Company's backlog and sign new MPX system agreements. Amounts relating to
settlement revenue for the first nine months in 2005 total $13.4 million
compared to $9.5 million for the same period in 2004. The settlement amounts are
detailed as follows: $0.6 million in the first nine months of 2005 related to
MPX conversion agreements compared to $5.1 million for the same period in 2004;
$11.4 million in the first nine months of 2005 related to consensual lease
buyouts compared to $3.6 million for the same period in 2004; and $1.4 million
in the first nine months of 2005 related to termination of agreements after
customer default compared to $0.8 million for the same period in 2004. The
Company anticipates that, while MPX conversion agreements may continue as MPX
systems continue to prove popular with commercial customers, overall revenue
from consensual lease buyouts and terminations of agreements by customer default
will likely decrease in the last quarter of 2005 in comparison to the same
quarter in 2004.

Ongoing rental revenue and maintenance revenue in the first nine months of 2005
increased 16.1% and 3.9% respectively, from the same period in 2004. The Company
expects to see an increase in the last quarter of 2005 compared to the same
period in 2004 in both ongoing rent and maintenance revenue as the Company's
theater network continues to grow in 2005.


                                     Page 38



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2004
(cont'd)

REVENUE (cont'd)

Film revenues increased to $18.3 million in the first nine months of 2005 from
$17.2 million in the first nine months of 2004. IMAX DMR revenues, which are
revenues to the Company generated from the gross box office performance of IMAX
DMR films, increased to $5.9 million in 2005 from $3.7 million in 2004. The
increase in DMR revenue was due to the continued successful performance of The
Polar Express: The IMAX 3D Experience, the March 2005 release of Robots: The
IMAX Experience, the June 2005 release of Batman Begins: The IMAX Experience and
the July 2005 release of Charlie and the Chocolate Factory: The IMAX Experience.
The increase in DMR revenues was partially offset by a decrease in film
distribution revenues, which are revenues related to the release of films in the
IMAX 15/70 library or new 15/70 productions to which the Company has
distribution rights. Film distribution revenues decreased to $8.0 million in the
first nine months of 2005 from $10.2 million in the first nine months of 2004, a
decrease of 21.6%, primarily due to NASCAR 3D: The IMAX Experience which was
first released in March 2004 as compared to the September 2005 release of
Magnificent Desolation: Walking on the Moon 3D. Post-production revenues
increased to $3.9 million in the first nine months of 2005 from $3.0 million in
the first nine months of 2004, an increase of 32.1% mainly due to an increase in
third party business at the Company's post-production unit.

The Company is releasing, in conjunction with studios, five new films in 2005:
Robots (March 2005), Batman Begins: The IMAX Experience (June 2005), Charlie and
The Chocolate Factory: The IMAX Experience (July 2005), Magnificent Desolation:
Walking on the Moon 3D (September 2005), and Harry Potter and the Goblet of
Fire: The IMAX Experience (to be released November 2005). In addition, the
Company plans to re-release the hit film The Polar Express: The IMAX 3D
Experience in December 2005.

Theater operations revenue increased to $12.3 million in the first nine months
of 2005 from $11.2 million in the first nine months of 2004, primarily due to an
increase in the average ticket prices of 14.1%.

Other revenue remained consistent at $2.3 million in the first nine months of
2005 and 2004. An increase in revenue from 2D and 3D camera rentals was
partially offset by a decrease in sponsorship and after market sales.

Based on the Company's expectation of the remaining 2005 system installations
and its films to be released throughout the remainder of 2005, the Company
believes it will see higher revenues in the last quarter of 2005 in comparison
to the same period in 2004.

GROSS MARGIN

Gross margin in the first nine months of 2005 was $47.8 million, or 50.0% of
total revenue, compared to $41.4 million, or 46.9% of total revenue in the first
nine months of 2004. The increase in gross margins for 2005 is primarily due to
a combination of the recognition of 25 systems during the period, 5 of which
were operating leases, versus 13 recognitions in the prior year, and the margin
impact of settlement revenues during the period. Average gross margin on sales
and sales-type lease of projection systems decreased in the first nine months of
2005 versus the same period in 2004 by 41.5% primarily due to the difference in
the mix of projector systems recognized, and the used systems sold during the
year. Included in gross margin are amounts for the first nine months of 2005
related to consensual lease buyouts of $11.3 million compared to $3.5 million in
the same period in 2004, termination of agreements after customer default of
$1.3 million compared to $0.8 million in the same period in 2004, and MPX
conversion agreements $0.6 million compared to $5.0 million in the same period
in 2004.


                                     Page 39



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2004
(cont'd)

GROSS MARGIN (cont'd)

The Company's film gross margin increased in first nine months of 2005 by $4.6
million. The Company's IMAX DMR gross margin increased by $1.8 million due to
results yielded from the 2005 release of Charlie and The Chocolate Factory: The
IMAX Experience and the continued success of The Polar Express: The IMAX 3D
Experience. The Company's film distribution gross margin increased $1.5 million
due to the release of Magnificent Desolation: Walking on the Moon 3D in
September 2005, and due to the continued success of Space Station 3D.
Post-production gross margin increased by $1.2 million in the first nine months
of 2005 compared to the same period in 2004 mainly due to an increase in third
party business at the Company's post-production unit.

The Company's owned and operated theater gross margin decreased by $0.8 million
in the first nine months of 2005 in comparison to the same period in 2004 as a
result of higher rental fees paid to third parties.

The Company's camera margin increased $1.2 million in the first nine months of
2005, due to the increased revenues related to the rental of 2D and 3D cameras,
and also because the Company had a write down of camera assets in 2004. As a
result, there was a minimal amount of camera assets to depreciate in 2005.

The Company anticipates higher gross margins for the full year of 2005 in
comparison to 2004, due to a combination of higher system installations and DMR
film releases, as commercial exhibitors continue to install new projection
systems in their multiplexes.

OTHER

Selling, general and administrative expenses were $29.0 million in the first
nine months of 2005 versus $24.5 million in the same period of 2004. Legal fees
for the first nine months of 2005 increased by $2.1 million as the Company
incurred legal costs related to patent infringement matters and settled certain
litigation matters. Compensation expense increased by $2.8 million in the first
nine months of 2005 in comparison to the same period in 2004, due largely to a
higher non-cash stock-based compensation charge along with a higher Canadian
dollar denominated salary expense, due to the strength of the Canadian dollar.
In addition, the Company has slightly higher staffing levels in the first nine
months of the current year, due to a higher level of anticipated theater system
signings and installations in the upcoming quarter. The Company recorded a
foreign exchange loss of $0.5 million in the first nine months of 2005 compared
to a loss of $0.1 million in the same period in 2004. The Company records
foreign exchange translation gains and losses primarily on a portion of its
financing receivable balances which are denominated in Canadian dollars, Euros
and Japanese Yen. The company recorded a capital tax recovery of $0.1 million
net of capital tax expense for refunds received in the first nine months of 2005
and expensed $0.5 million for capital taxes in the same period for 2004.

Amortization of intangibles remained consistent at $0.5 million in the first
nine months of 2005 and 2004.

Receivable provisions net of recoveries for accounts receivable and financing
receivables amounted to a net recovery of $0.5 million in the first nine months
of 2005 compared to a net recovery of $1.0 million in the first nine months of
2004, due to favorable outcomes on lease amendments for both periods.

Interest income remained consistent at $0.7 million in the first nine months of
2005 and 2004.


                                     Page 40



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2004
(cont'd)

OTHER (cont'd)

Interest expense remained consistent at $12.6 million in the first nine months
of 2005 and 2004. Included in interest expense is the amortization of deferred
finance costs in the amount $0.7 million in the first nine months of 2005 and
2004 related to Senior Notes due 2010. The Company's policy is to defer and
amortize all the costs relating to a debt financing over the life of the debt
instrument.

INCOME TAXES

The Company's effective tax rate differs from the statutory tax rate and will
vary from year to year primarily as a result of numerous permanent differences,
the Canadian manufacturing and processing profits deduction, investments and
other tax credits, the provision for income taxes at different rates in foreign
and other provincial jurisdictions, enacted statutory tax rate increases or
reductions in the year, changes in the Company's valuation allowance based on
the Company's recoverability assessments of deferred tax assets, and favorable
or unfavorable resolution of various tax examinations. The income tax expense
for the nine months ended September 30, 2005, is calculated by applying the
estimated average annual effective tax rate of approximately 10% for the 2005
year to pre-tax income for the period. In addition, the income tax provision for
the first nine months of 2005 also included an amount of $0.2 million in respect
of the conclusion of various tax examinations and additional tax assessments for
the 1999 and 2000 taxation years. The Company also recorded a recovery of
provincial capital taxes of $0.7 million in the nine month period of 2005
related to these same tax examinations through selling, general and
administrative expenses. As of September 30, 2005, the Company had a gross
deferred income tax asset of $50.5 million, against which the Company is
carrying a $44.0 million valuation allowance.

RESEARCH AND DEVELOPMENT

Research and development expenses were $2.4 million in the first nine months of
2005 versus $3.0 million in the first nine months of 2004. The lower level of
expenses in 2005 primarily reflects research and development activities
pertaining to the Company's new IMAX MPX theater projection system, which is now
complete. Through research and development, the Company continues to design and
develop cinema-based equipment, software and other technologies to enhance its
product offering, including the continued enhancement of a method of generating
stereoscopic (3D) imaging data from a monoscopic (2D) source. The Company
believes that the motion picture industry will be affected by the development of
digital technologies, particularly in the areas of content creation (image
capture), post-production (editing and special effects), digital re-mastering
distribution and display. Consequently, the Company has made significant
investments in digital technologies, including the development of a proprietary,
patent-pending technology to digitally enhance image resolution and quality of
motion picture films, and the conversion of monoscopic (2D) to stereoscopic (3D)
images and holds a number of patents, patents pending and intellectual property
rights in these areas. In addition, the Company holds numerous digital patents
in the large-format field of use. However, there can be no assurance that the
Company will be awarded patents covering its technology or that competitors will
not develop similar technologies.

LOSS ON RETIREMENT OF NOTES

During the first nine months of 2004, the Company recorded a loss of $0.8
million related to costs associated with the redemption of $29.2 million of the
Company's Old Senior Notes. This transaction had the effect of fully
extinguishing the Old Senior Notes.


                                     Page 41



                                IMAX CORPORATION

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

RESULTS OF OPERATIONS (cont'd)

NINE MONTHS ENDED SEPTEMBER 30, 2005 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 2004
(cont'd)

DISCONTINUED OPERATIONS

On December 23, 2003, the Company closed its owned and operated Miami IMAX
theater. The Company abandoned or removed all of its assets from the theater in
the first quarter of 2004. The Company is involved in a legal proceeding with
the landlord of the theater with respect to the amount owing to the landlord by
the Company for lease and guarantee obligations. The amount of loss to the
Company has been estimated as between $0.8 million and $2.3 million. The Company
paid out $0.8 million with respect to amounts owing to the landlord during 2003
and 2004. As the Company is uncertain as to the outcome of the proceeding, no
additional amount has been recorded. The Company recorded $nil in net earnings
from discontinued operations related to Miami IMAX theater in the first nine
months of 2005 and 2004.

Effective December 11, 2001, the Company completed the sale of its wholly-owned
subsidiary, Digital Projection International, including its subsidiaries
(collectively "DPI"), to a company owned by members of DPI management. As part
of the transaction, the Company restructured its advances to DPI, releasing DPI
from obligations to repay any amounts in excess of $12.7 million previously
advanced by the Company, and reorganized the remaining $12.7 million of debt
owing to the Company into two separate loan agreements. The loans receivable are
collateralized by fixed and floating charges over all DPI assets including
intellectual properties. One of the loans is convertible, upon the occurrence of
certain events, into shares representing 49% of the total share capital of DPI.
During the first nine months of 2005, the Company recognized $0.8 million (2004
- $0.6 million) in income from discontinued operations. As of September 30, 2005
the remaining balance of the loans and interest receivable is $13.5 million, of
which $13.1 million has been allowed for.

LIQUIDITY AND CAPITAL RESOURCES

CREDIT FACILITY

On February 6, 2004, the Company entered into a loan agreement for a secured
revolving credit facility (the "Credit Facility") The Credit Facility is a
three-year revolving credit facility with yearly renewal options thereafter,
permitting maximum aggregate borrowings of $20.0 million, subject to a borrowing
base calculation which includes the Company's financing receivables, and certain
reserve requirements and further reduced by outstanding letters of credit. The
Credit Facility bears interest at Prime + 0.25% per annum or Libor + 2.0% per
annum and is collateralized by a first priority security interest in all of the
current and future assets of the Company. The Credit Facility contains typical
affirmative and negative covenants, including covenants that restrict the
Company's ability to: incur certain additional indebtedness; make certain loans,
investments or guarantees; pay dividends; make certain asset sales; incur
certain liens or other encumbrances; conduct certain transactions with
affiliates and enter into certain corporate transactions. In addition, the
Credit Facility contains customary events of default, including upon an
acquisition or a change of control that has a material adverse effect on the
Company's financial condition. The Credit Facility also requires the Company to
maintain a minimum level of earnings before interest, taxes, depreciation and
amortization, and cash collections. As at September 30, 2005, the Company has
not drawn down on the Credit Facility, and has letters of credit for $9.2
million secured by the Credit Facility arrangement.


                                     Page 42



                                IMAX CORPORATION

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

LIQUIDITY AND CAPITAL RESOURCES (cont'd)

CASH AND CASH EQUIVALENTS

As at September 30, 2005, the Company's principal sources of liquidity included
cash and cash equivalents of $22.1 million, short-term investments of $12.2
million, the Credit Facility, trade accounts receivable of $21.4 million and
anticipated collection from net investment in leases due in the next 12 months
of $7.0 million. As at September 30, 2005, the Company had not drawn down any
amounts under the Credit Facility.

The Company believes that cashflow from operations together with existing cash
and borrowing available under the Credit Facility will be sufficient to meet
operating needs for the foreseeable future. However, the Company's operating
cashflow can be impacted if management's projections of future signings and
installations are not realized. The Company forecasts its short-term liquidity
requirements on a quarterly and annual basis. Since the Company's future
cashflows are based on estimates and there may be factors that are outside of
the Company's control, there is no guarantee the Company will continue to be
able to fund its operations through cash flows from operations. Under the terms
of the Company's typical theater system lease agreement, the Company receives
substantial cash payments before the Company completes the performance of its
obligations. Similarly, the Company receives cash payments for some of its film
productions in advance of related cash expenditures.

The Company's net cash provided by (used in) operating activities is impacted by
a number of factors, including the proceeds associated with new signings of
theater system lease and sale agreements in the year, the box office performance
of large format films distributed by the Company and/or exhibited in the
Company'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 $3.7 million for the period
ended September 30, 2005. Changes in other non-cash operating assets as compared
to December 31, 2004 include an increase of $4.8 million in inventories, an
increase of $1.8 million in financing receivables, a $0.8 million increase in
accounts receivable and a $2.8 million increase in prepaid expenses, which
mostly relates to prepaid film print costs that will be expensed over the period
to be benefited. Changes in other non-cash operating liabilities as compared to
December 31, 2004 include an increase in deferred revenue of $6.7 million, an
increase in accounts payable of $1.0 million and a decrease of $4.7 million in
accrued liabilities. Included in accrued liabilities for the period ended
September 30, 2005 were $28.9 million in respect of accrued pension obligations
which are long-term in nature.

Cash used in investing activities amounted to $14.4 million in the first nine
months of 2005, which includes an increase in short-term investments of $12.2
million, purchases of $1.2 million in fixed assets, an increase in other assets
of $0.6 million and an increase in other intangible assets of $0.4 million.

Cash provided by financing activities in the first nine months of 2005 amounted
to $3.6 million, primarily due to the issuance of common shares through the
exercise of stock options. The Company also received $0.4 million in cash on a
note receivable from a discontinued operation.

Capital expenditures including the purchase of fixed assets and investments in
film assets were $8.5 million for the first nine months of 2005.

Cash provided by operating activities amounted to $4.7 million for the period
ended September 30, 2004. Changes in other non-cash operating assets and
liabilities included a decrease in deferred revenue of $12.7 million, and a
decrease of $1.3 million in inventories. Cash used by investing activities for
the first nine months of 2004 amounted to $1.8 million, primarily consisting of
$0.7 million invested in fixed assets and $0.9 million invested in other assets.
Cash used in financing activities included a $29.2 million retirement of its Old
Senior Notes. The Company also received $0.4 million in cash on a note
receivable from a discontinued operation. Capital expenditures including the
purchase of fixed assets net of sales proceeds and investments in film assets
were $3.5 million for the first nine months of 2004.


                                     Page 43



                                IMAX CORPORATION

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

LIQUIDITY AND CAPITAL RESOURCES (cont'd)

LETTERS OF CREDIT AND OTHER COMMITMENTS

As at September 30, 2005, the Company has letters of credit of $9.2 million
outstanding, of which the entire balance has been secured by the Credit
Facility.

SENIOR NOTES DUE 2010

In November 2004, the Company completed an exchange offer wherein $159.0 million
of the Company's 9.625% senior notes due December 1, 2010 (the "Unregistered
Senior Notes") were exchanged for 9.625% senior notes registered under the
Securities Act of 1933, as amended (the "Registered Senior Notes"), pursuant to
a registration statement on Form S-4 that had been declared effective by the
Securities and Exchange Commission on September 30, 2004. Apart from the fact
that the Registered Senior Notes have been registered under the Securities Act,
the Unregistered Senior Notes and the Registered Senior Notes are substantially
identical and are referred to herein as the "Senior Notes". The Senior Notes are
unconditionally guaranteed, jointly and severally, by certain of the Company's
wholly-owned subsidiaries.

The terms of the Company's Senior Notes impose certain restrictions on its
operating and financing activities, including certain restrictions on the
Company's ability to: incur certain additional indebtedness; make certain
distributions or certain other restricted payments; grant liens; create certain
dividend and other payment restrictions affecting the Company's subsidiaries;
sell certain assets or merge with or into other companies; and enter into
certain transactions with affiliates. The Company believes these restrictions
will not have a material impact on its financial condition or results of
operations.

As at September 30, 2005, the Company had outstanding $159.0 million aggregate
principal of Registered Senior Notes and $1.0 million aggregate principal of
Unregistered Senior Notes.

OLD SENIOR NOTES DUE 2005

In December 1998, the Company issued $200.0 million of senior notes due December
1, 2005 bearing interest at a rate of 7.875% per annum (the "Old Senior Notes").

During 2003, the Company retired an aggregate of $47.2 million principal amount
of the Old Senior Notes and accrued interest of $0.7 million in exchange for the
issuance of 5,838,353 of its common shares at an average value of $8.28 per
share. The Company recorded additional charges of $0.3 million related to costs
associated with this retirement. These transactions had the effect of reducing
the principal amount of the Company's outstanding Old Senior Notes to $152.8
million. In December 2003, the Company completed a tender offer and consent
solicitation for its remaining $152.8 million of the Old Senior Notes. In
December 2003, $123.6 million in principal of the Old Senior Notes were redeemed
pursuant to the tender offer. Notice of Redemption for all remaining outstanding
Old Senior Notes was delivered on December 4, 2003 and the remaining $29.2 of
outstanding Old Senior Notes were redeemed on January 2, 2004. A loss of $0.8
million related to the retirement was recorded in 2004.

PENSION OBLIGATIONS

The Company has a defined benefit pension plan covering its two Co-Chief
Executive Officers. As at September 30, 2005, the Company had an unfunded and
accrued projected benefit obligation of approximately $28.9 million (December
31, 2004 - $25.9 million) in respect of this defined benefit pension plan. The
Company intends to use the proceeds of life insurance policies taken on its
Co-Chief Executive Officers to be applied towards the benefits due and payable
under the plan, although there can be no assurance that the Company will
ultimately do so.


                                     Page 44



                                IMAX CORPORATION

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

OFF-BALANCE SHEET ARRANGEMENTS

There are currently no off-balance sheet arrangements that have or are
reasonably likely to have a current or future material effect on the Company's
financial condition.

ITEM 3. QUANTITATIVE AND QUALITATIVE FACTORS ABOUT MARKET RISK

The Company is exposed to market risk from changes in foreign currency rates.
The Company does not use financial instruments for trading or other speculative
purposes.

A majority of the Company's revenue is denominated in U.S. dollars while a
significant portion of its costs and expenses is denominated in Canadian
dollars. A portion of the Company's net U.S. dollar flows is converted to
Canadian dollars to fund Canadian dollar expenses through the spot market. In
Japan, the Company has ongoing operating expenses related to its operations. Net
Japanese yen flows are converted to U.S. dollars through the spot market. The
Company also has cash receipts under leases denominated in Japanese yen, Euros
and Canadian dollars. The Company plans to convert Japanese yen and Euros lease
cash flows to U.S. dollars through the spot markets on a go-forward basis.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company's Co-Chief Executive Officers and Chief Financial Officer, after
evaluating the effectiveness of the Company's "disclosure controls and
procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d- 15(e)) as of the end of the period covered by this report, have
concluded that, as of the end of the period covered by this report, the
Company's disclosure controls and procedures were adequate and effective. The
Company will continue to periodically evaluate its disclosure controls and
procedures and will make modifications from time to time as deemed necessary to
ensure that information is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

As of the end of the period covered by this report there was no change in the
Company's internal control over financial reporting that occurred during the
period covered by this report that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.


                                     Page 45



                                IMAX CORPORATION

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

(A)  In March 2005, the Company, together with Three-Dimensional Media Group,
     Ltd. ("3DMG"), filed a complaint in the U.S. District Court for the Central
     District of California, Western Division, against In-Three, Inc.
     ("In-Three") alleging patent infringement and seeking injunctive relief and
     damages. In April 2005, In-Three filed an Answer denying infringement and
     asserting counterclaims that seek a declaratory judgment of
     non-infringement, invalidity, and unenforceability of the patent in suit,
     and damages for alleged false advertising, false designation of origin,
     breach of contract, interference with prospective economic advantage and/or
     unfair competition, and further sought a stay of the proceedings pending a
     review of the patent in suit by the U.S. Patent and Trademark Office
     ("PTO"), which review was granted by the PTO on August 5, 2005. On June 7,
     2005, In-Three moved to dismiss the Company's and 3DMG's claims against it
     for lack of jurisdiction and on July 21, 2005, In-Three's claims were
     amended to assert counterclaims against the Company for willful
     infringement of In-Three's patents, and to seek an injunction against the
     Company to enjoin it from practicing its film conversion technology. On
     July 21 and July 29, 2005, the Court issued orders: (i) rejecting
     In-Three's motion to dismiss the proceedings, (ii) rejecting In-Three's
     motion for a preliminary injunction against the Company, (iii) rejecting
     In-Three's motion to stay the proceedings for an examination by the PTO and
     (iv) rejecting the Company's motion for a preliminary injunction against
     In-Three. Accordingly the Company believes the case will proceed to trial,
     and the Court informed the parties that it intends to oversee a swift
     resolution of the proceedings. On October 21, 2005, In-Three and the
     Company agreed to engage in mandatory private mediation of the matter
     pursuant to Local Rule 16-14 of the District Court. The Company will
     continue to vigorously pursue its claims and believes that all of the
     allegations made by In-Three are without merit. The Company further
     believes the amount of the loss, if any, suffered in connection with the
     counterclaims would not have a material impact on the financial position or
     results of operations of the Company, although no assurance can be given
     with respect to the ultimate outcome of any such litigation.

(B)  In November 2001, the Company filed a complaint with the District Court of
     Munich against Big Screen, a German large-screen cinema owner in Berlin
     ("Big Screen"), demanding payment of rental payments and certain other
     amounts owed to the Company. Big Screen has raised a defense based on
     alleged infringement of German antitrust rules, relating mainly to an
     allegation of excessive pricing. Big Screen had brought a number of motions
     for restraining orders in this matter relating to the Company's provision
     of films and maintenance, all of which have been rejected by the courts,
     including the Berlin Court of Appeals, and for which all appeals have been
     exhausted. The Company believes that all of the allegations in Big Screen's
     individual defense are entirely without merit and will accordingly continue
     to prosecute this matter vigorously. The Company believes that the amount
     of the loss, if any, suffered in connection with this dispute would not
     have a material impact on the financial position or results of operations
     of the Company, although no assurance can be given with respect to the
     ultimate outcome of any such litigation.

(C)  In May 2002, the Company filed a complaint with the District Court of
     Nuremberg-Furth, Germany against Siewert Holding in Wuerzburg ("Siewert"),
     demanding payment of rental obligations and other amounts owed to the
     Company. Siewert raised a defense based on alleged infringement of German
     antitrust rules. By judgement of December 20, 2002, the District Court
     rejected the defense and awarded judgement in documentary proceedings in
     favor of the Company and added further amounts that had fallen due. Siewert
     applied for leave to appeal to the German Supreme Court on matters of law,
     which was rejected by the German Supreme Court in March 2004. Siewert
     subsequently made a partial payment of amounts awarded to the Company.
     Siewert has filed follow up proceedings to the documentary proceedings in
     the District Court, essentially repeating the claims rejected in the
     documentary proceeding. On September 30, 2004, Siewert filed for insolvency
     with the Local Court in Wuerzburg. In a recent criminal matter before the
     District Court of Wuerzburg, unrelated to the above-referenced proceedings,
     Mr. Siewert was convicted of credit fraud, delaying the filing for
     insolvency and other charges, and was sentenced to 30 months in prison.


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                                IMAX CORPORATION

PART II OTHER INFORMATION (cont'd)

ITEM 1. LEGAL PROCEEDINGS (cont'd)

(D)  In January 2004, the Company and IMAX Theater Services Ltd., a subsidiary
     of the Company, commenced an arbitration seeking damages of approximately
     $3.7 million before the International Court of Arbitration of the
     International Chambers of Commerce (the "ICC") with respect to the breach
     by Electronic Media Limited ("EML") of its December 2000 agreement with the
     Company. In April 2004, EML filed an answer and counterclaim seeking the
     return of funds EML has paid to the Company, incidental expenses and
     punitive damages. In June 2004, the Company commenced a related arbitration
     before the ICC against EML's affiliate, E-CITI Entertainment (I) PVT
     Limited ("E-Citi"), seeking $17.8 million as a result of E-Citi's breach of
     a September 2000 lease agreement. The arbitration hearing has been set for
     the week of November 14, 2005.

(E)  In June 2004, Robots of Mars, Inc. ("Robots") initiated an arbitration
     proceeding against the Company in California with the American Arbitration
     Association pursuant to an arbitration provision in a 1994 film production
     agreement between Robots' predecessor-in-interest and a subsidiary of the
     Company, asserting claims for breach of contract, fraud, breach of
     fiduciary duty and intentional interference with contract. Robots is
     seeking an accounting of the Company's revenues and an award of all sums
     alleged to be due to Robots under the production agreement, as well as
     punitive damages. The Company filed a cross claim for indemnity against a
     third party, SIMEX, Inc. ("SIMEX"). In response, SIMEX filed an application
     in Toronto, Ontario, Canada, seeking a declaration that it is not subject
     to the arbitration provision or payment obligations in the production
     agreement. The Ontario Superior Court dismissed SIMEX's application, with
     costs. SIMEX has appealed this decision to the Ontario Court of Appeal
     which has heard the case but not yet rendered a decision. The Company
     intends to vigorously defend these actions and believes the amount of the
     loss, if any, suffered in connection with these proceedings would not have
     a material impact on the financial position or results of operations of the
     Company, although no assurance can be given with respect to the ultimate
     outcome of any such litigation or arbitration.

(F)  In addition to the matters described above, the Company is currently
     involved in other legal proceedings which, in the opinion of the Company's
     management, will not materially affect the Company's financial position or
     future operating results, although no assurance can be given with respect
     to the ultimate outcome of any such proceedings.


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                                IMAX CORPORATION

PART II OTHER INFORMATION (cont'd)

ITEM 6. EXHIBITS

(A)     EXHIBITS


     
10.20   Statement of Directors' Compensation, dated August 11, 2005

31.1    Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of
        2002, dated November 3, 2005, by Bradley J. Wechsler.

31.2    Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of
        2002, dated November 3, 2005, by Richard L. Gelfond.

31.3    Certification Pursuant to Section 302 of the Sarbanes - Oxley Act of
        2002, dated November 3, 2005, by Francis T. Joyce

32.1    Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002, dated November 3, 2005, by Bradley J. Wechsler.

32.2    Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002, dated November 3, 2005, by Richard L. Gelfond.

32.3    Certification Pursuant to Section 906 of the Sarbanes - Oxley Act of
        2002, dated November 3, 2005, by Francis T. Joyce



                                     Page 48



                                IMAX CORPORATION

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                        IMAX CORPORATION


Date: November 3, 2005                  By: /s/ Francis T. Joyce
                                            ------------------------------------
                                            Francis T. Joyce
                                            Chief Financial Officer
                                            (Principal Financial Officer)


Date: November 3, 2005                  By: /s/ Kathryn A. Gamble
                                            ------------------------------------
                                            Kathryn A. Gamble
                                            Vice President, Finance, Controller
                                            (Principal Accounting Officer)


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