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

                                    FORM 20-F

[ ]    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
       EXCHANGE ACT OF 1934

                                       OR

|X|    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934

                   For the fiscal year ended December 31, 2003

                                       OR

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

                        For the transition period from to

                        Commission file number: 333-9410

                                  MARSULEX INC.
             (Exact name of Registrant as specified in its charter)

                                     Canada
                 (Jurisdiction of incorporation or organization)

       111 Gordon Baker Road, Suite 300, Toronto, Ontario, Canada M2H 3R1
                    (Address of principal executive offices)

              Securities registered or to be registered pursuant to
                         Section 12(b) of the Act: None

              Securities registered or to be registered pursuant to
                         Section 12(g) of the Act: None

              Securities for which there is a reporting obligation
                     pursuant to Section 15(d) of the Act.

   9 5/8% Senior Subordinated Notes Due 2008 (the "Senior Subordinated Notes")

As of December 31, 2003, the number of outstanding common shares was: 31,696,698

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 which financial statement item the registrant has
elected to follow.
                                       Item 17  |X|        Item 18  [ ]

<PAGE>


                                TABLE OF CONTENTS
                                -----------------

                                                                           Page
                                                                           ----

PART I

ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.............1
ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE...........................1
ITEM 3.      KEY INFORMATION...................................................1
ITEM 4.      INFORMATION ON THE COMPANY........................................9
ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................21
ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ......................21
ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................24
ITEM 8.      FINANCIAL INFORMATION............................................26
ITEM 9.      THE OFFER AND LISTING............................................26
ITEM 10.     ADDITIONAL INFORMATION...........................................27
ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK........31
ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........32

PART II

ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUINCIES..................33
ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
             HOLDERS AND USE OF PROCEEDS......................................33
ITEM 15.     CONTROLS AND PROCEDURES..........................................33
ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT.................................33
ITEM 16B.    CODE OF ETHICS...................................................33
ITEM 16C.    PRINCIPLE ACCOUNTANTS FEES AND SERVICES..........................33
ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.......34


PART III

ITEM 17.     FINANCIAL STATEMENTS.............................................35
ITEM 18.     FINANCIAL STATEMENTS.............................................35
ITEM 19.     EXHIBITS.........................................................35

SIGNATURE    .................................................................36


                                      i
<PAGE>


                                     PART I

ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.      KEY INFORMATION

We express all dollar amounts in this Annual Report on Form 20-F in Canadian
dollars, except where otherwise indicated. References to "$" are to Canadian
dollars, and references to "US$" are to U.S. dollars. Unless otherwise
indicated, all references to "Marsulex" or the "Company" are references to
Marsulex Inc. and its subsidiaries.

The historical consolidated financial statements of the Company are reported in
Canadian dollars and are prepared in accordance with accounting principles
generally accepted in Canada ("Canadian GAAP"). These principles conform in all
material respects with accounting principles generally accepted in the United
States ("U.S. GAAP"), except as described in Note 20 to the audited historical
consolidated financial statements of the Company included in this Annual Report
on Form 20-F. All references to "tons" are to metric tons (approximately 2,200
pounds), rather than "short" tons (2,000 pounds).

Forward-Looking Statements
--------------------------

Certain statements contained in this Annual Report on Form 20-F under the
captions Item 4. Information on the Company, Item 5. Operating and Financial
Review and Prospects and elsewhere in this Annual Report constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. When used in this document, the words,
"anticipate," "believe," "estimate" and "expect" and similar expressions, as
they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance, or achievements that may be expressed or implied by
such forward-looking statements, including, among others, the Company's reliance
on customers, competition in the Company's markets, development of new products
and services, fluctuations in currency exchange rates, commodity prices or
interest rates, the Company's ability to maintain good relations with its
employees, changes in laws or regulations regarding the environment or other
environmental liabilities, the Company's ability to integrate acquisitions and
ability to protect its intellectual property, and other risks discussed under
"Risks Factors" in Item 3. Key Information and risks discussed from time to time
in the Company's filings with the Securities and Exchange Commission and other
regulatory authorities. Should one or more of these risks or uncertainties
materialize, or should assumptions underlying the forward-looking statements
prove incorrect, actual results may vary materially from those described herein
as anticipated, believed, estimated or expected. The Company does not intend,
and does not assume any obligation, to update these forward-looking statements.

Selected Financial Data
-----------------------

The following table presents selected historical consolidated financial data of
the Company as of and for the fiscal years ended December 31, 1999, 2000, 2001,
2002 and 2003. The selected historical consolidated financial data for the
Company set forth below has been derived from the audited historical
consolidated financial statements of the Company. Historic results are not
necessarily indicative of the results that you may expect for any other future
period or for a full year. The selected historical consolidated financial data
should be read in conjunction with the audited consolidated financial statements
of the Company and the notes thereto included elsewhere in this Annual Report
and Item 5. Operating and Financial Review and Prospects.


                                      1

<PAGE>
<TABLE>
<CAPTION>

($ 000 except share and per share amounts)                           2003        2002        2001        2000        1999
                                                                              (restated   (restated   (restated   (restated
                                                                                  [1])        [1])        [1])        [1])
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Statement of Operations Data:
<S>                                                                <C>          <C>         <C>         <C>         <C>
Revenue                                                            134,982      138,291     236,714     311,491     349,329
Gross profit                                                        48,436       48,263      66,302      76,179      87,023
Selling, general, administrative and other costs                    19,663       20,747      26,273      33,099      32,223
Foreign exchange (gains) losses on monetary items                   (2,057)        (569)        471        (387)      1,152
Loss (gain) on disposal of fixed assets                                 --           20          59        (871)        (45)
Depreciation                                                        15,727       15,660      15,170      17,684      18,432
Unusual items [2]                                                    1,422        7,487     (55,556)     46,709          --
Foreign exchange (loss) on Senior Notes [3]                             --           --         968       1,841      (3,959)
Amortization of deferred charges [4]                                   726          387       1,074       1,442       1,563
Interest expense                                                     9,755       13,684      18,085      20,270      20,687
Interest capitalized                                                (3,738)      (2,572)     (1,065)       (191)         --
Interest income                                                       (730)      (1,942)     (3,141)     (3,509)     (2,691)
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations before income
     taxes, minority interest and amortization of goodwill           7,668       (4,639)     63,964     (39,908)     19,661
Income taxes (recovery) [5]                                            810        1,544      12,268      (1,039)      4,946
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) from continuing operations before
  minority interest and amortization of goodwill                     6,858       (6,183)     51,696     (38,869)     14,715
Minority interest                                                       --        1,595       1,403       1,503       1,355
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations before
  amortization of goodwill                                           6,858       (7,778)     50,293     (40,372)     13,360
Amortization of goodwill, net of income taxes                           --           --       3,555       3,986       4,294
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from continuing operations                           6,858       (7,778)     46,738     (44,358)      9,066
Earnings from discontinued operations, net of tax                       --           --      16,644       3,658       2,448
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss)                                                  6,858       (7,778)     63,382     (40,700)     11,514
================================================================ =========== =========== =========== =========== ===========

================================================================ =========== =========== =========== =========== ===========
Earnings (loss) from continuing operations per share, basic           0.22       (0.25)       1.48       (1.40)       0.29
Earnings (loss) per share, basic                                      0.22       (0.25)       2.01       (1.29)       0.37
Earnings (loss) from continuing operations per share, diluted         0.21       (0.25)       1.47       (1.40)       0.29
Earnings (loss) per share, diluted                                    0.21       (0.25)       2.00       (1.29)       0.37
---------------------------------------------------------------- ----------- ----------- ----------- ----------- -----------

Other Financial Data (from continuing operations):
EBITDA [6]                                                           30,830      28,085      39,558      43,467      53,648
EBITDA [6] per share                                                   0.97        0.89        1.26        1.38        1.70
Capital expenditures                                                 32,583      40,977      29,775      17,182       9,245
Cash flow from operations, before changes in non-cash
   working capital [7]                                               24,461      15,636      19,286      26,213      36,618
Balance Sheet Data (end of year):
Current assets                                                       51,929      37,429     163,822      95,680     133,844
Total assets                                                        270,489     239,245     343,569     315,913     375,391
Current liabilities                                                  26,250      21,393      75,871      68,171      76,350
Long-term debt                                                      119,196      95,943     125,654     182,274     186,906
Total debt                                                          119,196      95,943     167,539     194,276     197,009
Net debt [8]                                                         85,250      88,003      49,391     162,277     139,091
Shareholders' equity                                                 96,827      91,702     100,825      39,200      79,004
Capital Stock                                                        57,973      57,625      57,505      57,505      57,505
Number of shares                                                 31,696,398  31,553,732  31,501,232  31,501,232  31,501,232
================================================================ =========== =========== =========== =========== ===========
</TABLE>

                                       2
<PAGE>
<TABLE>
<CAPTION>

($000 except per share amounts)                                    2003        2002         2001        2000        1999
--------------------------------------------------------------- ----------- ----------- ------------ ----------- -----------

U.S. GAAP
<S>                                                                  <C>       <C>           <C>       <C>            <C>
Net earnings (loss) from continuing operations                       7,240     (6,547)       37,497    (47,797)       8,139
Basic earnings (loss) from continuing operations per share            0.23      (0.21)         1.19      (1.52)        0.26
Diluted earnings (loss) from continuing operations per share          0.23      (0.21)         1.18      (1.52)        0.26
Net earnings (loss)                                                  7,240     (6,547)       54,141    (44,139)      10,587

Basic earnings (loss) per share                                       0.23      (0.21)         1.72      (1.40)        0.34
Diluted earnings (loss) per share                                     0.23      (0.21)         1.71      (1.40)        0.34
Total Assets based on U.S. GAAP                                    266,419     234,930      339,089     312,657     373,739
Shareholder's equity based on U.S. GAAP                             92,798      88,085       96,992      34,590      77,833
--------------------------------------------------------------- ----------- ----------- ------------ ----------- -----------
</TABLE>

(1)   On January 1, 2003, the Company early-adopted the new CICA accounting
      standard for asset retirement obligations. Previously when the cost of the
      site restoration exceeded the salvage value of the asset, the expected
      settlement amount of the asset retirement costs were systematically
      accrued to the expected settlement amount in the year the obligation was
      anticipated to settle. Under the new policy, asset retirement obligations
      which relate to its legal obligations arising from construction or use of
      a long-lived asset are recognized in the period in which they are incurred
      if a reasonable estimate of the fair value can be determined. The
      liability is measured at fair value and is adjusted to its present value
      in subsequent periods as accretion expense is recorded. The associated
      asset retirement costs are capitalized as part of the carrying amount of
      the long-lived assets and the asset is depreciated over the asset's
      estimated useful life.

      This standard is consistent with FAS No. 143 which the Company adopted for
      U.S. GAAP purposes effective January 1, 2003.

<TABLE>
<CAPTION>

     Effect on opening retained earnings in the consolidated
       balance sheets ($000)                                          2003       2002         2001      2000        1999
    -------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------

<S>                                                                     <C>        <C>         <C>        <C>         <C>
    Asset retirement cost, included in property, plant
       and equipment                                                    466        466         466        401         401
    Accumulated depreciation on property, plant, and equipment         (242)      (189)       (136)       (83)        (35)
    Asset retirement obligation, included in other liabilities         (685)      (627)       (569)      (446)       (395)
    Future tax liability                                                 28         21          14          7          --
    -------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
    Opening retained earnings                                          (433)      (329)       (225)      (121)        (29)
    ============================================================== ========== =========== ========== =========== ==========

    Effect on the consolidated statement of operations ($000)          2003       2002        2001    2000           1999
    -------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------

    Accretion expense                                                    61         58          58         58          51
    Depreciation expense                                                 54         53          53         53          48
    Future tax recovery                                                  (8)        (7)         (7)        (7)         (7)
    -------------------------------------------------------------- ---------- ----------- ---------- ----------- ----------
    Total impact to net earnings                                        107        104         104        104          92
    ============================================================== ========== =========== ========== =========== ==========
</TABLE>

      Under this change in accounting standard, the Company is recognizing its
      future asset retirement costs where the Company has determined legal
      obligations exist, including Company properties that are on leased land,
      which revert back to the lessor and the Company has a legal obligation
      under the landlease agreement to remove improvements and structures from
      the property. The estimated amount of undiscounted retirement costs
      relating to these properties is $2,550,000. These costs are expected to be
      settled between 6 and 30 years and using a 1% inflation rate, the present
      value of the future asset retirement costs was determined with a
      credit-adjusted risk-free discount rate of 8.5%.

      Under U.S. GAAP, prior periods are not restated, and the cumulative effect
      of the adoption of the standard is recorded in earnings in the year of
      adoption with the effect for 2003 being a decrease in earnings of 433,000
      ($0.014 per share). The pro forma impact of retroactive application is:

<TABLE>
<CAPTION>

    ($000)                                            2003           2002          2001          2000           1999
    --------------------------------------------- -------------- ------------- ------------- -------------- -------------

<S>                                                     <C>           <C>           <C>          <C>             <C>
    Net earnings (loss) on U.S. GAAP                    7,240         (6,547)       54,141       (44,139)        10,587
    Pro forma effect of retroactively applying
          FAS 143                                          --           (104)         (104)         (104)           (92)
    --------------------------------------------- -------------- ------------- ------------- -------------- -------------
    Pro forma net earnings (loss)                       7,240         (6,651)       54,037       (44,243)        10,495
    ============================================= ============== ============= ============= ============== =============
</TABLE>


                                       3
<PAGE>

(2)   Unusual items:

<TABLE>
<CAPTION>

     ($000)                                                          2003        2002       2001        2000        1999
     --------------------------------------------------------- ----------- ----------- ---------- ----------- -----------
<S>                                                                 <C>         <C>     <C>           <C>
     Expenses incurred on cancellation of stock options held
       by former employees (2a)                                       737          --         --          --          --
     Gain on disposal of sulphur removal assets (2b)                               --    (64,768)         --          --
     Expenses incurred on early retirement of debt (2c)                         1,252      5,593          --          --
     Write-off of deferred charges                                                 --      3,619          --          --
     Loss on disposal of Intertrade Holdings Inc. (2d)                 --          --         --      46,709          --
     Gain on disposal of parts and service business and
      other assets (2e)                                                685     (4,014)         --          --          --
     Write-off of capitalized project costs (2f)                       --       9,508         --          --          --
     Other unusual items                                               --         741         --          --          --
     --------------------------------------------------------- ----------- ----------- ---------- ----------- -----------
                                                                    1,422       7,487   (55,556)      46,709          --
     ========================================================= =========== =========== ========== =========== ===========
</TABLE>

      (2a)   On December 17, 2003, the Company purchased 433,434 stock options
             held by former employees of the Company for a total consideration
             of $737,000. The options were cancelled and fully expensed.

      (2b)   On July 18, 2001, the Company completed the sale of its sulphur
             removal services assets in eastern North America and of BCT, a
             subsidiary of Marsulex, to Chemtrade Logistics Income Fund for
             gross cash proceeds before costs of disposition of $167.2 million
             (the "Chemtrade Transaction") or $156.6 million net of costs of
             disposition, comprised of $128.1 million for the sale of the
             sulphur removal assets and $28.5 million for the sale of BCT. The
             disposal resulted in a pre-tax gain of $64.8 million or $54.9
             million net of tax for the sulphur removal services assets in
             eastern North America and a gain of $15.9 million or $15.1 million
             net of tax for BCT.

      (2c)   On July 18, 2001, the Company fully retired its outstanding 10.21%
             Senior Notes and cancelled its US$50.0 million operating credit
             facility at an expense of $5.6 million. These expenses included the
             write-off of deferred debt issuance costs and foreign exchange
             costs of $3.0 million and a make-whole payment of $2.6 million.

             As a result of the Chemtrade Transaction, the Company was obligated
             to make an offer to purchase a portion of the Senior Subordinated
             Notes limited to the net cash proceeds from the transaction reduced
             by the repayment of Senior Notes and funds committed and applied on
             capital projects. On August 20, 2002, the Company completed the
             offer to purchase in the amount of $69.5 million (US$44.2 million)
             principal at par plus accrued interest of $0.9 million (US$0.6
             million). As part of the purchase, the Company incurred expenses of
             $1.3 million.

      (2d)   On December 29, 2000, the Company disposed of its investment in
             Intertrade Holdings Inc., and the disposal resulted in a pre-tax
             loss of $46.7 million or $42.6 million net of tax.

      (2e)   On January 31, 2002, the Company completed the sale of its part and
             service business and other assets for gross proceeds of $6.6
             million.

      (2f)   Due to significant changes in the financial markets the Company and
             Santee Cooper mutually agreed not to proceed with the previously
             announced project for Marsulex to build and own a flue gas
             desulphurization system utilizing Marsulex's patented ammonium
             sulphate scrubbing technology at Santee Cooper's Winyah Power
             Generating Station. This resulted in a write-off of capitalized
             project costs of $9.5 million. Under U.S. GAAP, certain costs
             deferred under Canadian GAAP prior to a legally binding contract
             being entered into must be expensed.

(3)   Effective January 1, 2002, generally accepted accounting standards were
      amended to eliminate the deferral and amortization of foreign currency
      translation differences resulting from the translation of long-term
      monetary assets and liabilities denominated in foreign currencies. All
      such translation differences that the Company previously deferred and
      amortized are now charged directly to earnings. The prior year financial
      statements have been restated retroactively to adopt this new Section.

(4)   In 1998, the Company paid US$220,000 (Cdn $316,000), in connection with
      the repayment of bridge financing used for acquisitions. These amounts
      were deferred and amortized over the term of the debt acquired as part of
      the acquisitions. Under U.S. GAAP, these amounts would be deferred and
      amortized over the term of the bridge financing. Since the bridge
      financing facility extended from May 1998 to June 1998 these amounts would
      be expensed under U.S. GAAP.

(5)   United States Statement of Financial Accounting Standards No. 109
      ("Statement 109"), "Accounting for Income Taxes," has been adopted by the
      Company for United States reporting purposes. Under the asset and
      liability method of Statement 109, deferred tax assets and liabilities are
      recognized for the future tax consequences attributable to differences
      between the financial statement carrying amounts of existing assets and
      liabilities and their respective tax bases. The same methodology applies
      under Canadian GAAP, however, the terminology uses the word "future" in
      the place of "deferred". Deferred tax assets and liabilities under
      Statement 109 are measured using the enacted tax rates expected to apply
      to taxable income in the years in which those temporary differences are
      expected to be recovered or settled. Under Canadian GAAP the future tax
      assets and liabilities are measured using substantively enacted tax rates
      expected to apply to taxable income in the year in which those temporary
      differences are expected to be recovered or settled. Under Statement 109
      and Canadian GAAP, the effect on deferred/future tax assets and
      liabilities of a change in tax rates is recognized in income in the period
      in which the change occurs.

                                       4

<PAGE>
<TABLE>
<CAPTION>

       ($000)                                                2003          2002        2001         2000         1999
      ---------------------------------------------------------------------------------------------------------------------
<S>                                                        <C>           <C>         <C>          <C>          <C>
       EBITDA                                              30,830        28,085      39,558       43,467       53,648
       Loss (gain) on disposal of fixed assets                 --            20          59         (871)         (45)
       Depreciation                                        15,727        15,660      15,170       17,684       18,432
       Unusual items, (loss) gain                           1,422         7,487     (55,556)      46,709           --
       Foreign exchange loss (gain)                                          --         968        1,841       (3,959)
       Amortization of deferred charges                       726           387       1,074        1,442        1,563
       Interest expense                                     9,755        13,684      18,085       20,270       20,687
       Interest capitalized                                (3,738)       (2,572)     (1,065)        (191)          --
       Interest income                                       (730)       (1,942)     (3,141)      (3,509)      (2,691)
      ---------------------------------------------------------------------------------------------------------------------
       Earnings (loss) from continuing operations before
       income taxes, minority interest and amortization
       of goodwill                                          7,668        (4,639)     63,964      (39,908)      19,661
      =====================================================================================================================
</TABLE>

(6)   EBITDA is presented because management believes it is a widely used
      financial indicator of the Company's operating profitability and
      performance before the effects of capital investment and financing
      decisions. EBITDA is not a recognized measure under Canadian and U.S. GAAP
      and should not be considered as an alternative to net earnings,
      consolidated cash flow from operations or any other measure of performance
      required by GAAP or as an indicator of the Company's operating
      performance. The Company's method of calculating EBITDA may differ from
      other companies and accordingly, the Company's EBITDA may not be
      comparable to measures used by other companies.

(7)   Cash flow from operations is defined as net earnings plus non-cash items
      deducted in calculating net earnings including depreciation, amortization,
      unrealized foreign exchange gain or losses relating to cash balances, and
      deferred taxes, prior to changes in working capital. Management believes
      this is a measure of the cash generated by its operations including the
      cost of its financial structure and charges for income taxes but before
      fluctuations in its investment in working capital. It is not a recognized
      measure under Canadian or U.S. GAAP and should not be considered as an
      alternative to cash provided by continuing operations or any other measure
      of performance required by GAAP or as an indicator of the Company's
      operating performance. The Company's method of calculating cash flow from
      operations may differ from other companies and accordingly, the Company's
      measure may not be comparable to measures used by other companies.

<TABLE>
<CAPTION>

      ($000)                                               2003           2002        2001        2000         1999
      ----------------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>         <C>         <C>          <C>
       Cash flow from continuing operations before
         changes in working capital                      24,461         15,636      19,286      26,213       36,618
       Changes in non-cash working capital                4,979         (5,541)     (4,612)     (8,168)      (2,278)
      ----------------------------------------------------------------------------------------------------------------
       Cash provided by continuing operations            29,440         10,095      14,674      18,045       34,340
      ================================================================================================================

(8 )  Net debt is calculated as follows:
        ($000)                                               2003          2002        2001         2000        1999
      ------------------------------------------------------------------------------------------------------------------
       Total debt                                         119,196        95,943      167,539     194,276      197,009
       Cash and cash equivalents and cash held in
          trust both current and long-term portions        33,946         7,940      118,148      31,999       57,918
      ------------------------------------------------------------------------------------------------------------------
       Net Debt                                            82,250        88,003       49,391     162,277      139,091
      ==================================================================================================================
</TABLE>

Exchange Rate Information
-------------------------

The following tables provide exchange rates for Canadian dollars expressed in
U.S. dollars for each period indicated. These exchange rates are based on the
inverse of the noon buying rate in The City of New York for cable transfers in
Canadian dollars as certified for customs purposes by the Federal Reserve Bank
of New York (the "Noon Buying Rate").

The following table sets forth the high and low exchange rates for each month
during the previous six months:

<TABLE>
<CAPTION>

                                          Previous Six Months
  ------------ -------------- --------------- -------------- -------------- -------------- --------------
                Feb 2004         Jan 2004        Dec 2003       Nov 2003      Oct 2003       Sept 2003
  ------------ -------------- --------------- -------------- -------------- -------------- --------------
<S>                <C>              <C>             <C>            <C>           <C>            <C>
  High             1.3442           1.3340          1.3405         1.3362        1.3481         1.3876
  ------------ -------------- --------------- -------------- -------------- -------------- --------------
  Low              1.3108           1.2690          1.2923         1.2973        1.3043         1.3469
  ------------ -------------- --------------- -------------- -------------- -------------- --------------
</TABLE>

The following table sets forth the average exchange rates for the five most
recent financial years, calculated by using the average rate on the last day of
each month in such year:

                                       5
<PAGE>
<TABLE>
<CAPTION>

                                      Years ended December 31
  ----------------------- --------------- --------------- ------------- --------------- ---------------
                                    2003            2002          2001           2000            1999
  ----------------------- --------------- --------------- ------------- --------------- ---------------
<S>                               <C>             <C>           <C>            <C>             <C>
  Average                         1.3916          1.5702        1.5487         1.4872          1.4828
  ----------------------- --------------- --------------- ------------- --------------- ---------------
</TABLE>

On March 24, 2003, the inverse of the noon buying rate was US$ $1.3385
per $1.00.

Risk Factors
------------

The following is a description of risk factors that could affect the Company's
business, and ultimately, its profitability.

Reliance on Customers

The business of the Company is dependent on the involuntary production of a
number of by-products by its customers. As environmental regulations become more
demanding, the need for by-product control, regeneration, removal, and
conversion has increased. There can be no assurance that environmental
regulations will not become less stringent in the future or that customers of
the Company will continue to involuntary produce by-products which drive their
demand for the Company's services. Services provided and products handled from
the Company's major customer accounted for 10.3% of the Company's total 2003
revenue, the loss of which could have a significant impact on the Company.

Competition

Marsulex operates in competitive markets, and some of the Company's competitors
have economic resources greater than those of the Company and are well
established as suppliers to the markets that Marsulex serves.

Accordingly, such competitors may be better able to withstand volatility within
industries and throughout the economy as a whole while retaining significantly
greater operating and financial flexibility than the Company. There can be no
assurances that the Company will be able to compete effectively with its
competitors and competitive pressures may harm the Company's business.

Several of the Company's niche services and products are sold into select
markets. There can be no assurance, however, that these markets will not attract
additional competitors that could have greater financial, technological,
manufacturing and marketing resources than Marsulex.

New Products and Services

The Company has made significant investments in the development and
commercialization of new products, technologies and services. These include the
Power Generation group's most recently developed solution for controlling
sulphur trioxide emissions of utilities, CleanStack(TM). Broad market acceptance
and long-term commercial viability of services incorporating new products,
technologies and services may take some years to establish, if at all, and are
subject to business and competitive risks. If the Company is unable to develop
and market new products in a timely fashion, or at all, the Company may not be
able to compete successfully.

Foreign Exchange

As the Company has U.S. based operations and reports in Canadian dollars, it
is exposed to foreign exchange fluctuations. Approximately 42.9% of the
Company's 2003 revenue was in U.S. dollars and at present, a one-cent decline
in the U.S. dollar on the Company's U.S. operations would impact gross profit
by $0.2 million and EBITDA by approximately $0.1 million. However, the
Company's debt and related interest expense is in U.S. dollars which hedges
the U.S. dollar cash flow from operations.

The U.S. dollar interest expense, when combined with U.S. dollar depreciation
and amortization expenses, limits the exposure of net income to foreign
exchange fluctuations. A one-cent devaluation in the U.S. dollar impacts net
income by less than $0.1 million.


                                       6
<PAGE>

The Company has self-sustaining operations holding U.S. dollar assets and debt
and under present accounting rules in Canada, any fluctuation in the Canadian
dollar value against the U.S. dollar is recorded in the foreign currency
translation adjustment account that is part of the shareholders' equity on the
balance sheet.

Commodity Prices

Industrial chemicals sold by the Company are subject to market price
fluctuations. In addition, regional supply and demand imbalances can lead to
isolated price erosion. The Company's end-use contracts generally have a "meet
or release" provision. As a result, competitive pressure can cause Marsulex to
lower selling prices in order to retain the volume. While the Company attempts
to reduce its exposure to market price fluctuations through contracts where
commodity price exposure is either shared with or borne entirely by the
customer, there can be no assurance that the Company will be successful in
renegotiating existing contracts or entering new contracts on a fee-based or
risk-sharing basis.

Labour

Out of a total of 180 employees, the Company has 37 unionized employees at three
sites, represented by two unions through two collective agreements. In 2003, the
collective bargaining agreements for the unionized group at the Toledo facility
in Oregon, Ohio and Prince George, British Columbia were successfully
renegotiated. While the Company has not suffered any loss of production due to
work stoppages by its employees, there can be no assurances that work stoppages
or other labour disturbances which may have a material adverse effect on the
Company will not occur in the future. Finally, a large number of the Company's
suppliers and customers have unionized employees and there can be no assurances
that work stoppages or other labour disturbances at the Company's suppliers or
customers will not have a material adverse effect on the Company's business.

Environment

Notices and Findings of Violation have been issued against the Company by
federal regulators with respect to the Company's Toledo facility in Oregon,
Ohio. The Company is, however, in compliance with the permits issued by the
governing body (the State) and although there is a potential for penalties to be
assessed against the Company, the Company believes that it is in substantial
compliance with environmental laws, regulations and guidelines.

A Notice and Finding of Violation has been issued by federal regulators with
respect to the facility in Cairo, Ohio which has been sold to Chemtrade
Logistics Inc. ("Chemtrade"). As part of the sale, the Company has indemnified
Chemtrade against liabilities relating to the Notice and Finding of Violation
issued. As part of the indemnification the Company is obligated to reimburse
Chemtrade for the necessary installation of control equipment and for any
penalties which may be levied against the facility in respect of the Notice and
Finding of Violation.

If the Company is not successful in prosecuting indemnity claims from entities
from which it purchased the Toledo and Cairo facilities, if sufficient funds are
not available from such indemnity obligations or if the Company is subject to
new or significant environmental liabilities of which management is not
currently aware, the Company's business or financial condition could be
materially adversely affected.

Proprietary Technology

The Company relies on a combination of patents, confidentiality procedures and
contractual provisions to protect its proprietary rights. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may obtain and
use information that the Company regards as proprietary. Policing unauthorized
use of such proprietary technology, if required, may be difficult,
time-consuming and costly. In addition, the laws of certain countries in which
the Company does business may not protect its proprietary rights to the same
extent as the laws of the United States or Canada. There can be no assurance
that the Company will be successful in protecting its proprietary rights.

Further, the industry in which the Company competes has many participants
who own, or claim to own, intellectual property. From time to time, a third
party may claim that the Company infringes such third party's intellectual
property rights or may challenge the Company's rights to its own
intellectual property. Any claim, whether or not with merit, could be
time-consuming to evaluate, result in costly litigation or require the
Company to enter into licensing agreements that may require the payment of
a license fee and/or royalties to the owner of


                                       7
<PAGE>

the intellectual property. Such licensing agreements, if required, may
not be available on royalty or other licensing terms acceptable to the Company,
if available at all.

Acquisitions

A substantial part of the Company's growth has come through acquisitions. For
example, in fiscal 2003, the Company acquired the sulphur products assets from
Duke Energy Gas Transmission. The success of acquisitions will depend in part on
the Company's ability to overcome significant challenges, including timely,
efficient and successful execution of post-acquisition strategies. If the
Company fails to meet the challenges involved in integrating the operations of
its acquisitions, it may not realize anticipated benefits or synergies of the
acquisitions, which could adversely affect operating results.

Future acquisitions may involve debt incurrence, operating losses, dilutive
issuances of equity securities and significant cash expenditures, any of which
could have a material adverse effect on the Company's business.

Recent and any future acquisitions involve a number of risks, including:

o    the Company's ability to integrate the acquired business;
o    diversion of management attention;
o    impairment of goodwill adversely affecting net income;
o    the Company's ability to retain the management or other key employees of
     the acquired business;
o    the Company's ability to establish uniform standards, controls,
     procedures and policies;
o    the Company's ability to retain customers of the acquired companies;
o    exposure to legal claims for activities of the acquired business prior to
     the acquisition;
o    damage to the Company's reputation as a result of performance or customer
     satisfaction problems relating to an acquired business; and
o    the performance of any acquired business could be lower than anticipated.

Enforcement of Civil Liabilities

Marsulex is a Canadian corporation with its principal place of business in
Canada. A majority of the Company's directors and officers are residents of
Canada and all or a substantial portion of the Company's assets and those of
such persons are located outside the United States. Consequently, it may be
difficult to effect service of process within the United States upon the Company
or its directors or officers who are not residents of the United States, or to
realize in the United States upon judgments of courts of the United States
predicated upon civil liabilities under the U.S. Securities Act of 1933. No
assurance can be given that Canadian courts (1) would enforce judgments of U.S.
courts obtained in actions against the Company or such persons predicated upon
the civil liability provisions of the U.S. federal securities laws or the
securities or "blue sky" laws of any state within the United States or (2) would
enforce, in original actions, liabilities against the Company or such persons
predicated upon the U.S. federal securities laws or any such state securities or
blue sky laws.

Critical Accounting Policies

The Company's accounting policies, which are disclosed in Significant Accounting
Policies note, Note 1 of the audited financial statements, are in accordance
with generally accepted accounting principles in Canada and are applied on a
consistent basis with the exception of goodwill which was applied prospectively.
High-quality financial statements require rigorous application of accounting
policies. Management uses judgement in selecting policies for which alternative
methods exist and in applying the accounting policies. The policies discussed in
Management's Discussion and Analysis, Item 5 of this report, are considered by
management to be critical to an understanding of the Company's financial
statements because their application places the most significant demands on
management's judgement, and financial reporting results rely on estimation about
the effect of matters that are inherently uncertain. Specific risks for these
critical accounting policies are described in the following paragraphs. For all
of these policies, management cautions that future events rarely develop exactly
as forecast, and the best estimates routinely require adjustment and these
adjustments may have a material impact on the Company's financial condition.


                                     8
<PAGE>

ITEM 4.      INFORMATION ON THE COMPANY

History and Development of the Company
--------------------------------------

Incorporation

Marsulex Inc. ("Marsulex" or the "Company") was amalgamated under the laws of
Canada on June 16, 1989 under the Canada Business Corporations Act. On June 16,
1989, Marsulex amended its articles to remove the private company restrictions.
On November 19, 1996, Marsulex amended its articles by, among other things,
changing the minimum and maximum number of directors, amending the authorized
capital and reclassifying certain classes of shares to prepare for a rights
offering. Marsulex's registered office and Canadian headquarters is located at
111 Gordon Baker Road, Suite 300, Toronto, Ontario, M2H 3R1, and its telephone
number is 416-496-9655. The Company's agent for service in the United States is
Brian Stasiewicz located at Suite 2100, 203 North La Salle, Chicago, Illinois,
60601, and the telephone number is 312-558-1545.

History and Development of the Company

The Company was formed in June 1989 when it acquired certain sulphur businesses
and assets from C.I.L. Inc. ("CIL"), a wholly owned subsidiary of ICI plc, a
U.K.-based diversified chemical company. CIL entered the sulphur products
business in the late 1800s and was a major U.S. marketer of sulphur products.
Following the acquisition, management shifted the focus of the Company from
marketing sulphur products to providing outsourced environmental compliance
solutions. As a result of this shift, the Company modified its contracts with
customers to de-emphasize the impact of changes in pricing and demand for
industrial chemicals on the Company's financial performance, and increased its
percentage of revenues from fee-based and risk-sharing contracts. The Company
also began implementing a strategy of expanding its services to the oil refining
sector, a key target market.

Marsulex established a significant presence in the oil refining sector in
October 1996, when the Company purchased the business and assets of Coulton
Chemical Company, L.P. ("the Coulton Acquisition"), a leading provider of
sulphuric acid regeneration services in northern Ohio for total consideration of
approximately $129.6 million. The Coulton Acquisition: (i) expanded the
Company's process and technical capabilities to convert by-product sulphur
streams to higher value industrial and specialty chemicals; (ii) gave the
Company access to low cost regeneration and conversion technology and capacity;
(iii) expanded the Company's customer base and geographic market base; and (iv)
increased the Company's industry diversification.

In December 1996, the Company completed an initial public offering of its common
shares and obtained a listing for its common shares on the Toronto Stock
Exchange.

In June 1997, the Company purchased 65% of Sulconam Inc. ("Sulconam") for $10.8
million. On December 30, 2002, the Company acquired the remaining 35% of
Sulconam for $16.6 million. Sulconam is based in Montreal, Canada and is
attached by pipeline to the Petro-Canada and Shell Canada oil refineries.
Sulconam, which is part of the Refinery Services Group, extracts and recovers
sulphur from hydrogen sulphide gas sent to the plant by pipeline and converts it
into elemental sulphur and sodium bisulphite.

The Company entered its other key target market, the power generation sector, in
September 1997, with the acquisition of certain assets of General Electric
Environmental Services Inc. for $17.0 million ("the GEESI Acquisition"). The
GEESI Acquisition provided the Company with a leading market position in air
emission control to the global power industry, a large international customer
base, experienced people and proprietary technologies that control power
generator air emissions. The business forms the core of the Company's Power
Generation Group.

On May 13, 1998, the Company acquired all of the outstanding shares of both
IT Holding, Inc. ("IT Holding") and BCT from Trelleborg AB ("Trelleborg")
for approximately $77.3 million. Sulex, Inc. ("Sulex"), a subsidiary of IT
Holding, operates two plants on the U.S. west coast - at Long Beach,
California and at Anacortes, Washington - that remove molten sulphur from
west coast oil refineries by converting the molten sulphur to a solid form
for shipment overseas. A second subsidiary of IT Holding, Intertrade
Holdings, Inc. ("Intertrade"), removed and marketed sulphur and sulphuric
acid. Intertrade also produced sulphuric acid at a facility at Copperhill,
Tennessee. In late 2000, Marsulex closed the Copperhill facility and
ultimately disposed of its investment in


                                     9
<PAGE>

Intertrade on December 30, 2000 at a loss of $42.6 million, net of tax. In July
2001, BCT was sold to Chemtrade Logistics Income Fund for a gain of $15.1
million (see below for a description of "The Chemtrade Transaction"). Sulex
Inc. is part of the Refinery Services Group.

In 1999, Marsulex introduced new proprietary technology to improve the
performance of the tail gas recovery unit at the Company's facility in Montreal.
This technology reduced operating costs and ensures consistent compliance with
air quality regulations. It cost-effectively removes and recovers sulphur
emissions and also produces a higher value by-product, sodium bisulphite. The
successful implementation of the new technology was instrumental in Marsulex
signing new 10-year agreements with Petro-Canada and Shell Canada in 2000.

In August 2000, Marsulex signed an outsourcing agreement with Holcim Inc.
(formerly Holnam Inc.) and Marsulex completed a facility at Holcim's
manufacturing plant in Dundee, Michigan. The Marsulex-owned facility uses a
patented process that combines two by-products of the Holcim's cement making
process to make CP-Gyp, a high quality replacement for natural gypsum. Under the
terms of the agreement, the customer takes all of the production from the
Company's facility. For a number of reasons, the customer stopped accepting
product in March of 2003 and the Company subsequently idled the plant. In
accordance with the terms of the agreement, an arbitrated solution is being
pursued. The Company has invested in excess of US$5 million in the CP-Gyp
facility and operations.

In December 2000, Marsulex acquired the assets of Westaim Corporation's
chemicals division for $18.5 million. The division consisted of two
Alberta-based chemical manufacturers and distributors of water treatment and
industrial chemicals. The Westaim assets are part of the Western Markets Group.

In April 2001, the Company finalized definitive agreements to provide an
environmental services package to BP. The services package is expected to
generate in excess of $275 million in total revenues for the Refinery Services
Group over the life of the agreements. The package is comprised of three parts:
a new facility, designed, built and owned by the Company, that provides
redundancy and operating flexibility to BP's sulphur recovery unit at their
refinery in Whiting, Indiana; the provision by the Company of alkylation spent
acid removal and regeneration services for BP Whiting, utilizing a new rail
transfer facility at the Whiting site owned by the Company; and long-term
extensions to existing agreements that encompass services provided by the
Company for the BP Toledo refinery as well as BP Chemicals in Lima, Ohio. The
new site emissions facility at BP Whiting became operational in the third
quarter of 2002.

In April 2001, the Company announced that it had signed definitive agreements
to provide environmental services for Syncrude's proposed Upgrader Expansion
project at the Mildred Lake oil sands facility in Alberta. The Company's
proprietary ammonium scrubber technology will be utilized to reduce both
ammonia and sulphur dioxide gas emissions. Under the agreements with Syncrude,
the Company will provide a package of technology and services and will own and
operate a portion of the environmental compliance facilities at the Mildred
Lake site. Construction of the Company's portion of the environmental
compliance facilities began in 2002 and was completed in September of 2003 on
schedule and on budget, and ready for commissioning and start-up. Once the
facility has been started up, Marsulex will earn a fee to process and dispose
of the by-products from the scrubber and will participate in income derived
from the sale of the ammonium sulphate fertilizer. The total revenue generated
by the service package over the 15-year life of the agreements is expected to
exceed $150 million. EBITDA, once the revenue stream from the outsourced
services starts, is expected to be in excess of $7.5 million per year over the
life of the agreements. The agreements also provide for three 5-year
extensions. Under the Company's agreement with Syncrude, Marsulex will begin
receiving fees in January of 2005 even though it is now expected that
Syncrude's overall UE-1 project will not be completed at that time. Syncrude
will reimburse Marsulex for its carrying costs during the period between the
completion of construction and the commencement of fees. During the second
quarter in 2003, the Company obtained long-term financing for its portion of
the environmental compliance facilities at Syncrude's UE-1 project and $40.0
million was advanced to a loan account which is held in trust. Cash draws are
made on this account as construction of the facility progresses. The financing
is secured by the assets of a wholly owned subsidiary of the Company and by a
general guarantee from the Company until the successful start-up of the
facility as defined under the terms of the loan agreement, at which time the
general guarantee is released and the loan will be secured by the subsidiary's
assets. If, after the successful start-up of the facility, the subsidiary fails
to perform its operating obligations, the Company will become responsible for
the operation of the facility. The loan bears interest at a fixed rate of
7.3% per annum with a monthly interest-only payment required until the


                                      10
<PAGE>

commencement of fees, at which time the repayment of principal will be made
over the next 15 years with repayments expected to commence in January 2005.

On July 18, 2001, the Company completed the sale of its sulphur removal assets
in eastern North America and of BCT, a subsidiary of the Company, to Chemtrade
Logistics Income Fund (the "Chemtrade Transaction") for gross cash proceeds of
$167.2 million before costs of disposition. The Company made a total gain, net
of provision for income taxes, on the Chemtrade Transaction of $70.0 million
comprised of $54.9 million from the sale of the sulphur removal services in
eastern North America and $15.1 million from the sale of BCT. The gain was
reflected in the results of the Company for the year ended December 31, 2001. As
a result of the Chemtrade Transaction, the Company utilized some of its unused
tax losses, resulting in an effective tax rate of approximately 15%. The income
tax provision on the total gain is $10.7 million, and of this amount
approximately $2.0 million is the current or cash portion. The net proceeds from
the sale were $156.6 million after costs of disposition. The Company used a
portion of the proceeds to fully retire the $37.7 million of 10.21% Senior
Notes, with the remaining funds invested in interest bearing deposits at
December 31, 2001. The Company also cancelled its US$50 million operating credit
facility. The operations of BCT comprised one operating segment at the time of
disposition and accordingly for reporting purposes, the gain on sale, the
results of operations and cash flows of this segment to the date of sale were
presented and disclosed as discontinued operations.

On August 20, 2002 the Company completed an offer to purchase up to $69.5
million (US$44.2 million) of its 9 5/8% Senior Subordinated Notes. The Company
acquired $69.5 million principal amount of the Notes plus accrued interest of
$0.9 million (US$0.6 million), fulfilling its obligations under the terms of the
indenture that arose as a result of the Chemtrade Transaction.

In the third quarter of 2001, the Company announced the disposition of its
mechanical collectors equipment sales business that was part of its Power
Generation Group. In January 2002, the Company completed the transition of the
Group to being a provider of outsourced services with the sale of its parts and
service business and other assets and the licensing of its wet limestone/gypsum
and dry lime flue gas desulphurization technologies to an exclusive licensee in
North America. The Company also granted the exclusive North American licensee a
non-exclusive license outside North America. The sale generated proceeds of $6.5
million and a $3.6 million after tax gain.

On July 17, 2001, the Company purchased the shares of Harrowston Investments
Limited from its major shareholder, Harrowston Inc. for $2,979,000. The
principal assets of Harrowston Investments Limited are comprised of future
income tax assets. Harrowston Investments Limited was merged with the Company.

On December 30, 2002, the Company acquired the remaining 35% of the outstanding
common shares of Sulconam Inc. for an aggregate cash purchase price of
$16,590,000. The acquisition was accounted for using the purchase method of
accounting and the final purchase price allocation, including the acquisition
costs.

In September 2003, the Company's largest shareholder, TD Capital Canadian
Private Equity Partners Fund, acquired 4.7 million non-voting shares of the
Company in a private transaction. The shares were converted to voting shares and
TD Capital now directly or indirectly owns or controls 58.8% of the Company's
outstanding shares.

On October 7, 2003, the Company acquired the sulphur products assets in Prince
George, British Columbia from Duke Energy Gas Transmission. The purchase price,
including estimated acquisition costs, was $13,382,000 financed by the Company
through existing cash. The acquisition has been accounted for using the purchase
method of accounting and has been consolidated from the date of acquisition. The
Company has had the exclusive marketing responsibility for the facilities output
for almost 15 years and has participated in the earnings throughout that period.
The operation was integrated into the Company's Western Markets Group and
contributed to earnings in the fourth quarter.


                                      11
<PAGE>


Business Overview
-----------------

The Company

Marsulex Inc. is a leading provider of outsourced environmental compliance
solutions with a focus on air quality compliance. The Company provides its
services to a number of industries where increasingly stringent environmental
compliance regulations and pressure to improve financial performance create
opportunities for Marsulex to apply its core competencies and new technologies
to outsourced compliance solutions for customers. The two industries where
Marsulex already has a significant presence and that offer the most immediate
business opportunities for the Company are oil refining and power generation. In
Western Canada, Marsulex also upgrades and markets sulphur-based by-products
that have been produced as a result of air quality compliance processes. This
range of services meets customer needs and creates long-term value for
shareholders.

o    Over 20 oil refineries and industrial customers are serviced from five
     Marsulex owned and operated facilities in North America.
o    Marsulex's proprietary ammonium scrubbing technology, which has been in
     commercial operation in the U.S. since 1996, is currently being installed
     at the Syncrude coker expansion at Mildred Lake, Alberta. The Company
     believes that this technology delivers the best available flue gas
     desulphurization efficiency related to capturing SO2 emissions and
     minimizing CO2 production all at better economics.
o    Marsulex is the world's largest provider of traditional flue gas
     desulphurization systems and services to the power generation industry.
     Marsulex's technology is utilized in 157 units - 102 of them outside of
     North America. The Flue Gas Desulphurization systems ("FGD") are delivered
     by licensees in North America and internationally.
o    Marsulex provides customers with access to leading edge proprietary
     technologies and economies of scale and scope.

The Company's goal is to create shareholder value by developing outsourced
environmental compliance businesses that generate:

o    Superior returns on invested capital
o    High quality predictable and sustainable earnings and cash flow

Marsulex does this by focusing its operations on air quality compliance with a
concentration on the energy industry, by securing fees under long-term
contracts, by realizing value for shareholders when appropriate, and by
continuous improvement of its operations.

The Company intends to grow its business through:

o    The identification of new market opportunities to drive organic growth.
o    The development of new service solutions based on proprietary Marsulex
     technologies or best available technologies that facilitate the
     outsourcing of environmental compliance activities under long-term
     service agreements.
o    Providing its services under guaranteed fee-based agreements.

Business Strategy

Marsulex's core strategy is to target the energy industry with unique
environmental outsourcing solutions.

There are several key reasons for the Company's focus on the energy industry.

o    The industry is impacted by stringent environmental regulations.
o    The industry is capital intensive with sensitivity to reduced costs and
     improved operating margins.
o    Industry participants are increasingly receptive to outsourcing as a way
     to maximize investment returns.
o    The industry is viable and has long-term growth prospects.


                                      12

<PAGE>

The Company's solutions are developed to meet customer needs and to provide them
with the following benefits:

o    INNOVATIVE COMPLIANCE SOLUTIONS that use best available technology, and
     the Company's demonstrated expertise in site operations, risk management,
     transportation, by-product removal and marketing and to limit or manage
     environmental exposure at the lowest possible cost. The Company's project
     development, commercial creativity and capital market expertise
     facilitate unique service agreements.

o    REDUCED OPERATING COSTS which result from the Company's knowledge of
     compliance processes, operation and risk management expertise and
     by-products and distribution knowledge - skills that may be far removed
     from customers' core businesses. Also, Marsulex can often achieve
     economies of scale that customers can't access on their own.

Target Industries

The Company provides its services to a number of industries where increasingly
stringent environmental compliance regulations and pressure to improve financial
performance create opportunities for Marsulex to apply its core competencies and
new technologies to outsourced compliance solutions for customers. The two
industries where Marsulex already has a significant presence and that offer the
most immediate business opportunities for the Company are oil refining and power
generation.

Oil Refining Industry
---------------------

In the mid-1990's, Marsulex targeted the oil refining industry. Environmental
regulations dealing with site air emissions, restrictions on sulphur content in
refined products and the banning of the gasoline component, MTBE (methyl
tertiary-butyl ether), in some parts of the U.S. have all made the cost and
complexity of compliance a top industry priority. At the same time, oil refining
margins and return on investment have tracked well below general industry norms,
focusing attention on operating cost reductions and improved returns on net
assets.

Through a series of acquisitions and the development of innovative compliance
technologies, Marsulex has developed new outsourced environmental compliance
services that offer its customers environmental compliance at lower cost due to
innovative technology-based solutions and economies of scale. Marsulex provides
turnkey solutions that may include the design, building, ownership and operation
of facilities under long-term fee-based contracts.

Power Generation Industry
-------------------------

The Company also identified the power generation industry as a similar
opportunity and established a platform in this sector in 1997 by acquiring
General Electric Environmental Services, Inc. In North America, there is a
growing trend towards deregulation of the power industry, making cost
competitiveness a key issue. In existing solid fuel- fired generating
facilities, the most effective way to lower operating costs is to switch to
lower cost, higher sulphur content fuels. These fuels, however, create several
environmental compliance issues. Marsulex, utilizing its proven patented
technologies, offers outsourcing solutions that enable power generators to meet
environmental compliance obligations while creating greater fuel flexibility and
access to the savings of lower cost high-sulphur fuel as well as cost avoidance
opportunities and enhanced by-product revenues. Since 1997, Marsulex has sought
to expand the market opportunity in the power industry by reinvesting earnings
from the sector into the development of new technologies that provide solutions
to emerging regulatory issues. Today, the Company offers its established
international customer base a range of services to deal with NOx, SOx,
particulate, and other air emission compliance issues.

Competitive Strengths

As a provider of a range of environmental compliance services, the Company
believes it has a number of competitive strengths. Further, the Company believes
that given the critical and complex nature of the Company's services, potential
new entrants would be disadvantaged as a result of the Company's large installed
base of compliance facilities that have been in commercial operation for many
years.

                                      13
<PAGE>

Broad Range of Value-Added Technologies and Technical Capabilities
------------------------------------------------------------------

The Company provides its customers with a broad range of technologies, including
patented or proprietary technologies, technical services and support and has a
reputation for technical skill, innovation and knowledge of customer needs.
Unlike certain of the Company's competitors that focus solely on the sale of
equipment or distribution and sale of converted by-products, the Company works
closely with customers to design the optimal environmental compliance solution
that best meets each customer's needs.

The Company offers its customers outsourced environmental compliance services
based on a range of proprietary and non-proprietary technologies. The Company
develops or acquires technologies that can be incorporated into compliance
service packages that meet customer needs, enabling them to satisfy
environmental compliance requirements while lowering or avoiding operating and
capital costs. For example, Power Generation's proprietary ammonium and
potassium sulphate technologies enable power generators to access the benefits
of lower fuel costs. This is achieved through leading-edge technology that
attains compliance in excess of existing requirements and produces a saleable
by-product of high value while eliminating solid waste disposal. Similarly, the
Company's technology utilized by oil refineries to remove and recover sulphur
emissions enables them to meet stricter environmental regulations at lower cost
and derive more value from the sale of sodium bisulphite, a higher value
by-product. Another example is the Company's proprietary CleanStack(TM) solution
for sulphur trioxide emissions which is a more effective and lower cost solution
than any other currently available technology.

The Company has a history of providing reliable and safe services. It has
expertise with respect to plant operations and provides risk management and
technical assistance with regard to gas cleaning and the handling,
transportation and storage of by-products and industrial chemicals. This
assistance includes developing protocols for overall risk management, the
handling, transporting and storing of inputs and outputs, materials
compatibility studies and advice on regulatory shipping procedures.

Strategically Located Facilities
--------------------------------

The Company's conversion and regeneration facilities provide it with the ability
to convert gas, liquid and solid waste streams into useable industrial
chemicals. Some of these facilities are located adjacent to, or are connected by
pipeline with, certain customers' facilities. The Company also operates several
chemical manufacturing facilities in Western Markets Group.

Strong Customer Relationships
-----------------------------

The Company's ability to provide its customers with a total environmental
service solution that generally allows them to meet compliance requirements and
minimize the cost of environmental compliance has allowed the Company to secure
strong and long-standing customer relationships. In the Refinery Services Group
the Company's major oil refinery customers include BP, Petro-Canada, Shell
Canada Products Limited, Marathon Ashland Petroleum LLC and Sunoco, Inc. The
Company or its predecessors have maintained relationships with its major oil
refinery customers for an average of approximately 39 years and has established
long-term relationships averaging approximately 44 years with its three most
significant oil refinery customers.

Western Markets currently maintains long-term relationships with numerous
customers in a variety of sectors, and for a variety of products and services.
These relationships often include multiple products and are often set in
multiple-year agreements. Many of these working relationships, which include
predecessors, have been in place for over 30 years including the Sherritt
International Corporation at Fort Saskatchewan, Alberta, Canada with supply and
sourcing agreements on various products extending until up to 2008.

The Company's Power Generation Group, as the world's largest provider of
traditional FGD systems and services, has developed long-standing relationships
with numerous customers in North America and internationally.

Established Contracts
---------------------

The Company typically enters into contracts with its customers related to
the provision of services and the removal, distribution and sale of the
resulting industrial chemicals or other by-products. The Company's


                                      14
<PAGE>

contracts are generally two to 17 years in length. The Company usually attempts
to structure its contracts in one of two ways: (i) a payment to the Company for
the services it provides to the generator customer ("fee-based contracts"),
and/or, (ii) a payment to the Company based on the value of the industrial
chemical products or other by-products sold by the Company to the end-user
customers and/or based on changes in input costs such as fuel, whereby the
Company and generator share the risk associated with changes in industrial
chemical product or other by-product pricing and input costs ("risk-sharing
contracts"). Under fee-based contracts, the Company's exposure to changes in
industrial chemical or other by-product pricing is eliminated. Under
risk-sharing contracts, the Company shares in the changes in sales price
received from the sale of industrial chemicals or other by-products and or
changes in input costs such as fuel.

Government Regulations

The Company's operations are subject to numerous laws, regulations and
guidelines relating to air emissions, water discharges, solid and hazardous
wastes, transportation and handling of hazardous substances and employee health
and safety in Canada, and the United States, and are subject to numerous
regulatory agencies such as, state and federal environmental protection agencies
and regulatory agencies under the Canadian Environmental Protection Act. These
environmental regulations are continually changing and generally becoming more
restrictive.

The Company believes that it is currently in material compliance with its
existing permits and regulatory approvals except for the Company's Toledo
facility in Oregon, Ohio, as disclosed under "Item 3 - Key Information - Risk
Factors - Environment". Further, the terms and conditions of future permits and
approvals may be more stringent and may require increased expenditures on the
part of the Company.

Operating Segments

The Company's strategy to target the energy industry with outsourced compliance
solutions is implemented through its Refinery Services and Power Generation
operating groups. A third operating group, Western Markets, upgrades and
distributes sulphur-based by-products produced as a result of customers'
compliance activities. The Company has a range of expertise and services such as
project execution support, finance, information systems, human resources, and
risk management that are provided to each of the operating groups through a
fourth non-operating segment, Corporate Support. The Company has determined that
this structure is the most efficient and effective way to make these corporate
support services available throughout the organization.

Refinery Services Group
-----------------------

Refinery Services provides outsourced compliance solutions to major oil refinery
customers in the United States and Canada. Services are typically provided under
long-term service agreements. The services provided are primarily regeneration
of spent sulphuric acid produced during octane enhancement of gasoline,
extraction and recovery of sulphur from hydrogen sulphide gas created during the
refining process and sulphur dioxide (`SO2') recovery to ensure air quality
compliance. Refinery Services is the dominant provider of spent acid
regeneration and hydrogen sulphide emission services in the U.S. mid-west and
the only independent provider of hydrogen sulphide services in Canada. Spent
acid regeneration represented 25% of the Company's 2003 revenue. The volumes
processed by the Company's facilities are subject to the market demand and
seasonal variations of its refinery customers' products, although the segment's
earnings are largely protected from these variations due to the fee-based nature
of the contracts. In 2003, approximately 80% of the group's earnings were
generated from fees.

The major oil refinery customers for the Refinery Services Group include BP,
Petro-Canada, Shell Canada Products Limited, Marathon Ashland Petroleum LLC and
Sunoco, Inc. The Company's long-term relationships with its major oil refinery
customers average approximately 39 years. The Company maintains close working
relationships with its oil refinery customers, as failure to remove by-products
or deliver specified quantities and qualities of regenerated or converted
by-products can result in substantially decreased production and potentially the
shut down of a refinery's operations. The Company's regeneration facilities are
generally located adjacent to or are connected by pipeline with a major customer
in a given geographic region, thereby reducing transportation costs and assuring
such customer reliable service. The Company generally services other


                                      15
<PAGE>

customers in the same region through the same facilities, which allows the
Company and its customers to benefit from economies of scale.

Refinery Services also provides services to other industrial customers with
similar needs to oil refineries. These include, amongst others, The Dow Chemical
Company; Dow Corning Corporation; Penreco, a Texas General Partnership; and GE
Silicon, LLC.

Western Markets Group
---------------------

Western Markets upgrades sulphur based by-products produced as a result of air
quality compliance.

Western Markets upgrades a range of sulphur-based by-products and produces other
sulphur-based chemicals at five plants based in four locations in Western
Canada. The group is a leading supplier of sulphur-based chemicals in Western
Canada to the pulp and paper industry, and a foremost provider of water
treatment services. Its product range includes sulphuric acid, liquid sulphur
dioxide, aluminum sulphate ("alum"), sodium bisulphite, aqua ammonia, carbon
disulphide, and hydrogen sulphide. These products and related services are
provided to numerous customers with whom it has maintained long-term
relationships. These relationships often include multiple products and are often
set in multi-year agreements. A large portion of the group's earnings is from
risk-shared contracts. The chemical products manufactured or marketed by the
Western Markets Group are discussed below.

Sulphuric Acid. Sulphuric acid is believed to be the world's largest-volume
industrial chemical and is primarily used in the production of phosphate
fertilizer, the "heap" leaching of copper, and as a bleaching agent. Phosphate
fertilizer companies that produce sulphuric acid for their own use generate most
of the sulphuric acid produced worldwide voluntarily. The balance is produced
involuntarily as a by-product of base metal smelting (metallurgical acid), crude
oil refining and other industrial processes. Sulphuric acid pricing is highly
freight sensitive due to its relatively low value to weight ratio. Due to
increased availability of metallurgical acid, combined with relatively stagnant
market demand, pricing pressure has been downward over the past decade and is
not anticipated to increase in the short term.

Historically, fluctuations in market demand for sulphuric acid in North America
have traditionally been balanced by adjustments to voluntary production (versus
metallurgical). Any over-supply of metallurgical acid has, in the past,
typically been absorbed by the phosphate fertilizer industry. Sulphuric acid
revenue represented 14% of the Company's 2003 revenue.

Liquid Sulphur Dioxide. Liquid sulphur dioxide is produced voluntarily by
burning elemental sulphur and involuntarily in various industrial processes. For
involuntary producers, liquid sulphur dioxide is a relatively high value product
compared to elemental sulphur or sulphuric acid. However, the conversion of
by-product gas into liquid sulphur dioxide often requires extensive
modifications to primary processes, which can require significant investment and
cost.

The price of liquid sulphur dioxide varies by geographic market. The freight
component of the pricing of liquid sulphur dioxide is proportionately much lower
than sulphuric acid, which increases the geographic area within which the liquid
sulphur dioxide can be shipped profitably. Liquid sulphur dioxide is consumed in
a number of industrial processes.

Aluminum Sulphate. Aluminum sulphate, also known as alum, is produced in both
dry and liquid forms. According to industry consultants, approximately 50% of
aluminum sulphate is consumed in municipal and industrial water treatment, and
approximately 45% is used in the pulp and paper industry for water treatment and
bleaching.

Sodium Bisulphite. Sodium bisulphite is made by combining caustic soda or soda
ash with sulphur dioxide in either a liquid or gaseous form. Sodium bisulphite
is primarily used as a dechlorination agent in municipal and industrial water
treatment and as a bleaching agent in the pulp and paper industry.

Aqua ammonia. Aqua ammonia is used by the pulp & paper industry in the treatment
of water effluents and serves as a nutrient for micro-organisms. Because of its
high water content, freight costs are high and therefore, the product is sold on
a regional basis only.

                                      16
<PAGE>

Carbon Disulphide. Primarily used in the production of xanthates and herbicides
and used as a de-waxing agent in the oil and gas industry.

Hydrogen Sulphide.  Primarily used in the nickel refining process.

Power Generation Group
----------------------

Power Generation provides outsourced environmental services, primarily air
quality compliance, to customers in the power generation industry. The key
target market is the worldwide power generator industry, primarily those power
generator customers that utilize fossil fuels in their electricity generation
processes. Fossil-fired power plants are the largest source of air pollution in
North America, and over 50% of power in the U.S. is generated from coal.
Management believes that this customer group represents an important long-term
growth opportunity as tighter environmental regulations come into force and
continued deregulation of the electric industry leads power generators to
examine opportunities to lower costs and improve the efficiency of their
operations. The estimated capital cost of bringing older coal-fired plants into
compliance exceeds US$40 billion. To counter the slow enforcement of existing
air emission control regulations in the U.S. and, therefore, commitments by
utilities to new emission control equipment, the Power Generation Group
increased its focus on prospective international markets and on the development
of new solutions such as CleanStack(TM).

Power Generation provides products and services that allow the power generator
customer to cost effectively remove sulphur dioxide gases and other pollutants
from its air emissions to meet environmental regulations.

One of the Company's proprietary technologies provides customers flexibility to
switch to lower cost high sulphur fuels. Its ammonium scrubbing technology
captures and converts sulphur dioxide gases into granular ammonium sulphate and
potassium sulphate, both readily marketable fertilizers. This technology has a
high SO2 removal efficiency that allows the power generator to burn lower cost,
high-sulphur fuels as well as to produce a saleable fertilizer product. This
combination can substantially reduce the power generator's operating costs while
still meeting environmental compliance obligations. The Company's extensive
experience and customer relationships established through the installation of
157 traditional FGD systems worldwide provide a strong base from which to offer
its outsourced environmental compliance solutions.

Marsulex is also developing solutions for other emission problems, some of which
are created by the use of higher sulphur fuels in combination with other
pollution control equipment. The Company recently developed a new service for
the control of sulphur trioxide emissions, a visible blue plume that sometimes
results from the use of NOx control equipment in combination with high sulphur
fuels. Marsulex has established strategic partnerships with two world-leading
organizations to offer the service, which is backed by proprietary technology
and is being actively marketed by Marsulex under the trademark CleanStack(TM).

Revenue by Segment

 ($ 000)                           2003              2002            2001
-------------------------------------------------------------------------------

Refinery Services                  $ 71,504         $ 69,363        $  69,486
Western Markets 1                    54,295           53,953          116,005
Power Generation                      9,183           14,975           51,223
-------------------------------------------------------------------------------
                                   $134,982        $ 138,291        $ 236,714
===============================================================================

1. Includes the sulphur removal services in eastern North America until
   July 18, 2001.


Foreign Operations and Geographic Segments

The Company operates primarily in Canada and the United States and revenue is
attributed to customers based on the location of the customer.

($ 000)                               2003             2002             2001
-------------------------------------------------------------------------------

Canada                             $ 77,052          $82,092        $ 106,880
United States                        57,881           53,209          126,995
Other                                    49            2,990            2,839
-------------------------------------------------------------------------------
                                  $ 134,982         $138,291        $ 236,714
===============================================================================


                                      17
<PAGE>

Competition

Marsulex operates in competitive markets, and some of the Company's competitors
have economic resources greater than those of the Company and are well
established as suppliers to the markets that Marsulex serves.

In Refinery Services, there are six other North American merchant acid
regeneration companies specializing in recycling spent acid for oil refineries
and chemical manufacturers including E.I. DuPont de Nemours & Co. (DuPont), PVS
Chemical Solutions Inc., Peak Chemical LLC, General Chemical Corporation, and
Rhodia Inc. Refinery Service's sulphur prilling operation in Long Beach,
California, which converts molten sulphur into solid form for shipment overseas,
has two main competitors: H.J. Baker & Bros., Inc. and California Sulphur
Company.

The Western Markets group operates in a competitive environment and is subject
to volume and price volatility risk. For certain products, the group shares
end-use product price and volume risk with its supplier. Its major competitors
include Norfalco Ltd, Teck Cominco Ltd, Border Chemical Company Ltd, ClearTech
Industries Inc.

There are two primary competitors for Power Generation's ammonium FGD
technology: Alstom, and Lurgi Lentjes, AG, both of which provide emission
control technology to the power generation industry. Several competitors also
supply other goods and services to the customers of the Power Generation group
including boiler and full power trains. This integrated approach versus the
Power Generation group's `pollution containment only' approach may impact the
Company's ability to compete. In addition, the Power Generation group has
competitors providing traditional FGD technology. They include Alstom, Advatech
LLC, Babcock & Wilcox Company, FISIA Babcock Environment Gmbh, Mitsubishi Heavy
Industries, Ltd., and Wheelabrator Air Pollution Control Company Inc.

Several of the Company's niche services and products are sold into select
markets. There can be no assurance, however, that these markets will not attract
additional competitors that could have greater financial, technological,
manufacturing and marketing resources than Marsulex.

Environment, Health and Safety

The Company has a comprehensive policy on the environment directed towards
minimizing the environmental impact of all its activities. Application of, and
adherence to, the policy is regularly reviewed through environmental
assessments, including independent reviews of the Company's assets and
operations. In 2003, the Company conducted internal assessments at select
facilities to verify the presence and effectiveness of its management systems.
The Company also successfully underwent a rigorous external assessment of its
management systems and practices in accordance with the Reverification Protocol
of the Canadian Chemical Producers' Association's Responsible Care(R)
initiative. Conducted approximately every three years after the initial
verification of Responsible Care-in-place, Reverification involves assessment by
an independent team made up of knowledgeable industry experts, a representative
of the community at large and representatives of the communities in which the
Company operates.

The Environmental, Health & Safety Committee of the Board of Directors meets
regularly to, among other things, review the Company's performance against the
Company's environmental, health, safety and training policies and practices. The
Committee also works with management to prioritize capital expenditures related
to environmental risk management and regulatory compliance.

Notices and Findings of Violation have been issued against the Company by
federal regulators with respect to the Company's Toledo facility in Oregon,
Ohio. The Company is, however, in compliance with the permits issued by the
governing body (the State) and although there is a potential for penalties to be
assessed against the Company, the Company believes that it is in substantial
compliance with environmental laws, regulations and guidelines.

A Notice and Finding of Violation has been issued by federal regulators
with respect to the facility in Cairo, Ohio which was sold to Chemtrade
Logistics Inc. ("Chemtrade"). As part of the sale, the Company has
indemnified Chemtrade against liabilities relating to the Notice and
Finding of Violation issued. As part of the indemnification, the Company is
obligated to reimburse Chemtrade for the necessary installation of control
equipment and for any penalties which may be levied against the facility in
respect of the Notice and Finding of Violation. The


                                      18
<PAGE>

Company believes that the Cairo facility is in material compliance with
regulations issued by the State of Ohio as those regulations relate to
allegations of federal regulators, and that the State has issued lawful
permits consistent with those regulations governing the operation of the
Cairo facility.

In the opinion of management, environmental compliance costs and penalties for
both the Cairo and Oregon facilities, if imposed by federal regulators, will not
have material adverse effect on the financial position of the Company, provided
the Company is successful in prosecuting indemnity claims from the entity from
which it purchased the facilities, and that sufficient monies are available to
fund those indemnity obligations.

A safe workplace has always been a primary objective of the Company, whereby the
goal is to encounter zero incidents of occupational injury or illness among
employees and the contractors engaged at the Company's facilities.

In 2003, the occupational injury and illness frequency rose although the number
of incidents remained unchanged. The Company remains committed to its goal and
is redoubling efforts to improve performance in 2004. Among the highlights in
2003, the Company successfully completed construction of its new fertilizer
facility at Mildred Lake Alberta, achieving over 250,000 hours of activity in
2003 without a single Recordable Injury. Five facilities have in excess of 10
years operating time without a lost time injury and none of the facilities
experienced process related occurrences of a material nature.

As a member of the Canadian Chemical Producers' Association since the Company's
inception, Marsulex annually re-affirms its commitment to the ethic of
Responsible Care(R). Through its Codes of Practice and the Company's EH&S
Management Systems, the Company continues to improve its overall performance in
the responsible management of its activities and forms valuable relationships
with its communities and stakeholders.

Organizational Structure - Subsidiaries
---------------------------------------

As at March 12, 2004, a Toronto-Dominion Bank fund, TD Capital Canadian Private
Equity Partners, owned directly or indirectly 58.8% of the Company's outstanding
shares. The following list sets forth the wholly owned subsidiaries, whether
directly or indirectly, of Marsulex, as at December 31, 2003, and their
jurisdiction of incorporation:

Company                                                            Jurisdiction
-------                                                            ------------

Sulconam Inc.                                                      Canada
Marsulex Environmental Technologies Corporation                    Delaware
Sulex, Inc.                                                        California
Marsol Canada Corporation                                          Canada
Marsulex Refinery Environmental Services, Inc.                     Delaware
Soucar Enterprises, LLC                                            Delaware
Investis U.S., Inc.                                                Delaware
IT Holding, Inc.                                                   Delaware
Marsulex Environmental Technologies, LLC                           Delaware
Marsulex U.S. Partnership                                          Delaware
Marsulex Nova Scotia, ULC                                          Canada
Marsulex U.S. Holdings, LLC                                        Delaware
4086554 Canada Inc.                                                Canada

Unless otherwise indicated, references made herein to "Marsulex" or the
"Company" refer to Marsulex Inc. including its subsidiaries.

Property, Plant and Equipment
-----------------------------

Distribution and Facilities

Conversion and Manufacturing: The Company's conversion and regeneration
facilities provide it with the ability to convert by-product sulphur streams
into value-added industrial chemicals. These facilities can convert


                                    19
<PAGE>

approximately 300,000 tons of sulphur dioxide gas and hydrogen sulphide gas or
spent acid annually. In addition, the Company can also voluntarily produce a
variety of industrial chemicals at its manufacturing facilities, including
sulphuric acid, liquid sulphur dioxide, alum, and other specialty chemicals.

The following table lists the current location and products handled at each of
the conversion, manufacturing, storage and transfer facilities:

<TABLE>
<CAPTION>

                                               Square      Capacity    Capacity
    Facilities              Location           Footage    Utilization  Tons/Year              Services & Products
-------------------- ------------------------ ----------- ----------- ------------ ----------------------------------------

<S>                   <C>                        <C>        <C>            <C>       <C>
Environmental        Dundee, Michigan            39,500     idled           --       CP-Gyp facility idled
  Service
  Facilities
                     Montreal, Quebec            89,000       70%       54,750       Hydrogen Sulphide Processing
                     Toledo, Ohio               115,000      100%      300,000       Spent Acid Regeneration, Hydrogen
                                                                                     Sulphide Processing
                     Long Beach, California      29,079       70%      200,000       Sulphur Prilling
                     Mount Vernon,              204,450       70%      130,000       Sulphur Prilling
                     Washington
                     Whiting, Indiana            29,000       50%       20,000       Redundant Tail Gas Processing
                     Fort McMurray, Alberta      66,000         -      109,000       After Start-up and commissioning will
                                                                                     produce Ammonium Sulphate Fertilizer
                                                                                     from tail gas

Manufacturing        Calgary, Alberta             9,360       70%       16,500       Aluminum Sulphate (Alum)
  Facilities
                     Fort Saskatchewan,          72,500       85%     38,000/14,000  Alum and Sodium Bisulphite
                     Alberta
                     Fort Saskatchewan,          38,000       95%        7,300       Carbon Disulphide and Hydrogen Sulphide
                     Alberta
                     Saskatoon, Saskatchewan     11,050       70%       28,000       Alum
                     Prince George, British     266,000       95%      103,827       Acid, SO2
                       Columbia
                     Prince George, British     177,300       30%       10,800       Aluminum Sulphate (Alum)
                       Columbia

Customer Service     Calgary, Alberta             1,000         -                    Sulphuric Acid and Alum
  Storage Centres
                     Fort Saskatchewan,           3,500         -                    Sulphuric Acid, Aqueous Ammonia
                     Alberta                                                         and Alum

Office Locations     Toronto, Ontario             9,334                              Corporate Head Office
                     Chicago, Illinois              374                              U.S. Head Office and Sales Office
                     Toledo, Ohio                 1,915                              U.S. Plant Management Office
                     Lebanon, Pennsylvania       16,900 ft(2)                        Power Generation Office
</TABLE>

All of the Company's locations are situated on Company owned land, except Prince
George, British Columbia; Fort McMurray, Alberta; Oregon, Ohio; and Whiting,
Indiana with land lease terms ranging up to 24 years. The facilities at Long
Beach, California and Anacortes, Washington are leased. The Company also
maintains leased office space in Toronto, Ontario; Chicago, Illinois; Toledo,
Ohio; and Lebanon, Pennsylvania.

Construction of the Company's portion of the environmental compliance facilities
at Syncrude's Upgrader Expansion project (UE-1) was completed during the third
quarter of 2003 ready for commissioning and start-up. At December 31, 2003, the
Company had spent $49.9 million compared to the total budget of $56.6 million
and to the 2002 expenditures of $24.4 million. Syncrude will reimburse the
Company for its carrying costs during the period between the completion of
construction and commencement of fees. Under the agreement with Syncrude,
Marsulex will begin receiving fees in January 2005 even though it is now
expected that Syncrude's overall UE-1 project will not be completed at that
time. During the second quarter 2003, the Company obtained long-term financing
for its portion of the environmental compliance facilities at Syncrude's UE-1
project and $40.0 million was advanced to a loan account which is held in trust.
The Company also has a fixed price commitment to purchase equipment and services
relating to its construction of its Syncrude facility totalling $32.5 million
including change orders issued during 2003. To December 31, 2003, $32.3 million
(2002 - $10.4 million) had been spent and recorded as part of facilities under
construction in property, plant and equipment.


                                    20
<PAGE>


ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Management's Discussion & Analysis

Management's Discussion and Analysis of the Company's operating results and
consolidated cash flows for the 3-year period ended December 31, 2003, liquidity
and capital resources, risks and uncertainties, and critical accounting policies
are incorporated by reference herein and are attached as exhibit 5.1 hereto.


ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

Directors and Senior Management
-------------------------------

The following table sets forth the names of the directors and senior management
of the Company, the offices or positions held by them, and their dates of
appointment as applicable. Directors are elected by the shareholders to serve
until the next annual meeting of the Company or until their successor is elected
or appointed.

<TABLE>
<CAPTION>
-------------------------------- ---------------------------- --------------------------------- ---------------------------
                                        Municipality                   Position with                Director or Senior
             Name                       of Residence                      Company                    Management since
-------------------------------- ---------------------------- --------------------------------- ---------------------------

<S>                                   <C>                                 <C>                          <C>
Roderick F. Barrett                   Toronto, Ontario                    Director                     April, 1993
-------------------------------- ---------------------------- --------------------------------- ---------------------------
David M. Gee                           Aurora, Ontario            Director, President and              August, 1995
                                                                  Chief Executive Officer
-------------------------------- ---------------------------- --------------------------------- ---------------------------
William A. Lambert                    Toronto, Ontario                    Director                    February, 2002
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Ian M. Matheson                     Mississauga, Ontario                  Director                    October, 1989
-------------------------------- ---------------------------- --------------------------------- ---------------------------
David S. McCann                       Toronto, Ontario                    Director                    February, 2002
-------------------------------- ---------------------------- --------------------------------- ---------------------------
John A. Rogers                       Islington, Ontario                   Director                    November, 1996
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Lee C. Stewart                       Weston, Connecticut                  Director                   September, 2000
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Robert L. Yohe                     Bonita Springs, Florida                Director                    November, 1996
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Laurie Tugman [1]                   Mississauga, Ontario          Chief Operating Officer              August, 1994
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Edward R. (Ted) Irwin [1]           Mississauga, Ontario          Chief Financial Officer            September, 2001
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Robert H. Cardel [1]               Washington, New Jersey        Vice President and General           December, 2001
                                                              Manager, Power Generation Group
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Eric W.E. Denman [2]                  Montreal, Quebec          Vice President, Operational       November, 2000 to July
                                                                         Excellence                        2003
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Doug Osborne                          Edmonton, Alberta       Vice President, Western Markets            May 1989
                                                                           Group
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Brian Stasiewicz                      Chicago, Illinois           Vice President, Refinery              May, 1989
                                                                       Services Group
-------------------------------- ---------------------------- --------------------------------- ---------------------------
Judith George                          Milton, Ontario              Corporate Secretary               October, 1996
-------------------------------- ---------------------------- --------------------------------- ---------------------------
</TABLE>

1.   Appointed to current position in March 2004.
2.   As of the dates indicated, the individual resigned from their position with
     the Company. Residence information is as at the date of their departure.

Directors

The following sets out the Board of Directors, each of whom has been engaged in
their present principal occupations for the last five years unless otherwise
indicated. All directors are elected to hold office until the next annual
meeting of shareholders, or subject to the Company's by-laws and to applicable
laws, until such office is earlier vacated.

Roderick F. Barrett. Mr. Barrett is Managing Partner, Stikeman Elliott LLP,
Barristers & Solicitors and has acted as corporate counsel to Marsulex since its
inception. He serves on the board of Chemtrade Logistics Inc., as well as a
number of private companies.

David M. Gee. Mr. Gee is President & Chief Executive Officer of Marsulex.
He joined the Company in that position in August 1995 after extensive
general management experience in manufacturing and financial


                                    21
<PAGE>

services. Mr. Gee serves on the boards of Chemtrade Logistics Inc. and
Norwall Group Inc., as well as a number of private companies and charities.

William A. Lambert. Mr. Lambert is a Managing Director of TD Capital Group,
the private equity arm of The Toronto-Dominion Bank. He has over 12 years
experience in merchant banking and investing and 10 years experience in
consulting and plant engineering. He serves on the boards of other private
companies.

Ian M. Matheson. Mr. Matheson is Chief Consulting Officer, Risk Management
Consultants of Canada Limited. He has been a director of Marsulex since its
inception. He has also held senior management positions with, and been an
advisor to, major corporations in the United States and Canada including
manufacturing, chemical, environmental and transportation companies. He is a
director of Aon Reed Stenhouse Inc., a subsidiary of Aon Corporation, a member
of the Advisory Board of First Canadian Title Company Limited, a subsidiary of
The First American Corporation and serves on other boards in the insurance,
financial services and manufacturing sectors.

David S. McCann. Mr. McCann is a Managing Director of TD Capital Group, the
private equity arm of The Toronto-Dominion Bank. He has over 14 years
experience in merchant and investment banking in the U.S. and Canada. He
serves on the boards of other private companies.

John A. Rogers. Mr. Rogers is President & Chief Executive Officer, MDS Inc. He
has been with MDS since 1973, holding increasingly senior positions. He was
appointed to his current position in March 1996 and has been a member of the
Board of Directors of MDS since 1991. He also serves on the boards of several
other organizations.

Lee C. Stewart. Mr. Stewart is a private consultant, most recently with Daniel
Stewart & Company, a private investment and private equity bank located in
London. Mr. Stewart has had over 22 years experience as an investment banker
followed by such positions as Vice President with Union Carbide Corporation,
and Executive Vice President and Chief Financial Officer of Foamex Inc.
Additionally, he is a director of AEP Industries and P.H. Glatfelter &
Company.

Robert L. Yohe. Mr. Yohe is a Corporate Director. Before retiring in 1994, Mr.
Yohe was Vice Chairman and Director of Olin Corporation, a diversified company
with interests in chemicals, metals, electronic materials, ordnance and
aerospace. Prior to joining Olin, he held executive positions with several
chemical companies in the United States. He is a director of a number of
companies including: Airgas, Inc., Calgon Carbon Corporation, and The Middleby
Corporation.

Management Team

David M Gee, President and Chief Executive Officer. (See Directors section.)

Laurie A. Tugman, Chief Operating Officer. Mr. Tugman joined Marsulex in
August 1994 as Vice President Finance & Chief Financial Officer. He was
promoted in July 2001 to Executive Vice President and Chief Financial Officer
responsible for the overall operations of the Company, and again in March 2004
to Chief Operating Officer. From 1990 to 1994, he was Vice President, Finance,
and Chief Financial Officer, of a mine contracting, and engineering company,
Dynatec International Limited. Mr. Tugman has over 20 years experience in
financial and operational management in the waste management and oil and gas
industries.

Edward R. (Ted) Irwin, Chief Financial Officer. Mr. Irwin joined Marsulex in
September 2001 as Vice President, Finance and was promoted in March 2004 to
Chief Financial Officer. Prior to joining Marsulex he was Chief Financial
Officer for a publicly traded Internet content provider. From 1989 to 1999 he
worked for a large consumer packaged goods company involved in manufacturing
and distribution where he held progressively more senior positions including
Controller, Director Business Information Systems and Director Distribution
and Logistics.

Robert H. Cardell, Vice President and General Manager Power Generation. Dr.
Cardell joined Marsulex in November of 2001. Prior to Marsulex he served as
General Manager of the Environmental Division of Babcock and Wilcox from July
1999. Before Babcock and Wilcox he was with Research-Cottrell where he was


                                    22
<PAGE>

President and CEO of their International Company. Dr. Cardell began his career
at Foster Wheeler in 1977 and held a number of senior positions in their
Construction, Engineering, and Environmental Divisions.

Doug Osborne, Vice President, Western Markets Group. Mr. Osborne has been with
Marsulex since its inception in 1989 and has held a variety of commercial
positions of increasing responsibility in product management, sales and business
management. Prior to this he held various technical and commercial positions
with CIL based in North York, Ontario.

Brian E. Stasiewicz , Vice President, Refinery Services Group. Mr. Stasiewicz
has been with the Company since its inception in 1989 and joined CIL in 1983. He
served in various regional and corporate sales positions.

Judith George, Corporate Secretary. Ms. George joined TD Capital Group, the
private equity arm of The Toronto-Dominion Bank, as Vice President Legal and
Compliance in June 2003. Prior to that date, she was Corporate Secretary of
the Harrowston group of companies, which was acquired by TD Capital Group in
July 2001. In addition, Ms. George has served as Corporate Secretary of the
Company since October 1996.

Compensation
------------

Discussions regarding the compensation of the Company's directors and executive
officers as included in Company's Management Information Circular as filed with
Ontario Security Commission are hereby incorporated by reference and included as
exhibit 5.2 hereto.

Board Practices
---------------

Each director is elected by the shareholders to serve until the next annual
meeting of the Company or until their successor is elected or appointed.
Officers are appointed by and serve at the pleasure of the Board of Directors.

Committees

The Board has established four standing committees to assist in this stewardship
function. Each committee is composed of outside directors, the majority of whom
(except in the case of the Environmental, Health & Safety Committee) are
unrelated to the Company.

 Human Resources and Compensation Committee - This Committee is responsible for
assisting the Board in determining compensation of senior management as well as
reviewing the adequacy and form of directors' compensation. The Committee
annually reviews the goals and objectives of the Chief Executive Officer and the
Chief Operating Officer for the upcoming year and each year conducts an
appraisal of the performance of Chief Executive Officer and Chief Operating
Officer. The members of the committee are: Robert Yohe (Chair), David McCann and
Ian Matheson.

Audit Committee - This Committee is responsible for monitoring the Company's
financial reporting, accounting systems, internal controls and liaising with
external auditors. The members of the committee are: John Rogers (Chair),
William A. Lambert and Lee Stewart. Mr. Lambert is a Managing Director of TD
Capital Group, the private equity arm of The Toronto-Dominion Bank. TD Capital
Canadian Private Equity Partners Fund, a private equity fund established by The
Toronto-Dominion Bank owns directly or indirectly approximately 58.8% of the
Company's outstanding common shares, and therefore Mr. Lambert would not be
considered independent.

 Environmental, Health and Safety Committee - This Committee is responsible for
assisting the Board in monitoring environmental, health and safety issues.
Responsibilities include policies on employee health and safety, the
environment, product responsibility, and the transportation of hazardous
materials. On a regular basis, the Committee commissions and reviews external
audits related to Marsulex's compliance and reviews management's activities with
respect to correcting any deficiencies. The members of the committee are: Ian
Matheson (Chair) and Robert Yohe.

Corporate Governance Committee - This Committee is responsible for developing
the Company's approach to corporate governance issues, advising the Board in
filling vacancies on the Board and periodically reviewing the composition and
effectiveness of the Board and the contribution of individual directors. The
members of the committee are: Roderick Barrett (Chair), John Rogers and Robert
Yohe.

                                       23

<PAGE>

Employees
---------

The Company had 180 employees, including 118 in Canada and 62 in the U.S. at
December 31, 2003 (2002-180 employees; 2001 - 229 employees).

With the 2003 acquisition of Prince George, British Columbia facility, the
Company added an additional unionized group of 13 employees to the already
existing two unions. In 2003, the Company successfully reached new collective
bargaining agreements with its unionized employees in Ohio and Prince George
with no interruption in the Company's operations. In addition, the Company
proactively fosters positive relationships with all of its union groups through
continued open communications via the Labour Management Meeting process, which
has become a regular forum. The Company and its 37 unionized employees regularly
participate in open communications resulting in no production interruptions and
a low number of formal grievances. In 2003, the Company and the union
satisfactorily resolved all of its three formal grievances.

In 2004, none of the collective bargaining agreements are set to expire and
therefore, the Company does not foresee interruptions in its operations
resulting from work stoppages.

Share Ownership
---------------

To the knowledge of Marsulex as of March 12, 2004, the directors and senior
management of Marsulex in aggregate beneficially own, directly or indirectly, or
exercise control or direction over, an aggregate of 120,772 shares of Marsulex,
representing approximately 0.4% of the issued and outstanding common shares of
Marsulex.

The following table lists the individuals who are Directors or Officers of the
Company who own 1% or more of the outstanding shares of the Company, calculated
as if options were exercised and shares issued:

                                                 % of Total
                         # of         # of      Outstanding   Restricted Share
                        Shares       Options       Shares      Units Granted[1]
--------------------------------------------------------------------------------

David Gee               10,000       953,500        2.9%            309,900
Laurie Tugman           12,500       327,250        1.0%            114,700


1.  Performance Share Unit Plan as described in Company's Management Information
    Circular as filed with Ontario Security Commission and hereby incorporated
    by reference and included as exhibit 5.2 hereto.

The above share options range in price from $2.23 to $8.80 with a weighted
average price of $3.73. The options outstanding have expiry dates ranging from
August 11, 2007 to February 27, 2012 with a weighted average remaining
contractual life of 5.85 years.

ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

Major Shareholders
------------------

The following table sets forth, as of March 12, 2004, information with respect
to any person who is known to the Company to beneficially own, directly or
indirectly, or to exercise control or direction over more than 10% of the voting
rights attached to any class of the voting securities of the Company and the
total amount of voting rights attached to any class of the voting securities
owned by the officers and directors as a group. The jurisdiction in which the
Company is incorporated does not require disclosure by shareholders that are the
beneficial owners of between 5% and 10%, hence this information is not
available. On March 12, 2004, there were 31,696,698 common shares outstanding.


                                       24
<PAGE>

<TABLE>
<CAPTION>
                                                 March 12, 2004 and
                                                    Year End 2003                2002                     2001
                                                    -------------                ----                     ----

                                                  Amount        % per       Amount      % per        Amount      % per
 Title of Class       Shareholder                 Owned         notes       Owned       notes        Owned       notes
--------------------------------------------------------------------------------------------------------------------------

<S>                             <C>              <C>           <C>        <C>           <C>        <C>           <C>
Common shares        TD Capital[1]               18,631,779    58.78%     13,911,597    51.84%     13,911,597    51.83%

Non-voting
convertible shares   JPMorgan (BHCA) L.P.[2]             --        --      4,720,182    15.98%      4,720,182    15.98%

Common shares        Howson Tattersall
                     Investment Counsel
                     Limited[3]                   3,411,283    10.76%      3,411,283    12.71%      3,083,397    11.48%

Common shares        Directors and Senior
                     Management as
                     a group[4],[5]               1,853,522     5.49%      1,976,805     7.34%      2,136,453     6.78%
</TABLE>

1.   TD Capital Canadian Private Equity Partners, a fund established by The
     Toronto-Dominion Bank. Calculated on shares outstanding and issued.
2.   Calculated as if the non-voting convertible shares were converted into
     common shares.
3.   Based on publicly available information filed by Howson Tattersall
     Investment Counsel Limited on October 2, 2002 under Ontario securities law.
     Calculated on shares outstanding and issued on March 12, 2004.
4.   Includes common shares issuable upon the exercise of all options held by
     the group.
5.   Calculated as if options were exercised and shares issued.


On June 17, 2003, the Company filed a Notice of Intention to make a Normal
Course Issuer Bid (NCIB) with the Toronto Stock Exchange, pursuant to which the
Company may purchase up to 1,341,677 of its common shares, representing
approximately 5% of its 26,833,550 issued and outstanding common shares as at
June 12, 2003. The NCIB commenced on June 19, 2003 and will terminate on June
18, 2004. The purchases will be made for cancellation at the market price of
such shares at the time of acquisition. During the period June 19, 2003 to
December 31, 2003, the Company did not acquire any shares for cancellation
pursuant to the Notice of Intention to make a Normal Course Issuer Bid.

On January 29, 2002, the Company announced its intention to make a NCIB pursuant
to which the Company was entitled to purchase up to 1,339,053 of its issued and
outstanding common shares. The NCIB commenced on February 1, 2002 and terminated
on January 31, 2003. During 2002, the Company acquired 7,500 shares for $27,000
for cancellation pursuant to the Notice of Intention to make a Normal Course
Issuer Bid.

As of March 12, 2004, there were approximately 27 shareholders of record of the
Company having addresses in the United States, holding approximately 145,614
common shares, or 0.5% of the Company's 31,696,698 outstanding common shares.
The computation of the number and percentage of common shares held in the United
States is based upon the number of common shares held by record holders with
U.S. addresses. U.S. residents may beneficially own common shares held of record
by non-U.S. residents.

Related Party Transactions
--------------------------

Material Transactions

The Company and TD Capital Group are parties to a management services agreement
(the "Management Services Agreement") pursuant to which TD Capital provides
certain management and other services to the Company, including strategic advice
and advisory services regarding capital transactions. The fee for such services
is $350,000 per year commencing June 1, 2001, subject to an annual inflation
adjustment. Either party may terminate the Management Services Agreement at any
time upon thirty days notice. The registered head office of TD Capital is 66
Wellington Street, 10th Floor, Toronto, Ontario, M5K 1A2.

Certain of the Company's Directors hold senior positions with firms that provide
services to the Company and during 2003 the Company incurred fees of $1,558,000
(2002 - $3,602,000; 2001 - $3,127,000). During January and February 2004, the
Company incurred $122,000 in fees from these firms.

Indebtedness of Directors and Officers

None of the directors, executive officers or senior officers of the Company, no
proposed nominee for election as a director of the Company, and no associates or
affiliates of any of the foregoing were indebted to the Company at any time
since the beginning of the Company's most recently completed financial year.


                                       25
<PAGE>

Interest of Insiders in Material Transactions

No insider of the Company, which includes its directors and officers, has any
interest in any material transaction involving the Company.


ITEM 8.      FINANCIAL INFORMATION

Consolidated Financial Statements
---------------------------------

Reference is made to Item 17 for a list of all financial statements filed as
part of this Form 20-F.

Dividend Policy
---------------

It is the current policy of Marsulex to reinvest any available funds in the
Company, and accordingly Marsulex has not paid cash dividends during the past 5
years and does not anticipate paying cash dividends in the near future. The
Board of Directors periodically reviews this policy. The Company's debt facility
limits the payment of dividends.

Significant Changes
-------------------

See Item 4. - "History and Development of the Company", for significant
changes since December 31, 2002.

Litigation

The Company is currently involved in proceedings with federal regulators in the
United States with regards to certain liabilities with its plant in Toledo,
Ohio. The Company has also indemnified Chemtrade Logistics Inc. for Notices and
Finding of Violations relating to the Cairo, Ohio plant as discussed in "Item 3
Key Information- Risk Factors - Environment".

The Company is involved in certain claims arising out of the ordinary course and
conduct of its business that, in the opinion of management, will not have a
material impact upon the financial position of the Company


ITEM 9.      THE OFFER AND LISTING

Common Shares

The common shares of the Company are traded on The Toronto Stock Exchange in
Canada under the symbol "MLX". The following table sets forth the reported high
and low prices of the outstanding common shares on The Toronto Stock Exchange
for the periods indicated:

------------------------------------------ --------------- -------------------
Period                                          High              Low
========================================== =============== ===================

------------------------------------------ --------------- -------------------
Year Ended 1999                              $   4.85          $   2.50
------------------------------------------ --------------- -------------------
Year Ended 2000                                  4.05              1.70
------------------------------------------ --------------- -------------------
Year Ended 2001                                  4.15              1.85
------------------------------------------ --------------- -------------------

------------------------------------------ --------------- -------------------
First quarter ended March 31, 2002               5.00              3.50
------------------------------------------ --------------- -------------------
Second quarter ended June 30, 2002               4.90              3.61
------------------------------------------ --------------- -------------------
Third quarter ended September 30, 2002           4.65              3.50
------------------------------------------ --------------- -------------------
Fourth quarter ended December 31, 2002           4.25              3.00
------------------------------------------ --------------- -------------------
Year Ended 2002                                  5.00              3.00
------------------------------------------ --------------- -------------------

------------------------------------------ --------------- -------------------
First quarter ended March 31, 2003               4.10              3.00
------------------------------------------ --------------- -------------------
Second quarter ended June 30, 2003               3.90              3.05
------------------------------------------ --------------- -------------------
Third quarter ended September 30, 2003           4.25              3.60
------------------------------------------ --------------- -------------------
Fourth quarter ended December 31, 2003           5.20              4.00
------------------------------------------ --------------- -------------------
Year Ended 2003                                  5.20              3.00
------------------------------------------ --------------- -------------------


                                       26
<PAGE>

------------------------------------------ --------------- -------------------
Period                                          High              Low
========================================== =============== ===================

------------------------------------------ --------------- -------------------
Month Ended September 30, 2003                   4.10              3.60
------------------------------------------ --------------- -------------------
Month Ended October 31, 2003                     4.80              4.00
------------------------------------------ --------------- -------------------
Month Ended November 30, 2003                    5.00              4.50
------------------------------------------ --------------- -------------------
Month Ended December 31, 2003                    5.20              4.56
------------------------------------------ --------------- -------------------
Month Ended January 31, 2004                     5.20              5.10
------------------------------------------ --------------- -------------------
Month Ended February 29, 2004                    5.69              5.05
------------------------------------------ --------------- -------------------

Senior Subordinated Notes

There is currently no organized public market for the Senior Subordinated Notes
and the Company does not intend to apply for a listing of the Senior
Subordinated Notes on any securities exchange.

The Senior Subordinated Notes were issued under an Indenture, dated as of June
30, 1998, between the Company and The Bank of Nova Scotia Trust Company of New
York, as trustee.


ITEM 10      ADDITIONAL INFORMATION

Memorandum of Articles of Association
-------------------------------------

Reference is made to Exhibit 1.1 and 1.2 of this Form 20-F regarding the
Company's Articles of Incorporation and By-laws.

Corporate Information and Objects and Purposes

The Company is incorporated under the Canada Business Corporations Act (the
"CBCA") through articles of amalgamation dated June 16, 1989, as amended by a
certificate of amendment dated November 19, 1996. The articles of the Company
(the "Articles") place no restrictions on the Company's objects and purposes.
The Company has also adopted by-laws No. 2 and No. 4 to regulate its internal
functions (collectively the "Bylaws").

Directors' Matters

Section 4.18 of Bylaw No. 4 provides that a director of the Company who is a
party to, or who is a director of, or has a material interest in any person who
is a party to, a material contract or proposed material contract with the
Company shall disclose the nature and extent of his or her interest at the time
and in the manner provided by the CBCA. Any such contract or proposed contract
shall be referred to the board or shareholders for approval even if such
contract is one that in the ordinary course of the Company's business would not
require approval by the board or shareholders. Such a director shall not vote on
any resolution to approve the same except as provided by the CBCA.

Section 4.19 of Bylaw No. 4 provides that the remuneration of the directors of
the Company may, from time to time, be determined by the board. There are no
restrictions in the Articles on the directors' power, in the absence of an
independent quorum, to vote compensation to themselves or any member of their
body. The Bylaws do not preclude any director from serving the Company in any
other capacity and receiving remuneration therefore.

Bylaw No. 4 provides that, the directors of the Company are authorized to:

(a)  borrow money upon the credit of the Company;

(b)  issue, reissue, sell or pledge bonds, debentures, notes or other evidences
     of indebtedness or guarantee of the Company, whether secured or unsecured;

(c)  to the extent permitted by the Act, give a guarantee on behalf of the
     Company to secure performance of any present or future indebtedness,
     liability or obligation of any person; and


                                       27
<PAGE>

(d)  mortgage, hypothecate, pledge or otherwise create a security interest in
     all or currently owned or subsequently acquired real or personal, movable
     or immovable, property of the Company including book debts, rights, powers,
     franchises and undertakings, to secure any such bonds, debentures, notes or
     other evidences of indebtedness or guarantee or any other present or future
     indebtedness, liability or obligation of the Company.

The borrowing powers of the directors set forth in the Articles can be varied by
amending the Articles. The CBCA provides that a corporation may alter its
articles by filing articles of amendment with the CBCA Director. A proposed
amendment to the articles of a corporation is adopted when such amendment is
approved by a special resolution. A special resolution is defined in the CBCA as
a resolution passed by a majority of not less than two-thirds of the votes cast
by those members of a corporation who, being entitled to do so, vote in person
or by proxy at a general meeting of the corporation, or consented to in writing
by every member of a corporation who would have been entitled to vote in person
or by proxy at a general meeting of the corporation.

There is no provision in the Articles or Bylaws of the Company regarding
retirement or non-retirement of directors under an age limit requirement.

Neither the CBCA, the Company's Articles or Bylaws require that a director hold
any shares to become, or retain the position of, a director of the Company.

Share Rights

As of March 12, 2004, the capital stock of the Company consists of four classes
of authorized shares:

1.  unlimited senior preference shares, no par value;
2.  unlimited junior preference shares, no par value;
3.  unlimited convertible shares, non-voting, no par value; and
4.  unlimited common shares, no par value.

Of these four classes, the following are issued and fully paid:

1.  nil convertible shares; and
2.  31,696,698 common shares.

Preference Shares

The senior preferred shares as a class may be issued from time to time in one or
more series, each series comprising the number of shares, designation,
privileges, restrictions and conditions which the directors of the Company
determine by resolution. On the liquidation, dissolution or winding-up of the
Company or on any other distribution of assets of the Company among its members
for the purpose of winding up its affairs, the senior preferred shares are
entitled to receive, before any distribution of any part of the assets of the
Company among the holders of any shares ranking subordinate to the senior
preferred shares, for each senior preferred share, an amount equal to the
redemption price of such share and any dividends declared thereon and unpaid.

The junior preferred shares as a class may be issued from time to time in one or
more series, each series comprising the number of shares, designation,
privileges, restrictions and conditions which the directors of the Company
determine by resolution. On the liquidation, dissolution or winding-up of the
Company or on any other distribution of assets of the Company among its members
for the purpose of winding up its affairs, the junior preferred shares are
entitled to receive, before any distribution of any part of the assets of the
Company among the holders of any shares ranking subordinate to the junior
preferred shares, for each junior preferred share, an amount equal to the
redemption price of such share and any dividends declared thereon and unpaid.

Except for such rights relating to the election of directors on a default in
payment of dividends as may be attached to any series of preferred shares by the
directors of the Company, holders of either senior or junior preferred shares
are not entitled to receive notice of, or to attend or vote at any general
meeting of the members of the Company.


                                       28
<PAGE>

Common Shares

The holders of the common shares are entitled to one vote per share for matters
voted on by members of the Company. Subject to the prior rights of the holders
of any senior preferred shares or junior preferred shares ranking senior to the
common shares and non-voting convertible shares with respect to priority of
dividends, the holders of common shares and the holders of non-voting
convertible shares are entitled to receive equally share for share, such
non-cumulative dividends as the directors may, from time to time, declare.

Non-Voting Convertible Shares

The non-voting convertible shares are convertible into common shares on a
one-for-one basis and the common shares are convertible into non-voting
convertible shares on a one-for-one- basis at any time. The non-voting
convertible shares are entitled to receive the same dividend as the common
shares and participate equally with the common shares in any distribution of
assets of the Company. The holders of the non-voting convertible shares are not
entitled to vote at the annual meeting or any special meeting of the
shareholders except where the holders of a specified class are entitled to vote
separately as a class as provided in the CBCA.

Modification of Share Rights

Pursuant to the CBCA, the members of the Company may, by special resolution
(defined as described above--Directors' Matters), and by otherwise complying
with the Articles and Bylaws of the Company, vary or abrogate any special rights
or restrictions attached to any shares, whether issued or unissued.

Shareholder Meetings

The CBCA provides that the Company must hold an annual general meeting at least
once in every calendar year. The Company may hold an extraordinary general
meeting at any time. The CBCA also provides that one or more members of the
Company holding not less than 5% of the issued voting shares of the Company may
give notice to the directors requiring them to call and hold a general meeting.

The Company must give to its members entitled to receive notice of a general
meeting not less than 21 days' and not more than 50 days' notice of any general
meeting of the Company, but those members may in any manner waive the period of
notice for a particular meeting. The CBCA provides that for the purpose of
determining members, or members of a class of members, entitled to notice of, or
to vote at, a general meeting or class meeting, the directors may set in advance
a record date which may not be more than 50 days before the meeting date.

The CBCA requires the directors of a reporting company (such as the Company) to
provide with notice of the meeting a form of proxy for use by every member
entitled to vote at such meeting as well as an information circular containing
prescribed information regarding the matters to be dealt with at the general
meeting. Prior to each annual general meeting of its members, the directors of
the Company must place comparative financial statements, made up to a date not
more than six months before the annual general meeting, the report of the
auditor, and the report of the directors to the members.

There are no restrictions under the laws of the jurisdiction of the Company's
incorporation, or in the company's articles or by laws, that limit the rights of
non-residents or foreign shareholders to own, or hold or exercise voting rights
on, our common shares, preference shares or non-voting convertible shares.

The articles and bylaws of the company do not contain any restriction that would
have the effect of delaying, deferring or preventing a change in control of the
Company and that would operate only with respect to a merger, acquisition or
corporate restructuring involving the Company.

The articles and by-laws of the Company do not require that a shareholder
disclose his or her share ownership interest in the Company.


                                       29
<PAGE>

Material Contracts
------------------

Loan Agreement

On June 5, 2003, a wholly owned subsidiary of the Company entered into a
Long-term Loan agreement with First Treasury, a member of the Integrated Asset
Management group of companies, to finance the Syncrude project. The loan is
secured by the subsidiary's assets and the Company provides a general guarantee
until the successful start-up of the facility as defined in the loan agreement,
at which time the general guarantee will be released and the loan will be
secured by the subsidiary's assets. If, after the successful start-up of the
facility, the subsidiary fails to perform its operating obligations, the Company
will become responsible for the operation of the facility and as a result the
servicing of the debt. The loan bears interest at a fixed rate of 7.3% per annum
with a monthly interest only payment required until the commencement of the
revenue stream at which time the repayment of principal will be made over the
next 15 years. The repayment of principal is expected to commence January 2005.

Exchange Controls
-----------------

Being reviewed by Canadian Counsel--There is no law or governmental decree or
regulation of general application in Canada that restricts the export or import
of capital, or affects the remittance of dividends, interest or other payments
to a non-resident holder of common shares, other than withholding tax
requirements. See below for discussion on "Taxation."

There are no limitations of general application imposed by Canadian law or by
the constituent documents of the Company on the right of a non-resident to hold
or vote debt or common shares, other than as provided in the Investment Canada
Act (Canada). The following summarizes the principal features of the Investment
Canada Act (Canada):

The Investment Canada Act (Canada) requires certain "non-Canadian" individuals,
governments, corporations or other entities who wish to acquire control of a
"Canadian business" (as defined in the Investment Canada Act), or establish a
"new Canadian business" (as defined in the Investment Canada Act) to file either
a notification or an application for review with the Investment Review Division
of the federal Department of Industry or in the case of the acquisition of a
"cultural" business (as defined in the Investment Canada Act), the Department of
Canadian Heritage. The Investment Canada Act requires that acquisitions of
control of a Canadian business by a "non-Canadian" that meet specified financial
thresholds be reviewed and approved by the Minister responsible for the
Investment Canada Act on the basis that the Minister is satisfied, or deemed to
be satisfied, that the acquisition is "likely to be of net benefit to Canada,"
having regard to criteria set forth in the Investment Canada Act. The Investment
Canada Act provides detailed rules for determining whether control has been or
will be acquired. The acquisition of one-third or more of the voting shares of a
corporation may be considered an acquisition of control. Generally, reviewable
acquisitions of control may not be implemented before being approved by the
Minister. Failure to comply with the review provisions of the Investment Canada
Act could ultimately result in, among other things, a court order directing
divestiture of the Canadian business.

Taxation
--------

The following paragraphs set forth certain Canadian federal income tax
considerations in connection with the purchase, ownership and disposition of the
Senior Subordinated Notes. The discussion is restricted to non-residents of
Canada who are residents of the United States and who hold such Senior
Subordinated Notes as capital property. The tax considerations set forth below
are based upon the provisions of the Income Tax Act (Canada), and on the
Canada-United States Income Tax Convention, 1980, as well as regulations,
rulings, judicial decisions and administrative and assessing practices now in
effect in Canada, all of which are subject to change. This discussion does not
take into account provincial or territorial laws of Canada, or laws of foreign
jurisdictions.

The Company is not required to withhold tax from interest paid by it on Senior
Subordinated Notes to any non-resident of Canada with whom it is dealing at
arm's length within the meaning of the Income Tax Act (Canada). Under such laws
and administrative and assessing practices, no other tax on income (including
taxable capital gains) is payable in respect of the purchase, holding,
redemption or disposition of the Senior Subordinated Notes or the receipt of
interest or any premium thereon by holders with whom the company deals at arm's


                                       30
<PAGE>

length and who are not residents, and who are not deemed to be residents, in
Canada in any taxation year in which they hold the Senior Subordinated Notes,
and who do not use or hold, and are not deemed to use or hold, the Senior
Subordinated Notes in connection with carrying on a business in Canada, and who
are not non-resident insurers carrying on an insurance business in Canada and
elsewhere.

The above description of Canadian income tax considerations is of a general
nature only and should not be construed as advice to any particular holder of
Senior Subordinated Notes. Holders should consult with their Canadian tax
advisers with respect to their particular tax position.

Documents on Display
--------------------

The Company is subject to certain of the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith, has
and will file reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed with the
Commission may be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.
Washington, D.C. 20549. Copies of such material can also be obtained from the
principal office of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The SEC also maintains an Internet site, www.sec.gov, that contains
reports and other information regarding companies that file with the SEC.


ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in the market price of the chemicals it sells,
and to fluctuations in the foreign currency exchange and interest rates
primarily in its cash, debt, and foreign currency transactions, all in the
normal course of business.

Interest Rate Risk
------------------

The interest rate on the Company's U.S. denominated long-term debt is fixed
under contractual agreements. The Senior Subordinated Notes bear interest of 9
5/8% while the Long-term Loan bears interest of 7.3%.

The following table demonstrates the maturity of the Company's fixed rate debt:

<TABLE>
<CAPTION>

                                                                                                         Fair Value
($000)                           2004      2005      2006      2007      2008     Thereafter    Total   Dec 31, 2003
----------------------------- --------- ---------- --------- --------- --------- ------------ --------- -------------
<C>                                <C>        <C>       <C>       <C>       <C>         <C>       <C>           <C>

9 5/8% Senior Subordinated
   Notes [1]                       --         --        --        --    79,196          --     79,196        81,968
7.3% Long-Term Loan[2]             --      1,370     1,473     1,585     1,704       33,868    40,000        40,651

============================= ========= ========== ========= ========= ========= ============ ========= =============
</TABLE>

1.  The Senior Subordinated Notes are denominated in U.S. dollars and converted
    at the December 31, 2003 year-end rate of 1.3033. The Notes mature at the
    end of June 2008 and are redeemable at the option of the Company at
    specified redemption premiums.
2.  On June 5, 2003 a wholly owned subsidiary of the Company entered into a
    Long-term Loan agreement to finance the Syncrude project and is secured by
    the subsidiary's assets. The Company provides a general guarantee until the
    successful start-up of the facility as defined in the loan agreement at
    which time the general guarantee will be released and the loan will be
    secured by the subsidiary's assets. If, after the successful start-up of the
    facility, the subsidiary fails to perform its operating obligations, the
    Company will become responsible for the operation of the facility and as a
    result the servicing of the debt. The loan bears interest at a fixed rate of
    7.3% per annum with a monthly interest only payment required until the
    commencement of the revenue stream at which time the repayment of principal
    will be made over the next 15 years. The repayment of principal is expected
    to commence January 2005.

Foreign Currency Risk
---------------------

The following table provides the percentage of Marsulex's revenues that were
denominated in U.S. dollars.

                                             2003         2002        2001
---------------------------------------- ------------ ----------- ------------

                                             42.9%        40.6%       54.8%
======================================== ============ =========== ============

Historically, Marsulex has hedged its U.S. dollar cash flow by financing its
business largely with U.S. dollar debt.


                                       31
<PAGE>

A one-cent change in the value of the Canadian dollar resulting from a stronger
U.S. dollar against the Canadian dollar has the following favourable impact:


($ millions)                                 2003         2002        2001
---------------------------------------- ------------ ----------- ------------

Gross margin                                 $0.2         $0.3         $0.5
EBITDA                                       $0.1         $0.2         $0.2
======================================== ============ =========== ============

The U.S. dollar interest expense, when combined with U.S. dollar depreciation
and amortization expenses, limits the exposure of net income to foreign
exchange fluctuations. A one-cent devaluation in the U.S. dollar reduces net
income by less than $0.2 million.

Chemical Prices
---------------

Industrial chemicals sold by the Company are subject to market price
fluctuations. In addition, regional supply and demand imbalances can lead to
isolated price erosion.

The Company's end-use contracts generally have a "meet or release" provision. As
a result, competitive pressure can cause Marsulex to lower selling prices in
order to retain the volume.

In some contracts, commodity price exposure is either shared with, or borne
entirely by, the generator customers. A number of significant contracts are
structured as fee-based so that the Company bears no end-product risk at all. As
time goes by, the Company expects to generate more revenue from these
arrangements thereby reducing the risk of significant changes in chemical
prices. The following table demonstrates the percent of revenue from continuing
operations derived from fee-based and risk-sharing arrangements:

                                             2003         2002        2001
---------------------------------------- ------------ ----------- ------------

Fee-based                                   43.6%         53.5%         52.3%
Risk-sharing                                12.9%         21.8%         29.8%
======================================== ============ =========== ============

For the contracts that are subject to commodity price fluctuations, a one dollar
change in price would result in an approximate 1% change in gross profit.


ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.



                                       32
<PAGE>


                                    PART II

ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUINCIES

None.

ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
             USE OF PROCEEDS

Not applicable.

ITEM 15.     CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Disclosure controls and procedures are defined by the Securities and Exchange
Commission as those controls and other procedures that are designed to ensure
that information required to be disclosed by the Company in reports filed or
submitted by it under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Company's Chief
Executive Officer and Chief Financial Officer have evaluated the Company's
disclosure controls and procedures as of the period covered by this Annual
Report on Form 20-F and have determined that such disclosure controls and
procedures are effective.

Internal Control Over Financial Reporting

Since the most recent evaluation of the Company's internal control over
financial reporting, there have not been any significant changes in the
Company's internal control over financial reporting that have materially
affected or are reasonably likely to materially affect the Company's internal
control over financial reporting.

ITEM 16A     AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Directors has determined that Mr. John Rogers, an individual
serving on the audit committee of the Company's Board of Directors, is an audit
committee financial expert, as that term is defined in Item 401(h)(2) of
Regulation S-K under the Securities Exchange Act of 1934, as amended. The Board
of Directors of the Company has also determined that Mr. Rogers is independent,
as that term is defined in the applicable listing standards of the Nasdaq Stock
Market, Inc.

ITEM 16B     CODE OF ETHICS

The Company has adopted a Code of Conduct that applies to its all of its
employees including executives, senior officers, and members of the board of
directors. The Company has attached a copy of the Code of Conduct as exhibit 1.3
and has posted the text on its website. It can be viewed by visiting the
Company's website at www.marsulex.com and selecting "Investor".

ITEM 16C     PRINCIPLE ACCOUNTANT FEES AND SERVICES


Fees paid during the fiscal year ended December 31         2003           2002
--------------------------------------------------  ------------- --------------
Audit Fees                                              178,000        146,500
Audit Related Fees                                       42,800         89,121
Tax Service Fees                                        227,500        716,787
Other Fees                                               16,800             --
--------------------------------------------------  ------------- --------------
Total                                                   465,100        952,408
==================================================  ============= ==============

The Audit Committee has adopted policies and procedures for the pre-approval of
audit related, tax services and other non-audit services provided by the
auditors. These policies and procedures are summarized below.


                                       33
<PAGE>

The terms of engagement and scope of the annual audit of the financial
statements are agreed to by the Audit Committee in advance of the engagement of
the auditors in respect of the annual audit. The Audit Committee approves the
audit fees.

The auditors are not permitted to provide non-audit services that would
compromise their independence or violate any laws or regulations that would
affect their appointment as auditors. They are eligible for selection to provide
non-audit services only to the extent that their skills and experience make them
a logical supplier of the services. The Audit Committee must pre-approve the
provision of all non-audit services by the auditors and will consider regulatory
guidelines in determining the scope of permitted services. The Audit Committee
has pre-approved non-audit services in respect of individual assignments for
permitted services that meet certain criteria. Assignments outside these
parameters must be specifically pre-approved by the Audit Committee in advance
of commissioning the work. Aggregate non-audit fees must not exceed the annual
audit fee in any given year, unless approved in advance by the Audit Committee.

In 2003, the Audit Committee of the Company approved all audit related, tax
services and other non-audit services performed by the Company's auditors.

ITEM 16D     EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.


                                       34
<PAGE>


                                   PART III

ITEM 17.     FINANCIAL STATEMENTS

The Consolidated financial statements of the Company have been prepared on the
basis of Canadian GAAP. A reconciliation to U.S. GAAP appears in Note 20
thereto.

Marsulex Inc. Consolidated Financial Statements                           Page
----------------------------------------------------------------------- --------

Management's Responsibilities for Financial Reporting                      FS-1
Auditors' Report                                                           FS-2
Comment by Auditors for U.S. Readers on Canada-U.S.
   Reporting Differences                                                   FS-3
Consolidated Balance Sheet at December 31, 2003                            FS-4
Consolidated Statement of Operations for the years ended
   December 31, 2001, 2002 and 2003                                        FS-5
Consolidated Statements of Retained Earnings for the years ended
   December 31, 2001, 2002 and 2003                                        FS-6
Consolidated Statement of Cash Flows for the years ended
   December 31, 2001, 2002 and 2003                                        FS-7
Notes to the Consolidated Financial Statements                             FS-8



ITEM 18.     FINANCIAL STATEMENTS

The Company has responded to Item 17 in lieu of responding to this item.

ITEM 19.     EXHIBITS

-------------- -----------------------------------------------------------------
Exhibit Number Description
-------------- -----------------------------------------------------------------
      1.1      Articles of Incorporation of the Company[1]
-------------- -----------------------------------------------------------------
      1.2      By-laws of the Company[1]
-------------- -----------------------------------------------------------------
      1.3      Code of Conduct
-------------- -----------------------------------------------------------------
      2.1      Indenture between Marsulex Inc. and the Bank of Nova Scotia
               Trust Company of New York for up to US$155,000,000 in 9-5/8%
               Senior Subordinated Notes[2]
-------------- -----------------------------------------------------------------
      4.1      CEO Supplemental Pension Plan[1]
-------------- -----------------------------------------------------------------
      4.2      Amended and Restated Asset and Share Purchase Agreement[3]
-------------- -----------------------------------------------------------------
      4.3      Amended and Restated Share and Debt Purchase Agreement[3]
-------------- -----------------------------------------------------------------
      4.4      Share Purchase Agreement (Shares of Sulconam Inc.)[4]
-------------- -----------------------------------------------------------------
      4.5      Loan Agreement
-------------- -----------------------------------------------------------------
      5.1      Management's Discussion and Analysis
-------------- -----------------------------------------------------------------
      5.2      Management Information Circular
-------------- -----------------------------------------------------------------
      8        Listing of Marsulex subsidiaries (included on page 19 hereof)
-------------- -----------------------------------------------------------------
      12.1     Certification of Chief Executive Officer and Chief Financial
               Officer Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002
-------------- -----------------------------------------------------------------
      13.1     Certification of Chief Executive Officer and Chief Financial
               Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-------------- -----------------------------------------------------------------

1.    Incorporated by reference to exhibits of the Company's Form 20-F
      (registration number 333-09410) filed with the SEC on June 27, 2001.
2.    Incorporated by reference to Exhibit 7.1 of the Company's Form F-10
      (registration number 333-09410) filed with the SEC on September 17, 1998.
3.    Incorporated by reference to exhibits of the Company's Amendment No. 1 of
      the Form 20-F (registration number 333-09410) filed with the SEC on
      July 8, 2002.
4.    Incorporated by reference to exhibits of the Company's Amendment No. 1
      of the Form 20-F (registration number 333-09410) filed with the SEC on
      March 18, 2003.


                                       35
<PAGE>



SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing
on Form-20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.

MARSULEX INC.






By:  /s/ David M. Gee
    ----------------------------
Name:  David M. Gee

Title: President and Chief Executive Officer


Dated this 25th day of March, 2004



                                       36
<PAGE>


Index to Exhibits
-------------- -----------------------------------------------------------------
Exhibit Number Description
-------------- -----------------------------------------------------------------
      1.1      Articles of Incorporation of the Company[1]
-------------- -----------------------------------------------------------------
      1.2      By-laws of the Company[1]
-------------- -----------------------------------------------------------------
      1.3      Code of Conduct
-------------- -----------------------------------------------------------------
      2.1      Indenture between Marsulex Inc. and the Bank of Nova Scotia
               Trust Company of New York for up to US$155,000,000 in 9-5/8%
               Senior Subordinated Notes[2]
-------------- -----------------------------------------------------------------
      4.1      CEO Supplemental Pension Plan[1]
-------------- -----------------------------------------------------------------
      4.2      Amended and Restated Asset and Share Purchase Agreement[3]
-------------- -----------------------------------------------------------------
      4.3      Amended and Restated Share and Debt Purchase Agreement[3]
-------------- -----------------------------------------------------------------
      4.4      Share Purchase Agreement (Shares of Sulconam Inc.)[4]
-------------- -----------------------------------------------------------------
      4.5      Loan Agreement
-------------- -----------------------------------------------------------------
      5.1      Management's Discussion and Analysis
-------------- -----------------------------------------------------------------
      5.2      Management Information Circular
-------------- -----------------------------------------------------------------
      8        Listing of Marsulex subsidiaries (included on page 19 hereof)
-------------- -----------------------------------------------------------------
      12.1     Certification of Chief Executive Officer and Chief Financial
               Officer Pursuant to Section 302 of the
               Sarbanes-Oxley Act of 2002
-------------- -----------------------------------------------------------------
      13.1     Certification of Chief Executive Officer and Chief Financial
               Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-------------- -----------------------------------------------------------------


                                       37
<PAGE>


Management's Responsibility for Financial Reporting


The management of Marsulex Inc. is responsible for the integrity of the
accompanying Consolidated Financial Statements and all other information in the
annual report. The financial statements have been prepared by management in
accordance with Canadian generally accepted accounting principles applied on a
consistent basis and which recognize the necessity of relying on best estimates
and informed judgements. The most significant of these accounting principles
have been set out in Note 1 to the Consolidated Financial Statements.

To discharge its responsibilities for financial reporting and safeguarding of
assets, management depends on the Company's systems of internal accounting
control. These systems are designed to provide reasonable and cost-effective
assurance that the financial records are reliable and form a proper basis for
the timely and accurate preparation of financial statements.

The Board of Directors oversees management's responsibilities for financial
statements primarily through the activities of its Audit Committee, which is
composed solely of Directors who are neither officers nor employees of the
Company. This Committee meets regularly with financial management and the
independent auditors to discuss internal controls, auditing matters and
financial reporting issues. The Audit Committee reviews the Consolidated
Financial Statements and Management's Discussion and Analysis prior to the
Board of Directors' approving them for inclusion in the Annual Report. The
Audit Committee also meets with the auditors without the presence of
management, to discuss the results of their audit and the quality of financial
reporting.

The financial statements have been audited by KPMG LLP, Chartered Accountants.
Their report outlines the scope of their examinations and opinion on the
Consolidated Financial Statements.



/s/David M. Gee             /s/Laurie Tugman            /s/Edward R. Irwin
-------------------------   -------------------------   ------------------------
David M. Gee                Laurie Tugman               Edward R. Irwin
President                   Executive Vice President    Vice President, Finance
& Chief Executive Officer   & Chief Financial Officer

Toronto, Canada
February 12, 2004


                                     FS-1
<PAGE>

Auditors' Report to the Shareholders


We have audited the consolidated balance sheets of Marsulex Inc. as at December
31, 2003 and 2002 and the consolidated statements of earnings, retained
earnings and cash flows for each of the years in the three-year period ended
December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with Canadian and United States generally
accepted auditing standards. Those standards require that we plan and perform
an audit to obtain reasonable assurance whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31,
2003 and 2002 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2003 in accordance with
Canadian generally accepted accounting principles.


/s/KPMG LLP

Chartered Accountants

Toronto, Canada
February 12, 2004


                                     FS-2
<PAGE>

Comments by Auditors for U.S. Readers on Canada-U.S. Reporting Differences


In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the change described in note
1(g) (relating to amortization of goodwill prior to 2002), to the consolidated
financial statements as at December 31, 2003 and 2002 and for each of the years
in the three-year period ended December 31, 2003. Our report to the
shareholders dated February 12, 2004 is expressed in accordance with Canadian
reporting standards, which do not require a reference to such changes in
accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the financial statements.


/s/KPMG LLP

Chartered Accountants

Toronto, Canada
February 12, 2004

                                     FS-3
<PAGE>

<TABLE>
<CAPTION>
Consolidated Balance Sheets
(In thousands of dollars)
December 31, 2003 and 2002
------------------------------------------------------------------------------ ------------------ ----------------

                                                                                           2003             2002
                                                                                                       (restated
                                                                                                      note 2(c))
------------------------------------------------------------------------------ ------------------ ----------------

ASSETS
<S>                                                                                   <C>               <C>
Current assets:
   Cash and cash equivalents                                                          $  16,375         $  7,940
   Cash held in trust (note 11(a))                                                       10,071               --
   Accounts receivable                                                                   19,621           25,332
   Due from Chemtrade Logistics (note 4(c))                                                 900              900
   Inventories (note 8)                                                                   2,760            1,888
   Future tax asset (note 16)                                                               605              267
   Prepaid expenses and other assets                                                      1,597            1,102
------------------------------------------------------------------------------ ------------------ ----------------
                                                                                         51,929           37,429

Long-term portion of cash held in trust (note 11(a))                                      7,500               --
Property, plant and equipment (note 9)                                                  156,679          134,648
Deferred charges and other assets, net of accumulated amortization                        2,378            5,337
Goodwill and intangible assets, net of accumulated amortization (note 10)                52,003           61,831

------------------------------------------------------------------------------ ------------------ ----------------
                                                                                     $  270,489        $ 239,245
============================================================================== ================== ================

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Accounts payable                                                                   $   9,765         $  9,207
   Accrued liabilities (note 14)                                                         14,978           11,348
   Income taxes payable                                                                   1,385              838
   Interest payable                                                                         122               --
------------------------------------------------------------------------------ ------------------ ----------------
                                                                                         26,250           21,393

Long-term debt (note 11)                                                                119,196           95,943
Deferred revenues                                                                           796            1,818
Other liabilities                                                                         9,025           10,573
Future tax liability (note 16)                                                           18,395           17,816

Shareholders' equity:
   Capital stock (note 12)                                                               57,973           57,625
   Retained earnings                                                                     38,290           31,432
   Foreign currency translation adjustment                                                  564            2,645
------------------------------------------------------------------------------ ------------------ ----------------
                                                                                         96,827           91,702
------------------------------------------------------------------------------ ------------------ ----------------
                                                                                     $  270,489        $ 239,245
Commitments and contingencies (note 15)
============================================================================== ================== ================
See accompanying notes to the consolidated financial statements.
</TABLE>

On behalf of the Board:



                     /s/John Rogers                    /s/Lee C. Stewart

                     John Rogers                       Lee C. Stewart
                     Director                          Director

                                     FS-4

<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Operations (In thousands of dollars, except per
share amounts) Years ended December 31, 2003, 2002, and 2001
------------------------------------------------------------------------ ----------------- ---------------- -----------------
                                                                                  2003             2002              2001
                                                                                              (restated         (restated
                                                                                             note 2(c))        note 2(c))
------------------------------------------------------------------------ ----------------- ---------------- -----------------

<S>                                                                         <C>              <C>             <C>
Revenue                                                                     $    134,982     $   138,291      $   236,714
Cost of sales and services                                                        86,546          90,028          170,412
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Gross profit                                                                      48,436          48,263           66,302
Selling, general, administrative and other costs                                  19,663          20,747           26,273
Foreign exchange (gains) losses on monetary items                                 (2,057)           (569)             471
Loss on disposal of property, plant and equipment                                     --              20               59
Depreciation                                                                      15,727          15,660           15,170
Unusual items (note 3)                                                             1,422           7,487          (55,556)
Foreign exchange loss on Senior Notes                                                 --              --              968
Amortization of deferred charges and intangible assets                               726             387            1,074
Interest expense                                                                   9,755          13,684           18,085
Interest capitalized                                                              (3,738)         (2,572)          (1,065)
Interest income                                                                     (730)         (1,942)          (3,141)
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Earnings (loss) from continuing operations before income taxes,
    minority interest and amortization of goodwill                                 7,668          (4,639)          63,964

Income taxes (recovery):
    Current                                                                          559           2,706            5,491
    Future                                                                           251          (1,162)           6,777
------------------------------------------------------------------------ ----------------- ---------------- -----------------
                                                                                     810           1,544           12,268
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Earnings (loss) from continuing operations before minority interest
    and amortization of goodwill                                                   6,858          (6,183)          51,696

Minority interest                                                                     --           1,595            1,403
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Earnings (loss) from continuing operations before amortization of
    goodwill                                                                       6,858          (7,778)          50,293

Amortization of goodwill, net of income taxes (note 10)                               --              --            3,555
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Earnings (loss) from continuing operations                                         6,858          (7,778)          46,738

Earnings from discontinued operations, net of tax (note 4(b))                         --              --           16,644
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Net earnings (loss)                                                         $      6,858     $     (7,778)     $    63,382
======================================================================== ================= ================ =================

Earnings (loss) per share (note 13(a)):
    Basic:
      Before amortization of goodwill                                       $       0.22     $      (0.25)     $     1.60
      From continuing operations                                                    0.22            (0.25)           1.48
      Net earnings (loss)                                                           0.22            (0.25)           2.01
    Diluted:
      Before amortization of goodwill                                               0.21            (0.25)           1.58
      From continuing operations                                                    0.21            (0.25)           1.47
      Net earnings (loss)                                                           0.21            (0.25)           2.00

------------------------------------------------------------------------ ----------------- ---------------- -----------------
See accompanying notes to consolidated financial statements.

</TABLE>


                                     FS-5

<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Retained Earnings
(In thousands of dollars)
Years ended December 31, 2003, 2002, and 2001
------------------------------------------------------------------------ ----------------- ---------------- -----------------

                                                                                  2003             2002              2001
                                                                                              (restated         (restated
                                                                                             note 2(c))        note 2(c))
------------------------------------------------------------------------ ----------------- ---------------- -----------------

<S>                                                                        <C>              <C>              <C>
Retained earnings (deficit), beginning of year:                            $    31,432      $     39,223     $    (23,934)

Change in accounting policy (note 2(c))                                             --                --             (225)

Premium on common stock purchased for cancellation (note 12)                        --               (13)              --
Net earnings (loss)                                                              6,858            (7,778)          63,382
------------------------------------------------------------------------ ----------------- ---------------- -----------------
Retained earnings, end of year                                             $    38,290      $     31,432     $     39,223

------------------------------------------------------------------------ ----------------- ---------------- -----------------
See accompanying notes to consolidated financial statements.

</TABLE>

                                     FS-6

<PAGE>
<TABLE>
<CAPTION>

Consolidated Statements of Cash Flows
(In thousands of dollars)
Years ended December 31, 2003, 2002, and 2001
------------------------------------------------------------------------ ----------------- --------------- ------------------
                                                                                  2003            2002               2001
                                                                                             (restated          (restated
                                                                                            note 2(c))         note 2(c))
------------------------------------------------------------------------ ----------------- --------------- ------------------

Cash provided by (used in):

Operating activities:
<S>                                                                       <C>              <C>              <C>
   Net earnings (loss)                                                     $       6,858    $    (7,778)     $      63,382
   Items not affecting cash:
      Earnings from discontinued operations                                           --             --            (16,644)
      Depreciation                                                                15,727         15,660             15,170
      Loss on disposal of property, plant and equipment                               --             20                 59
      Non-cash unusual items (note 3)                                                685          6,679            (58,250)
      Foreign exchange loss on Senior Notes                                           --             --                968
      Amortization of deferred charges and intangible assets                         726            387              1,074
      Amortization of goodwill                                                        --             --              4,802
      Future income taxes                                                            251         (1,162)             6,164
      Minority interest                                                               --          1,595              1,403
      Other non-cash items                                                           214            235              1,158
------------------------------------------------------------------------ ----------------- --------------- ------------------
                                                                                  24,461         15,636             19,286
Change in non-cash operating working capital         (note 7)                      4,979         (5,541)            (4,612)
------------------------------------------------------------------------ ----------------- --------------- ------------------
   Cash provided by continuing operations                                         29,440         10,095             14,674
   Cash used in discontinued operations                                               --             --             (3,723)
======================================================================== ================= =============== ==================
                                                                                  29,440         10,095             10,951

Financing activities:
   Issuance of common stock (note 12)                                                348            133                 --
   Repurchase of common stock (note 12)                                               --            (27)                --
   Repayment of long-term debt                                                        --        (69,492)           (37,723)
   Increase in long-term debt                                                     40,000             --                 --
   Cash used in discontinued operations                                               --             --               (380)
------------------------------------------------------------------------ ----------------- --------------- ------------------
                                                                                  40,348        (69,386)           (38,103)
Investing activities:
   Proceeds on disposal of property, plant and equipment                              --          3,358            128,991
   Additions to property, plant and equipment                                    (32,583)       (40,977)           (29,775)
   Increase in deferred charges                                                     (168)            --             (5,851)
   Acquisitions (note 5)                                                         (11,604)       (16,590)            (2,979)
   Increase in cash held in trust (note 11(a))                                   (17,571)            --                 --
   Decrease (increase) in other assets                                             1,650           (183)                58
   Note from Chemtrade Logistics (note 4(c))                                          --          4,305             (4,305)
   Cash provided by discontinued operations                                           --             --             28,269
------------------------------------------------------------------------ ----------------- --------------- ------------------
                                                                                 (60,276)       (50,087)           114,408
Foreign exchange loss on cash held in foreign currency                            (1,077)          (830)            (1,107)
------------------------------------------------------------------------ ----------------- --------------- ------------------
Increase (decrease) in cash and cash equivalents                                   8,435       (110,208)            86,149

Cash and cash equivalents, beginning of year                                       7,940        118,148             31,999
------------------------------------------------------------------------ ----------------- --------------- ------------------
Cash and cash equivalents, end of year                                     $      16,375    $     7,940      $     118,148
======================================================================== ================= =============== ==================

Supplemental cash flow information:
   Interest paid                                                           $       9,633    $    13,688      $      18,029
   Income taxes paid, net of refunds                                                 559          2,008              3,480
------------------------------------------------------------------------ ----------------- --------------- ------------------
See accompanying notes to consolidated financial statements.

</TABLE>

                                     FS-7
<PAGE>

Notes to Consolidated Financial Statements
(Tabular amounts in thousands of dollars)
Years ended December 31, 2003, 2002 and 2001

1. Significant accounting policies:


(a) Basis of presentation:

     These consolidated financial statements include the accounts of Marsulex
     Inc. (the Company) and its subsidiaries from their respective dates of
     acquisition. All intercompany transactions have been eliminated.

(b) Cash and cash equivalents:

     Cash equivalents are comprised of highly liquid investments having
     remaining terms of maturity of 90 days or less when acquired. They are
     valued at cost plus accrued interest, which approximates market value.

(c) Inventories:

     Inventories are valued at the lower of average cost and net realizable
     value, with cost including the purchase cost of raw materials and
     operating supplies and the cost of production for work in process and
     finished goods.

(d) Property, plant and equipment:

     Property, plant and equipment is stated at cost. Depreciation is charged
     on a straight-line basis over the economic useful lives of the related
     assets or where applicable the lower of the economic useful lives of the
     related assets and the duration of the related customer contracts, which
     range from three to 22 years.

     The Company includes, as part of the cost of its plant and equipment, all
     interest costs incurred prior to the asset becoming available for
     operation, providing the resulting capital cost does not exceed the net
     recoverable amount of the asset.

(e) Asset retirement obligations:

     The Company recognizes asset retirement obligations in the period in which
     they are incurred if a reasonable estimate of the fair value can be
     determined. The liability is measured at fair value and is adjusted to its
     present value in subsequent periods as accretion expense, and the impact
     of changes in timing or amount of estimated cashflows is recorded. The
     associated asset retirement costs are capitalized as part of the carrying
     amount of the long-lived assets and the asset is depreciated over the
     asset's estimated useful life.

(f) Intangible assets:

     Intangibles include the estimated value at the date of acquisition of
     long-term contractual customer relationships and other intangible assets.
     Where customer relationships do not have a history of renewal, they are
     amortized over the contract terms. Intangibles associated with other
     relationships are amortized over their expected life, which is currently
     eight years.

(g) Goodwill:

     Goodwill is initially recorded as the excess of the Company's cost over
     the fair value of the net identifiable assets acquired in a business
     combination. The amount of the goodwill is assigned to the respective
     reporting unit. On an annual basis, the Company assesses the carrying
     value of goodwill based upon the fair value of the related reporting unit.
     If any impairment in the value of the reporting unit exists, the implied
     fair value of goodwill allocated to that reporting unit is determined and
     compared to the carrying value of the goodwill. Any impairment that exists
     following the assessment is recorded as a charge to the income statement
     at the time the impairment occurs as part of earnings from continuing
     operations.

     Prior to 2002, goodwill was amortized on a straight-line basis over its
     estimated life of up to 40 years. The Company determined whether permanent
     impairment had occurred by regularly revaluing the expected operating cash
     flows of the respective assets acquired.

(h) Deferred charges:

     Deferred charges are amortized on a straight-line basis over the life of
     the contract to which they relate (up to 10 years).

                                     FS-8
<PAGE>

(i)  Foreign currency translation:

     The accounts of the Company's foreign operations are considered to be
     self-sustaining and are translated into Canadian dollars using the current
     rate method. Assets and liabilities are translated at the rates in effect
     at the balance sheet date and revenue and expenses are translated at
     average exchange rates for the year. Gains or losses arising from the
     translation of the financial statements of self-sustaining foreign
     operations are deferred in a "foreign currency translation adjustment"
     account in shareholders' equity until there is a realized reduction in the
     net investment.

     Gains and losses on the translation of the US dollar-denominated Senior
     Subordinated Notes (note 11) used for the acquisition of the Company's
     self-sustaining foreign operations are considered to be a hedge of the net
     investment in the self-sustaining operations and are offset against the
     exchange gains or losses arising on translation of the financial
     statements of the foreign operation and are included in the foreign
     currency translation adjustment.

     Monetary assets and liabilities denominated in US dollars of non
     self-sustaining operations have been translated into Canadian dollars at
     the rate of exchange in effect at the balance sheet date. All revenue and
     expenses denominated in US dollars are translated at average rates in
     effect during the year. Translation gains and losses are included in the
     consolidated statements of operations.

(j) Revenue recognition:

     Revenue from the sale of by-products and other chemicals is recognized at
     the time of shipment when title transfers. Revenue associated with
     providing services and technology fees is recognized as services are
     rendered, and technology fees are earned. Revenue from contracts for the
     supply and installation of air pollution control systems is recorded as
     the services are performed, using the percentage-of-completion method. The
     effect of changes in total estimated income for each contract is
     recognized in the year in which the determination is made. Losses on
     contracts are fully recognized when they become evident.

(k) Employee future benefit plans:

     The Company accrues its obligations under employee benefit plans and the
     related costs net of plan assets and has adopted the following policies:

i)       The cost of pensions and other retirement benefits earned by employees
         is actuarially determined using the projected benefit method prorated
         on service and management's best estimate of expected plan investment
         performance, salary escalation, retirement ages of employees and
         expected health care costs.

ii)      For the purpose of calculating the expected return on plan assets,
         those assets are valued at fair value.

iii)     The excess of the net actuarial gain (loss) over 10% of the greater of
         the benefit obligation and the fair value of plan assets at the
         beginning of the year is amortized over the average remaining service
         period of active employees. The average remaining service period of
         the active employees covered by the pension plans is between 12 and 14
         years. The average remaining service period of the active employees
         covered by the other retirement benefit plans is between 8 and 12
         years.

(l)      Environmental obligations:

     Liabilities are recorded when environmental claims or remedial efforts are
     probable and the costs can be reasonably estimated. Environmental
     expenditures that relate to current operations are expensed or capitalized
     as appropriate.

(m) Stock-based compensation:

     The Company provides compensation to certain employees, officers and
     directors in the form of stock options. The Company follows the settlement
     method of accounting for awards granted prior to January 1, 2003. Using
     this method, no expense is recognized for stock options as the strike
     price is set at the market price on the day the awards are issued. When
     stock options are exercised, the proceeds received by the Company are
     credited to common shares. For awards granted after January 1, 2003, the
     fair value method is used. Under this method the Company records the fair
     value of the options granted over the vesting period as an expense. The
     offset for these expenses is recorded in contributed surplus until the
     options are exercised.

                                     FS-9
<PAGE>

     The Company also provides compensation to certain employees, key persons,
     and Directors in the form of Deferred Share Units (DSU's) and Performance
     Share Units (PSU's). Both of these awards may be settled at the holder's
     option in cash or common stock purchased on the open market. These awards
     are accounted for using the intrinsic value method such that the value of
     the share units at grant date, together with subsequent changes in the
     common share price in relation to the share unit prices, are recorded as
     compensation expense over the grant period.

(n) Use of estimates:

     The preparation of financial statements in conformity with Canadian
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the reported amounts of assets and
     liabilities and disclosure of contingent assets and liabilities at the
     date of the financial statements and reported amounts of revenue and
     expenses during the year. Actual results could differ from those
     estimates.

(o) Comparative figures:

     Certain 2002 and 2001 comparative figures have been reclassified to
     conform to the financial statement presentation adopted in 2003.

2. Other recent accounting prouncements:

     Effective January 1, 2003, the Company adopted the following new
     recommendations of The Canadian Institute of Chartered Accountants: (CICA)
     Accounting Guideline (AcG 13) Hedging Relationships, Handbook Section 3063
     "Impairment of Long-Lived Assets" , revised Section 3475 "Disposal of
     Long-Lived Assets and Discontinued Operations", and Section 3110 "Asset
     Retirement Obligations". The details of the accounting policy changes are
     noted below:

(a) Hedging relationships:

     The Company adopted the new CICA Accounting Guideline (AcG 13) Hedging
     Relationships on January 1, 2003. This guideline requires the
     identification, designation, documentation and assessment of the
     effectiveness of hedging relationships for the purpose of applying hedge
     accounting. The adoption of this standard did not have an impact on its
     financial position since the Company's only material hedging relationship
     relates to its US dollar denominated debt used to acquire its US
     operations.

(b) Impairment of long-lived assets and discontinued operations:

     In December 2002, the CICA issued Handbook Section 3063, "Impairment of
     Long-Lived Assets" and revised Section 3475, "Disposal of Long-Lived
     Assets and Discontinued Operations". Together, these two sections
     supersede the write-down and disposal provisions of Section 3061,
     "Property, Plant and Equipment" as well as Section 3475, "Discontinued
     Operations". These new standards are consistent with FAS No. 144 which the
     Company adopted for US GAAP purposes effective January 1, 2002.

     Section 3063 amends existing guidance on long-lived asset impairment
     measurement and establishes standards for the recognition, measurement and
     disclosure of the impairment of long-lived assets held for use by the
     Company. It requires that an impairment loss be recognized when the
     carrying amount of an asset to be held and used exceeds the sum of the
     undiscounted cash flows expected from its use and disposal. The impairment
     recognized is measured as the amount by which the carrying amount of the
     asset exceeds its fair value.

     Section 3475 provides a single accounting model for long-lived assets to
     be disposed of by sale. It also provides specified criteria for
     classifying an asset as held-for-sale and requires assets classified as
     held-for-sale to be measured at the lower of their carrying amounts or
     fair value, less costs to sell. Section 3475 also broadens the scope of
     businesses that qualify for reporting as discontinued operations to
     include any disposals of a component of an entity, which comprises
     operations and cash flows that can be clearly distinguished from the rest
     of the Company, and changes the timing of recognizing losses on such
     operations. The new standards contained in Section 3063 on the impairment
     of long-lived assets held for use are applicable for years beginning on or
     after April 1, 2003; however, early application is permitted. The revised
     standards contained in Section 3475 on disposal of long-lived assets and
     discontinued operations are applicable to disposal activities initiated by
     the Company's commitment to a plan on or after May 1, 2003; however, early
     application is permitted.

     On January 1, 2003, the Company adopted the standards of the new Section
     3063 and 3074 and this adoption did not have a material impact on the
     financial statements.

                                     FS-10
<PAGE>

(c)  Asset retirement obligations:

     On January 1, 2003, the Company early-adopted the new CICA accounting
     standard for asset retirement obligations. Previously when the cost of the
     site restoration exceeded the salvage value of the asset, the expected
     settlement amount of the asset retirement costs were systematically
     accrued to the expected settlement amount in the year the obligation was
     anticipated to settle. Under the new policy, asset retirement obligations
     which relate to its legal obligations arising from construction or use of
     a long-lived asset are recognized in the period in which they are incurred
     if a reasonable estimate of the fair value can be determined. The
     liability is measured at fair value and is adjusted to its present value
     in subsequent periods as accretion expense is recorded. The associated
     asset retirement costs are capitalized as part of the carrying amount of
     the long-lived assets and the asset is depreciated over the asset's
     estimated useful life.

     This standard is consistent with FAS No. 143 which the Company adopted for
     US GAAP purposes effective January 1, 2003.

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------- ----------- ------------
     Effect on opening retained earnings in the consolidated balance sheets                2003        2002         2001
     ------------------------------------------------------------------------------- ----------- ----------- ------------
<S>                                                                                    <C>        <C>         <C>
     Asset retirement cost, included in property, plant and equipment                   $  466    $    466    $     466
     Accumulated depreciation on property, plant and equipment                            (242)       (189)        (136)
     Asset retirement obligation, included in other liabilities                           (685)       (627)        (569)
     Future tax liability                                                                   28          21           14
     ------------------------------------------------------------------------------- ----------- ----------- ------------
     Opening retained earnings                                                          $ (433)   $   (329)   $    (225)
     ------------------------------------------------------------------------------- ----------- ----------- ------------

     ------------------------------------------------------------------------------- ----------- ----------- ------------
     Effect on the consolidated statement of operations                                    2003        2002         2001
     ------------------------------------------------------------------------------- ----------- ----------- ------------
     Accretion expense                                                                 $    61    $     58    $      58
     Depreciation expense                                                                   54          53           53
     Future tax recovery                                                                    (8)         (7)          (7)
     ------------------------------------------------------------------------------- ----------- ----------- ------------
     Total impact to net earnings                                                      $   107    $    104    $     104
     ------------------------------------------------------------------------------- ----------- ----------- ------------
</TABLE>

     Under this change in accounting standard, the Company is recognizing its
     future asset retirement costs where the Company has determined legal
     obligations exist, including Company properties that are on leased land,
     which revert back to the lessor and the Company has a legal obligation
     under the landlease agreement to remove improvements and structures from
     the property. The estimated amount of undiscounted retirement costs
     relating to these properties is $2,550,000. These costs are expected to be
     settled between 6 and 30 years and using a 1% inflation rate, the present
     value of the future asset retirement costs was determined with a
     credit-adjusted risk-free discount rate of 8.5%.

3. Unusual items:

<TABLE>
<CAPTION>
     Consolidated Statements of Operations
     ------------------------------------------------------------------------------ ------------- ----------- -------------
                                                                                          2003         2002         2001
     ------------------------------------------------------------------------------ ------------- ----------- -------------

<S>                                                                                    <C>         <C>        <C>
     Expenses incurred on cancellation of stock options held by former employees
         (note 12)                                                                     $   737     $     --   $        --
     Gain on disposal of sulphur removal assets (note 4(a))                                 --           --       (64,768)
     Loss (gain) on disposal of parts and service business and other assets
        (note 6)                                                                           685       (4,014)           --
     Expenses incurred on early retirement of debt (note 3(a))                              --        1,252         5,593
     Write-off of deferred charges                                                          --           --         3,619
     Write-off of capitalized project costs (note 9(b))                                     --        9,508            --
     Other unusual items                                                                    --          741            --
     ============================================================================== ============= =========== =============
     Total unusual items                                                               $ 1,422     $  7,487   $   (55,556)

     ------------------------------------------------------------------------------ ------------- ----------- -------------
</TABLE>

                                     FS-11
<PAGE>
<TABLE>
<CAPTION>

     Consolidated Statements of Cash Flows
     ------------------------------------------------------------------------------ ------------- ----------- -------------
                                                                                          2003        2002           2001
     ------------------------------------------------------------------------------ ------------- ----------- -------------
<S>                                                                                  <C>           <C>        <C>
     Gain on disposal of sulphur removal assets                                      $      --     $     --   $(64,768)
     Expenses incurred on early retirement of debt                                          --        1,185      2,899
     Write-off of deferred charges                                                          --           --      3,619
     Loss (gain) on disposal of parts and service business and other assets                685       (4,014)        --
     Write-off of capitalized project costs                                                 --        9,508         --
     ============================================================================== ============= =========== =============
     Total non-cash unusual items                                                    $     685     $  6,679   $(58,250)
     ------------------------------------------------------------------------------ ------------- ----------- -------------
</TABLE>

(a)  On August 20, 2002, the Company completed the July 15, 2002 offer to
     purchase its 9 5/8% Senior Subordinated Notes by purchasing the obligated
     amount of $69,492,000 (US $44,234,000) principal at par plus accrued
     interest of $929,000 (US $591,000). Although US $47,230,000 million was
     tendered, under both the terms of the offer and the indenture, the Company
     was only obligated to purchase up to the amount of unutilized cash
     proceeds resulting from the sale of the sulphur removal assets and BCT
     Chemtrade Corporation. As part of the purchase, the Company incurred
     expenses of $1,252,000 comprised of writing off of deferred debt issuance
     costs of $1,185,000 and expenses incurred on the transaction of $67,000.

     On July 18, 2001, the Company fully retired its outstanding 10.21% Senior
     Notes and cancelled its US $50,000,000 operating credit facility at an
     expense of $5,593,000. These expenses included the write-off of deferred
     debt issuance costs and foreign exchange costs of $2,899,000 and a
     make-whole payment of $2,694,000.

4. Sale of sulphur removal assets and BCT Chemtrade Corporation:

     On July 18, 2001, the Company completed the sale of its sulphur removal
     services assets in eastern North America and of BCT Chemtrade Corporation
     (BCT), a subsidiary of the Company, to Chemtrade Logistics Income Fund for
     gross cash proceeds before costs of disposition of $167,169,000 (the
     Transaction) or $156,589,000 net of costs of disposition, comprised of
     $128,142,000 for the sale of the sulphur removal assets and $28,447,000
     for the sale of BCT.

(a)  The sale of the sulphur removal services assets in eastern North America
     resulted in the following gain:

     ----------------------------------------------------- -------------------
     Proceeds of disposition, net of costs                      $    128,142
     Net book value and costs of sale                                (63,374)
     ----------------------------------------------------- -------------------
     Gain on sale, before income taxes                                64,768
     Income taxes                                                     (9,921)
     ----------------------------------------------------- -------------------
     Gain on sale, net of tax                                   $     54,847
     ----------------------------------------------------- -------------------


(b)  The operations of BCT comprised one operating segment. Accordingly for
     reporting purposes, the gain on the sale and the results of operations and
     cash flows of this business to the date of sale are presented and
     disclosed as discontinued operations and resulted in restatement of the
     prior year's results. Additional information related to the discontinued
     operations is as follows:

                                     FS-12

<PAGE>
<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------ --------------------------
                                                                                                             Period ended
                                                                                                            July 17, 2001
     ------------------------------------------------------------------------------------------ --------------------------
<S>                                                                                                          <C>
     Revenue                                                                                                 $    48,221
     ------------------------------------------------------------------------------------------ --------------------------

     Earnings before income taxes                                                                           $      2,379
     Income taxes                                                                                                   (476)
     Minority interest                                                                                              (387)
     ------------------------------------------------------------------------------------------ --------------------------
     Earnings from discontinued operations                                                                         1,516

     Gain on sale                                                                                                 15,863
     Income taxes                                                                                                   (735)
     ------------------------------------------------------------------------------------------ --------------------------
     Net gain on disposal                                                                                         15,128

     ------------------------------------------------------------------------------------------ --------------------------
     Net earnings from discontinued operations                                                               $    16,644

     ------------------------------------------------------------------------------------------ --------------------------

     ------------------------------------------------------------------------------------------ --------------------------
                                                                                                             Period ended
                                                                                                            July 17, 2001
     ------------------------------------------------------------------------------------------ --------------------------
     Cash provided by (used in):
     Operating activities                                                                                  $      (3,723)
     Financing activities                                                                                           (380)
     Investing activities                                                                                         28,269
     ------------------------------------------------------------------------------------------ --------------------------
     Increase in cash and cash equivalents from discontinued operations                                    $      24,166
     ------------------------------------------------------------------------------------------ --------------------------
</TABLE>

(c)  As part of the Transaction, Chemtrade Logistics Inc. owed the Company
     $4,000,000 relating to the finalization of working capital. Of this,
     $1,300,000 was collected during the second quarter of 2002 and the first
     of three installments was collected in May of 2003. The remainder due May
     1, 2004 and 2005 is recorded in current assets and other assets
     respectively. A note in the amount of $4,305,000 pursuant to an escrow
     agreement was collected in January 2002.

5.   Acquisitions:

(a)  On October 7, 2003, the Company acquired the sulphur products assets in
     Prince George, British Columbia from Duke Energy Gas Transmission. The
     purchase price, including estimated acquisition costs, was $13,382,000
     financed by the Company through existing cash. The acquisition has been
     accounted for using the purchase method of accounting and has been
     consolidated from the date of acquisition.

     ---------------------------------------------------- ---------------------
     Property, plant and equipment                               $     13,382
     Current assets                                                       769
     Current liabilities                                               (1,760)
     Post retirement benefits                                            (670)
     Other liabilities                                                   (117)
     ---------------------------------------------------- ---------------------
     Cash purchase price                                         $     11,604
     ---------------------------------------------------- ---------------------

     As part of the Duke Energy Gas Transmission acquisition, the Company
     recognized the fully funded pension benefits obligations of $1,390,000 and
     post retirement benefits of $670,000 relating to the employees of this
     plant. These obligations are included in the post retirement obligations
     disclosed in note 14.

                                     FS-13

<PAGE>

(b)  On December 30, 2002, the Company acquired the remaining 35% of the
     outstanding common shares of Sulconam Inc. for an aggregate cash purchase
     price of $16,590,000.

     The acquisition was accounted for using the purchase method of accounting
     and the final purchase price allocation, including the acquisition costs,
     is summarized as follows:

     ------------------------------------------------------- -------------------
     Property, plant and equipment                              $        7,313
     Intangibles assets, contractual customer relationships              3,501
     Future tax liability                                               (2,047)
     Minority interest                                                   7,823
     ------------------------------------------------------- -------------------
                                                                $       16,590
     ------------------------------------------------------- -------------------

(c)  On July 17, 2001, the Company purchased the shares of Harrowston
     Investments Limited from its major shareholder, Harrowston Inc. for
     $2,979,000. The principal assets of Harrowston Investments Limited were
     comprised of future income tax assets. Harrowston Investments Limited was
     merged with the Company.

6.   Disposal of parts and service business and other assets:

     On January 31, 2002, the Company completed the sale of its parts and
     service business and other assets for gross proceeds of $6,545,000, of
     which $3,358,000 was received in cash.

     -------------------------------------------------------------------------
     Proceeds of disposition                                  $        6,545
     Net book value of assets disposed and costs of sale               2,531
     -------------------------------------------------------------------------

     Gain on sale, before income taxes                                 4,014
     Income taxes                                                        402
     -------------------------------------------------------------------------
     Gain on sale, net of income taxes                        $        3,612

     -------------------------------------------------------------------------


7. Change in non-cash operating working capital:

<TABLE>
<CAPTION>
     ----------------------------------------- -------------- -------------- -------------

                                                      2003          2002            2001
     ----------------------------------------- -------------- -------------- -------------
<S>                                              <C>            <C>           <C>
     Accounts receivable                         $   3,907      $  6,718      $    3,426
     Inventories                                      (980)        1,329           3,829
     Prepaid expenses and other assets              (1,534)         (171)          2,670
     Accounts payable and accrued liabilities        2,747       (13,038)        (14,416)
     Income taxes payable                              822          (615)            487
     Future tax asset                                   17           236            (608)
     ----------------------------------------- -------------- -------------- -------------
                                                 $   4,979      $ (5,541)     $   (4,612)
     ----------------------------------------- -------------- -------------- -------------
</TABLE>


8. Inventories:

<TABLE>
<CAPTION>
     ------------------------------------------------------- -------------- -------------

                                                                    2003           2002
     ------------------------------------------------------- -------------- -------------
<S>                                                           <C>            <C>
     Raw materials and work in process                        $      516     $      352
     Finished goods                                                1,421          1,047
     Operating supplies                                              823            489
     ======================================================= ============== =============
                                                               $   2,760      $   1,888
     ------------------------------------------------------- -------------- -------------
</TABLE>

                                     FS-14
<PAGE>

9.  Property, plant and equipment:

(a) Details of property, plant and equipment:

<TABLE>
<CAPTION>
    ------------------------------------------- --------------- ---------------- ---------------- ---------------
                                                                                          2003            2002
    ------------------------------------------- --------------- ---------------- ---------------- ---------------
                                                                    Accumulated  NET BOOK VALUE       Net book
                                                        Cost       depreciation                          value
    ------------------------------------------- --------------- ---------------- ---------------- ---------------
<S>                                               <C>            <C>                <C>              <C>
    Land                                          $    1,499     $           --     $    1,499       $    1,499
    Plant and equipment                              197,378             95,408        101,970          105,815
    Facilities and equipment under construction       53,210                 --         53,210           27,334
    =========================================== =============== ================ ================ ===============
                                                  $  252,087     $       95,408     $  156,679       $  134,648
    ------------------------------------------- --------------- ---------------- ---------------- ---------------
</TABLE>

     During the year ended December 31, 2003, the Company capitalized
     $3,738,000 (2002 - $1,935,000) of financing costs as part of the cost of
     assets under construction.

(b)  Write-off of capitalized project costs:

     Due to significant changes in the financial markets, the Company and
     Santee Cooper, South Carolina's state owned electric and water utility,
     mutually agreed not to proceed with the previously announced project for
     Marsulex to build and own a flue gas desulphurization system utilizing
     Marsulex's patented ammonium sulphate scrubber technology at Santee
     Cooper's Winyah Power Generating Station. This resulted in a write-off of
     capitalized project costs of $9,508,000 in 2002.

10. Goodwill and intangible assets:

     A review of business combinations prior to July 1, 2001 was performed by
     the Company effective January 1, 2002 with no changes required to the book
     values of goodwill, and no previously unrecognized intangible assets were
     recorded. The Company has also performed the initial and annual impairment
     tests for goodwill and has determined that there is no impairment of the
     book value of goodwill. Had this new standard been applied during the year
     ended December 31, 2001, the impact of no longer amortizing goodwill would
     have increased net earnings by $3,555,000 (11.3 cents basic and 11.2 cents
     diluted earnings per share).

<TABLE>
<CAPTION>
     ------------------------------------------------------------------ ------------------ -----------------
                                                                                 2003                  2002
     ------------------------------------------------------------------ ------------------ -----------------
<S>                                                                       <C>               <C>
     Goodwill, at cost                                                    $    65,586       $        78,461
     Less accumulated amortization                                             16,646                20,131
     ------------------------------------------------------------------ ------------------ -----------------
                                                                               48,940                58,330
     Intangible assets, at cost (note 5(b))                                     3,501                 3,501
     Less accumulated amortization                                                438                    --
     ------------------------------------------------------------------ ------------------ -----------------
                                                                                3,063                 3,501

     ------------------------------------------------------------------ ------------------ -----------------
     Goodwill and intangible assets, net of amortization                  $    52,003       $        61,831
     ------------------------------------------------------------------ ------------------ -----------------
</TABLE>

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------ -------------- ---------------
                                                                        2003         2002             2001
     ------------------------------------------------------------------------ -------------- ---------------
<S>                                                            <C>            <C>             <C>
     Amortization of goodwill                                  $         --   $        --     $      4,802
     Current income taxes                                                --            --             (634)
     Future income taxes                                                 --            --             (613)
     ========================================================= ============== ============== ===============
     Amortization of goodwill, net of income taxes             $         --   $          --   $      3,555
     --------------------------------------------------------- -------------- -------------- ---------------
</TABLE>

                                      FS-15
<PAGE>

11.  Long-term debt:

<TABLE>
<CAPTION>
     ---------------------------------------------------------------------- --------------- --------------
                                                                                    2003              2002
     ---------------------------------------------------------------------- --------------- --------------

<S>                                                                           <C>           <C>
     Long-term Loan
         7.3%, maturing 2019 (note 11(a))                                     $   40,000    $          --

     Senior Subordinated Notes:
          9 5/8% US $60,766,000 (2002 - US $60,766,000), maturing 2008
            (note 11(b))                                                          79,196           95,943
     ====================================================================== =============== ==============
     Total Debt                                                                  119,196           95,943

     Less current portion                                                              --              --
     ====================================================================== =============== ==============
                                                                               $ 119,196    $      95,943
     ---------------------------------------------------------------------- --------------- --------------
</TABLE>

(a) Long-term loan:

     On June 5, 2003, a wholly owned subsidiary of the Company entered into a
     Long-term Loan agreement to finance its portion of the construction of the
     environmental compliance facilities at Syncrude's Mildred Lake oil sands
     facility in Alberta. The loan is secured by the subsidiary's assets. A
     general guarantee is provided by the Company until the successful start-up
     of the facility as defined in the loan agreement at which time the general
     guarantee will be released and the loan will be secured by the
     subsidiary's assets. If, after the successful start-up of the facility,
     the subsidiary fails to perform its operating obligations, the Company
     will become responsible for the operation of the facility and as a result
     the servicing of the debt.

     The loan bears interest at a fixed rate of 7.3% per annum with a monthly
     interest-only payment required until commencement of the revenue stream,
     at which time the repayment of principal will be made over the next 15
     years. The repayment of principal is expected to commence January 2005
     with principal repayments due as follows:

    -------------------------------------------------------------------------
     2004                                                   $           --
     2005                                                            1,370
     2006                                                            1,473
     2007                                                            1,585
     2008                                                            1,704
     Thereafter                                                     33,868
    -------------------------------------------------------------------------

     Under the terms of the agreement $40,000,000 was advanced to a loan
     account which is held in trust. As construction of the facility
     progresses, cash draws are made on the loan with the remaining amount held
     in trust and recorded separately in current and long-term assets as cash
     held in trust. As defined in the agreement, $7,500,000 of the funds are
     required to remain in trust until the successful commissioning and
     start-up of the facility and have been recorded as long-term portion of
     cash held in trust.

(b) Senior Subordinated Notes:

     Long-term debt denominated in US dollars has been translated to Canadian
     dollars at rates in effect at the balance sheet dates.

     Amounts due for repayment, stated in US dollars, are as follows:

     ---------------------------------------------------------------------
      2008                                                      $ 60,766
     ---------------------------------------------------------------------

     The Senior Subordinated Notes are redeemable at the option of the Company
     at specified redemption premiums. The Senior Subordinated Notes require
     the Company to offer to repurchase the notes equal to 101% of the
     principal amount upon a change of control. A change of control as defined
     in the indenture has not occurred.

                                     FS-16
<PAGE>

12. Capital stock:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------- ----------------- ---------------
                                                                                       2003             2002
     ----------------------------------------------------------------------- ----------------- ---------------
<S>                                                                               <C>                <C>
      Authorized:
          Unlimited preference shares, no par value Unlimited convertible
          shares, non-voting, no par value Unlimited common shares, no par
          value
      Issued and fully paid:
          Convertible shares                                                 $        --       $      7,864
          Common shares                                                           57,973             49,761
     ======================================================================= ================= ===============
                                                                             $    57,973       $     57,625
     ----------------------------------------------------------------------- ----------------- ---------------
      Common shares issued, at the beginning of the period                    26,833,550          26,781,050
          Convertion of non-voting convertible shares                          4,720,182                  --
          Common shares cancelled pursuant to the NCIB                                --              (7,500)
          Common shares issued upon exercise of stock options                    142,666              60,000
     ----------------------------------------------------------------------- ---------------- ----------------
      Common shares issued, at the end of the period                          31,696,398          26,833,550
     ----------------------------------------------------------------------- ---------------- ----------------


      Non-voting convertible shares issued, at the beginning of the period     4,720,182           4,720,182
          Convertion of non-voting convertible shares                         (4,720,182)                 --
     ----------------------------------------------------------------------- ---------------- ----------------
      Non-voting convertible shares issued, at the end of the period                  --           4,720,182
     ----------------------------------------------------------------------- ---------------- ----------------
</TABLE>

     The non-voting convertible shares are convertible into common shares on a
     one-for-one basis and the common shares are convertible into non-voting
     convertible shares on a one-for-one basis at any time. The non-voting
     convertible shares are entitled to receive the same dividend as the common
     shares and participate equally with the common shares in any distribution
     of assets of the Company. In September 2003, the Company's major
     shareholder acquired all of the issued non-voting convertible shares and
     subsequently converted them into common shares.

     On June 17, 2003, the Company announced its intention to make a Normal
     Course Issuer Bid (NCIB), pursuant to which the Company is entitled to
     purchase up to 1,341,677 of its common shares issued and outstanding. The
     NCIB commenced on June 19, 2003 and will terminate on June 18, 2004. The
     purchases will be made for cancellation at the market price of such shares
     at the time of acquisition. No shares were acquired by the Company for
     cancellation during the period June 19, 2003 to December 31, 2003.

     On January 29, 2002, the Company announced its intention to make a NCIB
     pursuant to which the Company was entitled to purchase up to 1,339,053 of
     its common shares issued and outstanding. The NCIB commenced on February
     1, 2002 and terminated on January 31, 2003. The purchases were made for
     cancellation at the market price of such shares at the time of
     acquisition. During 2002, the Company acquired 7,500 shares for
     cancellation for total cash proceeds of $27,000.

     During 2003, the Company issued 142,666 common shares for cash proceeds of
     $348,000 upon the exercise of stock options. In 2002, the Company issued
     60,000 common shares for cash proceeds of $133,000 upon the exercise of
     stock options.

     Stock option plan:

     Under the terms of the Company's stock option plan, 4,095,160 common
     shares have been reserved for issuance to holders of options granted.
     Options held by any participant in the option plan may not exceed 5% of
     the common shares outstanding from time to time. Options granted vest in
     equal annual amounts on each of the first three anniversary dates of the
     grant and are exercisable for 10 years from the date of grant.

                                     FS-17
<PAGE>

     Details of the changes in options outstanding are as follows:

     --------------------------------- --------------------- ------------------
                                         Number of options    Weighted average
                                                                exercise price
     --------------------------------- --------------------- ------------------
     Outstanding, December 31, 2001              2,736,500        $     3.68

     Granted                                       249,250              3.95
     Forfeited                                    (251,300)             3.70
     Exercised                                     (60,000)             2.23
     --------------------------------- --------------------- ------------------
     Outstanding, December 31, 2002              2,674,450              3.74

     Forfeited                                     (46,585)             4.92
     Exercised                                    (142,666)             2.44
     Cancelled                                    (433,434)             3.57
     --------------------------------- --------------------- ------------------
     Outstanding, December 31, 2003              2,051,765        $     3.84
     --------------------------------- --------------------- ------------------

     On December 17, 2003, the Company purchased 433,434 stock options held by
     former employees of the Company for a total consideration of $737,000. The
     options were cancelled and fully expensed.

     The following table summarizes information about stock options outstanding
at December 31, 2003:

<TABLE>
<CAPTION>
     ------------------- ------------------------------------------------------ --------------------------------------

                                           Options outstanding                         Options exercisable

                                   Number   Weighted average          Weighted             Number
     Range of exercise       outstanding,          remaining           average        exercisable,   Weighted average
      prices             December 31, 2003  contractual life     exercise price   December 31, 2003     exercise price
     ------------------- ----------------- ------------------ ----------------- ------------------- ------------------
<S>  <C>                          <C>              <C>                  <C>                <C>                 <C>
     $2.23 - $2.90                599,666          7.2 years            $ 2.44             403,660             $ 2.21
     $3.40 - $4.65              1,294,599          5.6 years            $ 3.98           1,149,423             $ 3.99
     $8.80                        157,500          4.4 years            $ 8.80             157,500             $ 8.80
     ------------------- ----------------- ------------------ ----------------- ------------------- ------------------
                                2,051,765                                                1,710,583
     ------------------- ----------------- ------------------ ----------------- ------------------- ------------------
</TABLE>

     Directors' Deferred Share Unit Plan:

     Effective March 1, 2002, the Company granted Directors' Deferred Share
     Units whereby directors of the Company may elect to have a portion or all
     of their remuneration paid in Directors' Share Units (DSU's). The number
     of DSU's issued is calculated by dividing the director's remuneration by
     the fair market value of the Company's common shares on the grant date and
     can be settled in cash or common shares purchased on the open market. This
     amount and subsequent changes in the common share price in relation to the
     DSU's issue price is recorded as compensation expense and included in
     selling, general and administrative expenses.

     Performance Share Unit Plan:

     On March 1, 2002, the Company established a Performance Share Unit Plan
     (PSU's) for certain employees and key persons as part of their long-term
     incentive package. The number of PSU's granted is established by the Board
     of Directors each year and can be settled in cash or common shares
     purchased on the open market or upon election have the PSU's converted to
     DSU's at the end of the grant period, generally three years. Compensation
     expense has been recorded in the selling, general and administrative
     expenses based on the fair value of the Company's shares on the date of
     grant. This amount and subsequent changes in the common share price in
     relation to the PSU's issue price is recorded as compensation expense and
     included in selling, general and administrative expenses. During the
     current year, the Company recorded an expense in the amount of $1,065,000
     (2002 - $229,000; 2001 - nil).

                                     FS-18
<PAGE>

13. Earnings (loss) per share:

(a) The following table sets forth the computation of diluted earnings (loss)
    per share:

<TABLE>
<CAPTION>
     ---------------------------------------------------------- -------------- -------------- -------------

                                                                        2003           2002          2001
     ---------------------------------------------------------- -------------- -------------- -------------
<S>                                                               <C>           <C>             <C>
     Numerator:
          Net earnings (loss) available to common shareholders    $    6,858    $    (7,778)    $   63,382
     ---------------------------------------------------------- -------------- -------------- -------------

     Denominator (shares in thousands):
          Weighted average shares outstanding                         31,572         31,543         31,501
          Effect of dilutive securities:
              Employee stock options                                     462             --            240
     ========================================================== ============== ============== =============
     Adjusted weighted average shares and assumed conversions         32,034         31,543         31,741

     ---------------------------------------------------------- -------------- -------------- -------------
</TABLE>

     In 2003, 588,600 (2002 - 2,674,450; 2001 - 1,752,750) stock options were
     not included in the determination of earnings (loss) per share because the
     exercise price was greater than the average market price of the common
     shares during the year.

(b) Pro-forma impact of the stock-based compensation:

     The Company's results would have been as follows had it elected to
     recognize the cost of its stock-based compensation based on the estimated
     fair value of stock options granted during 2002.

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------- --------------- ---------------
                                                                                                     2003            2002
     ===================================================================================== =============== ===============

<S>                                                                                        <C>              <C>
     Net earnings (loss) for the year, as reported                                         $       6,858    $     (7,778)
     Adjustment for cost of stock options                                                            170             232
     ------------------------------------------------------------------------------------- --------------- ---------------
     Pro-forma net earnings (loss) for the year                                            $       6,688    $     (8,010)
     ------------------------------------------------------------------------------------- --------------- ---------------

     Pro-forma net earnings (loss) per share:
          Basic                                                                            $         0.21   $      (0.25)
          Diluted                                                                          $         0.21   $      (0.25)
     ------------------------------------------------------------------------------------- --------------- ---------------

     The fair value of each stock option granted subsequent to January 1, 2002
     was estimated on the date of grant using the Black-Scholes option-pricing
     model using the following:

     ------------------------------------------------------------------------------------------------------ --------------
     Weighted-average exercise price                                                                        $       3.95
     Weighted-average fair value of options granted during the year                                         $       2.13

     Expected life of options (years)                                                                                10
     Expected stock price volatility                                                                                 30%
     Expected dividend yield                                                                                          0%
     Risk-free interest rate                                                                                        5.6%
     ------------------------------------------------------------------------------------------------------ --------------
</TABLE>

14. Employee future benefits:

     The Company has non-contributory defined benefit pension plans and
     provides post-retirement benefits other than pensions that include such
     items as medical benefits for pensioners and survivors to a portion of its
     employees. The post-retirement obligations and the funded assets
     transferred to the Company as part of the acquisition of the Prince George
     sulphur product assets from Duke Energy Transmission are also included in
     the Company's net post-retirement obligations. This net post-retirement
     liability is included in accrued liabilities in the Consolidated Balance
     Sheet.

                                     FS-19
<PAGE>

     The change in the funded status of post-retirement defined benefit plans
was as follows:

<TABLE>
<CAPTION>
     ------------------------------------------- ----------------------------------- -------------------------------------
                                                                                        Post-retirement benefits
                                                         Pension benefits                 other than pensions
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
                                                       2003        2002        2001         2003        2002         2001
     =========================================== =========== =========== =========== ============= =========== ===========
<S>                                                <C>        <C>         <C>        <C>            <C>        <C>
     Change in post-retirement obligations:
      Obligation at beginning of year              $  5,262   $   4,776   $   4,818  $       512    $    308   $     253
      Service cost                                      244         230         242           20          24          19
      Interest cost                                     326         296         289           32          20          16
      Benefits paid                                    (167)       (147)       (477)          --          (6)         (3)
      Actuarial loss (gain)                              --         107         (97)        (108)        166          24
      Obligations relating to the acquisition         1,390          --          --          670          --          --
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
     Obligations at end of year                    $  7,055   $   5,262   $   4,775  $     1,126    $    512   $     309
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------

     Change in plan assets:
       Fair value of plan assets at beginning
        of year                                    $  4,357   $   4,591   $   5,305  $        --    $     (6)  $      (3)
      Actual return on plan assets                      384        (220)       (249)          --          --          --
      Employer contributions                            307         133          11           --          12          --
      Benefits paid                                    (167)       (147)       (477)          --          (6)         (3)
      Assets relating to the acquisition              1,390          --          --           --          --          --
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
     Fair value of plan assets at end of year      $  6,271   $   4,357   $   4,590  $        --    $     --   $      (6)
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------

     Funding status of plans:
       Plan deficit                                $   (784)   $   (905)  $    (185) $  (1,126)     $   (512)  $    (315)
       Unrecognized net transitional
        obligations (assets)                           (679)       (744)       (809)       147           178         209
      Unrecognized prior service costs                  949       1,061         414         30           149         (17)
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
     Net post-retirement liabilities at end
         of year                                   $   (514)   $  (588)   $    (580) $    (949)     $   (185)  $    (123)
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------

<CAPTION>
     Post-retirement benefits expense included the following components:

     ------------------------------------------- ----------------------------------- -------------------------------------
                                                                                          Post-retirement benefits
                                                          Pension benefits                   other than pensions
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
                                                     2003        2002        2001           2003        2002        2001
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
<S>                                                <C>        <C>         <C>        <C>            <C>        <C>
     Service cost                                  $  244      $   230    $   242    $      20      $     24   $      19
     Interest cost                                    326          296        289           32            20          16
     Expected return on plan assets                  (310)        (321)      (355)          --            --          --
     Amortization of transitional obligations
      (assets)                                        (65)         (65)       (65)          31            31          31
     Amortization of actuarial and investment
      gain (loss)                                      38           --         --           11            --          (5)
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
     Post-retirement benefits expense              $   233     $   140    $   111    $   94         $     75   $      61
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------

<CAPTION>
     The weighed-average assumptions used in the determination of the
     post-retirement benefits expense and obligation were as follows:

     ------------------------------------------- ----------------------------------- -------------------------------------
                                                                                         Post-retirement benefits
                                                         Pension benefits                   other than pensions
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
                                                       2003        2002        2001          2003        2002        2001
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------

<S>                                                <C>        <C>         <C>        <C>            <C>        <C>
     Discount rate                                     6.0%        6.0%        6.0%          6.0%        6.0%        6.0%
     Expected return on plan assets                    7.0%        7.0%        7.0%          7.0%        7.0%        7.0%
     Rate of compensation increase                     4.0%        4.0%        4.0%          4.0%        4.0%        4.0%
     ------------------------------------------- ----------- ----------- ----------- ------------- ----------- -----------
</TABLE>

                                     FS-20

<PAGE>

     The composite health care cost trend rate used in measuring
     post-retirement benefits other than pensions was assumed to begin at 14%,
     declining one percent per year until it reaches 8% and remaining at that
     level thereafter.

     A one percent change in the assumed composite health care cost trend rate
     would have the following effects:

     --------------------------------------------------------------------------
                                                     Post-retirement benefits
     --------------------------------------------------------------------------
                                                   1% Increase    1% Decrease
     -------------------------------------------  -------------   ------------
     (Increase) decrease on accumulated
        benefits obligation                         $   (29)        $   29
     Increase decrease on net periodic expense           29            (29)
     -------------------------------------------  -------------   ------------


15. Commitments and contingencies:

(a) Operating leases:

     Under the terms of operating leases, the Company is committed to rental
     payments as follows:

     ------------------------------------------------- ---------------------
     2004                                                         $ 4,127
     2005                                                           2,964
     2006                                                           2,329
     2007                                                           1,949
     2008                                                           1,348
     Thereafter                                                        35
     ------------------------------------------------- ---------------------
                                                                 $ 12,752
     ------------------------------------------------- ---------------------

(b) Purchase agreements:

     Substantially all of the Company's service contracts with customers have a
     minimum fixed duration and provide for the guaranteed removal of
     contracted by-products, which are produced in the customer's manufacturing
     process.

     The Company also has a fixed price commitment to purchase equipment and
     services relating to the construction of its Syncrude facility totalling
     $32,542,000 including approved change orders (2002 - $30,900,000). To the
     end of December 31, 2003, $32,326,000 (2002 - $10,400,000) has been spent
     and recorded as part of facilities under construction in property, plant
     and equipment.

(c) Environmental cleanup costs:

     The Company's operations are subject to numerous laws, regulations and
     guidelines relating to air emissions, water discharges, solid and
     hazardous wastes, transportation and handling of hazardous substances and
     employee health and safety in Canada and the United States where it
     operates. These environmental regulations are continually changing and
     generally becoming more restrictive. The Company has purchased a number of
     sites as a result of the acquisitions of certain businesses and has
     retained environmental obligations as a result of the disposition of
     certain businesses and properties. Subject to certain limitations, the
     Company will be indemnified by the vendors for any remediation costs or
     environmental actions that may arise as a result of conditions existing at
     the time of acquisition. Environmental assessments were conducted prior to
     the purchase of the sites as a basis to, among other things, evaluate
     indemnity protections and, where applicable, to verify the appropriateness
     of existing accruals and estimates for remediation costs. In recent years,
     the Company engaged third party consultants to review the environmental
     status of the Company's sites. Accruals have been made in specific
     instances where it is probable that liabilities will be incurred and where
     such liabilities can be reasonably estimated. Such estimates are, however,
     subject to change based on negotiation with regulatory authorities,
     changes in laws and regulations and as new information becomes available.
     Although it is possible that liabilities may arise in other instances for
     which no accruals have been made, the Company does not believe that such
     an outcome will significantly impact its operations or have a material
     adverse effect on its financial position.

     As part of the Transaction, the Company has indemnified Chemtrade
     Logistics Inc. for Notices and Findings of Violation relating to a
     facility, and it is management's assessment that the most likely outcome
     will not have a material impact upon the financial position of the
     Company.

                                     FS-21
<PAGE>

     The Company is involved in certain claims arising out of the ordinary
     course and conduct of its business, which in the opinion of management
     will not have a material impact upon the financial position of the
     Company.

16. Income taxes:

<TABLE>
<CAPTION>
     The income tax rate varied from the basic federal and provincial income
     tax rate as follows:

     ---------------------------------------------------------------------- ------------ ------------- ------------
                                                                                 2003          2002         2001
     ---------------------------------------------------------------------- ------------ ------------- ------------

<S>                                                                             <C>          <C>           <C>
     Statutory federal and provincial income tax rate applied to income         36.6%        38.6%         41.3%
     Income taxed at different rates in foreign jurisdictions                   (0.7)%        9.0%         (2.5)%
     Federal Large Corporations Tax and minimum tax                              3.3%        (6.0)%         2.6%
     Effect of lower manufacturing and processing tax rate of subsidiaries      (0.5)%        3.0%         (0.7)%
     Valuation allowance on future tax assets                                   (6.0)%     (112.3)%         4.5%
     Recognition of previously unrecognized tax losses                         (45.3)%       66.2%        (12.9)%
     Impact of changes in enacted future tax rates                               4.5%        --            (0.2)%
     Amounts not deductible for income tax purposes, other                      18.7%       (31.7)%        10.4%
     Non-taxable portion of capital gains and goodwill                          --           --           (23.3)%
     ---------------------------------------------------------------------- ------------ ------------- ------------
     Combined effective income tax rate                                         10.6%       (33.2)%        19.2%
     ---------------------------------------------------------------------- ------------ ------------- ------------
</TABLE>

<TABLE>
<CAPTION>
     The tax effects of temporary differences that give rise to significant
     portions of the future tax assets and future tax liabilities at December
     31, 2003, 2002 and 2001 are presented below:

     ------------------------------------------------------------- ---------------- ---------------- --------------
                                                                            2003            2002            2001
     ------------------------------------------------------------- ---------------- ---------------- --------------

<S>                                                                  <C>             <C>               <C>
     Future tax assets:
          Loss carryforwards (operating and capital)                 $    47,590     $    53,087       $  60,122
          Accrued and other liabilities                                    4,795           5,557           6,239
          Deferred charges                                                    --           3,735              --
          Other                                                              462             322             961
     ------------------------------------------------------------- ---------------- ---------------- --------------
          Total gross future tax assets                                   52,847          62,701          67,322
          Less valuation allowance                                       (46,472)        (57,927)        (61,976)
     ------------------------------------------------------------- ---------------- ---------------- --------------
          Net future tax assets                                            6,375           4,774           5,346

     Future tax liabilities:
          Property, plant and equipment                                  (14,581)        (13,562)        (14,227)
          Goodwill                                                        (8,111)         (8,188)         (8,066)
          Deferred charges                                                  (404)           (573)           (373)
          Long-term debt                                                    (794)             --              --
          Other                                                             (275)             --              --
     ------------------------------------------------------------- ---------------- ---------------- --------------
          Total gross future tax liabilities                             (24,165)        (22,323)        (22,666)
     ------------------------------------------------------------- ---------------- ---------------- --------------
     Net future tax liability                                        $   (17,790)    $   (17,549)      $ (17,320)
     ------------------------------------------------------------- ---------------- ---------------- --------------
</TABLE>

<TABLE>
<CAPTION>

     This is presented on the balance sheet as follows:
     ----------------------------------------------------------------------------- ------------------ ---------------
                                                                                               2003            2002
     ----------------------------------------------------------------------------- ------------------ ---------------
<S>                                                                                   <C>             <C>
     Future tax assets                                                                $         605   $          267
     Future tax liabilities                                                                 (18,395)        (17,816)
     ----------------------------------------------------------------------------- ------------------ ---------------
                                                                                         $  (17,790)   $    (17,549)

     ----------------------------------------------------------------------------- ------------------ ---------------
</TABLE>

                                     F-22
<PAGE>

     As at December 31, 2003, the Company has unused tax losses, corporate
     minimum tax credit carryforwards and deductible temporary differences for
     which no future income tax assets (net of valuation allowance) have been
     recognized. The carryforward amounts are as follows:

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------ ------------------ ---------------

                                                                                                2003            2002
     ------------------------------------------------------------------------------ ------------------ ---------------

<S>                                                                                       <C>             <C>
     Operating loss                                                                       $  119,480      $  142,010
     Capital loss                                                                                 --           4,667
     Corporate minimum tax credit                                                              1,032             987
     Deductible temporary differences for which no future
        tax assets have been recognized                                                        2,911          12,696

     ------------------------------------------------------------------------------ ------------------ ---------------

     Non-capital loss carryforwards by year of expiry are as follows:

     ------------------------------------------------------------------------------ ------------------ ---------------

                                                                                                 2003            2002
     ------------------------------------------------------------------------------ ------------------ ---------------

     2004                                                                                 $        --     $        --
     2005                                                                                         746           9,192
     2006                                                                                          --               7
     2007                                                                                          --              --
     Thereafter                                                                               118,734         132,811
     ------------------------------------------------------------------------------ ------------------ ---------------
                                                                                          $   119,480     $   142,010

     ------------------------------------------------------------------------------ ------------------ ---------------
</TABLE>

17. Related party transactions:

     The Company has entered into a management services contract with its major
     shareholder for the supply of management and financial services. During
     2003, the Company incurred fees of $390,000 (2002 - $350,000; 2001 -
     $466,000) under the terms of the contract.

     Certain of the Company's Directors hold senior positions with firms that
     provide services to the Company and during 2003 the Company incurred fees
     of $1,558,000 (2002 - $3,602,000; 2001 - $3,127,000).

18. Business segments:

     The Company's activities are divided into four reportable segments. The
     three operating segments are: Refinery Services, Western Markets and Power
     Generation. The fourth non-operating segment is Corporate Support, which
     provides centralized services, such as project execution support, finance,
     information systems, human resources and risk management to the preceding
     operating segments.

     Refinery Services provide outsourced compliance solutions to major oil
     refinery customers in the United States and Canada, primarily regeneration
     of spent sulphuric acid produced during octane enhancement of gasoline,
     extraction and recovery of sulphur from hydrogen sulphide gas created
     during the refining process, and S02 recovery to ensure air quality
     compliance.

     Western Markets upgrades sulphur-based by-products produced as a result of
     oil and gas air quality compliance activities. It provides sulphur-based
     chemicals to the pulp and paper industry in western Canada and is one of
     the leading suppliers of alum, a water treatment chemical used extensively
     by municipalities for water and sewage treatment. These and other
     chemicals are marketed to customers in North America.

     Power Generation provides outsourced environmental services, primarily air
     quality compliance, to customers in the power generation industry.

                                     FS-23
<PAGE>

<TABLE>
<CAPTION>
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
                                                        Refinery      Western        Power       Corporate
     2003                                               Services      Markets      Generation     Support        Total
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

<S>                                                        <C>          <C>            <C>           <C>       <C>
     Revenue from external customers                     $ 71,504     $ 54,295     $    9,183   $          --  $ 134,982
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Earnings (loss) from continuing operations
         before the undernoted                             24,392       16,936         (2,097)       (8,401)      30,830
     Depreciation                                          12,976        1,558          1,001           192       15,727
     Unusual items, loss                                       --           --             --         1,422        1,422
     Amortization of deferred charges and intangible
         assets                                                --           --             --           726          726
     Interest expense                                          --           --             --         9,755        9,755
     Interest capitalized                                      --           --             --        (3,738)      (3,738)
     Interest income                                           --           --             --          (730)        (730)
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
     Earnings (loss) from continuing operations
         before income taxes, minority interest and
         amortization of goodwill                        $ 11,416     $ 15,378     $   (3,098)  $   (16,028)   $   7,668
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Total assets before goodwill and intangible
         assets                                          $141,268     $ 32,812     $    5,410   $    38,996    $ 218,486
     Goodwill and intangible assets, net of
         amortization                                      40,996        4,468          6,539            --       52,003
     ================================================= ============ ============= ============= ============= ============

     Total assets of continuing operations               $182,264     $ 37,280     $   11,949   $    38,996    $ 270,489
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Capital expenditures of continuing operations
                                                         $ 31,641     $    573     $       84   $       285    $  32,583
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------



     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
                                                        Refinery      Western        Power       Corporate
     2002                                               Services      Markets      Generation     Support        Total
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Revenue from external customers                     $ 69,363     $ 53,953     $   14,975   $          --  $ 138,291
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Earnings (loss) from continuing operations
         before the undernoted                           $ 21,569     $ 18,263     $   (2,000)  $    (9,747)   $  28,085
     Depreciation, including loss on disposal              13,004        1,300          1,149           227       15,680
     Unusual items, loss                                       --           --             --         7,487        7,487
     Amortization of deferred charges                          --           --             --           387          387
     Interest expense                                          --           --             --        13,684       13,684
     Interest capitalized                                      --           --             --        (2,572)      (2,572)
     Interest income                                           --           --             --        (1,942)      (1,942)
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
     Earnings (loss) from continuing operations
         before income taxes, minority interest and
         amortization of goodwill                        $  8,565     $ 16,963     $   (3,149)  $   (27,018)   $  (4,639)
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Total assets before goodwill and intangible
         assets                                          $131,819     $ 22,378     $    9,609   $    13,608    $ 177,414
     Goodwill and intangible assets, net of
         amortization                                      49,441        4,468          7,922            --       61,831
     ================================================= ============ ============= ============= ============= ============

     Total assets of continuing operations               $181,260     $ 26,846     $   17,531   $    13,608    $ 239,245
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Capital expenditures of continuing operations
                                                         $ 35,924     $    448     $    4,408   $       197    $  40,977
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
</TABLE>

                                     FS-24

<PAGE>
<TABLE>
<CAPTION>
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
                                                         Refinery     Western        Power       Corporate
     2001                                                Services     Markets1     Generation     Support        Total
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

<S>                                                      <C>          <C>          <C>            <C>           <C>
     Revenue from external customers                     $  69,486    $116,005    $    51,223   $        --     $236,714
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Earnings (loss) from continuing operations
         before the undernoted                           $  22,502    $ 29,320     $   (1,394)    $ (10,870)    $ 39,558
     Depreciation, including loss on disposal               10,015       4,110            691           413       15,229
     Unusual items, gain                                        --          --             --       (55,556)     (55,556)
     Foreign exchange loss on Senior Notes                      --          --             --           968          968
     Amortization of deferred charges                           --          --             --         1,074        1,074
     Interest expense                                           --          --             --        18,085       18,085
     Interest capitalized                                       --          --             --        (1,065)      (1,065)
     Interest income                                            --          --             --        (3,141)      (3,141)
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
     Earnings (loss) from continuing operations
         before income taxes, minority interest and
         amortization of goodwill                         $ 12,487    $ 25,210     $   (2,085)   $   28,352     $ 63,964
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------

     Total assets before goodwill and intangible
         assets                                           $105,272    $ 24,215      $  19,006     $ 136,177     $284,670
     Goodwill, net of amortization                          46,425       4,468          8,006            --       58,899
     ================================================= ============ ============= ============= ============= ============

     Total assets of continuing operations                $151,697    $ 28,683     $   27,012     $ 136,177     $343,569
     ================================================= ============ ============= ============= ============= ============

     Capital expenditures of continuing operations
                                                         $  23,390   $     757     $    5,435   $       193     $ 29,775
     ------------------------------------------------- ------------ ------------- ------------- ------------- ------------
</TABLE>

    1. Includes the sulphur removal services in eastern North America until
       July 18, 2001.


     Geographic segments:

     The Company operates primarily in Canada and the United States with sales
     outside North America denominated in US dollars. Revenue is attributed to
     customers based on location of customer.

<TABLE>
<CAPTION>
     --------------------- ------------------------------------------- -------------------------------------------
                                                                                              Property, plant and
                                                                                              equipment, goodwill
                                                              Revenue                       and intangible assets
     --------------------- --------------- ------------- ------------- --------------- ------------- -------------
                                     2003          2002          2001            2003          2002          2001
     --------------------- --------------- ------------- ------------- --------------- ------------- -------------

<S>                              <C>           <C>          <C>             <C>            <C>           <C>
     Canada                      $ 77,052      $ 82,092     $ 106,880       $ 100,175      $ 62,116      $ 32,778
     United States                 57,881        53,209       126,995         108,507       134,363       138,271
     Other                             49         2,990         2,839              --            --            --
     --------------------- --------------- ------------- ------------- --------------- ------------- -------------
                                $ 134,982     $ 138,291     $ 236,714       $ 208,682     $ 196,479     $ 171,049
     --------------------- --------------- ------------- ------------- --------------- ------------- -------------
</TABLE>

     In 2003, services provided to and products handled from the Company's
     major customer accounted for 10.3% (2002 - 15.0%; 2001 - 14.7%) of the
     Company's total revenue.

19. Fair values of financial instruments:

     The fair values of cash and cash equivalents, cash held in trust, accounts
     receivable, accounts payable and accrued liabilities approximate their
     carrying values because of the short-term maturity of these financial
     instruments.

     The fair value of the publicly traded Senior Subordinated Notes is based
     on quoted market prices. The fair value of all other debt is based on the
     amount of future cash flows associated with each instrument, including
     interest, discounted using borrowing rates currently available to the
     Company for similar debt instruments of comparable maturity. The fair
     value of the Company's long-term debt is estimated at $122,619,000 at
     December 31, 2003 (2002 - $95,943,000). The amount due from Chemtrade
     approximates fair market value.

                                     FS-25
<PAGE>

20. Generally accepted accounting principles in Canada and the United States:

     The consolidated financial statements of the Company have been prepared in
     accordance with generally accepted accounting principles ("GAAP") as
     applied in Canada. In the following respects, GAAP as applied in the
     United States differs from that applied in Canada.

     If United States GAAP were employed, the net earnings for the years would
be adjusted as follows:

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------- --------------- ------------- ------------

                                                                                       2003           2002           2001
     -------------------------------------------------------------------------- --------------- ------------- ------------

<S>                                                                              <C>              <C>            <C>
     Net earnings (loss) based on Canadian GAAP                                  $    6,858       $ (7,778)      $ 63,382
     Impact on net earnings (loss) of United States GAAP adjustments:
          Debt financing (note 20(a))                                                    21            112             31
          Deferred costs (note 20(b))                                                    --             --         (1,308)
          Income tax (note 20(c))                                                       794             --          1,950
          FAS 143 cumulative adjustment (note 20(l)(i))                                (433)           104            104
          Foreign currency translation loss (note 20(d))                                 --          1,015        (10,018)
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Net earnings (loss) based on United States GAAP                              $   7,240       $ (6,547)      $ 54,141

     -------------------------------------------------------------------------- --------------- ------------- ------------
     Net earnings (loss) based on United States GAAP is comprised of the
     following:
          Earnings (loss) from continuing operations                              $   7,240       $ (6,547)      $ 37,497
          Earnings from discontinued operations, net of income tax                       --             --         16,644
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Net earnings (loss)                                                          $   7,240       $ (6,547)      $ 54,141
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Per share amounts based on United States GAAP:
          Continuing operations - basic                                         $      0.23      $  (0.21)    $    1.19
          Continuing operations - diluted                                              0.23         (0.21)         1.18
          Discontinued operations - basic                                                --             --         0.53
          Discontinued operations - diluted                                              --             --         0.52
          Net earnings (loss) - basic                                                  0.23         (0.21)         1.72
          Net earnings (loss) - diluted                                                0.23         (0.21)         1.71
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Pro forma net earnings (loss) after the retroactive effect of applying FAS
     143:
          Net earnings (loss) based on United States GAAP                         $   7,240       $ (6,547)      $ 54,141
          Pro forma effect of retroactively applying FAS 143                             --           (104)          (104)
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Pro forma net earnings (loss)                                                $   7,240       $ (6,651)      $ 54,037
     -------------------------------------------------------------------------- --------------- ------------- ------------

     Pro forma net earning (loss) based on United States GAAP is comprised of:
          Pro forma net earnings (loss) from continuing operations                $   7,240       $ (6,651)      $ 37,393
          Earnings from discontinued operations, net of income tax                       --             --         16,644
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Pro forma net earnings (loss)                                                $   7,240       $ (6,651)      $ 54,037
     -------------------------------------------------------------------------- --------------- ------------- ------------

     Per share amounts based on United States GAAP:
          Pro forma continuing operations before extraordinary items - basic
                                                                                $      0.23     $   (0.21)    $    1.19
          Pro forma Continuing operations before extraordinary items - diluted
                                                                                       0.23         (0.21)         1.18
          Discontinued operations - basic                                                --             --         0.53
          Discontinued operations - diluted                                              --             --         0.52
          Pro forma net earnings (loss) - basic                                        0.23         (0.21)         1.72
          Pro forma net earrnings (loss) - diluted                                     0.23         (0.21)         1.70
     -------------------------------------------------------------------------- --------------- ------------- ------------

</TABLE>

                                     FS-26
<PAGE>

     The impact of the United States GAAP differences discussed above on the
     Company's consolidated statements of retained earnings is as follows:

<TABLE>
<CAPTION>
     -------------------------------------------------------------------------- --------------- ------------- ------------
                                                                                       2003            2002         2001
     -------------------------------------------------------------------------- --------------- ------------- ------------
<S>                                                                                <C>            <C>          <C>
     Retained earnings based on Canadian GAAP                                      $ 38,290       $  31,432    $  39,223
     Impact on retained earnings of the above United States GAAP adjustments        (14,047)        (13,635)      (13,851)
     Share issue costs (note 20(f))                                                   2,257           2,257         2,257
     -------------------------------------------------------------------------- --------------- ------------- ------------
     Retained earnings based on United States GAAP                                 $ 26,500       $  20,054     $  27,629
     -------------------------------------------------------------------------- --------------- ------------- ------------
</TABLE>

 (a) Debt financing:

     In 1998, in conjunction with the acquisition of Intertrade Holdings Inc.
     and BCT , a major bank provided the Company with approximately US $57
     million bridge financing, which was repaid on June 30, 1998 from the
     proceeds of the Senior Subordinated Notes. The Company paid US $220,000
     (Cdn. $316,000) in connection with this debt. This amount was deferred and
     amortized over the term of Senior Subordinated Notes. Under United States
     GAAP, this amount would be deferred and amortized over the term of the
     bridge financing facility. Since the bridge financing facility extended
     from May 1998 to June 1998, the US $220,000 would be expensed in 1998
     under United States GAAP. There is no net tax impact from this
     Canadian-United States GAAP difference as the movement in the current and
     deferred taxes offsets each other.

(b) Deferred costs:

     Under United States GAAP, certain costs deferred under Canadian GAAP prior
     to a legally binding contract being entered into must be expensed. There
     was no tax impact recorded relating to this Canadian-United States GAAP
     difference as this GAAP difference resulted in a deferred tax asset, which
     is more likely than not to be realized and, accordingly, a valuation
     allowance equal to the tax asset was established.

(c) Income taxes:

     United States Statement of Financial Accounting Standards No. 109
     (Statement 109), "Accounting for Income Taxes", has been adopted by the
     Company for United States reporting purposes. Under the asset and
     liability method of Statement 109, deferred tax assets and liabilities are
     recognized for the future tax consequences attributable to differences
     between the financial statement carrying amounts of existing assets and
     liabilities and their respective tax bases. The same methodology applies
     under Canadian GAAP; however, the terminology uses the word "future" in
     the place of "deferred". Deferred tax assets and liabilities under
     Statement 109 are measured using the enacted tax rates expected to apply
     to taxable income in the years in which those temporary differences are
     expected to be recovered or settled. Under Canadian GAAP, the future tax
     assets and liabilities are measured using substantively enacted tax rates
     expected to apply to taxable income in the year in which those temporary
     differences are expected to be recovered or settled. Under Statement 109
     and Canadian GAAP, the effect on deferred/future tax assets and
     liabilities of a change in tax rates is recognized in income in the period
     in which the change occurs.

(d) Foreign currency translation loss:

     Under Canadian GAAP, gains and losses on the translation of US dollar
     denominated Senior Subordinated Notes are considered to be a hedge of the
     net investment in self-sustaining operations as described in note 1(i). In
     2001, hedge accounting under United States GAAP was not applied as the
     Company did not meet the requirements SFAS No. 133, "Accounting for
     Derivative Instruments as Hedge Activities", effective January 1, 2001.
     Accordingly, under United States GAAP net earnings in 2001 were adjusted
     for the gain or loss on the translation of US dollar denominated debt.
     There are no GAAP differences in 2002 and 2003 as the Company met the
     requirements under both Canadian and US GAAP.

(e) Extraordinary item, net of income tax recovery:

     Under United States GAAP, expenses incurred on early retirement of debt in
     2001 would be classified as an extraordinary item, net of related income
     taxes. However, the Company has early-adopted the provisions of SFAS No.
     145 (SFAS 145) which rescinded SFAS No. 4, "Reporting Gains and Losses for
     Extinguishment of Debt" (SFAS 4), which had required that gains and losses
     from extinguishment of debt be classified as an extraordinary item for
     United States GAAP purposes. This results in Canadian and United States
     GAAP being

                                     FS-27
<PAGE>

     similar for this item and accordingly, this United
     States-Canadian GAAP difference has been eliminated, and prior periods
     have been restated.

(f) Share issue costs:

     Under United States GAAP, share issue costs, net of deferred income taxes,
     would be shown as a reduction of capital stock and not as a reduction of
     retained earnings as permitted by Canadian GAAP.

(g) Goodwill presentation:

     Prior to 2002, the Company had presented goodwill amortization net of
     related income taxes as a deduction from earnings after income taxes and
     minority interest and has presented earnings per share before goodwill
     amortization. The presentation would not be permitted under United States
     GAAP.

     Accordingly, amortization of goodwill would be a deduction from earnings
     before income taxes and minority interest for United States GAAP purposes
     and the provision for income taxes would be adjusted:

     ------------------------------------------------------- ------------
                                                                   2001
     ------------------------------------------------------- ------------
      Earnings from continuing operations before
        income taxes and minority interest,
        adjusted to deduct goodwill amortization               $ 59,273
     Provision for income taxes adjusted for
        impact of goodwill amortization:
              Current                                             4,857
              Future                                              6,171
     ------------------------------------------------------- ------------


(h) Consolidated balance sheets:

     The cumulative effect of the application of United States GAAP, noted in
     note 20(a) to note 20(g) above on the consolidated balance sheets of the
     Company as at December 31, 2003 would be to decrease deferred charges and
     other assets by $4,070,000 (2002 - $4,315,000); decrease deferred income
     tax liability by $41,000 (2002 - $698,000) and decrease shareholders'
     equity by $4,029,000 (2002 - $3,617,000).

(i) Comprehensive income:

     The Company's comprehensive income, as determined under SFAS No. 130,
would differ from net earnings as shown above:

<TABLE>
<CAPTION>
     ------------------------------------------------------------------ --------------- ------------- ------------
                                                                               2003          2002         2001
     ------------------------------------------------------------------ --------------- ------------- ------------

<S>                                                                        <C>            <C>            <C>
     Net earnings (loss) based on United States GAAP                       $  7,240       $ (6,547)      $ 54,141
     Other comprehensive income (loss):
        Change in foreign currency translation adjustment                     2,081          2,467         (8,261)
        Pension, recognition of actuarial gains (losses) (note 20(j))          (447)          (645)           202
     ------------------------------------------------------------------ --------------- ------------- ------------
     Comprehensive income (loss) based on United States GAAP               $  8,874       $ (4,725)      $ 46,082
     ------------------------------------------------------------------ --------------- ------------- ------------
</TABLE>

 (j) Minimum pension liability adjustment:

     Under United States GAAP, the Company is required to record an additional
     minimum pension liability for certain of its defined benefit pension plans
     to reflect the excess of the accumulated benefit obligations over the fair
     value of the plan assets with a corresponding charge against other
     comprehensive income included in shareholders' equity. No such adjustment
     is required under Canadian GAAP.

 (k) Permitted disclosures:

     Under United States GAAP, the subtotal of "operating activities" on the
     consolidated statement of cash flows prior to increase in non-cash working
     capital is not a permitted disclosure.


                                     FS-28
<PAGE>

(l)      Other recent accounting pronouncements:

i.       In June 2001, the US Financial Accounting Standards Board ("FASB")
         issued SFAS No. 143, "Accounting for Asset Retirement Obligations"
         (SFAS 143), which addresses financial accounting and reporting for
         obligations associated with the retirement of tangible long-lived
         assets and the associated asset retirement costs. SFAS 143 requires
         the Company to record the fair value of an asset retirement obligation
         as a liability in the period in which it incurs a legal obligation
         associated with the retirement of tangible long-lived assets that
         result from the acquisition, construction, development and/or normal
         use of the assets. The fair value of the liability is added to the
         carrying amount of the associated asset and this additional carrying
         amount is depreciated over the life of the asset. Subsequent to the
         initial measurement of the asset retirement obligation, the obligation
         will be adjusted at the end of each period to reflect the passage of
         time and changes in the estimated future cash flows underlying the
         obligation. If the obligation is settled for other than the carrying
         amount of the liability, the Company will recognize a gain or loss on
         settlement. To accomplish this, the Company identified all legal
         obligations for asset retirement obligations and determined the fair
         value of these obligations on the date of adoption. The determination
         of fair value is complex and it requires the Company to gather market
         information and develop cash flow models. The Company has adopted the
         provisions of SFAS 143 as of January 1, 2003, and for Canadian GAAP
         purposes adopted the new standard retroactively with restatement.
         Under the US GAAP, prior periods are not restated, and the cumulative
         effect of the adoption of the standard is recorded in the current
         period earnings with the effect for 2003 being a decrease in earnings
         of 433,000 ($0.014 per share). The pro forma impact of retroactive
         application on 2002 and 2001 earnings has been disclosed in note 2(c)
         and the impact on retained earnings is disclosed in the following
         table:

<TABLE>
<CAPTION>
        ------------------------------------------------------------------------- ----------- ---------- -----------
        Effect on opening retained earnings in the consolidated balance sheets         2003       2002        2001
        ------------------------------------------------------------------------- ----------- ---------- -----------

<S>                                                                                 <C>        <C>       <C>
        Asset retirement cost, included in property, plant and equipment            $   466    $   466   $    466
        Accumulated depreciation on property, plant and equipment                      (242)      (189)      (136)
        Asset retirement obligation, included in other liabilities                     (685)      (627)      (569)
        Future tax liability                                                             28         21         14
        ------------------------------------------------------------------------- ----------- ---------- -----------
        Opening retained earnings                                                    $ (433)   $  (329)   $  (225)
        ------------------------------------------------------------------------- ----------- ---------- -----------
</TABLE>

         Under this change in accounting standard, the Company is recognizing
         its future asset retirement costs where the Company has determined
         legal obligations exist, including Company properties that are on
         leased land, which revert back to the lessor, and the Company has a
         legal obligation under the landlease agreement to remove improvements
         and structures from the property. The estimated amount of undiscounted
         retirement costs relating to these properties is $2,550,000. These
         costs are expected to be settled between 6 and 30 years and using a 1%
         inflation rate, the present value of the future asset retirement costs
         was determined with a credit-adjusted risk-free dscount rate of 8.5%.

ii.      In April 2003, FASB issued Statement No. 149 which amends and
         clarifies financial accounting and reporting for derivative
         instruments, including certain derivative instruments embedded in
         other contracts (collectively referred to as derivatives) and for
         hedging activities under FAS No. 133, "Accounting for Derivative
         Instruments and Hedging Activities". The Company is not affected by
         this pronouncement because it has no such derivative instruments or
         contracts.

iii.     In May 2003, FASB issued Statement No. 150 which establishes standards
         for how an issuer classifies and measures certain financial
         instruments with characteristics of both liabilities and equity. It
         requires that an issuer classify a financial instrument that is within
         its scope as a liability (or an asset in some circumstances). Many of
         those instruments were previously classified as equity. The Company
         does not believe it will be affected by this pronouncement because it
         has no financial instruments with such characteristics.


                                     FS-29