---

Page 49 of 134

# EXHIBIT 1

---

Page 50 of 134

| | **MANAGEMENTS
          RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS**
        Management of ATI
          Technologies Inc. is responsible for the integrity of the accompanying
          Consolidated Financial Statements and all other information in this
          Annual Report. The Consolidated Financial Statements have been prepared
          by Management in accordance with accounting principles generally accepted
          in Canada. The preparation of the Consolidated Financial Statements
          necessarily involves the use of estimates and careful judgment, particularly
          in those circumstances where transactions affecting a current period
          are dependent upon future events. All financial information presented
          in this Annual Report is consistent with the Consolidated Financial
          Statements.
        To discharge its
          responsibilities for financial reporting and safeguarding of assets,
          Management believes that it has established appropriate systems of internal
          accounting controls that provide reasonable assurance that the financial
          records are reliable and form a proper basis for the timely and accurate
          preparation of financial statements. Consistent with the concept of
          reasonable assurance, Management recognizes that the relative cost of
          maintaining these controls should not exceed their expected benefits.
          Management further ensures the quality of the financial records through
          careful selection and training of personnel and the adoption and communication
          of financial and other relevant policies.
        The Board of Directors
          discharges its responsibilities with respect to the Consolidated Financial
          Statements primarily through the activities of its Audit Committee,
          which is composed entirely of directors who are not employees of the
          Company. This committee meets quarterly with Management and at least
          twice annually with the Companys independent auditors to review
          the Companys reported financial performance and to discuss audit,
          internal control, accounting policy and financial reporting matters.
          The Consolidated Financial Statements were reviewed by the Audit Committee
          and approved by the Board of Directors.
        The financial statements
          have been audited by KPMG LLP, who were appointed by the shareholders
          at the last Annual General Meeting of Shareholders. Their report is
          presented herein. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | **K.Y.
          Ho (signed)**
          Chairman and CEO
          September 29, 2003 | **David
        E. Orton (signed)**
        President and COO | **Terry
        Nickerson (signed)**
        Senior Vice President and CFO | 
| | -------------------------------------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------------------------------------- | 

| | **AUDITORS
          REPORT TO THE SHAREHOLDERS**
        We have audited
          the consolidated balance sheets of ATI Technologies Inc. as at August
          31, 2003 and 2002 and the consolidated statements of operations and
          retained earnings and cash flows for each of the years in the three-year
          period ended August 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 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 August 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 August 31, 2003 in accordance
          with Canadian generally accepted accounting principles.
        
        **KPMG LLP
          Chartered Accountants (signed)**
          Toronto, Canada
          September 29, 2003 | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |  | 
| |  | 

---

Page 51 of 134

| | **CONSOLIDATED
          STATEMENTS OF OPERATIONS AND RETAINED EARNINGS** | 
| | ------------------------------------------------------------------------- | 

| |                                                                                        |       |               |       |  |  |  |   |            |   |         |            |  
| | -------------------------------------------------------------------------------------- | ----- | ------------- | ----- |  |  |  | - | ---------- | - | ------- | ---------- | -
| | Years ended August
        31 (In thousands of U.S. dollars, except per share amounts) |       | **2003**      |       |  |  |  |   | 2002       |   |         | 2001       |  
| |                                                                                        |      
| |                                                                                        |       |               |       |  |  |  |   |            |   |         |            |  
| |                                                                                        |       |               |       |  |  |  |   | (Restated) |   |         | (Restated) |  
| | **REVENUES**                                                                           | **$** | **1,385,293** | ****  |  |  |  | $ | 1,015,779  |   | $       | 1,040,365  |  
| | Cost
        of goods sold                                                             | ****  | **952,001**   | ****  |  |  |  |   | 682,385    |   |         | 799,038    |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | Gross
        margin                                                                   |       | **433,292**   | ****  |  |  |  |   | 333,394    |   |         | 241,327    |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | **EXPENSES**                                                                           |       |               | ****  |  |  |  |   |            |   |         |            |  
| | Selling
        and marketing                                                          | ****  | **96,925**    | ****  |  |  |  |   | 77,920     |   |         | 75,594     |  
| | Research
        and development                                                       |       | **212,976**   | ****  |  |  |  |   | 164,609    |   |         | 149,465    |  
| | Administrative                                                                         | ****  | **39,413**    | ****  |  |  |  |   | 35,662     |   |         | 37,261     |  
| | Amortization
        and write-down of                                                 |       |               | ****  |  |  |  |   |            |   |         |            |  
| | goodwill
        and intangible assets (note 6)                                        | ****  | **10,767**    | ****  |  |  |  |   | 97,501     |   |         | 114,507    |  
| | Other
        charges (note 15)                                                        |       | **28,724**    |       |  |  |  |   |           |   |         |           |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |       | **388,805**   | ****  |  |  |  |   | 375,692    |   |         | 376,827    |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | Income
        (loss) from operations                                                  | ****  | **44,487**    | ****  |  |  |  |   | (42,298    | ) |         | (135,500   | )
| | Interest
        and other income, net (note 7)                                        | ****  | **4,382**     | ****  |  |  |  |   | 732        |   |         | 64,131     |  
| | Interest
        expense (note 10)                                                     |       | **(1,899**    | **)** |  |  |  |   | (659       | ) |         | (1,180     | )
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | Income
        (loss) before income taxes                                              | ****  | **46,970**    | ****  |  |  |  |   | (42,225    | ) |         | (72,549    | )
| | Income
        taxes (recovery) (note 12)                                              |       | **11,741**    | ****  |  |  |  |   | 6,854      |   |         | (18,760    | )
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | **NET
        INCOME (LOSS)**                                                          | ****  | **35,229**    | ****  |  |  |  |   | (49,079    | ) |         | (53,789    | )
| | **RETAINED
        EARNINGS,** beginning of year                                       | ****  | **68,797**    | ****  |  |  |  |   | 117,876    |   |         | 199,956    |  
| | Adjustment
        to opening retained earnings:                                       | ****  |               | ****  |  |  |  |   |            |   |         |            |  
| | Accounting
        change (note 1(q)(i))                                               | ****  | ****         | ****  |  |  |  |   |           |   |         | (2,651     | )
| | Change
        in accounting policy for income taxes (note 1(q)(iv))                   | **** | ****          |       |  |  |  |  |            |   | (25,640 | )         
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        | ****  | ****         | ****  |  |  |  |   |           |   |         | (28,291    | )
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | Retained
        earnings, end of year                                                 | **$** | **104,026**   | ****  |  |  |  | $ | 68,797     |   | $       | 117,876    |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | **NET
        INCOME (LOSS) PER SHARE** (note 13):                                     |       |               | ****  |  |  |  |   |            |   |         |            |  
| | Basic                                                                                  | **$** | **0.15**      | ****  |  |  |  | $ | (0.21      | ) | $       | (0.23      | )
| | Diluted                                                                                | ****  | **0.14**      | ****  |  |  |  |   | (0.21      | ) |         | (0.23      | )
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| |                                                                                        | ****  | ****          | ****  |  |  |  |   |            |   |         |            |  
| | **WEIGHTED
        AVERAGE NUMBER OF SHARES (000s)**                                  |       |               | ****  |  |  |  |   |            |   |         |            |  
| | Basic                                                                                  |       | **238,251**   | ****  |  |  |  |   | 234,895    |   |         | 230,880    |  
| | Diluted                                                                                |       | **244,353**   | ****  |  |  |  |   | 234,895    |   |         | 230,880    |  
| |                                                                                        |       | ****          |       |  |  |  |   |            |   |         |            |  
| |                                                                                        |      
| | See accompanying
        notes to Consolidated Financial Statements.                   |       |               |       |  |  |  |   |            |   |         |            |  

| | 
| | 
| | 

---

Page 52 of 134

| | **CONSOLIDATED
          BALANCE SHEETS** | 
| | ----------------------------------------- | 

| |                                                                                                                                                                                                               |       |               |      |  |  |  |  |  |  |   |            | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----- | ------------- | ---- |  |  |  |  |  |  | - | ---------- | 
| | August 31 (In thousands
        of U.S. dollars)                                                                                                                                                              |       | **2003**      |      |  |  |  |  |  |  |   | 2002       | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               |       |               |      |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |       |               |      |  |  |  |  |  |  |   | (Restated) | 
| | **ASSETS**                                                                                                                                                                                                    | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Current
        assets:                                                                                                                                                                                       | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Cash
        and cash equivalents                                                                                                                                                                             | **$** | **300,905**   | **** |  |  |  |  |  |  | $ | 187,126    | 
| | Short-term
        investments                                                                                                                                                                                |       | **49,784**    | **** |  |  |  |  |  |  |   | 49,801     | 
| | Accounts
        receivable                                                                                                                                                                                   |       | **234,548**   | **** |  |  |  |  |  |  |   | 141,126    | 
| | Inventories
        (note 3)                                                                                                                                                                                  |       | **176,494**   | **** |  |  |  |  |  |  |   | 192,121    | 
| | Prepayments
        and sundry receivables                                                                                                                                                                    |       | **31,753**    | **** |  |  |  |  |  |  |   | 21,806     | 
| | Future
        income taxes (note 12)                                                                                                                                                                         |       | **3,772**     | **** |  |  |  |  |  |  |   | 3,630      | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Total
        current assets                                                                                                                                                                                  |       | **797,256**   | **** |  |  |  |  |  |  |   | 595,610    | 
| | Capital
        assets (note 4)                                                                                                                                                                               |       | **86,890**    | **** |  |  |  |  |  |  |   | 95,838     | 
| | Intangible
        assets (note 6)                                                                                                                                                                            |       | **8,811**     | **** |  |  |  |  |  |  |   | 21,858     | 
| | Goodwill
        (note 6)                                                                                                                                                                                     |       | **190,095**   | **** |  |  |  |  |  |  |   | 187,815    | 
| | Long-term
        investments (note 7)                                                                                                                                                                        |       | **3,960**     | **** |  |  |  |  |  |  |   | 7,405      | 
| | Tax
        credits recoverable                                                                                                                                                                               |       | **21,181**    | **** |  |  |  |  |  |  |   |           | 
| | Future
        income taxes (note 12)                                                                                                                                                                         |       | **7,865**     | **** |  |  |  |  |  |  |   | 844        | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Total
        assets                                                                                                                                                                                          | **$** | **1,116,058** | **** |  |  |  |  |  |  | $ | 909,370    | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |       |               | **** |  |  |  |  |  |  |   |            | 
| | **LIABILITIES
        AND SHAREHOLDERS EQUITY**                                                                                                                                                              |       |               | **** |  |  |  |  |  |  |   |            | 
| | Current
        liabilities:                                                                                                                                                                                  |       |               | **** |  |  |  |  |  |  |   |            | 
| | Bank
        indebtedness (note 8)                                                                                                                                                                            | **$** | ****         | **** |  |  |  |  |  |  | $ | 12,015     | 
| | Accounts
        payable                                                                                                                                                                                      |       | **191,196**   | **** |  |  |  |  |  |  |   | 172,093    | 
| | Accrued
        liabilities                                                                                                                                                                                   |       | **136,709**   | **** |  |  |  |  |  |  |   | 49,421     | 
| | Deferred
        revenue (note 9)                                                                                                                                                                             |       | **37,669**    | **** |  |  |  |  |  |  |   | 250        | 
| | Current
        portion of long-term debt (note 10)                                                                                                                                                           |       | **1,394**     | **** |  |  |  |  |  |  |   | 568        | 
| | Future
        income taxes (note 12)                                                                                                                                                                         |       | ****         | **** |  |  |  |  |  |  |   | 3,459      | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Total
        current liabilities                                                                                                                                                                             |       | **366,968**   | **** |  |  |  |  |  |  |   | 237,806    | 
| | Long-term
        debt (note 10)                                                                                                                                                                              |       | **28,073**    | **** |  |  |  |  |  |  |   | 15,798     | 
| | Future
        income taxes (note 12)                                                                                                                                                                         |       | **21,408**    | **** |  |  |  |  |  |  |   | 12,588     | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Total
        liabilities                                                                                                                                                                                     |       | **416,449**   | **** |  |  |  |  |  |  |   | 266,192    | 
| | Shareholders
        equity (note 11):                                                                                                                                                                       |       |               | **** |  |  |  |  |  |  |   |            | 
| | Share
        capital:                                                                                                                                                                                        |       |               | **** |  |  |  |  |  |  |   |            | 
| | Authorized:                                                                                                                                                                                                   |       |               | **** |  |  |  |  |  |  |   |            | 
| | Unlimited
        preferred shares                                                                                                                                                                            |       |               | **** |  |  |  |  |  |  |   |            | 
| | Unlimited
        common shares                                                                                                                                                                               |       |               | **** |  |  |  |  |  |  |   |            | 
| | Issued
        and outstanding:                                                                                                                                                                               |       |               | **** |  |  |  |  |  |  |   |            | 
| | 241,742,113
        common shares (2002  236,870,685)                                                                                                                                                        |       | **582,454**   | **** |  |  |  |  |  |  |   | 561,477    | 
| | Contributed
        surplus                                                                                                                                                                                   |       | **4,855**     | **** |  |  |  |  |  |  |   | 4,630      | 
| | Retained
        earnings                                                                                                                                                                                     |       | **104,026**   | **** |  |  |  |  |  |  |   | 68,797     | 
| | Currency
        translation adjustments                                                                                                                                                                      |       | **8,274**     | **** |  |  |  |  |  |  |   | 8,274      | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Total
        shareholders equity                                                                                                                                                                            |       | **699,609**   | **** |  |  |  |  |  |  |   | 643,178    | 
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| |                                                                                                                                                                                                               | ****  | ****          | **** |  |  |  |  |  |  |   |            | 
| | Total
        liabilities and shareholders equity                                                                                                                                                            | **$** | **1,116,058** | **** |  |  |  |  |  |  | $ | 909,370    | 
| |                                                                                                                                                                                                               |       | ****          |      |  |  |  |  |  |  |   |            | 
| |                                                                                                                                                                                                               |      
| | Commitments and contingencies (notes 3, 15, 17 and 21)
          Subsequent event (note 22) 
          See accompanying notes to Consolidated Financial Statements.
        On behalf of the
          Board: |       |               |      |  |  |  |  |  |  |   |            | 

| | **K.Y.
          Ho (signed)**
          Director | **James
        D. Fleck (signed)**
        Director | 
| | ------------------------------------------------- | ---------------------------------------------------- | 

| |  | 
| |  | 

---

Page 53 of 134

| | **CONSOLIDATED
          STATEMENTS OF CASH FLOWS** | 
| | --------------------------------------------------- | 

| |                                                                                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| | ----------------------------------------------------------------------------------------------------------------- | ----- | ----------- | ----- |  |  |  | - | ---------- | - | - | ---------- | -
| | Years ended August
        31 (In thousands of U.S. dollars)                                                      |       | **2003**    |       |  |  |  |   | 2002       |   |   | 2001       |  
| |                                                                                                                   |      
| |                                                                                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |       |             |       |  |  |  |   | (Restated) |   |   | (Restated) |  
| | **CASH
        PROVIDED BY (USED IN):**                                                                           | ****  |             | ****  |  |  |  |   |            |   |   |            |  
| | **Operating
        activities:**                                                                                 | ****  |             | ****  |  |  |  |   |            |   |   |            |  
| | Net
        income (loss)                                                                                         | **$** | **35,229**  | ****  |  |  |  | $ | (49,079    | ) | $ | (53,789    | )
| | Items
        which do not involve cash:                                                                          |       |             | ****  |  |  |  |   |            |   |   |            |  
| | Tax
        credit recoverable                                                                                    | ****  | **(21,181** | **)** |  |  |  |   |           |   |   |           |  
| | Future
        income taxes                                                                                       | ****  | **(1,802**  | **)** |  |  |  |   | 1,223      |   |   | (18,430    | )
| | Depreciation
        and amortization                                                                             | ****  | **34,705**  | ****  |  |  |  |   | 120,422    |   |   | 135,462    |  
| | Other
        charges                                                                                             | ****  | **1,400**   | ****  |  |  |  |   |           |   |   |           |  
| | Loss
        (gain) on investments                                                                                | ****  | **(3,876**  | **)** |  |  |  |   | 3,355      |   |   | (61,216    | )
| | Unrealized
        foreign exchange loss                                                                          | ****  | **3,637**   | ****  |  |  |  |   | 620        |   |   | 431        |  
| | Change
        in non-cash operating working capital:                                                             |       |             | ****  |  |  |  |   |            |   |   |            |  
| | Accounts
        receivable                                                                                       | ****  | **(93,422** | **)** |  |  |  |   | (23,109    | ) |   | 42,854     |  
| | Inventories                                                                                                       | ****  | **15,627**  | ****  |  |  |  |   | (80,203    | ) |   | 145,670    |  
| | Prepayments
        and sundry receivables                                                                        | ****  | **(8,678**  | **)** |  |  |  |   | (678       | ) |   | 12,487     |  
| | Accounts
        payable                                                                                          | ****  | **19,103**  | ****  |  |  |  |   | 91,916     |   |   | (104,189   | )
| | Accrued
        liabilities                                                                                       | ****  | **87,288**  | ****  |  |  |  |   | 1,662      |   |   | 686        |  
| | Deferred
        revenue                                                                                          | ****  | **37,419**  | ****  |  |  |  |   | (104       | ) |   | (3,304     | )
| | Income
        taxes payable                                                                                      | ****  | ****       | ****  |  |  |  |   | (9,083     | ) |   | 5,281      |  
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |       | **105,449** | ****  |  |  |  |   | 56,942     |   |   | 101,943    |  
| | **Financing
        activities:**                                                                                 | ****  |             | ****  |  |  |  |   |            |   |   |            |  
| | Increase
        (decrease) in bank indebtedness                                                                  | ****  | **(12,015** | **)** |  |  |  |   | 3,266      |   |   | 8,749      |  
| | Addition
        to long-term debt                                                                                | ****  | **10,709**  | ****  |  |  |  |   |           |   |   |           |  
| | Principal
        payments on long-term debt                                                                      | ****  | **(1,064**  | **)** |  |  |  |   | (312       | ) |   |           |  
| | Settlement
        of swap contract                                                                               | ****  | **(1,365**  | **)** |  |  |  |   |           |   |   |           |  
| | Issue
        of common shares                                                                                    | ****  | **20,977**  | ****  |  |  |  |   | 12,495     |   |   | 4,687      |  
| | Repayment
        of share purchase loans                                                                         | ****  | **225**     | ****  |  |  |  |   | 362        |   |   |           |  
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |       | **17,467**  | ****  |  |  |  |   | 15,811     |   |   | 13,436     |  
| | **Investing
        activities:**                                                                                 | ****  |             | ****  |  |  |  |   |            |   |   |            |  
| | Purchase
        of short-term investments                                                                        | ****  | **(49,784** | **)** |  |  |  |   | (54,233    | ) |   | (45,000    | )
| | Maturity
        of short-term investments                                                                        | ****  | **49,649**  | ****  |  |  |  |   | 49,584     |   |   | 4,403      |  
| | Additions
        to capital assets                                                                               | ****  | **(16,390** | **)** |  |  |  |   | (30,111    | ) |   | (31,091    | )
| | Purchase
        of long-term investments                                                                         | ****  | **(2,460**  | **)** |  |  |  |   |           |   |   | (2,500     | )
| | Proceeds
        from sale of long-term investments                                                               | ****  | **10,029**  | ****  |  |  |  |   |           |   |   | 65,061     |  
| | Acquisitions,
        net of cash acquired (note 5)                                                               | ****  | ****       | ****  |  |  |  |   | (22,118    | ) |   | (9,201     | )
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |       | **(8,956**  | **)** |  |  |  |   | (56,878    | ) |   | (18,328    | )
| | Foreign
        exchange loss on cash held in foreign currency                                                    |       | **(181**    | **)** |  |  |  |   | (204       | ) |   | (431       | )
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | **INCREASE
        IN CASH AND CASH EQUIVALENTS**                                                                 |       | **113,779** | ****  |  |  |  |   | 15,671     |   |   | 96,620     |  
| | **CASH
        AND CASH EQUIVALENTS,** beginning of year                                                          |       | **187,126** | ****  |  |  |  |   | 171,455    |   |   | 74,835     |  
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | **CASH
        AND CASH EQUIVALENTS,** end of year                                                                |       | **300,905** | ****  |  |  |  |   | 187,126    |   |   | 171,455    |  
| | Short-term
        investments                                                                                    |       | **49,784**  | ****  |  |  |  |   | 49,801     |   |   | 45,000     |  
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| |                                                                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | **CASH
        POSITION,** end of year                                                                            | **$** | **350,689** | ****  |  |  |  | $ | 236,927    |   | $ | 216,455    |  
| |                                                                                                                   |       | ****        |       |  |  |  |   |            |   |   |            |  
| |                                                                                                                   |      
| | Supplemental cash flow information (note 19)
        See accompanying notes to Consolidated Financial Statements. |       |             |       |  |  |  |   |            |   |   |            |  

| | 
| | 
| | 

---

Page 54 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
        **The principal
          business activities of ATI Technologies Inc. (the Company)
          are the design, manufacture and sale of innovative 3D graphics and digital
          media silicon solutions. The Company markets its products to original
          equipment manufacturers, system builders, distributors and retailers
          primarily in North America, Europe and the Asia-Pacific region.**
        
        **NOTE
          1.**Significant accounting policies**(a)****Basis
          of presentation**These Consolidated Financial Statements have been prepared
          in accordance with Canadian generally accepted accounting principles
          (Canadian GAAP) and are presented in U.S. dollars. No
          material differences would result if these Consolidated Financial Statements
          were prepared in accordance with accounting principles generally accepted
          in the United States (U.S. GAAP) and the rules and regulations
          of the Securities and Exchange Commission, except as disclosed in note
          20.
        **(b)****Principles
          of consolidation**
          These Consolidated Financial Statements include the accounts of the
          Company and its wholly owned subsidiaries, as well as the Companys
          50% ownership in a joint venture to own an office building in Markham,
          Ontario. All significant intercompany transactions and balances have
          been eliminated upon consolidation.**(c)****Cash
          and cash equivalents and short-term investments**
          Cash and cash equivalents include highly liquid instruments with a maturity
          of less than 90 days from the acquisition date. The carrying amounts
          of cash and cash equivalents are stated at cost, which approximates
          their fair values. The Companys short-term investments include:
          (i) highly liquid instruments with a maturity date of 90 days or more
          but less than one year from the acquisition date that are carried at
          cost, which approximates their fair values; and (ii) publicly traded
          common stock that is held for sale and which is carried at the lower
          of cost and market.**(d)****Inventories**
          Raw materials are stated at the lower of cost and replacement cost.
          Finished goods and work in process are stated at the lower of cost and
          net realizable value. Cost is determined on a first-in, first-out basis.**(e)****Capital
          assets**
          Capital assets are recorded at cost, net of related investment tax credits,
          and are depreciated over their estimated useful lives. Estimated useful
          lives for principal asset categories are as follows: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

| | **(f)****Goodwill
          from business combinations**
          For business combinations prior to July 1, 2001, goodwill was amortized
          on a straight-line basis over five to seven years. Prior to September
          1, 2002, the Company assessed the recoverability of goodwill based on
          undiscounted expected future cash flows. Goodwill acquired in business
          combinations subsequent to June 30, 2001 has not been amortized.
          Effective September 1, 2002, the Company fully adopted The Canadian
          Institute of Chartered Accountants (CICA) Handbook
          Sections 1581, Business Combinations, and 3062, Goodwill
          and Other Intangible Assets. From that date, the Company discontinued
          amortization of all existing goodwill. The Company reviewed existing
          intangible assets, including estimates of remaining lives, and has reclassified
          $2.3 million from workforce to goodwill as of September 1, 2002 to conform
          with the new criteria.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 55 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       In connection with
          Section 3062s transitional goodwill impairment evaluation, the
          Company is required to assess whether goodwill is impaired as of September
          1, 2002. The Company has completed the transitional goodwill impairment
          assessment during the second quarter of 2003 and has determined that
          no impairment existed as of September 1, 2002.
          Upon adopting these standards on September 1, 2002, the Company is required
          to evaluate goodwill annually or whenever events or changes in circumstances
          indicate that the carrying amount may not be recoverable. Impairment
          is tested at the reporting unit level by comparing the reporting units
          carrying value to its fair value. The fair values of the reporting units
          are estimated using a discounted cash flow approach. To the extent a
          reporting units carrying amount exceeds its fair value, an impairment
          of goodwill exists. Impairment is measured by comparing the fair value
          of goodwill, determined in a manner similar to a purchase price allocation,
          to its carrying amount. During the fourth quarter of fiscal 2003, the
          Company performed its annual goodwill impairment test in accordance
          with the new goodwill standards of Section 3062 and determined that
          there was no goodwill impairment in fiscal 2003.
          Effective September 1, 2002, the Company had unamortized goodwill of
          $190.1 million, which is no longer being amortized. This change in accounting
          policy is not applied retroactively and the amounts presented for prior
          periods have not been restated for this change. The impact of this change
          is as follows: | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| | -------------------------------------------- | ----- | ---------- | ---- |  |  |  | - | ---------- | - | - | ---------- | -
| |                                              |       | **2003**   |      |  |  |  |   | 2002       |   |   | 2001       |  
| |                                              |      
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| |                                              | ****  | ****       |      |  |  |  |   | (Restated) |   |   | (Restated) |  
| | Net
        income (loss)                    | **$** | **35,229** | **** |  |  |  | $ | (49,079    | ) | $ | (53,789    | )
| | Add
        back goodwill amortization       | ****  | ****      |      |  |  |  |   | 74,014     |   |   | 76,284     |  
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| |                                              |      
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| | Income
        before goodwill amortization  | **$** | **35,229** |      |  |  |  | $ | 24,935     |   | $ | 22,495     |  
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| |                                              |      
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| | Basic
        net income (loss) per share:   |       |            |      |  |  |  |   |            |   |   |            |  
| | As
        reported                          | **$** | **0.15**   | **** |  |  |  | $ | (0.21      | ) | $ | (0.23      | )
| | Before
        goodwill amortization         |       | **0.15**   | **** |  |  |  |   | 0.11       |   |   | 0.10       |  
| | Diluted
        net income (loss) per share: |       |            |      |  |  |  |   |            |   |   |            |  
| | As
        reported                          | **$** | **0.14**   | **** |  |  |  | $ | (0.21      | ) | $ | (0.23      | )
| | Before
        goodwill amortization         |       | **0.14**   | **** |  |  |  |   | 0.10       |   |   | 0.09       |  
| |                                              |       |            |      |  |  |  |   |            |   |   |            |  
| |                                              |      

| | **(g)Intangible
          assets**Intangible assets are recorded at cost and are amortized on a straight-line
          basis over their estimated useful lives as follows: | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                       |  |  |  |  |  |  |  |  |                     |  |  | 
| | ----------------------------------------------------- |  |  |  |  |  |  |  |  | ------------------- |  |  | 
| |                                                       | 
| |                                                       |  |  |  |  |  |  |  |  |                     |  |  | 
| | Purchased
        in-process research and development |  |  |  |  |  |  |  |  | 1
        year      | 
| | Core
        technology                               |  |  |  |  |  |  |  |  | 2
         7 years | 
| |                                                       |  |  |  |  |  |  |  |  |                     |  |  | 
| |                                                       | 

| | **(h)****Impairment
          of long-lived assets**
          The Company reviews capital and intangible assets for impairment on
          a regular basis or whenever events or changes in circumstances indicate
          that the carrying amount may not be recoverable. Recoverability is assessed
          by comparing the carrying amount to the projected future net cash flows
          the long-lived assets are expected to generate.**(i)****Long-term
          investments**
          Investees over which the Company does not have control or significant
          influence are accounted for by the cost method.
        The Company regularly
          reviews the carrying values of its long-term investments. Should there
          be a decline in value of the Companys long-term investments that
          is other than a temporary decline, the Company measures the amount of
          the write-down based on the fair value of the shares of the investee
          and charges such write-down to the consolidated statements of operations
          and retained earnings.**(j)****Revenue
          recognition**
          Revenue is recognized when evidence of an arrangement exists, risks
          and rewards of ownership have been transferred to customers, selling
          price is fixed and determinable, and collectibility is reasonably assured.
          Estimated returns and allowances, price protection and sales rebates
          are recorded as a reduction of revenue at the time of revenue recognition.
          In addition, the Company provides for the estimated cost of product
          warranties at the time of revenue recognition.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 56 of 134

| | For all sales, the Company uses a binding purchase order and, in certain
          cases, uses a contractual agreement as evidence of an arrangement. The
          Company considers delivery to occur upon shipment, provided risk and
          rewards of ownership have passed to the customer. At the point of sale,
          the Company assesses whether the selling price is fixed and determinable
          and whether collection is reasonably assured. If the Company determines
          that collection is not reasonably assured, the Company defers recognition
          of the revenue until collection becomes reasonably assured, which is
          generally upon receipt of cash.
          The Company follows the percentage of completion method of accounting
          for contracts requiring the Company to develop customized technology
          to meet a customers specifications. Under such contracts, revenue
          is recognized based on the ratio of total costs incurred to date to
          overall estimated costs. Provisions for estimated losses on contracts
          are recognized when identified.**(k)****Foreign
          currency translation**
          The Companys subsidiaries are accounted for as integrated foreign
          operations. Transactions of the Company and its subsidiaries originating
          in foreign currencies are translated into U.S. dollars at the prevailing
          rates approximating those at the dates of the transactions. Monetary
          assets and liabilities are translated at the year-end rates of exchange
          and non-monetary items are translated at historical exchange rates.
          The resulting net gain or loss is included in the consolidated statements
          of operations and retained earnings.**(l)****Research
          and development (R&D) expenditures**
          Research costs, other than capital expenditures, are expensed as incurred.
          Development costs are expensed as incurred unless they meet the criteria
          under generally accepted accounting principles for deferral and amortization.
          The Company has not deferred any such development costs to date. R&D
          costs are reduced by related investment tax credits.**(m)****Income
          taxes**
          The Company uses the asset and liability method of accounting for income
          taxes. Future income tax assets and liabilities are recognized for future
          income tax consequences attributable to differences between the financial
          statement carrying amounts of existing assets and liabilities and their
          respective tax bases, net operating loss carryforwards and undeducted
          R&D pools. Future income tax assets and liabilities are measured
          using enacted or substantively enacted tax rates expected to apply to
          taxable income in the years in which those temporary differences are
          expected to be recovered or settled. The effect of a change in tax rates
          is recognized in the year that includes the enactment or substantive
          enactment date. A valuation allowance is recorded against any future
          income tax asset if it is more likely than not that the asset will not
          be realized. Income tax expense or recovery is the sum of the Companys
          provision for current income taxes and the difference between opening
          and ending balances of future income tax assets and liabilities.**(n)****Income
          (loss) per share**
          Basic income (loss) per share has been calculated by dividing the net
          income or loss for the year by the weighted average number of common
          shares outstanding during the year. The Company uses the treasury stock
          method for calculating diluted income (loss) per share. Diluted income
          (loss) per share is computed similar to basic income (loss) per share
          except that the weighted average number of common shares outstanding
          is increased to include additional shares from the assumed exercise
          of stock options, if dilutive. The number of additional shares is calculated
          by assuming that outstanding stock options were exercised and that the
          proceeds from such exercises were used to acquire shares of common stock
          at the average market price during the reporting year.**(o)****Stock
          options**
          The Company has share option plans, which are described in note 11.
          No compensation expense is recognized for these plans when stock options
          are issued to employees. Any consideration paid by employees on exercise
          of stock options or purchase of stock is credited to share capital.
          Effective September 1, 2002, the Company adopted the CICA Handbook Section
          3870, Stock-based Compensation and Other Stock-based Payments,
          which establishes standards for the recognition, measurement and disclosure
          of stock-based compensation and other stock-based payments made in exchange
          for goods and services provided by employees and non-employees. The
          standard requires that a fair value-based method of accounting be applied
          to all stock-based payments to non-employees and to employee awards
          that are direct awards of stock, that call for settlement in cash or
          other assets or are stock appreciation rights that call for settlement by the issuance of
          equity instruments. However, the new standard permits the Company to
          continue its existing policy of recording no compensation cost on the
          grant of stock options to employees. The
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 57 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       Company has applied the pro
          forma disclosure provisions of the new standard to awards granted on
          or after September 1, 2002. No restatement of prior periods was required
          as a result of the adoption of the new standard. Consideration paid
          by employees on the exercise of stock options is recorded as share capital.
          See note 11 for the pro forma disclosure, as required by this standard.**(p)****Use
          of estimates**
          The preparation of Consolidated Financial Statements in conformity with
          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 dates of the Consolidated Financial Statements and the reported
          amounts of revenue and expenses during the reporting years presented.
          Significant estimates are used in determining the allowance for doubtful
          accounts, provision for inventory obsolescence, useful lives of intangible
          assets, valuation of long-term investments, realization of future tax assets and estimates for sales returns and allowances,
          price protection and sales rebates. Actual results could differ from
          those estimates.**(q)****Accounting
          changes**
          (i)During
          fiscal 2003, the Company reviewed its revenue recognition accounting
          policy as it is applied to the shipment of products to its customers.
          Following this review, the Company corrected the application of its
          revenue recognition accounting policy by revising the timing of when
          revenue is recognized to more clearly identify the point in the shipping
          process when the risks and rewards of ownership have been transferred
          to the customer. This change and the related income tax effect have
          been applied retroactively. The financial statements of all prior periods
          presented for comparative purposes have been restated to give effect
          to this change. The impact of this change on prior years is as follows: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                |  |  |      |  |  |  |   |           |   |   |           |  
| | ------------------------------ |  |  | ---- |  |  |  | - | --------- | - | - | --------- | -
| |                                |  |  |      |  |  |  |   | 2002      |   |   | 2001      |  
| |                                | 
| |                                |  |  |      |  |  |  |   |           |   |   |           |  
| | Revenues:                      |  |  |      |  |  |  |   |           |   |   |           |  
| | As
        previously reported |  |  | **** |  |  |  | $ | 1,021,722 |   | $ | 1,037,809 |  
| | Restated                       |  |  |      |  |  |  |   | 1,015,779 |   |   | 1,040,365 |  
| | Net
        loss for the year: |  |  |      |  |  |  |   |           |   |   |           |  
| | As
        previously reported |  |  | **** |  |  |  |   | (47,465   | ) |   | (54,205   | )
| | Restated                       |  |  | **** |  |  |  |   | (49,079   | ) |   | (53,789   | )
| | Net
        loss per share:    |  |  |      |  |  |  |   |           |   |   |           |  
| | Basic:                         |  |  | **** |  |  |  |   |           |   |   |           |  
| | As
        previously reported |  |  | **** |  |  |  |   | (0.20     | ) |   | (0.23     | )
| | Restated                       |  |  | **** |  |  |  |   | (0.21     | ) |   | (0.23     | )
| | Diluted:                       |  |  | **** |  |  |  |   |           |   |   |           |  
| | As
        previously reported |  |  | **** |  |  |  |   | (0.20     | ) |   | (0.23     | )
| | Restated                       |  |  | **** |  |  |  |   | (0.21     | ) |   | (0.23     | )
| |                                |  |  |      |  |  |  |   |           |   |   |           |  
| |                                | 

| | For the year ended
          August 31, 2003, as a result of this change, revenues, net income, basic
          net income per share and diluted net income per share have been increased
          by $22.0 million, $3.8 million, $0.02 basic and $0.01 diluted per share,
          respectively. Opening retained earnings for the Companys 2001
          financial year has been decreased by $2.7 million to give effect to
          this change.
          (ii)Disposal
          of long-lived assets and discontinued operations:
          In December 2002, the CICA issued Handbook Section 3063, Impairment
          or Disposal of Long-lived Assets, and revised Section 3475, Disposal
          of Long-lived Assets and Discontinued Operations. These sections
          supersede the write-down and disposal provisions of Section 3061, Property,
          Plant and Equipment, and Section 3475, Discontinued Operations.
          The new standards are consistent with U.S. GAAP. Section 3063 establishes
          standards for recognizing, measuring and disclosing impairment of long-lived
          assets held-for-use. An impairment is recognized when the carrying amount
          of an asset to be held and used exceeds the projected future net cash
          flows expected from its use and disposal, and is measured as the amount
          by which the carrying amount of the asset exceeds its fair value. Section
          3475 provides specific criteria for and requires separate classification
          for assets held-for-sale and for these assets to be measured at the
          lower of their carrying amounts or fair value, less costs to sell. Section
          3475 also broadens the definition of discontinued operations to include
          all distinguishable components of an entity that will be eliminated
          from operations.
          The Company applied the revised Section 3475 to disposal activities
          initiated on or after May 1, 2003. Section 3063 is effective for the
          Companys 2004 fiscal year. The Company expects that the adoption
          of this standard will have no material impact on its financial position,
          results of operations or cash flows.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 58 of 134

| | (iii)Guarantees:
          In December 2002, the CICA approved Accounting Guideline AcG-14, which
          requires certain disclosures of obligations under guarantees. The guideline
          is generally consistent with the disclosure requirements for guarantees
          under U.S. GAAP. The guideline does not apply to product warranties
          or the measurement requirements under U.S. GAAP.
          The Company has fully adopted this guideline as of March 1, 2003. See
          note 14 for the disclosures required by this standard.
          (iv)Income
          taxes:
          Effective September 1, 2000, the Company changed its method of accounting
          for income taxes from the deferral method to the asset and liability
          method. The cumulative effect of adopting the new standard, as of September
          1, 2000, resulted in a decrease in intangible assets of $6.0 million,
          an increase in net future tax liability of $19.6 million and a decrease
          in opening retained earnings for fiscal 2001 of $25.6 million.
          As a result of adopting the new accounting rules in fiscal 2001, an
          income tax recovery of $16.3 million was recorded. This recovery resulted
          from the realization of the future tax liability associated with intangible
          assets, other than goodwill, related to the Companys acquisitions.**(r)****Recently
          issued accounting pronouncements**
          (i)Generally
          accepted accounting principles:
          In July 2003, the CICA issued Handbook Section 1100, Generally
          Accepted Accounting Principles. This section establishes standards
          for financial reporting in accordance with Canadian GAAP. It describes
          what constitutes Canadian GAAP and its sources. This section also provides
          guidance on sources to consult when selecting accounting policies and
          determining appropriate disclosures, when a matter is not dealt with
          explicitly in the primary sources of Canadian GAAP. This guideline is
          effective for the Companys 2005 fiscal year, with early adoption
          encouraged. The Company is currently evaluating the impact of adoption
          on the Consolidated Financial Statements.
          (ii)Asset
          retirement obligations:
          In March 2003, the CICA issued Handbook Section 3110, Asset Retirement
          Obligations. This section establishes standards for the recognition,
          measurement and disclosure of liabilities for asset retirement obligations
          and the associated retirement costs. This section applies to legal obligations
          associated with the retirement of a tangible long-lived asset that result
          from its acquisition, construction, development or normal operation.
          This guideline is effective for the Companys 2005 fiscal year,
          with early adoption encouraged. The Company is currently evaluating
          the impact of adoption on the Consolidated Financial Statements.
          (iii)Consolidation
          of variable interest entities:
          In June 2003, the CICA approved Accounting Guideline AcG-15, which provides
          guidance for determining when an enterprise includes the assets, liabilities
          and results of activities of entities that are subject to control on
          a basis other than ownership of voting interests (a variable
          interest entity). This guideline is effective for the Companys
          2005 second quarter, except for certain disclosure requirements which
          would be required for the Companys 2004 third quarter. Early
          adoption is encouraged. The Company expects that the adoption of this
          standard will have no material impact on its financial position, results
          of operations or cash flows. **NOTE
          2.** Financial
          instrumentsFinancial instruments, which
          potentially subject the Company to concentrations of credit risk, consist
          primarily of cash and cash equivalents, short-term investments, accounts
          receivable and sundry receivables. The Company invests only in high-quality
          cash and cash equivalents and short-term investments. A majority of
          the Companys accounts receivable is derived from sales to original
          equipment manufacturers, add-in-board manufacturers, original design
          manufacturers, distributors and retailers in the personal computer industry.
          The Company performs ongoing credit evaluations of its customers
          financial condition and limits the amount of credit extended when deemed
          necessary. In addition, a significant portion of the total accounts
          receivable is insured against possible losses. The Company maintains
          adequate reserves for potential credit losses as estimated by management.
          The joint venture, Commerce Valley Realty Holdings Inc. (CVRH),
          in which the company has a 50% ownership, entered into an interest rate
          swap contract in fiscal 2001 to hedge its exposure to the interest rate
          risk applicable to its mortgage for the building facility in Markham,
          Ontario. This interest rate swap contract closed on September 10, 2002,
          resulting in a proportionate loss of $1.4 million to the Company. The
          loss is treated as a deferred expense item in the balance sheet and
          is charged to the consolidated statements of operations and retained
          earnings as a yield adjustment to the interest expense, over the term
          of the mortgage (note 18).
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 59 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       The carrying amounts of cash equivalents, short-term investments, accounts
          receivable, sundry receivables, bank indebtedness and accounts payable
          and accrued liabilities approximate their fair market values because
          of the short-term nature of these instruments.
          The fair values of the obligation under capital lease and mortgage payable
          approximate their carrying values.
          The financial conditions, operating results and cash flows of the Company
          may be materially and adversely impacted by a substantial weakening
          of the U.S. dollar against local currencies as the Companys long-term
          debt and a significant amount of its operating expenses are paid in
          local currencies other than the U.S. dollar. The Company does not enter
          into foreign currency forward contracts to hedge its exposure to currency
          fluctuations. However, the Company assesses the need to use derivative
          instruments to manage its foreign exchange risk on an ongoing basis.**NOTE
          3.** Inventories | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                         |       |             |      |  |  |  |      |            | 
| | ----------------------- | ----- | ----------- | ---- |  |  |  | ---- | ---------- | 
| |                         |       | **2003**    |      |  |  |  |      | 2002       | 
| |                         |      
| |                         |       |             |      |  |  |  |      |            | 
| |                         |       |             |      |  |  |  |      | (Restated) | 
| | Raw
        materials   | **$** | **153,240** | **** |  |  |  | $    | 127,683    | 
| | Work
        in process |       | **7,110**   |      |  |  |  | **** | 25,603     | 
| | Finished
        goods  |       | **16,144**  |      |  |  |  |      | 38,835     | 
| |                         |       |             |      |  |  |  |      |            | 
| |                         |      
| |                         |       |             |      |  |  |  |      |            | 
| |                         | **$** | **176,494** | **** |  |  |  | $    | 192,121    | 
| |                         |       |             |      |  |  |  |      |            | 
| |                         |      

| | At August 31, 2003, the Company had non-cancellable inventory purchase
          commitments totaling $23.3 million.**NOTE
          4.** Capital
          assets | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

| |                                           |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| | ----------------------------------------- | ----- | ----------- | ---- |  |  |  | ----- | ------------------------------------ |  | ----- | ---------------------------------- | 
| | **2003**                                  |       | **Cost**    |      |  |  |  |       | **Accumulated
        depreciation** |  |       | **Net
        book
        value** | 
| |                                           |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| |                                           |      
| |                                           |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| | Land                                      | **$** | **1,909**   | **** |  |  |  | **$** | ****                                |  | **$** | **1,909**                          | 
| | Building                                  |       | **13,572**  | **** |  |  |  | ****  | **4,020**                            |  | ****  | **9,552**                          | 
| | Building
        under capital lease      | ****  | **33,268**  |      |  |  |  | ****  | **3,140**                            |  | ****  | **30,128**                         | 
| | Laboratory
        and computer equipment | ****  | **66,350**  | **** |  |  |  | ****  | **40,334**                           |  | ****  | **26,016**                         | 
| | Computer
        software                 |       | **23,736**  | **** |  |  |  | ****  | **18,645**                           |  | ****  | **5,091**                          | 
| | Production
        equipment              | ****  | **2,745**   |      |  |  |  | ****  | **1,551**                            |  | ****  | **1,194**                          | 
| | Office
        equipment                  | ****  | **8,835**   | **** |  |  |  | ****  | **3,593**                            |  | ****  | **5,242**                          | 
| | Leasehold
        improvements            | ****  | **10,759**  | **** |  |  |  | ****  | **3,001**                            |  | ****  | **7,758**                          | 
| |                                           | ****  | ****        | **** |  |  |  |       |                                      |  |       |                                    | 
| |                                           |      
| |                                           | ****  | ****        | **** |  |  |  |       |                                      |  |       |                                    | 
| |                                           | **$** | **161,174** |      |  |  |  | **$** | **74,284**                           |  | **$** | **86,890**                         | 
| |                                           | ****  | ****        | **** |  |  |  |       |                                      |  |       |                                    | 
| |                                           |      

| |                                           |      |         |      |  |  |  |   |                                  |  |   |                                | 
| | ----------------------------------------- | ---- | ------- | ---- |  |  |  | - | -------------------------------- |  | - | ------------------------------ | 
| | 2002                                      |      | Cost    |      |  |  |  |   | Accumulated
        depreciation |  |   | Net
        book
        value | 
| |                                           |      |         |      |  |  |  |   |                                  |  |   |                                | 
| |                                           |     
| |                                           |      |         |      |  |  |  |   |                                  |  |   |                                | 
| | Land                                      | $    | 1,909   | **** |  |  |  | $ |                                 |  | $ | 1,909                          | 
| | Building                                  |      | 8,353   | **** |  |  |  |   | 2,320                            |  |   | 6,033                          | 
| | Building
        under capital lease      | **** | 33,268  |      |  |  |  |   | 924                              |  |   | 32,344                         | 
| | Laboratory
        and computer equipment | **** | 77,711  | **** |  |  |  |   | 47,758                           |  |   | 29,953                         | 
| | Computer
        software                 |      | 34,645  | **** |  |  |  |   | 25,603                           |  |   | 9,042                          | 
| | Production
        equipment              | **** | 6,355   |      |  |  |  |   | 3,977                            |  |   | 2,378                          | 
| | Office
        equipment                  | **** | 8,983   | **** |  |  |  |   | 3,235                            |  |   | 5,748                          | 
| | Leasehold
        improvements            | **** | 9,591   | **** |  |  |  |   | 1,160                            |  |   | 8,431                          | 
| |                                           | **** | ****    | **** |  |  |  |   |                                  |  |   |                                | 
| |                                           |     
| |                                           | **** | ****    | **** |  |  |  |   |                                  |  |   |                                | 
| |                                           | $    | 180,815 |      |  |  |  | $ | 84,977                           |  | $ | 95,838                         | 
| |                                           | **** | ****    | **** |  |  |  |   |                                  |  |   |                                | 
| |                                           |     

| | Depreciation expense related to capital assets amounted to $23.9 million
          in fiscal 2003 (2002  $22.9 million; 2001  $21.0 million)
| | ----------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 60 of 134

| | **NOTE 5.** Acquisitions**(a)****Acquisition
          of NxtWave Communications Inc.**
          On June 28, 2002, the Company acquired NxtWave Communications Inc. (NxtWave)
          for cash consideration of $20.2 million. NxtWave is in the business
          of delivering broadband communications silicon using proprietary digital
          signal processing technologies adapted for applications in digital terrestrial
          and cable receivers. The acquisition was accounted for using the purchase
          method, whereby the results of operations of NxtWave have been included
          in the consolidated statements of operations and retained earnings and
          cash flows from the date of acquisition.
          The fair values of the net assets acquired were as follows: | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                |  |  |  |  |  |  |  |  |  |   |        |  
| | ---------------------------------------------- |  |  |  |  |  |  |  |  |  | - | ------ | -
| |                                                | 
| |                                                |  |  |  |  |  |  |  |  |  |   |        |  
| | Net
        assets:                            |  |  |  |  |  |  |  |  |  |   |        |  
| | Current
        assets, including cash of $165 |  |  |  |  |  |  |  |  |  | $ | 538    |  
| | Capital
        assets                         |  |  |  |  |  |  |  |  |  |   | 899    |  
| | Non-current
        assets                     |  |  |  |  |  |  |  |  |  |   | 59     |  
| | Purchased
        in-process R&D               |  |  |  |  |  |  |  |  |  |   | 5,300  |  
| | Core
        technology                        |  |  |  |  |  |  |  |  |  |   | 9,200  |  
| | Goodwill                                       |  |  |  |  |  |  |  |  |  |   | 4,678  |  
| | Liabilities
        assumed                    |  |  |  |  |  |  |  |  |  |   | (459   | )
| |                                                |  |  |  |  |  |  |  |  |  |   |        |  
| |                                                | 
| |                                                |  |  |  |  |  |  |  |  |  |   |        |  
| | Cash
        consideration                     |  |  |  |  |  |  |  |  |  | $ | 20,215 |  
| |                                                |  |  |  |  |  |  |  |  |  |   |        |  
| |                                                | 

| | Purchased in-process R&D and core technology are being amortized
          as follows: | 
| | -------------------------------------------------------------------------------------- | 

| |                                  |  |  |  |  |  |  |  |  |                     |  |  | 
| | -------------------------------- |  |  |  |  |  |  |  |  | ------------------- |  |  | 
| |                                  | 
| |                                  |  |  |  |  |  |  |  |  |                     |  |  | 
| | Purchased
        in-process R&D |  |  |  |  |  |  |  |  | 1
        year      | 
| | Core
        technology          |  |  |  |  |  |  |  |  | 2
         5 years | 
| |                                  |  |  |  |  |  |  |  |  |                     |  |  | 
| |                                  | 

| | **(b)****Acquisition
          of FGL Graphics**
          On March 30, 2001, the Company acquired FGL Graphics, the professional
          graphics division of SONICblue Ltd. FGL Graphics, which develops and
          markets the FireGL brand of OpenGL-based graphics accelerators, is
          a provider of solutions of NT and Linux workstation markets. The acquisition
          was accounted for using the purchase method, whereby the results of
          operations of FGL Graphics have been included in the consolidated statements
          of operations and retained earnings and cash flows from the date of
          acquisition.
          The fair values of the assets acquired were as follows: | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                            |  |  |  |  |  |  |  |  |  |   |        | 
| | -------------------------- |  |  |  |  |  |  |  |  |  | - | ------ | 
| |                            | 
| |                            |  |  |  |  |  |  |  |  |  |   |        | 
| | Inventories                |  |  |  |  |  |  |  |  |  | $ | 3,528  | 
| | Capital
        assets     |  |  |  |  |  |  |  |  |  |   | 200    | 
| | Prepayments                |  |  |  |  |  |  |  |  |  |   | 68     | 
| | Core
        technology    |  |  |  |  |  |  |  |  |  |   | 7,473  | 
| |                            |  |  |  |  |  |  |  |  |  |   |        | 
| |                            | 
| |                            |  |  |  |  |  |  |  |  |  |   |        | 
| | Cash
        consideration |  |  |  |  |  |  |  |  |  | $ | 11,269 | 
| |                            |  |  |  |  |  |  |  |  |  |   |        | 
| |                            | 

| | Under the terms of the agreement, SONICblue Ltd. was eligible to receive
          additional consideration of up to $7.3 million in cash, contingent upon
          FGL Graphics achieving certain future performance targets from the closing
          date to December 31, 2001. The entire amount of this $7.3 million was
          subsequently paid and allocated to core technology (2002  $2.1
          million; 2001  $5.2 million).
          The core technology is being amortized on a straight-line basis over
          a two-year period.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 61 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       **NOTE 6.** Intangible
          assets and goodwill
          The net book values of intangible assets and goodwill acquired are as
          follows: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                  |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| | -------------------------------- | ----- | ----------- | ---- |  |  |  | ----- | ------------------------------------ |  | ----- | ---------------------------------- | 
| | **2003**                         |       | **Cost**    |      |  |  |  |       | **Accumulated
        amortization** |  |       | **Net
        book
        value** | 
| |                                  |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| |                                  |      
| |                                  |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| | Purchased
        in-process R&D | **$** | **56,250**  |      |  |  |  | **$** | **56,250**                           |  | **$** | ****                              | 
| | Core
        technology          | ****  | **31,144**  | **** |  |  |  | ****  | **22,333**                           |  | ****  | **8,811**                          | 
| |                                  |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| |                                  |      
| |                                  |       |             |      |  |  |  |       |                                      |  |       |                                    | 
| | Total
        intangible assets  | **$** | **87,394**  | **** |  |  |  | **$** | **78,583**                           |  | **$** | **8,811**                          | 
| |                                  | ****  | ****        | **** |  |  |  |       |                                      |  |       |                                    | 
| |                                  |      
| |                                  | ****  | ****        | **** |  |  |  |       |                                      |  |       |                                    | 
| | Goodwill                         | **$** | **376,788** |      |  |  |  | **$** | **186,693**                          |  | **$** | **190,095**                        | 
| |                                  | ****  | ****        | **** |  |  |  |       |                                      |  |       |                                    | 
| |                                  |      

| |                                  |      |         |      |  |  |  |   |                                  |  |   |                                | 
| | -------------------------------- | ---- | ------- | ---- |  |  |  | - | -------------------------------- |  | - | ------------------------------ | 
| | 2002                             |      | Cost    |      |  |  |  |   | Accumulated
        amortization |  |   | Net
        book
        value | 
| |                                  |      |         |      |  |  |  |   |                                  |  |   |                                | 
| |                                  |     
| |                                  |      |         |      |  |  |  |   |                                  |  |   |                                | 
| | Purchased
        in-process R&D | $    | 56,250  |      |  |  |  | $ | 51,833                           |  | $ | 4,417                          | 
| | Workforce                        |      | 4,400   | **** |  |  |  |   | 2,120                            |  |   | 2,280                          | 
| | Core
        technology          |      | 31,144  | **** |  |  |  |   | 15,983                           |  |   | 15,161                         | 
| |                                  |      |         |      |  |  |  |   |                                  |  |   |                                | 
| |                                  |     
| |                                  |      |         |      |  |  |  |   |                                  |  |   |                                | 
| | Total
        intangible assets  | $    | 91,794  | **** |  |  |  | $ | 69,936                           |  | $ | 21,858                         | 
| |                                  | **** | ****    | **** |  |  |  |   |                                  |  |   |                                | 
| |                                  |     
| |                                  | **** | ****    | **** |  |  |  |   |                                  |  |   |                                | 
| | Goodwill                         | $    | 372,388 |      |  |  |  | $ | 184,573                          |  | $ | 187,815                        | 
| |                                  | **** | ****    | **** |  |  |  |   |                                  |  |   |                                | 
| |                                  |     

| | Amortization expense and write-downs of goodwill and intangible assets
          are as follows: | 
| | ------------------------------------------------------------------------------------------------ | 

| |                              |       |            |      |  |  |  |   |        |  |   |         | 
| | ---------------------------- | ----- | ---------- | ---- |  |  |  | - | ------ |  | - | ------- | 
| |                              |       | **2003**   |      |  |  |  |   | 2002   |  |   | 2001    | 
| |                              |      
| |                              |       |            |      |  |  |  |   |        |  |   |         | 
| | Goodwill:                    | ****  |            |      |  |  |  |   |        |  |   |         | 
| | Amortization
        expense | **$** | ****      |      |  |  |  | $ | 73,134 |  | $ | 75,404  | 
| | Write-down                   |       | ****      |      |  |  |  |   | 10,319 |  |   |        | 
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              |      
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              | ****  | ****      |      |  |  |  |   | 83,453 |  |   | 75,404  | 
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              |      
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| | Intangible
        assets:   | ****  |            |      |  |  |  |   |        |  |   |         | 
| | Amortization
        expense | ****  | **10,767** |      |  |  |  |   | 8,963  |  |   | 34,592  | 
| | Write-down                   |       | ****      |      |  |  |  |   | 5,085  |  |   | 4,511   | 
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              |      
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              | ****  | **10,767** | **** |  |  |  |   | 14,048 |  |   | 39,103  | 
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              |      
| |                              | ****  | ****       | **** |  |  |  |   |        |  |   |         | 
| |                              | **$** | **10,767** |      |  |  |  | $ | 97,501 |  | $ | 114,507 | 
| |                              |       | ****       |      |  |  |  |   |        |  |   |         | 
| |                              |      

| | **NOTE
          7.**Long-term
          investments | 
| | ---------------------------------------------------- | 

| |                           |      |      |      |       |           |  |  |  |      |      
| | ------------------------- | ---- | ---- | ---- | ----- | --------- |  |  |  | ---- | -----
| |                           |      |      |      |       | **2003**  |  |  |  | 2002 |      
| |                           |     
| |                           |      |      |      |       |           |  |  |  |      |      
| | Share
        investments | **** |      |      | **$** | **3,960** |  |  |  | $    | 7,405
| |                           | **** | **** | **** |       |           |  |  |  |      |      
| |                           |     

| | Share investments consist of investments in other companies in which
          the Company has ownership interests ranging from approximately 1.2%
          to 13.2%.
          During fiscal 2003, the Company acquired a 13.2% interest in a private
          technology-based company.
          During fiscal 2003, the Company disposed of all its remaining shares
          in Broadcom Corp. (Broadcom), realizing a gain in the
          aggregate amount of $3.8 million.
          During fiscal 2002, the Company disposed of a certain long-term investment
          and realized a loss of $0.3 million. In addition, the Company
          wrote down the remaining balance of this investment by the amount of
          $0.5 million to reflect the other than temporary decline in its value.
          The entire balance of the above-mentioned investment, which had a net
          book value of $0.2 million, was then reclassified as short-term investments
          as the Company no longer intended to hold the investment for long-term
          purposes. The Company sold the investment in 2003.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 62 of 134

| | During fiscal 2002, the Company received an additional 107,387 shares
          of Broadcom, valued at $2.1 million, as a result of the
          release of escrow shares pursuant to the terms of the agreement to purchase
          the Companys share investment in SiByte Inc. (SiByte)
          by Broadcom in the preceding fiscal year. On August 31, 2002,
          the Company wrote down its total investment in Broadcom by $4.7 million
          to reflect the other than temporary decline in its value.
          During fiscal 2001, the Company wrote down the value of certain of its
          long-term investments by an aggregate of $2.1 million to reflect the
          other than temporary decline in their value.
          During fiscal 2001, the Company exchanged all of its share investment
          in SiByte for 494,295 shares of Broadcom as a result of the purchase
          of SiByte by Broadcom. The Company later sold these shares of Broadcom,
          realizing a gain of approximately $54.9 million. In addition, the Company
          earned an additional 250,701 shares of Broadcom, valued at $8.5 million,
          during fiscal 2001 as a result of the achievement of certain performance
          targets by SiByte pursuant to the terms of the purchase agreement.
          Gains and losses from long-term investments are included in interest
          and other income in the consolidated statements of operations and retained
          earnings.**NOTE 8.** Bank
          indebtedness
          At August 31, 2003, the Company had available bank credit facilities
          of $25.4 million (2002  $101.0 million). The credit
          facilities are secured by way of general security agreements and personal
          property, covering the cash, credit balances and deposit instruments
          of the Company. Interest rates on the credit facilities vary and are
          based on the banks U.S. base rate, Canadian bank prime rate or
          the LIBOR rate. At August 31, 2003 and 2002, there were no borrowings
          outstanding under these facilities. The bank indebtedness of $12.0 million
          at August 31, 2002 pertains to the CVRH joint venture.
          Aggregate commitment fees and standby fees of $30,000 (2002 
          $15,000; 2001  $17,000) were paid in 2003. Standby fees are calculated
          at the rate of 0.125% per annum on the unused portion of the facilities.**NOTE 9.** Deferred
          revenue
          Deferred revenue, at August 31, 2003, includes $37.5 million, which
          represents milestone payments made by or owing from certain customers
          in connection with custom development arrangements entered into by the
          Company during fiscal 2003.
        **NOTE
          10.** Long-term
          debt | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                            |      |                       |      |       |            |            |  |  |   |       
| | ------------------------------------------ | ---- | --------------------- | ---- | ----- | ---------- | ---------- |  |  | - | ------
| |                                            |      | Interest
        rate |      |       |            | **2003**   |  |  |   | 2002  
| |                                            |     
| |                                            |      |                       |      |       |            |            |  |  |   |       
| | Obligation
        under capital lease (a) | **** | 6.31                  | %    |       | **$**      | **17,785** |  |  |   | $     
| | Mortgage
        payable (b)               | **** | 6.96                  | %    |       |            | **11,682** |  |  |   |       
| |                                            | **** | ****                  | **** |       |            |            |  |  |   |       
| |                                            |     
| |                                            | **** |                       |      |       | **29,467** |            |  |  |   | 16,366
| | Less
        current portion               | **** |                       |      |       | **1,394**  |            |  |  |   | 568   
| |                                            |     
| |                                            |      |                       |      |       |            |            |  |  |   |       
| |                                            | **** |                       |      | **$** | **28,073** |            |  |  | $ | 15,798
| |                                            | **** | ****                  | **** |       |            |            |  |  |   |       
| |                                            |     

| | **(a)****Obligation
          under capital lease**
          The Companys obligation under capital lease represents the lease
          on the building facility occupied by the Company in Markham, Ontario.**(b)****Mortgage
          payable**
          On September 10, 2002, CVRH, the joint venture in which the Company
          has a 50% ownership interest, entered into a mortgage agreement with
          a lender to finance the building facility occupied by the Company in
          Markham, Ontario. The Companys proportionate share of the mortgage
          as at August 31, 2003 amounted to $11.7 million (Cdn. $16.2 million),
          and the mortgage has a repayment term of 12 years, bearing interest
          at a rate of 6.96% per annum. The underlying mortgage is denominated
          in Canadian dollars.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 63 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       **(c)**The
          Companys obligations under the mortgage and capital lease are
          as follows: | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                 |  |  |  |  |  |  |  |   |        | 
| | --------------------------------------------------------------- |  |  |  |  |  |  |  | - | ------ | 
| |                                                                 | 
| | Year ended August
        31:                                   |  |  |  |  |  |  |  |   |        | 
| | 2004                                                            |  |  |  |  |  |  |  | $ | 3,277  | 
| | 2005                                                            |  |  |  |  |  |  |  |   | 3,277  | 
| | 2006                                                            |  |  |  |  |  |  |  |   | 3,277  | 
| | 2007                                                            |  |  |  |  |  |  |  |   | 3,351  | 
| | 2008                                                            |  |  |  |  |  |  |  |   | 3,455  | 
| | Thereafter through
        2017                                 |  |  |  |  |  |  |  |   | 27,155 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| |                                                                 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| | Total minimum lease
        payments                            |  |  |  |  |  |  |  |   | 43,792 | 
| | Less amount representing
        interest                       |  |  |  |  |  |  |  |   | 14,325 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| |                                                                 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| | Present value of
        net minimum payments on long-term debt |  |  |  |  |  |  |  |   | 29,467 | 
| | Less current portion
        of long-term debt                  |  |  |  |  |  |  |  |   | 1,394  | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| |                                                                 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| |                                                                 |  |  |  |  |  |  |  | $ | 28,073 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 
| |                                                                 | 
| |                                                                 |  |  |  |  |  |  |  |   |        | 

| | Interest of $1.1 million and $0.7 million relating to capital lease
          obligation and mortgage payable, respectively, is included in interest
          expense for fiscal 2003 (2002  $0.4 million and nil; 2001 
          nil).**NOTE 11.** Shareholders
          equity**(a)****Common
          shares issued and outstanding** | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| | ---------------------------------------- |  |  | ---- | ---- | ---- | ------------------- | ---- | ----- | ----------- | - |  | 
| |                                          |  |  |      |      |      | Number              |      |       | Amount      |  
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| |                                          | 
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| | Outstanding,
        August 31, 2000     |  |  |      |      |      | 229,436,267         |      | $     | 557,044     |  
| | Issued
        for cash                  |  |  | **** |      |      | 2,767,962           |      |       | 4,687       |  
| | Cancellation
        of shares           |  |  | **** |      |      | (85,555             | )    |       | (10,514     | )
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| |                                          | 
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| | Outstanding,
        August 31, 2001     |  |  |      |      |      | 232,118,674         |      |       | 551,217     |  
| | Issued
        for cash                  |  |  | **** |      |      | 4,828,136           |      |       | 12,495      |  
| | Cancellation
        of shares           |  |  | **** |      |      | (76,125             | )    |       | (2,235      | )
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| |                                          | 
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| | Outstanding,
        August 31, 2002     |  |  |      |      |      | 236,870,685         |      |       | 561,477     |  
| | Issued
        for cash                  |  |  | **** |      |      | 4,871,428           |      |       | 20,977      |  
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| |                                          | 
| |                                          |  |  |      |      |      |                     |      |       |             |   |  | 
| | **Outstanding,
        August 31, 2003** |  |  | **** | **** | **** | ******241,742,113** | **** | **$** | **582,454** |  
| |                                          | 

| | **(b)****Preferred
          shares**
          An unlimited number of preferred shares, ranking in priority upon distribution
          of assets over common shares, may be issued in series with additional
          provisions as fixed by the Board of Directors.
          No preferred shares have been issued to date.**(c)****Common
          share option plans**
          The Company maintains a share option plan (the ATI Plan)
          for the benefit of directors, officers and employees. The ATI Plan,
          as amended, provides that the aggregate number of common shares available
          for issuance pursuant to options granted under the ATI Plan and all
          other share compensation arrangements are limited to 47,000,000 common
          shares. In general, the maximum number of common shares reserved for
          issuance in respect of any one individual may not exceed 5%, and in
          respect of insiders of the Company, may not exceed 10% of the number
          of common shares issued and outstanding.
          Options are granted under the ATI Plan at the discretion of the Board
          of Directors at exercise prices determined as the weighted average of
          the trading prices of the Companys common shares on The Toronto
          Stock Exchange or NASDAQ for the five trading days preceding the effective
          date of the grant. In general, options granted under the ATI Plan vest
          over a period of up to four years from the grant date and expire by
          no later than the seventh anniversary of the date of
grant.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 64 of 134

| | When the Company acquired ArtX, it assumed the ArtX common shares options
          plan (the ArtX Plan). The Company maintains the ArtX Plan
          for the benefit of directors, officers, employees and consultants. The
          ArtX Plan provides that the aggregate number of common shares available
          for issuance pursuant to options granted under the ArtX Plan and all
          other share compensation arrangements are limited to 8,007,599 common
          shares for both incentive stock options (ISO) and non-qualified
          stock options.
          In general, options granted under the ArtX Plan vest immediately or
          within specified times or events as determined by the Board of Directors,
          which is normally over a five-year period, and expire by the tenth anniversary
          of the date of grant. If the person obtaining the options owns more
          than 10% of the total combined voting power of all classes of stock
          (10% shareholder), then the options will be exercisable after the expiration
          of five years from the date of grant.
          Options were granted under the ArtX Plan at the discretion of the Board
          of Directors at exercise prices determined as no less than 85% of the
          fair market value of the shares on the date of grant provided that the
          exercise price of an ISO will not be less than 100% of the fair market
          value of the shares on the date of grant and the exercise price of any
          option granted to a 10% shareholder is no less than 110% of the fair
          market value of the shares on the date of grant.
          Under an incentive plan entered into in June 2002, the Company provided
          certain employees with a performance incentive, consisting of a combination
          of cash and options, the receipt of which was conditional upon the Company
          entering into a specified business arrangement with a third party by
          April 2003, later extended to July 28, 2003. The cash portion of the
          incentive consisted of three equal payments of $2.7 million, with each
          payment to be made upon achievement of specified milestones under the
          arrangement with the third party. Under the plan, the employees were
          also granted options to purchase 2.6 million common shares at an exercise
          price of $6.96 per share. The options vest at 25% on the first anniversary
          of the grant date and thereafter at 6.25% per quarter and are only exercisable
          in the event the Company is successful in entering into the arrangement.
          In February 2003, the Company successfully entered into the business
          arrangement with the third party and all the conditions under the plan
          were determined to have been met in July 2003. As a result, the first
          payment of the cash portion of the incentive, in the amount of $2.7
          million, was made during the fourth quarter of fiscal 2003. The remaining
          cash consideration of $5.4 million was accrued as at August 31, 2003
          and will be expensed for accounting purposes as the employees earn the
          amounts. No compensation expense was recorded in fiscal 2002 and 2003
          in connection with these options.
          The following is a summary of the maximum number of common shares issuable
          pursuant to outstanding stock options:**** | 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| | ---------------------------------------- | ---- | ----------------------------------------- | ----- | ---------------------------------- | -------- |  |  | ---- |  | ------------------------------------- | ---------- | ------------------------------ | - | ---- | ------------------------------------- | - | ------------------------------ | 
| |                                          |      | **2003**                                  |       |                                    |          |  |  | 2002 |  |                                       | 2001       |                               
| |                                          |      |                                           |      
| |                                          |      | **Number
        of options outstanding** |       | **Weighted
        average price** |          |  |  |      |  | Number
        of options outstanding |            | Weighted
        average price |   |      | Number
        of options outstanding |   | Weighted
        average price | 
| |                                          |      |                                           |      
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| | Options
        outstanding,             |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| | beginning
        of year                | **** | **32,813,005**                            | ****  | **$**                              | **7.18** |  |  |      |  |                                       | 29,109,372 |                                | $ | 5.37 |                                       |   | 24,823,960                     | 
| | Grant
        of additional options      | **** | **907,550**                               | ****  | **4.89**                           |          |  |  |      |  | 9,881,474                             |            | 10.40                          |   |      | 11,148,703                            |   | 5.32                           | 
| | Cancellation
        of options          | **** | **(1,117,276**                            | **)** | **9.03**                           |          |  |  |      |  | (1,349,705                            | )          | 7.76                           |   |      | (4,095,329                            | ) | 8.31                           | 
| | Exercise
        of options              | **** | **(4,871,428**                            | **)** | **4.10**                           |          |  |  |      |  | (4,828,136                            | )          | 2.60                           |   |      | (2,767,962                            | ) | 1.68                           | 
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| |                                          |      |                                           |      
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| | Options
        outstanding, end of year | **** | **27,731,851**                            |       | **8.31**                           |          |  |  |      |  | 32,813,005                            |            | 7.18                           |   |      | 29,109,372                            |   | 5.37                           | 
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| |                                          |      |                                           |      
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| | Exercisable,
        end of year         | **** | **15,727,485**                            |       | **$**                              | **8.35** |  |  |      |  |                                       | 12,608,053 |                                | $ | 6.54 |                                       |   | 9,960,010                      | 
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 
| |                                          |      |                                           |      
| |                                          |      |                                           |       |                                    |          |  |  |      |  |                                       |            |                                |   |      |                                       |   |                                | 

| | As at August 31, 2003, the range of exercise prices for options outstanding
          and exercisable (vested) are as follows: | 
| | ------------------------------------------------------------------------------------------------------------------------------ | 

| |                         |      |                                           |      |      |                                           |      |       |                                   |      |      |                                           |      |                                   |           | 
| | ----------------------- | ---- | ----------------------------------------- | ---- | ---- | ----------------------------------------- | ---- | ----- | --------------------------------- | ---- | ---- | ----------------------------------------- | ---- | --------------------------------- | --------- | 
| | **Price
        range** | **** | **Number
        of options outstanding** | **** | **** | **Weighted
        average life (years)** | **** | ****  | **Weighted
        averageprice** | **** | **** | **Number
        of options exercisable** | **** | **Weighted
        averageprice** |          
| |                         |     
| |                         |      |                                           |      |      |                                           |      |       |                                   |      |      |                                           |      |                                   |           | 
| | $
        0.09  $ 0.93 | **** | **2,697,554**                             | **** | **** | **6.15**                                  | **** | **$** | **0.32**                          | **** | **** | **2,275,191**                             | **** | **$**                             | **0.32**  | 
| | $
        3.94  $ 5.87 | **** | **7,691,866**                             | **** | **** | **4.72**                                  | **** | ****  | **4.99**                          | **** | **** | **3,477,156**                             | **** | ****                              | **5.04**  | 
| | $
        6.14  $ 9.21 | **** | **7,634,869**                             | **** |      | **4.23**                                  | **** |       | **7.91**                          | **** |      | **4,359,216**                             | **** |                                   | **8.52**  | 
| | $
        9.56  $13.89 | **** | **4,723,508**                             | **** | **** | **4.06**                                  | **** | ****  | **11.79**                         | **** | **** | **2,588,895**                             | **** | ****                              | **11.45** | 
| | $14.75
         $16.88 | **** | **4,984,054**                             | **** | **** | **3.90**                                  | **** | ****  | **15.11**                         | **** | **** | **3,057,027**                             | **** | ****                              | **15.25** | 
| |                         |      |                                           |      |      |                                           |      |       |                                   |      |      |                                           |      |                                   |           | 
| |                         |     
| |                         |      |                                           |      |      |                                           |      |       |                                   |      |      |                                           |      |                                   |           | 
| |                         |      | **27,731,851**                            | **** | **** | **4.47**                                  | **** | **$** | **8.31**                          | **** | **** | **15,727,485**                            | **** | **$**                             | **8.35**  | 
| |                         |      |                                           |      |      |                                           |      |       |                                   |      |      |                                           |      |                                   |           | 
| |                         |     
| |                         |      |                                           |      |      |                                           |      |       |                                   |      |      |                                           |      |                                   |           | 

| | 
| | 
| | 

---

Page 65 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       As at August 31, 2003, the price range of $0.09 to $0.93, as noted above,
          represents all of the options relating to the ArtX Plan. All other options
          outstanding or exercisable relate to the ATI Plan. During the year ended
          August 31, 2003, 777,423 options relating to the ArtX Plan were exercised
          at a weighted average price of $0.30 and 11,272 options were cancelled
          at a weighted average price of $0.31.
          For stock options granted to employees after September 1, 2002, had
          the Company determined compensation costs based on the fair value of
          the stock options at grant dates consistent with the method prescribed
          under CICA Handbook Section 3870, the Companys income per share
          would have been reported as the pro forma amounts indicated below: | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                           |  |  |  |  |  |  |  |   |        |  
| | --------------------------------------------------------- |  |  |  |  |  |  |  | - | ------ | -
| |                                                           | 
| |                                                           |  |  |  |  |  |  |  |   |        |  
| | Net income, as reported                                   |  |  |  |  |  |  |  | $ | 35,299 |  
| | Pro forma adjustment
        for stock-based compensation |  |  |  |  |  |  |  |   | (525   | )
| |                                                           |  |  |  |  |  |  |  |   |        |  
| |                                                           | 
| |                                                           |  |  |  |  |  |  |  |   |        |  
| | Pro forma net income                                      |  |  |  |  |  |  |  | $ | 34,704 |  
| |                                                           |  |  |  |  |  |  |  |   |        |  
| |                                                           | 
| |                                                           |  |  |  |  |  |  |  |   |        |  
| | Pro forma net income
        per share:                   |  |  |  |  |  |  |  |   |        |  
| | Basic                                                     |  |  |  |  |  |  |  | $ | 0.15   |  
| | Diluted                                                   |  |  |  |  |  |  |  |   | 0.14   |  
| |                                                           |  |  |  |  |  |  |  |   |        |  
| |                                                           | 
| |                                                           |  |  |  |  |  |  |  |   |        |  

| | The weighted average estimated fair values at the date of grant for
          the options granted for fiscal 2003 was $2.65 per share. The fair value
          of each option granted was estimated on the date of the grant using
          the Black-Scholes option pricing model with the following assumptions: | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                                       |  |  |  |          |       |  |  |  |                       |      
| | ------------------------------------------------------------------------------------- |  |  |  | -------- | ----- |  |  |  | --------------------- | -----
| |                                                                                       | 
| |                                                                                       |  |  |  |          |       |  |  |  |                       |      
| | Risk-free interest
        rate                                                       |  |  |  |          |       |  |  |  | **3.1**               | **%**
| | Dividend yield                                                                        |  |  |  |          |       |  |  |  | **0.0**               | **%**
| | Volatility
        factor of the expected market price of the Companys common shares |  |  |  | **71.1** | **%**
| | Weighted average
        expected life of the options                                 |  |  |  |          |       |  |  |  | **4.2
        years** | **** 
| |                                                                                       |  |  |  |          |       |  |  |  |                       |      
| |                                                                                       | 
| |                                                                                       |  |  |  |          |       |  |  |  |                       |      

| | For purposes of pro forma disclosures, the estimated fair value of the
          options is amortized to expense over the options vesting period.**(d)****Contributed
          surplus**
          During 2003, an employee reimbursed $0.2 million (2002  $0.4
          million) to the Company for a loan receivable the Company assumed when
          it acquired ArtX. This transaction was recorded as contributed surplus.
          During 2002, the Company cancelled for no consideration 134,200 options
          and 76,125 common shares with a total carrying value of $2.2 million.
          This transaction was recorded as contributed surplus.**NOTE 12.**Income
          taxes
          Income (loss) before income taxes consist of the following: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                            |       |            |      |  |  |  |       |            |   |       |            |  
| | ------------------------------------------ | ----- | ---------- | ---- |  |  |  | ----- | ---------- | - | ----- | ---------- | -
| |                                            |       | **2003**   |      |  |  |  |       | 2002       |   |       | 2001       |  
| |                                            |      
| |                                            |       |            |      |  |  |  |       |            |   |       |            |  
| |                                            | ****  |            |      |  |  |  |       | (Restated) |   |       | (Restated) |  
| | Income (loss)
        before income taxes: |       |            |      |  |  |  |       |            |   |       |            |  
| | Canadian                                   | **$** | **2,081**  |      |  |  |  | **$** | 978        |   | **$** | (14,393    | )
| | Foreign                                    | ****  | **44,889** |      |  |  |  |       | (43,203    | ) |       | (58,156    | )
| |                                            | ****  | ****       | **** |  |  |  |       |            |   |       |            |  
| |                                            |      
| |                                            | ****  | ****       | **** |  |  |  |       |            |   |       |            |  
| | Income (loss)
        before income taxes  | **$** | **46,970** |      |  |  |  | **$** | (42,225    | ) | **$** | (72,549    | )
| |                                            | ****  | ****       | **** |  |  |  |       |            |   |       |            |  
| |                                            |      
| |                                            | ****  | ****       | **** |  |  |  |       |            |   |       |            |  

| | 
| | 
| | 

---

Page 66 of 134

| | The income tax expense (recovery) consists of the following: | 
| | ------------------------------------------------------------ | 

| |                                       |       |            |       |  |  |  |       |            |   |       |            |  
| | ------------------------------------- | ----- | ---------- | ----- |  |  |  | ----- | ---------- | - | ----- | ---------- | -
| |                                       |       | **2003**   |       |  |  |  |       | 2002       |   |       | 2001       |  
| |                                       |      
| |                                       |       |            |       |  |  |  |       |            |   |       |            |  
| |                                       | ****  |            |       |  |  |  |       | (Restated) |   |       | (Restated) |  
| | **Current:**                          |       |            |       |  |  |  |       |            |   |       |            |  
| | Canadian                              | **$** | **9,572**  |       |  |  |  | **$** | (875       | ) | **$** |           |  
| | Foreign                               | ****  | **3,971**  |       |  |  |  |       | 6,506      |   |       | (330       | )
| | **Future:**                           |       |            |       |  |  |  |       |            |   |       |            |  
| | Canadian                              |       | **2,234**  |       |  |  |  |       | 4,747      |   |       | (4,202     | )
| | Foreign                               | ****  | **(4,036** | **)** |  |  |  |       | (3,524     | ) |       | (14,228    | )
| |                                       | ****  | ****       | ****  |  |  |  |       |            |   |       |            |  
| |                                       |      
| |                                       | ****  | ****       | ****  |  |  |  |       |            |   |       |            |  
| | Income tax
        expense (recovery) | **$** | **11,741** |       |  |  |  | **$** | 6,854      |   | **$** | (18,760    | )
| |                                       | ****  | ****       | ****  |  |  |  |       |            |   |       |            |  
| |                                       |      
| |                                       | ****  | ****       | ****  |  |  |  |       |            |   |       |            |  

| | The following is a summary of the components of the future tax assets
          and liabilities: | 
| | ------------------------------------------------------------------------------------------------ | 

| |                                                                        |      |      |       |            |             |            |  |       |         |        
| | ---------------------------------------------------------------------- | ---- | ---- | ----- | ---------- | ----------- | ---------- |  | ----- | ------- | -------
| |                                                                        |      |      |       |            |             | **2003**   |  |       |         | 2002   
| |                                                                        |     
| |                                                                        |      |      |       |            |             |            |  |       |         |        
| | **FUTURE
        INCOME TAXES**                                        | **** |      |       |            | ****        | ****       |  |       |         |        
| | **Assets:**                                                            | **** |      |       |            |             | ****       |  |       |         |        
| | Accounting
        depreciation in excess of tax depreciation          | **** |      |       |            | **$**       | **981**    |  |       |         | **$**  
| | Accounting
        provisions not deductible for tax purposes          | **** |      |       |            |             | **5,111**  |  |       |         |        
| | Tax
        benefit of loss carryforwards and undeducted R&D pools**** |      |      |       | **40,490** |             |            |  |       | 37,007  |        
| | Other                                                                  | **** |      |       |            |             | **4,650**  |  |       |         |        
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| |                                                                        |     
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| | Total
        gross future tax assets                                  | **** |      |       |            | **51,232**  | ****       |  |       |         | 44,760 
| | Valuation
        allowance                                            | **** |      |       |            | **(39,595** | **)**      |  |       |         | (40,286
| |                                                                        |     
| |                                                                        |      |      |       |            |             |            |  |       |         |        
| | Net
        future tax assets                                          | **** |      |       | ****       | **11,637**  |            |  |       |         | 4,474  
| | **Liabilities:**                                                       | **** |      |       |            |             | ****       |  |       |         |        
| | Tax
        depreciation in excess of accounting depreciation          | **** |      |       |            |             | **9,323**  |  |       |         |        
| | Investment
        tax credits taxable in future years                 | **** |      |       |            |             | **11,241** |  |       |         |        
| | Intangible
        assets                                              |      |      |       | **844**    |             |            |  |       | 2,523   |        
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| |                                                                        |     
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| | Total
        gross future tax liabilities                             |      |      |       | **21,408** |             |            |  |       | 16,047  |        
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| |                                                                        |     
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| |                                                                        |      |      | **$** | **(9,771** | **)**       |            |  | **$** | (11,573 | )      
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        
| |                                                                        |     
| |                                                                        | **** | **** | ****  |            |             |            |  |       |         |        

| | Income tax expense (recovery) in the consolidated statements of operations
          and retained earnings varies from the amount that would be computed
          by applying the basic Canadian federal and provincial income tax rates
          to income before income taxes, as shown in the following table: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                           |            |            |       |  |  |  |        |            |   |        |            |  
| | ------------------------------------------------------------------------- | ---------- | ---------- | ----- |  |  |  | ------ | ---------- | - | ------ | ---------- | -
| |                                                                           |            | **2003**   |       |  |  |  |        | 2002       |   |        | 2001       |  
| |                                                                           |           
| |                                                                           |            |            |       |  |  |  |        |            |   |        |            |  
| |                                                                           | ****       | ****       |       |  |  |  |        | (Restated) |   |        | (Restated) |  
| | Income
        (loss) before income taxes                                 | **$**      | **46,970** |       |  |  |  | **$**  | (42,225    | ) | **$**  | (72,549    | )
| |                                                                           | ****       | ****       | ****  |  |  |  |        |            |   |        |            |  
| |                                                                           |           
| |                                                                           | ****       | ****       | ****  |  |  |  |        |            |   |        |            |  
| | Income
        taxes (recovery) at Canadian rates                         | **$**      | **17,379** |       |  |  |  | **$**  | (16,641    | ) | **$**  | (30,920    | )
| | Reduction
        of Canadian taxes applicable to                         |            |            |       |  |  |  |        |            |   |        |            |  
| | manufacturing
        and processing activities                           |            | **(83**    | **)** |  |  |  |        | (54        | ) |        | 1,067      |  
| | Tax
        effect of:                                                    | ****       |            |       |  |  |  |        |            |   |        |            |  
| | Non-deductible
        amortization of intangible assets                  |            |           |       |  |  |  |        | 31,696     |   |        | 32,248     |  
| | Utilization
        of provincial research and development tax incentives | **(2,076** | )          |       |  |  |  | (1,733 | )          |   | (1,696 | )         
| | Non-taxable
        portion of capital (gains) losses                     | ****       |           |       |  |  |  |        | 1,022      |   |        | (26,487    | )
| | Foreign
        jurisdictions                                             | ****       | **(7,238** | **)** |  |  |  |        | (4,421     | ) |        | 100        |  
| | Change
        in beginning of the year balance of the                    | ****       |            |       |  |  |  |        |            |   |        |            |  
| | valuation
        allowance for future tax assets                         | ****       | **(691**   | **)** |  |  |  |        | (4,501     | ) |        | 13,942     |  
| | Other                                                                     | ****       | **4,450**  |       |  |  |  |        | 1,486      |   |        | (7,014     | )
| |                                                                           | ****       | ****       | ****  |  |  |  |        |            |   |        |            |  
| |                                                                           |           
| |                                                                           | ****       | ****       | ****  |  |  |  |        |            |   |        |            |  
| |                                                                           | **$**      | **11,741** |       |  |  |  | **$**  | 6,854      |   | **$**  | (18,760    | )
| |                                                                           | ****       | ****       | ****  |  |  |  |        |            |   |        |            |  
| |                                                                           |           
| |                                                                           | ****       | ****       | ****  |  |  |  |        |            |   |        |            |  

| |  | 
| |  | 
| | 

---

Page 67 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**
           Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       Canadian income taxes were not provided for on undistributed income
          for certain non-Canadian subsidiaries. The Company intends to reinvest
          this income indefinitely in operations outside Canada.
          As at August 31, 2003, the Company had $95.3 million of net operating
          losses for income tax purposes. Income tax benefits have not been recognized
          in these financial statements for a significant portion of these losses.
          These losses will begin to expire commencing in 2008.**NOTE 13.** Net
          income (loss) per share
          The following table presents a reconciliation of the numerators and
          denominators used in the calculations of the basic and diluted income
          (loss) per share: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                       |       |             |      |  |  |  |       |            |   |       |            |  
| | --------------------------------------------------------------------- | ----- | ----------- | ---- |  |  |  | ----- | ---------- | - | ----- | ---------- | -
| |                                                                       |       | **2003**    |      |  |  |  |       | 2002       |   |       | 2001       |  
| |                                                                       |      
| |                                                                       |       |             |      |  |  |  |       |            |   |       |            |  
| |                                                                       | ****  | ****        |      |  |  |  |       | (Restated) |   |       | (Restated) |  
| | Net
        income (loss)                                             | **$** | **35,299**  |      |  |  |  | **$** | (49,079    | ) | **$** | (53,789    | )
| |                                                                       | ****  | ****        | **** |  |  |  |       |            |   |       |            |  
| |                                                                       |      
| |                                                                       | ****  | ****        | **** |  |  |  |       |            |   |       |            |  
| | Weighted
        average number of common shares outstanding (000s): |       |             |      |  |  |  |       |            |   |       |            |  
| | Basic                                                                 |       | **238,251** |      |  |  |  |       | 234,895    |   |       | 230,880    |  
| | Effect
        of stock options                                       |       | **6,102**   |      |  |  |  |       |           |   |       |           |  
| |                                                                       |       |             |      |  |  |  |       |            |   |       |            |  
| |                                                                       |      
| |                                                                       |       |             |      |  |  |  |       |            |   |       |            |  
| | Diluted                                                               |       | **244,353** |      |  |  |  |       | 234,895    |   |       | 230,880    |  
| |                                                                       | ****  | ****        | **** |  |  |  |       |            |   |       |            |  
| |                                                                       |      
| |                                                                       | ****  | ****        | **** |  |  |  |       |            |   |       |            |  
| | Net
        income (loss) per share:                                  |       |             |      |  |  |  |       |            |   |       |            |  
| | Basic                                                                 | **$** | **0.15**    |      |  |  |  | **$** | (0.21      | ) | **$** | (0.23      | )
| | Diluted                                                               |       | **0.14**    |      |  |  |  |       | (0.21      | ) |       | (0.23      | )
| |                                                                       | ****  | ****        | **** |  |  |  |       |            |   |       |            |  
| |                                                                       |      
| |                                                                       | ****  | ****        | **** |  |  |  |       |            |   |       |            |  

| | As at August 31, 2003, certain options that are anti-dilutive were excluded
          from the calculation.
          As at August 31, 2002, options to purchase 32,813,005 (2001 
          29,109,372) shares of common stock with a weighted average exercise
          price of $7.18 (2001  $5.37) were outstanding but were not included
          in the calculation of diluted loss per share because the Company had
          a loss for that year and to do so would have been anti-dilutive.**NOTE 14.**Guarantee
          The Company and other owners of CVRH have jointly and severally provided
          a guarantee for the mortgage payment on the building facility occupied
          by the Company in Markham, Ontario. In the event that CVRH is unable
          to meet the underlying mortgage payment to the lender, the Company and
          other owners of CVRH will be jointly and severally responsible under
          this guarantee. The monthly mortgage interest and principal payment
          amounts to approximately $0.2 million. The mortgage has a repayment
          term of 12 years with a maturity date on November 1, 2014. As of August
          31, 2003, the outstanding amount of the mortgage stood at $23.4 million
          (Cdn. $32.4 million).
          In addition, the Company posted a letter of credit in the amount of
          $2.2 million (Cdn. $3.0 million) in favor of CVRH. CVRH has assigned
          this letter of credit to the exclusive benefit of the lender as additional
          security of the mortgage. The letter of credit has a term of five years
          and will expire on November 5, 2007. In the event of a lease default
          by the Company, the proceeds of the letter of credit will be paid to
          the lender.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 68 of 134

| | **NOTE 15**. Other
          charges
          Other charges incurred in fiscal 2003 are comprised of the following
          items: | 
| | ------------------------------------------------------------------------------------------------------------------------------------ | 

| |                                                                     |      |      |      |      |      |      |      |       |            | 
| | ------------------------------------------------------------------- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ----- | ---------- | 
| |                                                                     |     
| |                                                                     |      |      |      |      |      |      |      |       |            | 
| | Settlement of class
        action lawsuits (a)                     | **** | **** | **** | **** | **** | **** | **** | **$** | **4,670**  | 
| | Regulatory matters
        (b)                                      | **** | **** | **** | **** | **** | **** | **** | ****  | **5,828**  | 
| | Restructuring charge
         European operations (c)              | **** | **** | **** | **** | **** | **** | **** | ****  | **6,542**  | 
| | Lease exit charge
        (d)                                       | **** | **** | **** | **** | **** | **** | **** |       | **2,684**  | 
| | Settlement of patent
        litigation with Cirrus Logic, Inc. (e) | **** | **** | **** | **** | **** | **** | **** | ****  | **9,000**  | 
| |                                                                     |      |      |      |      |      |      |      |       |            | 
| |                                                                     |     
| |                                                                     |      |      |      |      |      |      |      |       |            | 
| |                                                                     |      |      |      |      |      |      | **** | **$** | **28,724** | 
| |                                                                     |      |      |      |      |      |      |      |       |            | 
| |                                                                     |     
| |                                                                     |      |      |      |      |      |      |      |       |            | 

| | **(a)****Settlement
          of class action lawsuits**
          On February 7, 2003, the Company announced that it had reached an agreement
          for the full and complete settlement of all remaining claims alleged
          in the shareholder class action lawsuits filed in May 2001 in the United
          States District Court for the Eastern District of Pennsylvania for a
          cash payment of $8.0 million. This litigation relates to alleged misrepresentations
          and omissions made by the Company and certain directors and officers
          during a period preceding its May 2000 earnings warning. The terms of
          the Stipulation and Agreement of Settlement, which received final Court
          order on April 28, 2003, included no admission of liability or wrongdoing
          by the Company or other defendants. No party timely appealed the Courts
          order.
        During the fourth
          quarter of fiscal 2003, the Company received $3.3 million from its insurer
          as its contribution towards the settlement.**(b)****Regulatory
          matters**
          In January 2003, the Company announced that staff of the Ontario Securities
          Commission (OSC) had filed a Notice to Hearing and Statement
          of Allegations (Notice) in relation to the Company and
          others. The Notice alleged that the Company failed to disclose information
          concerning the shortfall in revenue and income that occurred in the
          third quarter of fiscal 2000, as required by the listing rules of The
          Toronto Stock Exchange. The Notice also alleged that the Company made
          a misleading statement to staff of the OSC in August 2000 regarding
          the events leading up to the disclosure on May 24, 2000 of the shortfall.
          Seven individuals are also named in the Notice. The Notice alleged that
          six of these individuals, including K.Y. Ho, the Chairman and Chief
          Executive Officer of the Company, engaged in insider trading contrary
          to the Securities Act. A hearing has been scheduled for February 
          March 2004.
        The Company has
          incurred external charges in connection with the matter totaling $5.8
          million during the year ended August 31, 2003.**(c)****Restructuring
          charge  European operations**
          The following table details the activity through the restructuring liabilities
          accrual for the year ended August 31, 2003: | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                      |      |      |      |      |      |      |      |       |           |  
| | ------------------------------------ | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ----- | --------- | -
| |                                      |     
| |                                      |      |      |      |      |      |      |      |       |           |  
| | Provision                            | **** | **** | **** | **** | **** | **** | **** | **$** | **5,142** |  
| | Cash payments                        | **** | **** | **** | **** | **** | **** | **** | ****  | **(896**  | )
| |                                      |      |      |      |      |      |      |      |       |           |  
| |                                      |     
| |                                      |      |      |      |      |      |      |      |       |           |  
| | **Balance,
        August 31, 2003** |      |      |      |      |      |      | **** | **$** | **4,246** |  
| |                                      |      |      |      |      |      |      |      |       |           |  
| |                                      |     
| |                                      |      |      |      |      |      |      |      |       |           |  

| | (i)During
          the second quarter of fiscal 2003, the Company announced the closure
          of ATI Technologies (Europe) Limited (ATEL), its subsidiary
          in Dublin, Ireland. The Company has shifted its European business model
          from direct selling to marketing its graphic chip technology to original
          design manufacturers and add-in-board partners serving European original
          equipment manufacturers. The transition has resulted in the redundancy
          of the operations in Dublin.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 
| | 

---

Page 69 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       In accordance with the former Handbook Section 3475, the Company recorded
          a pre-tax charge of $2.8 million related to the closure of ATEL in the
          second quarter of the year. The following table details the components
          of the charge: | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                     |      |      |      |      |      |      |      |       |           | 
| | ----------------------------------- | ---- | ---- | ---- | ---- | ---- | ---- | ---- | ----- | --------- | 
| |                                     |     
| |                                     |      |      |      |      |      |      |      |       |           | 
| | Exit and other costs                | **** | **** | **** | **** | **** | **** | **** | **$** | **1,365** | 
| | Asset impairment
        (non-cash) | **** | **** | **** | **** | **** | **** | **** | ****  | **1,400** | 
| |                                     |      |      |      |      |      |      |      |       |           | 
| |                                     |     
| |                                     |      |      |      |      |      |      |      |       |           | 
| |                                     |      |      |      |      |      |      | **** | **$** | **2,765** | 
| |                                     |      |      |      |      |      |      |      |       |           | 
| |                                     |     
| |                                     |      |      |      |      |      |      |      |       |           | 

| | The asset impairment is due to the write-down of the building facility
          in Dublin, Ireland to fair value less cost to sell. The building facility,
          which has a fair value of $1.9 million, is included in the capital assets
          for financial statement presentation purposes.
          The Company completed the major components of its exit plan for ATEL
          in July 2003 and expects to pay out the cash portion of the restructuring
          charge by September 2003.
          (ii)During
          the fourth quarter of fiscal 2003, the Company decided to discontinue
          the operations of ATI Research GmbH, its FireGL product division
          located in Starnberg, Germany, in order to consolidate its R&D activities.
          As a result, the Company recorded a pre-tax charge of $3.8 million for
          the quarter pertaining to the closure of ATI Research GmbH based on
          the revised Handbook Section 3475.
          The Company expects to complete the major components of its exit plan
          for ATI Research GmbH by December 2003.**(d)****Lease
          exit charge**
          During fiscal 2003, the Company determined that it would exit certain
          leased properties located in Markham, Ontario. As a result, the Company
          recognized the fair value of the future net costs related to the leases
          in the amount of $2.4 million as a charge.
          In addition, the Company recorded a further charge of $0.3 million during
          fiscal 2003 related to the exit costs of the above-mentioned lease properties
          due to a change in estimate of the fair value of the future net costs.**(e)****Settlement
          of patent litigation with Cirrus Logic, Inc.**
          In May 2003, Cirrus Logic (Cirrus) brought suit against
          the Company in the United States District Court for the Western District
          of Texas, Austin Division, for infringement of a Cirrus patent relating
          to graphics processor technology. In addition, a separate patent infringement
          suit relating to a different Cirrus Logic patent has been pending in
          the United States District Court for the Northern District of California,
          San Francisco Division, since July 1998.
          Subsequent to the year-end the Company and Cirrus announced they have
          entered into a cross-license agreement and have settled all outstanding
          litigation between the companies.
          Under the settlement agreement, all outstanding claims and counterclaims
          in both lawsuits between Cirrus and the Company were dismissed. In connection
          with the settlement, Cirrus will transfer to the Company a portion of
          its patent portfolio relating to the former graphics products group
          of its PC products division, a business that Cirrus exited several years
          ago, and the Company will pay Cirrus $9.0 million.**NOTE 16.** Segmented
          information
          The Company operates in one primary operating segment, that being the
          design, manufacture and sale of 3D graphics and digital media silicon
          solutions | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                               |       |               |      |  |  |  |   |            |  |   |            | 
| | ----------------------------- | ----- | ------------- | ---- |  |  |  | - | ---------- |  | - | ---------- | 
| |                               |       | **2003**      |      |  |  |  |   | 2002       |  |   | 2001       | 
| |                               |      
| |                               |       |               |      |  |  |  |   |            |  |   |            | 
| |                               | ****  | ****          |      |  |  |  |   | (Restated) |  |   | (Restated) | 
| | **Revenues:**                 |       |               |      |  |  |  |   |            |  |   |            | 
| | Canada                        | **$** | **20,065**    |      |  |  |  | $ | 15,441     |  | $ | 23,380     | 
| | United
        States         |       | **258,545**   |      |  |  |  |   | 290,575    |  |   | 325,742    | 
| | Europe                        |       | **113,193**   |      |  |  |  |   | 154,712    |  |   | 253,974    | 
| | Asia-Pacific                  |       | **993,490**   |      |  |  |  |   | 555,051    |  |   | 437,269    | 
| |                               | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| |                               |      
| |                               | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| | Consolidated
        revenues | **$** | **1,385,293** |      |  |  |  | $ | 1,015,779  |  | $ | 1,040,365  | 
| |                               | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| |                               |      
| |                               | ****  | ****          | **** |  |  |  |   |            |  |   |            | 

| | 
| | 
| | 

---

Page 70 of 134

| |                                                                 |       |               |      |  |  |  |   |            |  |   |            | 
| | --------------------------------------------------------------- | ----- | ------------- | ---- |  |  |  | - | ---------- |  | - | ---------- | 
| |                                                                 |       | **2003**      |      |  |  |  |   | 2002       |  |   | 2001       | 
| |                                                                 |      
| |                                                                 |       |               |      |  |  |  |   |            |  |   |            | 
| |                                                                 | ****  | ****          |      |  |  |  |   | (Restated) |  |   | (Restated) | 
| | **Revenues:**                                                   |       |               |      |  |  |  |   |            |  |   |            | 
| | Components                                                      | **$** | **962,735**   |      |  |  |  | $ | 537,756    |  | $ | 477,164    | 
| | Boards                                                          |       | **397,533**   |      |  |  |  |   | 450,008    |  |   | 554,528    | 
| | Other                                                           |       | **25,025**    |      |  |  |  |   | 28,015     |  |   | 8,673      | 
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| |                                                                 |      
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| | Consolidated
        revenues                                   | **$** | **1,385,293** |      |  |  |  | $ | 1,015,779  |  | $ | 1,040,365  | 
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| |                                                                 |      
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| | **Capital
        and intangible assets and goodwill:**         |       |               |      |  |  |  |   |            |  |   |            | 
| | Canada                                                          | **$** | **74,332**    |      |  |  |  | $ | 78,842     |  | $ | 54,162     | 
| | United
        States                                           |       | **208,764**   |      |  |  |  |   | 220,811    |  |   | 297,417    | 
| | Europe                                                          |       | **2,277**     |      |  |  |  |   | 4,644      |  |   | 5,071      | 
| | Asia-Pacific                                                    |       | **423**       |      |  |  |  |   | 1,214      |  |   | 706        | 
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| |                                                                 |      
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| | Consolidated
        capital and intangible assets and goodwill | **$** | **285,796**   |      |  |  |  | $ | 305,511    |  | $ | 357,356    | 
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 
| |                                                                 |      
| |                                                                 | ****  | ****          | **** |  |  |  |   |            |  |   |            | 

| | At August 31, 2003, one customer accounted for 18% of the Companys
          consolidated accounts receivable balance (2002  one customer
          accounted for 12%). In fiscal 2003, three customers aggregated 40% of
          consolidated revenues, being 16%, 13% and 11%, respectively (2002 
          one customer 21%; 2001  one customer 19%).**NOTE 17.** Commitments
          The Company is committed to the following minimum payments related to
          office premises and license and royalty agreements: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | Year ending August
        31: |   | Office
        premises |  |   | License
        and royalty agreements |  |  |   | Total  | 
| | ------------------------------ | - | ----------------------- |  | - | -------------------------------------- |  |  | - | ------ | 
| |                                |   |                         |  |   |                                        |  |  |   |        | 
| |                                |  
| |                                |   |                         |  |   |                                        |  |  |   |        | 
| | 2004                           | $ | 6,128                   |  | $ | 16,366                                 |  |  | $ | 22,494 | 
| | 2005                           |   | 6,766                   |  |   | 13,725                                 |  |  |   | 20,491 | 
| | 2006                           |   | 6,847                   |  |   | 2,819                                  |  |  |   | 9,666  | 
| | 2007                           |   | 6,207                   |  |   |                                       |  |  |   | 6,207  | 
| | 2008                           |   | 6,252                   |  |   |                                       |  |  |   | 6,252  | 
| | 2009 and thereafter            |   | 14,341                  |  |   |                                       |  |  |   | 14,341 | 
| |                                |   |                         |  |   |                                        |  |  |   |        | 
| |                                |  
| |                                |   |                         |  |   |                                        |  |  |   |        | 

| | **NOTE 18.** Joint
          venture
          In February 1999, the Company entered into a 50% ownership joint venture
          agreement for the purpose of constructing a new building facility in
          Markham, Ontario. The facility was completed in April 2002 and is fully
          occupied by the Company. The completed cost of this facility amounted
          to $33.3 million.
          The following amounts represent the Companys proportionate interest
          in the joint venture: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                  |       |             |       |  |  |  |      |         |  
| | ------------------------------------------------ | ----- | ----------- | ----- |  |  |  | ---- | ------- | -
| |                                                  |       | **2003**    |       |  |  |  |      | 2002    |  
| |                                                  |      
| |                                                  |       |             |       |  |  |  |      |         |  
| | **Condensed
        balance sheet information:** |       |             |       |  |  |  |      |         |  
| | Current
        assets                           | **$** | **1,548**   | ****  |  |  |  | $    | 391     |  
| | Bank
        indebtedness                        |       | ****       |       |  |  |  | **** | (12,015 | )
| | Other
        current liabilities                |       | **(941**    | **)** |  |  |  |      | (474    | )
| | Long-term
        debt                           |       | **(10,969** | **)** |  |  |  |      |        |  
| |                                                  |       |             |       |  |  |  |      |         |  
| |                                                  |      
| |                                                  |       |             |       |  |  |  |      |         |  
| | **Condensed
        cash flows:**                | ****  |             | ****  |  |  |  | **** |         |  
| | Financing
        activities                     | **$** | **(989**    | )     |  |  |  | $    | 3,266   |  
| | Investing
        activities                     | ****  | ****       | ****  |  |  |  | **** | (2,806  | )
| | Operating
        activities                     | ****  | **1,127**   | ****  |  |  |  | **** | 93      |  
| |                                                  |       |             |       |  |  |  |      |         |  
| |                                                  |      

| | 
| | 
| | 

---

Page 71 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       On May 23, 2001, the joint venture entered into an interest rate swap
          contract to hedge its exposure to the interest rate risk applicable
          to its expected future mortgage requirement. This contract was a forward
          start pay fixed derivative agreement for a notional amount of Cdn. $38.0
          million. The agreement provided for the joint venture to pay a fixed
          rate of 6.42% in exchange for a floating rate equivalent to one-month
          Canadian bankers acceptances. The Company and the other joint
          venture partners are guarantors of the credit facility. This interest
          rate swap contract closed on September 10, 2002, resulting in a proportionate
          loss of $1.4 million to the Company. The loss is treated as a deferred
          expense item in the balance sheet and is charged to the consolidated
          statements of operations and retained earnings as a yield adjustment
          to the interest expense, over the term of the mortgage.**NOTE 19.** Supplemental
          cash flow information | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                 |       |           |      |  |  |  |   |       |  |   |       | 
| | ----------------------------------------------- | ----- | --------- | ---- |  |  |  | - | ----- |  | - | ----- | 
| |                                                 |       | **2003**  |      |  |  |  |   | 2002  |  |   | 2001  | 
| |                                                 |      
| |                                                 |       |           |      |  |  |  |   |       |  |   |       | 
| | **Supplemental
        cash flow information:** |       |           |      |  |  |  |   |       |  |   |       | 
| | Interest
        paid                           | **$** | **1,739** |      |  |  |  | $ | 573   |  | $ | 1,180 | 
| | Interest
        received                       |       | **2,902** |      |  |  |  |   | 4,889 |  |   | 3,507 | 
| | Income
        taxes paid                       |       | **2,127** |      |  |  |  |   | 893   |  |   | 1,500 | 
| |                                                 | ****  | ****      | **** |  |  |  |   |       |  |   |       | 
| |                                                 |      
| |                                                 | ****  | ****      | **** |  |  |  |   |       |  |   |       | 

| | During fiscal 2002, the Company acquired $16.3 million of capital assets
          by means of capital lease.**NOTE 20.** Canadian
          and United States accounting policies differences**(a)**The
          following table reconciles the net income (loss) for the year as reported
          on the consolidated statements of operations and retained earnings prepared
          in accordance with Canadian GAAP to the consolidated income (loss) for
          the year that would have been reported had the financial statements
          been prepared in accordance with U.S. GAAP: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| | ----------------------------------------------------------------- | ----- | ----------- | ----- |  |  |  | - | ---------- | - | - | ---------- | -
| |                                                                   |       | **2003**    |       |  |  |  |   | 2002       |   |   | 2001       |  
| |                                                                   |      
| |                                                                   |       |             |       |  |  |  |   |            |   |   |            |  
| |                                                                   | ****  | ****        |       |  |  |  |   | (Restated) |   |   | (Restated) |  
| | Net
        income (loss) in accordance with Canadian GAAP        | **$** | **35,229**  |       |  |  |  | $ | (49,079    | ) | $ | (53,789    | )
| | Write-off
        of purchased in-process R&D (a)(i)              |       | ****       |       |  |  |  |   | (5,300     | ) |   |           |  
| | Amortization
        of purchased in-process R&D (a)(i)           |       | **4,417**   |       |  |  |  |   | 883        |   |   | 30,151     |  
| | Goodwill
        amortization difference (a)(ii)                  |       | ****       |       |  |  |  |   | 7,941      |   |   | 7,326      |  
| | Stock
        compensation expenses (a)(iii), (a)(iv)             |       | **(25,486** | **)** |  |  |  |   | 997        |   |   | (1,694     | )
| | Tax
        effect of stock options exercised (a)(vi)             |       | **(2,083**  | **)** |  |  |  |   | (1,868     | ) |   | (346       | )
| | Loss
        on hedging transaction (a)(v)                        |       | **94**      |       |  |  |  |   | (1,365     | ) |   |           |  
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                   |      
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | Net
        income (loss) in accordance with U.S. GAAP            | **$** | **12,171**  |       |  |  |  | $ | (47,791    | ) | $ | (18,352    | )
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                   |      
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | Net
        Income (loss) per share in accordance with U.S. GAAP: |       |             |       |  |  |  |   |            |   |   |            |  
| | Basic                                                             | **$** | **0.05**    |       |  |  |  | $ | (0.20      | ) | $ | (0.08      | )
| | Diluted                                                           |       | **0.05**    |       |  |  |  |   | (0.20      | ) |   | (0.08      | )
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                   |      
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | **Weighted
        average number of shares (000s)**             |       |             |       |  |  |  |   |            |   |   |            |  
| | Basic                                                             | ****  | **238,251** |       |  |  |  |   | 234,895    |   |   | 230,880    |  
| | Diluted                                                           |       | **244,353** |       |  |  |  |   | 234,895    |   |   | 230,880    |  
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                                   |      
| |                                                                   | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  

| | 
| | 
| | 

---

Page 72 of 134

| | (i)Under
          Canadian GAAP, purchased in-process R&D is capitalized and amortized
          over its estimated useful life. Asset recoverability is reviewed on
          an ongoing basis. Under U.S. GAAP, purchased in-process R&D is written
          off at the time of acquisition.
          (ii)Under
          Canadian GAAP, the aggregate purchase price of ArtX was approximately
          $453.0 million, which was based on the average closing market price
          of the Companys common shares around April 4, 2000 (the closing
          date of the transaction) and merger-related costs. Under U.S. GAAP,
          the aggregate purchase price of ArtX was approximately $414.0 million,
          which was based on the average closing market price of the Companys
          common shares around February 16, 2000 (the date of the announcement
          of the transaction) and merger-related costs. As a result, the recorded
          amount of goodwill and related amount of amortization expense differ.
          Pursuant to the adoption of new accounting standards, effective September
          1, 2002, the Company discontinued amortization of all existing goodwill
          under both Canadian and U.S. GAAP.
          (iii)Under
          U.S. GAAP, options granted after January 18, 2001, with an exercise
          price denominated in a currency other than the currency of the primary
          economic environment of either the employer or the employee, should
          be accounted for under the variable accounting method. Under Canadian
          GAAP, there is no equivalent requirement. There were no such options
          granted after February 28, 2002.
          (iv)Under
          U.S. GAAP, the intrinsic value of the stock options issued under the
          incentive plan entered into in July 2002 (note 11) is calculated as
          the increase in the Companys stock price between the grant date
          and the date on which all the conditions of the specified business arrangement
          were determined to have been met. The compensation expense is recognized
          over the vesting period of the options. Under Canadian GAAP, there is
          no equivalent requirement.
          (v)Under
          Canadian GAAP, loss on a hedging transaction is allowed to be amortized
          over the term of the mortgage. Under U.S. GAAP, loss on a hedging transaction
          is written off when the hedge is determined to be ineffective.
          (vi)The
          Company accounts for its share options under the provisions of the Accounting
          Principles Board Opinion No. 25, Accounting for Stock Issued
          to Employees (APB 25), and related interpretations.
          Accordingly, compensation expense for its share option plans, based
          on the intrinsic value, has been recorded in the consolidated statements
          of operations and retained earnings for the years ended August 31, 2003,
          2002 and 2001. Had compensation expense for the Companys share
          option plans been determined based on the fair value at the grant dates
          for awards under the plans consistent with the method prescribed under
          Financial Accounting Standards Board (FASB) Statement
          of Financial Accounting Standards No. 123, Accounting for Stock-based
          Compensation (SFAS 123), the Companys loss
          and loss per share would have been reported as the pro forma amounts
          indicated in the table below: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                         |       |             |       |  |  |  |   |            |   |   |            |  
| | ------------------------------------------------------- | ----- | ----------- | ----- |  |  |  | - | ---------- | - | - | ---------- | -
| |                                                         |       | **2003**    |       |  |  |  |   | 2002       |   |   | 2001       |  
| |                                                         |      
| |                                                         |       |             |       |  |  |  |   |            |   |   |            |  
| |                                                         | ****  | ****        |       |  |  |  |   | (Restated) |   |   | (Restated) |  
| | Net
        income (loss) in accordance with U.S. GAAP, | ****  | ****        |       |  |  |  |   |            |   |   |            |  
| | as
        reported above                               | **$** | **12,171**  |       |  |  |  | $ | (47,791    | ) | $ | (18,352    | )
| | Stock
        compensation (a)(iii)                     |       | **25,486**  |       |  |  |  |   | (997       | ) |   | 1,694      |  
| | Pro
        forma adjustment for SFAS 123               |       | **(16,700** | **)** |  |  |  |   | (17,000    | ) |   | (14,100    | )
| |                                                         | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                         |      
| |                                                         | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | Pro
        forma net income (loss)                     | **$** | **20,957**  |       |  |  |  | $ | (65,788    | ) | $ | (30,758    | )
| |                                                         | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                         |      
| |                                                         | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| | Pro
        forma net income (loss) per share:          |       |             |       |  |  |  |   |            |   |   |            |  
| | Basic                                                   | **$** | **0.09**    |       |  |  |  | $ | (0.28      | ) | $ | (0.13      | )
| | Diluted                                                 |       | **0.09**    |       |  |  |  |   | (0.28      | ) |   | (0.13      | )
| |                                                         | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  
| |                                                         |      
| |                                                         | ****  | ****        | ****  |  |  |  |   |            |   |   |            |  

| | The weighted average estimated fair values at the date of the grant,
          as defined by SFAS 123, for options granted in fiscal 2003, 2002 and
          2001 were $2.65, $9.15 and $1.92 per share option, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 73 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       The fair value of each option grant was estimated on the date of the
          grant using the Black-Scholes fair value option pricing model with the
          following assumptions: | 
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                        |      |                       |       |  |  |  |  |                   |   |  |                   |  
| | -------------------------------------- | ---- | --------------------- | ----- |  |  |  |  | ----------------- | - |  | ----------------- | -
| |                                        |      | **2003**              |       |  |  |  |  | 2002              |   |  | 2001              |  
| |                                        |     
| |                                        |      |                       |       |  |  |  |  |                   |   |  |                   |  
| | Risk-free
        interest rate        | **** | **3.1**               | **%** |  |  |  |  | 3.5               | % |  | 4.0               | %
| | Volatility
        factor              |      | **71.1**              | **%** |  |  |  |  | 73.0              | % |  | 50.0              | %
| | Weighted
        average expected life |      | **4.2
        years** |       |  |  |  |  | 4.0
        years |   |  | 2.5
        years |  
| |                                        | **** | ****                  | ****  |  |  |  |  |                   |   |  |                   |  
| |                                        |     
| |                                        | **** | ****                  | ****  |  |  |  |  |                   |   |  |                   |  

| | For the purposes of pro forma disclosures, the estimated fair value
          of the options is amortized to expense over the options vesting
          period.
        For the purposes
          of reporting under U.S. GAAP, the tax benefit associated with deductible
          stock option compensation is treated as an increase in share capital.
          For reporting under Canadian GAAP, if compensation costs are not recorded,
          the income tax benefit is treated as a reduction to the income tax provision.**(b)**The
          following table indicates the differences between the amounts of certain
          balance sheet items determined in accordance with Canadian and U.S.
          GAAP: | 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|

| | (i)Canadian
          GAAP requires the proportionate consolidation of interests in joint
          ventures. Proportionate consolidation is not permitted under U.S. GAAP
          and interests in joint ventures are accounted for on the equity basis.
        Although the adoption
          of proportionate consolidation has no impact on net income or shareholders
          equity, it does increase assets, liabilities, revenues, expenses and
          cash flow from operations from those amounts otherwise reported under
          U.S. GAAP. This is not reflected in the table of certain balance sheet
          items disclosed above.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 74 of 134

| | (ii)Additional
          disclosures as required in accordance with U.S. GAAP: | 
| | ------------------------------------------------------------------------------ | 

| | (1) | As at August 31, 2003, the consolidated accounts receivable provision
        for returns and doubtful accounts was approximately $12.3 million (2002
        $7.9 million).        | 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | 
| | (2) | As at August 31, 2003, sales rebate payable represents 17% of total consolidated
        current liabilities (2002  7%).                                                            | 
| | (3) | For
        the year ended August 31, 2003, the net foreign exchange gain was approximately
        $0.8 million (2002  loss of $0.4 million; 2001  loss of
        $1.9 million). | 

| | (iii)Comprehensive
          income:
        FASB Statement
          of Financial Accounting Standards No. 130, Reporting Comprehensive
          Income (SFAS 130), requires disclosure of comprehensive
          income, which includes reported net income adjusted for other comprehensive
          income. Other comprehensive income is defined as the change in equity
          of a business enterprise during a period from transactions and other
          events and circumstances from non-owner sources. The following table
          presents comprehensive income (loss) and its components: | 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| |                                                              |           |            |      |  |  |  |   |            |   |   |            |  
| | ------------------------------------------------------------ | --------- | ---------- | ---- |  |  |  | - | ---------- | - | - | ---------- | -
| |                                                              |           | **2003**   |      |  |  |  |   | 2002       |   |   | 2001       |  
| |                                                              |          
| |                                                              |           |            |      |  |  |  |   |            |   |   |            |  
| |                                                              | ****      | ****       |      |  |  |  |   | (Restated) |   |   | (Restated) |  
| | Net income
        (loss) in accordance with U.S. GAAP       | ****$**** | **12,171** |      |  |  |  | $ | (47,791    | ) | $ | (18,352    | )
| | Other comprehensive
        income (loss), net of tax:       | ****      |            |      |  |  |  |   |            |   |   |            |  
| | Unrealized
        loss on available for sale securities (1) |           | ****      |      |  |  |  |   | ****      |   |   | (4,159     | )
| | Unrealized
        loss on interest rate swap contract (2)   |           | ****      |      |  |  |  |   | 510        |   |   | (510       | )
| | Reclassification
        adjustment                          |           | ****      |      |  |  |  |   | 439        |   |   | ****      |  
| |                                                              | ****      | ****       | **** |  |  |  |   |            |   |   |            |  
| |                                                              |          
| |                                                              | ****      | ****       | **** |  |  |  |   |            |   |   |            |  
| | Comprehensive
        income (loss)                          | **$**     | **12,171** |      |  |  |  | $ | (46,842    | ) | $ | (23,021    | )
| |                                                              | ****      | ****       | **** |  |  |  |   |            |   |   |            |  
| |                                                              |          
| |                                                              | ****      | ****       | **** |  |  |  |   |            |   |   |            |  

| | (1) | U.S. GAAP requires investments in marketable securities available for
        sale to be recorded at market value and all unrealized holding gains and
        losses reflected in shareholders equity. Under Canadian GAAP, long-term
        investments are carried at historical cost with losses in value being
        recognized in income only when the loss in value is other than temporary
        and increases in value being recognized only when realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | (2) | During fiscal 2001, CVRH, the joint venture in which the Company has 50%
        ownership, entered into an interest rate swap contract (note 18), which
        was designated as a cash flow hedge for the interest rate risk applicable
        to its expected future mortgage requirement. Under Canadian GAAP, the
        hedging instrument is treated as an off-balance sheet item until it closes.
        Under U.S. GAAP, hedging instruments must be measured at fair value. The
        unrealized gain or loss arising from changes in fair value of the interest
        rate swap contract is recognized in other comprehensive income to the
        extent it is effective; the ineffective portion, if any, is reported in
        income currently. In the third quarter of fiscal 2002, the interest rate
        swap was deemed ineffective and reported in income since the actual closing
        date of the financing differed from the period covered by the interest
        rate swap. | 

| | **(c)****New
        United States accounting pronouncements**
        (i)In
        November 2002, the Emerging Issues Task Force (EITF) reached
        a consensus regarding EITF Issue 00-21, Accounting for Revenue
        Arrangements with Multiple Deliverables. The consensus addresses
        not only when and how an arrangement involving multiple deliverables should
        be divided into separate units of accounting but also how the arrangements
        consideration should be allocated among separate units. The pronouncement
        is effective for the Company commencing with its 2004 fiscal year. The
        Company expects the adoption of this standard will have no material impact
        on its financial position, results of operations or cash
flows.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 
| | 
| | 

---

Page 76 of 134

| | **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS (CONT.)**Years
          ended August 31, 2003, 2002 and 2001 (Tabular amounts in thousands of
          U.S. dollars, except per share amounts)
        
       (ii)In
        January 2003, the FASB issued Interpretation No. 46, Consolidation
        of Variable Interest Entities (FIN 46). Its consolidation
        provisions are applicable for all newly created entities created after
        January 31, 2003, and are applicable to existing variable interest entities
        as of the beginning of the Companys fiscal year beginning September
        1, 2003. With respect to entities that do not qualify to be assessed for
        consolidation based on voting interests, FIN 46 generally requires a company
        that has a variable interest(s) that will absorb a majority of the variable
        interest entitys expected losses if they occur, receive a majority
        of the entitys expected residual returns if they occur, or both,
        to consolidate that variable interest entity. For periods prior to FIN
        46s effective date, certain disclosures will be required if it
        is reasonably possible that the Company will have a significant variable
        interest in or be the primary beneficiary of a variable interest entity
        when FIN 46 guidance is effective. The Company expects the adoption of
        this standard will have no material impact on its financial position,
        results of operations or cash flows.**NOTE 21.**Litigation
        In addition to the claims and proceedings, as described in note 15, the
        Company is subject to legal proceedings and claims that arise in the ordinary
        course of its business. While management currently believes the amount
        of ultimate liability, if any, with respect to these actions will not
        materially affect the financial position, results of operations, or liquidity
        of the Company, the ultimate outcome of any litigation is uncertain. Were
        an unfavorable outcome to occur, the impact could be material to the Company.**NOTE 22.** Subsequent
        event
        On September 2, 2003, the Company announced the acquisition of certain
        assets of AMI Technologies Corp., its exclusive sales organization
        for Taiwan and China since 1992, for cash consideration of $3.0 million. | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 

| | 
| | 
| |