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EXHIBIT 1 (WESTAIM LOGO) THE WESTAIM CORPORATION ANNUAL INFORMATION FORM MAY 4, 2004




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THE WESTAIM CORPORATION
ANNUAL INFORMATION FORM MAY 4, 2004 TABLE OF CONTENTS PAGECORPORATE STRUCTURE
    
    
    1GENERAL DEVELOPMENT OF THE BUSINESS
    
    
    2DESCRIPTION OF THE BUSINESS
    
    
    3Emerging Technologies
    
    
    3iFire Technology Inc.
    
    
    3Nucryst Pharmaceuticals Corp.
    
    
    6Discontinued Operations
    
    
    10Investments
    
    
    10Revenue by Segment
    
    
    11SELECTED CONSOLIDATED FINANCIAL DATA
    
    
    11CONTRACTUAL COMMITMENTS
    
    
    12Supplies and Raw Materials
    
    
    12Environmental
    
    
    12Employees
    
    
    13RISK FACTORS
    
    
    13FORWARD-LOOKING STATEMENTS
    
    
    17MANAGEMENTS DISCUSSION AND ANALYSIS
    
    
    17CAPITAL STRUCTURE
    
    
    17DIVIDENDS
    
    
    18MARKET FOR SECURITIES
    
    
    18DIRECTORS AND OFFICERS
    
    
    19ADDITIONAL INFORMATION
    
    
    22




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CORPORATE STRUCTURE The Westaim Corporation (Westaim or the Company) was incorporated under the
Business Corporations Act (Alberta)by Articles of Incorporation dated May 7,
1996, as a wholly owned subsidiary of Viridian (Viridian means Viridian Inc.
and its predecessors). The Companys Articles were amended effective June 26,
1996 to remove private company restrictions on the transfer of securities, to
create preferred share classes designated as Class A Preferred Shares and Class
B Preferred Shares and to increase the maximum number of directors to 15. The
shareholders of Westaim approved a further amendment to the Articles on April
17, 2000 to permit meetings of shareholders to be held in certain specified
cities outside of Alberta, or in any other city in Canada or the United States. On June 26, 1996, the Company, through a reorganization, issued 75,000,000
common shares to Viridian in exchange for cash and the assets of its specialty
materials businesses and related research and development activities. The
transaction was effective June 1, 1996 and was accounted for as a
reorganization, with the carrying value of the assets and liabilities
transferred to the Company reflected in the Companys balance sheet as at June
1, 1996 at Viridians carrying value. On July 8, 1996 and September 16, 1996, Viridian distributed to holders of its
common shares, as dividends-in-kind, an aggregate total of 70,923,248 common
shares of Westaim. Viridian subsequently disposed of the remainder of its
Westaim shares through market sales. Westaims principal and head office is
located at 1010, 144-4th Avenue S.W., Calgary, Alberta, T2P 3N4. The following are the material subsidiaries of the Company, including
jurisdiction of incorporation or continuance, and percentage share ownership by
the Company: (FLOW CHART) Note: On January 29, 2004, the Company sold its Ambeon business segment
which included the Companys wholly owned United Kingdom subsidiary, Neomet
Limited. 1




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GENERAL DEVELOPMENT OF THE BUSINESS In 1990, as a result of Viridians research and development capabilities in
advanced industrial materials, Viridian entered into an agreement with the
governments of Alberta and Canada to expand its specialty materials businesses.
The undertaking, formed as a result of this agreement, is referred to as the
Westaim Initiative. During the six-year period of the Westaim Initiative,
$140 million was spent on research and development of advanced industrial
materials. Of this $140 million, $40 million was funded by the Alberta
Government, $30 million was funded by the Government of Canada, and $70 million
was funded by Viridian and other industry research participants. In 1997, the Company sold substantially all its assets related to the battery
materials and cobalt powders business units for cash proceeds of $36 million.
Also in 1997, the Companys investment in its electronic ceramics and
structural ceramics technologies, together with $15.4 million in cash, were
rolled into a new corporate entity, ThermicEdge Corporation. In March of 1998,
the Company distributed approximately 90.6% of the shares of ThermicEdge
Corporation to the common shareholders of Westaim by way of a dividend-in-kind.
The balance of 9.4% of the shares was transferred to the Province of Alberta
as partial consideration for the release of Westaim by the Province of Alberta
of any remaining obligations under the Westaim Initiative. As noted in the chart above Should we label the Chart and refer to it here as
in chart/figure 1.?, the Company holds its interest in its two emerging
technologies through wholly-owned, or majority-owned, subsidiaries. The
related assets and intellectual property of these technologies were rolled into
these subsidiaries effective January 1, 1998. In February 2000, the Companys subsidiary, iFire Technology Inc. (iFire),
entered into a strategic business arrangement with Japan-based TDK Corporation
for technology collaboration and production of iFire Displays. In addition,
TDK Corporation purchased a 2.5% common equity investment in iFire for US$7.5
million. In December 2000, the Company sold substantially all assets related to its
Chemicals business segment for proceeds of $18 million. In May 2001, the Companys subsidiary, Nucryst Pharmaceuticals Corp.
(NUCRYST), sold its North American burn dressing business and entered into an
exclusive global licensing agreement for the sale and marketing of Acticoat
Burn and Wound Care Dressings. On May 29, 2002, the Company announced its intention to sell non-core assets
and to increase the focus of management and financial resources on its two
high-potential emerging businesses, iFire and NUCRYST. In July 2002, the
Coinage business was shut down and in February 2003 the ethylene coatings
business (Surface Engineered Products Corporation) was shut down. See
Discontinued Operations. In January 2003, the Companys Board of Directors retained investment bankers
to undertake a review of the operations of the Company and to advise on
strategic alternatives. A special committee of the Board of Directors was
established and led the review process. This comprehensive review reaffirmed
the Boards commitment to iFire Technology Inc. and NUCRYST Pharmaceuticals
Corp. and sharpened the Companys strategies to realize the potential value of
these businesses. On January 29, 2004, the Company sold its Ambeon business segment (Ambeon)
for $33.4 million. The completion of the sale to a strategic buyer represented
an opportunity to enhance the Companys value and focus resources on iFire and
NUCRYST. See Discontinued Operations. 2




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DESCRIPTION OF THE BUSINESS Westaim develops, commercializes and launches high potential technologies into
the fast growing sectors of the economy. Westaims portfolio of business
opportunities includes flat panel displays and anti-microbial wound care
products and pharmaceuticals. These proprietary technologies were developed
out of the Westaim Initiative and from the Companys advanced materials
expertise. Westaims strategy is to develop the independent technical, operating and
marketing and sales capabilities of each technology investment through the
early years of product introduction and commercialization with the objective of
taking these technologies public through initial public offerings. Management
recognizes that, in circumstances where it lacks technical or marketing
expertise or the necessary capital to complete development of a product, it may
be in Westaims best interests to pursue commercialization through joint
venture arrangements, strategic acquisitions, alliances, licensing or selling
its technology. EMERGING TECHNOLOGIES iFire Technology Inc. iFire Technology Inc. (iFire) has developed a proprietary flat panel display
with solid state, thick-film dielectric electroluminescent (TDEL) technology.
iFire is commercializing its proprietary technology primarily for the
large-screen consumer television market. iSuppli/Stanford Resources, an
independent research firm that follows the flat panel display industry,
predicts that the market opportunity for mid-30-inch TVs will exceed US$19
billion by 2006. For mid-30-inch screens, the Company believes that in high-volume production,
iFire displays will have a 30% to 50% cost advantage over other flat panel
technologies due to TDELs simpler structure, less complex manufacturing
methods and fewer processing steps compared with liquid crystal displays
(LCD) and plasma display panels (PDP). Unlike other flat panel
technologies, the iFire displays do not contain gases (as with PDP), liquids
(as with LCD) or vacuum (as with the cathode ray tube), making it inherently
rugged, less susceptible to shock, vibration and breakage. TDEL technologys
solid state structure and thick-film manufacturing process also make an iFire
display less sensitive to cleanroom contamination that is associated with PDP
and LCD, resulting in lower capital investment, higher manufacturing yield and
reduced production cost. In addition, iFire displays feature full colour,
rapid video response, unrestricted viewing angles and a wide operating
temperature range. The technology is scalable from 5-inches to 50-inches. iFires primary strategy is to become a significant supplier of high definition
modules for large-screen flat panel televisions. The Company intends to
initially target the mid-30-inch screen size market due to the lack of
competitor presence. PDP technology is best suited for TVs greater than
40-inches; LCD technology is best suited for TVs less than 30-inches; and
organic light emitting diodes (OLED) are best suited for small graphics
applications with screen sizes less than 10-inches. iFire intends to establish
partnerships with commercial consumer electronics companies to jointly
manufacture iFire flat panel modules for consumer television sets. iFire
believes that its technology can achieve significant market penetration in the
flat panel television market segment and achieve a retail price advantage
compared with PDP and LCD. In 2003, iFire commissioned an independent study by Industrial Design and
Construction (IDC), the industrial design group of CH2M Hill Companies Ltd.,
to compare its planned manufacturing processes against both LCD and PDP.
Ranked as the number-one engineering design firm for manufacturing facilities
by Engineering News Record, IDC is the leading industrial design firm for the
design of electronics and flat panel display manufacturing facilities. The
study compared all three technologies in a Generation 6 manufacturing facility
 the most advanced type of flat 3




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panel production facility in operation today. IDCs detailed report confirmed
that in a mature Generation 6 manufacturing environment, iFire should have an
estimated 30% to 50% advantage in both capital and module costs over both LCD
and PDP. The report also determined that this advantage is primarily due to
the iFire displays simpler structure and manufacturing process, and will
therefore be sustainable as cost-reducing advancements are made in many of the
processes common to all flat panel technologies. Partnership Agreements iFire has entered into a number of strategic
relationships to further progress its TDEL technology. In 2001, iFire entered into an agreement with Technology Partnerships Canada
(TPC), a technology investment fund established by the Government of Canada
under which TPC contributed $30 million over two years towards eligible
research and development costs and related capital expenditures incurred by
iFire. In consideration for this funding, TPC will receive a royalty of 1.065%
on future sales of iFire products and has received warrants to purchase common
shares of iFire for future consideration of $6.3 million. The warrants expire
on December 31, 2007 and represent approximately 0.5% of the outstanding common
shares of iFire. In 2003, contribution claims totaled $6.0 million (2002  $9.1
million). Of this amount, $5.2 million (2002  $8.1 million) was credited to
research and development expense and $0.8 million (2002  $1.0 million) was
credited to capital assets. The final contribution claims were recorded in the
quarter ended September 30, 2003 and the final payment received in the fourth
quarter of 2003. In 2002, iFire entered into a non-exclusive technology collaboration agreement
with Sanyo Electric Company, Ltd. (Sanyo) of Japan. The agreement focuses on
the advancement of iFires TDEL technology for large-screen flat panel
televisions through a series of joint development projects. iFire retains
exclusive use of any new joint developments in the inorganic electroluminescent
display sector while Sanyo has exclusive rights to use any joint developments
in the OLED field. Multiple projects have been identified and initiated in the
categories of video electronics, manufacturing technologies for defect
reduction and phosphor process development. In March 2003, iFire announced a non-exclusive joint development agreement with
Dai Nippon Printing Co., Ltd. (DNP) of Japan for commercial production of
mid-30-inch screen size flat panel television modules. To support the
partnership with DNP, iFire and Sanyo have expanded their technology
collaboration agreement to transfer technological and electronics advancements
on 17-inch prototypes to the larger, mid-30-inch displays. Under the terms of
the agreement, DNP is utilizing its flat panel production line in Kashiwa,
Japan for developing front-end manufacturing processes for iFires TDEL
technology, including the substrate preparation and the fabrication of the row
electrodes and thick-film dielectric layer. Back-end processes such as the
deposition of phosphors, column electrodes and colour correction layers, as
well as electronics assembly, are being performed by iFire at its facility in
Toronto, Canada. In January 2004, iFire entered into a US $10.0 million loan agreement with DNP
to partially fund the construction of a pilot production facility in Toronto.
It is the expectation of both iFire and DNP that the financing relationship
will be rolled into an expanded commercial agreement as the technology moves
through pilot phase and into commercial production. For small graphic applications, iFire has pursued a licensing strategy. In
February 2000, iFire entered into a non-exclusive licensing agreement with
Japan-based TDK Corporation (TDK) for technology collaboration and production
of iFire displays less than 12-inches. The agreement included a 2.5% equity
investment in iFire, an up-front licensing fee and ongoing royalties on all
sales made by TDK using technology licensed from iFire. TDK is currently
considering strategic options for commercialization of its different flat panel
technologies. iFire is not directly involved in these activities. 4




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Technology Development Progress In 2003, iFire made significant progress in
enhancing its flat panel technology. In April 2003, iFire announced a simplification of its manufacturing process
which is expected to result in capital and production cost reductions of
approximately 15% compared to previous estimates. The development, called
Colour by Blue, replaced the triple patterned (red, green and blue) phosphor
system with a single blue phosphor emitter, combined with red and green colour
conversion materials. This development eliminates many process steps, reducing
the overall capital cost and improving the production yield potential of the
technology. STRUCTURE OF IFIRES DISPLAY PANEL (GRAPHICS)
    
        TOP GLASS AND ELECTRONICS ATTACHMENT(GRAPHICS)
        
        (GRAPHICS)
        
        COLOUR CORRECTION LAYER
The colour correction layer tunes colour to match TV
colour requirements and increase the overall display
contrast. It is a simple coating of materials patterned
into red, green and blue stripes. The red and green
stripes are made of the newly developed Colour-By-Blue
colour conversion materials, which absorb blue light
emitted from the blue phosphor and re-emit red or green
light.(GRAPHICS)
        
        PATTERNED ITO COLUMN ELECTRODES
The ITO (Indium Tin Oxide) electrodes are used to
transmit the red, green and blue control voltages to the
individual pixels of the display. They are aligned with
the colour correction layer stripes above, and form
display pixels at each intersection with the lower
electrodes.(GRAPHICS)
        
        BLUE PHOSPHOR
The phosphor material is the part of the iFire Display
that actually creates light. When electrical energy is
applied to the phosphor, electrons inside the phosphor
material become energized, and that energy is
transformed into visible light. iFire has created a new
phosphor system called Colour-By-Blue, which allows a
single high performance blue material to provide the
light energy for all the RGB colours of a full-colour
display. This Colour-By-Blue process requires no
alignment or patterning of the phosphor, making
manufacturing very simple.(GRAPHICS)
        
        PRINTED THICK FILM DIELECTRIC
Created by screen printing, the thick dielectric is a
simple sheet of material that electrically insulates the
top electrodes from the bottom electrodes. The unique
electrical properties of this layer give the iFire
device higher efficiency at lower operating voltages
than traditional Thin Film inorganic EL devices. This
layer makes the iFire device very resistant to particle
defects which is typical of other flat panel display
technologies. Usually, particles less than 1 micron in
size will create defects in other technologies, but
iFires thick dielectric layer, at about 10-20 microns
in thickness, is immune to the effects of such tiny
particles. This means that the display can be
manufactured with much higher yield and, in turn, lower
cost.(GRAPHICS)
        
        PRINTED METAL ROW ELECTRODES
The row electrodes, together with the ITO electrode
(above), form the matrix that is used to apply the
electrical signals that control the image on the
display. Made of a metal alloy, the row electrodes are
created by a process called screen printing, a very
simple and low cost manufacturing technique which is
well suited to volume production.(GRAPHICS)
        
        GLASS SUBSTRATE
Standard inexpensive display float glass.
 Work continued in 2003 to increase the optical performance of the blue phosphor
material. Luminance as high as 1,000 cd/m2 has been demonstrated on 5mm x 5mm
pixels, which is well over the luminance required for use in a commercial
product. Lifetime of the phosphor material has also been extended to more than
15,000 hours, which is very close to the product requirement of 20,000 hours.
This development effort will continue and it is expected that the blue phosphor
material will be able to demonstrate full product requirements in 2004. 5




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All prototype displays made at iFire now use a standard, low cost, flat panel
glass substrate. The glass is identical to the material used in PDP
production, and so it is widely available in large sizes and high volume and
meets the cost requirements of future production. iFire has developed a fully
detailed manufacturing process model to support its panel cost predictions and
is working towards fully verifying the tool set and process parameters that
would be used in commercial production. In December 2003, iFire successfully scaled its prototype display from
17-inches to 34-inches. This early 34-inch display was fabricated using a
small number of 34-inch prototype tools which were installed at the end of
2003. Together with DNP, iFire is continuing to develop and optimize the
process parameters for the 34-inch display. In the first half of 2004, iFire expects to complete the installation of the
remaining prototype production toolset and focus on optimizing processes to
improve performance and reduce defects on prototype 34-inch displays. Upon
successful completion of these milestones, iFire expects to begin construction
of a pilot production plant at its Toronto facility, at a cost of approximately
$40 million. This will be partially funded through the US$10 million loan
agreement discussed above. The remaining capital costs for the pilot
production plant will be funded through further partnership agreements or
internal Company resources. Pilot manufacturing is the first step toward
volume production which is planned for 2006 in conjunction with industry
partners. While there are numerous current and emerging flat panel technologies, to date
the Company knows of no other competitor that has produced a full-colour,
thick-film surface luminescent technology based on solid state
electroluminescence. Westaim believes that the iFire display will have
superior characteristics at a lower cost than competing technologies. However,
successful commercialization is dependent upon meaningful progress in partner
discussions which, in turn, are influenced by many factors including the state
of the economy in the potential partners home market, particularly Japan, and
the success or failure of competing technologies (previous and current) to
profitably penetrate the flat panel display market with cost-effective
products. As a result, the Company has found that investment in new
technologies by large commercial electronics companies is taking longer and
requiring lengthier technical due diligence than in the past. The Company owns and operates a 36,000-square-foot research and trial
manufacturing facility in Toronto, Ontario. The Toronto facility is capable of
running a full manufacturing process for displays from 2-inches to 17-inches in
diagonal screen size, as well as the full back-end process and parts of the
front-end process for 34-inch diagonal widescreen displays. iFire leases an
adjacent 49,700 square-foot building which is primarily used for office space
and warehouse purposes. iFire employed 135 people as at December 31, 2003. With respect to iFires technology, the Company holds 11 patents related to
TDEL technology in the United States, has 30 pending patent applications in the
United States for advancements and improvements to the technology, and has
numerous corresponding issued patents and patent applications in various other
countries. Where appropriate, iFire also maintains certain proprietary
technology as trade secrets. NUCRYST Pharmaceuticals Corp. NUCRYST Pharmaceuticals Corp. (NUCRYST) has developed a proprietary
nanocrystalline form of silver which is also applicable to other noble metals
such as gold and platinum. While all three of these metals have medical uses,
the Companys first focus is nanocrystalline silver. Silver has antimicrobial
properties and has been used in medicine for many years for infections. To be
an effective antimicrobial agent, normally stable silver must be converted into
a soluble form. To create its proprietary SILCRYST nanocrystalline silver coating, NUCRYST
uses a process called physical vapor deposition, which is sometimes referred to
as sputtering. In a vacuum chamber, pure silver is bombarded with positive
ions to liberate or sputter individual atoms. Inside the vacuum, the silver
atoms are integrated into an entity known as a plasma, often referred to as a
fourth state of matter. These silver atoms are then re-condensed to form 6




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new high-energy nanocrystalline structures on substrates  such as high-density
polyethylene for non-adherent wound care dressings. NUCRYSTs proprietary
technology can produce thin soluble films that release an effective
concentration of silver over several days. As silver is consumed, additional
silver is released to provide continued antimicrobial activity. NUCRYST has
also developed proprietary methods to produce free-standing nanocrystalline
powders. These powders can be combined with pharmaceutical carriers such as
creams, gels, solutions or tablets for medical use. Wound Care Products NUCRYSTs technology can be applied to a wide range of
wound care products, including wound dressings and various implants, to prevent
infections. The Company chose the in-patient burn segment of the North
American wound dressing market as its first target market because large burns
present a life-threatening risk of infection. In 1998, the Company launched its first product, Acticoat burn dressing which
today is part of a larger product family that includes the Acticoat 7
dressing, designed to provide protection from infection for up to seven days,
and Acticoat Absorbent, an alginate dressing that absorbs excess fluid and
maintains a moist wound bed for optimal wound healing. In 2003, sales of
Acticoat dressings to hospitals, clinics and distributors were up more than
50% from 2002. NUCRYSTs dressings have been approved by the U.S. Food and
Drug Administration (FDA) and by the Health Protection Branch in Canada and
have also been given European certification (CE mark) which permits the
marketing of the products in the United States, Canada and Europe. As part of Westaims strategy to enter into partnerships and licensing
agreements to accelerate the market penetration of its products, in 2001
NUCRYST entered into a global partnership with Smith & Nephew plc (Smith &
Nephew). Under a series of agreements, Smith & Nephew acquired NUCRYSTs
North American burn dressing business and entered into an exclusive global
licensing agreement for the sale and marketing of Acticoat wound care
dressings developed by NUCRYST. NUCRYST receives reimbursement of
manufacturing costs and royalties based on Smith & Nephews sales of these
products, as well as up to US$56.5 million in milestone payments over the life
of the agreement for the achievement of certain regulatory and sales
accomplishments. In 2001, NUCRYST received a US$1.0 million milestone payment
for the first Acticoat sale in Europe. In 2003, NUCRYST received a US$3.0
million payment following the achievement of a regulatory milestone in Europe
whereby NUCRYST and Smith & Nephew collaborated to provide additional
scientific evidence reinforcing the superior antimicrobial performance of
Acticoat products. In April 2004, Nucryst received a US$5.0 million milestone
payment following achievement of a sales milestone. NUCRYST owns all the patents and intellectual property for SILCRYST
nanocrystalline silver coatings and continues to manufacture all Acticoat
products with SILCRYST nanocrystals for Smith & Nephew at its Fort
Saskatchewan, Alberta plant under a long-term manufacturing agreement. Under a
collaborative agreement, the two companies are working together to develop new
wound care products and obtain additional regulatory approvals. Smith & Nephew is now selling Acticoat burn and chronic wound products in 28
countries around the world. Chronic wounds affect more than 4 million patients
in North America alone and the Company estimates that more than US$1.0 billion
is spent annually on chronic wound products worldwide. Chronic wounds include:
diabetic foot ulcers, a serious condition affecting 700,000 individuals in the
United States alone, that result in over 80,000 amputations each year (Center
for Disease Control, Diabetes Surveillance, 1999); venous stasis ulcers, a
condition caused by venous insufficiency which affects 1.2 million individuals
in the United States every year (Medical Data International, 1996); and
pressure ulcers, which commonly affect elderly, bed-ridden or chair-bound
patients, of which there are more than 2 million cases per year. Currently,
there is no dominant treatment in the chronic wound dressing market. Recently, new competitive silver-coated dressings have been introduced to the
wound care market which has increased the awareness of the anti-microbial
attributes of silver and increased the size of the market for silver-based
dressings. NUCRYST believes that its products are superior to other existing
products. Other commonly used 7




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competitive products use silver in various chemical forms in creams and
solutions which must be applied to wounds several times a day. NUCRYSTs
antimicrobial technology releases silver over several days, leaves the wound
bed undisturbed while fighting infection and has been shown in the laboratory
to be effective against more than 150 pathogens. Findings from in vitro studies
published in medical journals have demonstrated that NUCRYSTs coatings kill
bacteria rapidly and have a sustained release of silver. Use of Acticoat
dressings provides health care cost savings by preventing infections and
reducing the required number of dressing changes, thereby saving nursing time
and medical supply costs. Pharmaceuticals When used commercially on Acticoat dressings, NUCRYSTs
proprietary nanocrystalline silver coatings have proven safe for use by humans
and have demonstrated their efficacy as a barrier to infection. NUCRYST now
focuses on developing drugs based on customized formulations of its patented
nanocrystalline technology. NUCRYSTs approach is to find large disease
indications based on market potential, patient need and technical feasibility
for its commercially proven nanocrystalline technology. Compared with typical
target-oriented drug development, where a disease (the target) is first
identified and then the search for a new drug initiated, the NUCRYST platform
technology approach is faster and much more cost-effective. These drugs may be
offered in a variety of delivery formats including creams, solutions or gels. NUCRYSTs Rx nanocrystalsappear to have two very important therapeutic
effects: broad-spectrum antimicrobial activity and anti-inflammatory activity.
This dual activity could be useful for treating a wide range of diseases.
Pre-clinical work by NUCRYST has pointed to two broad areas: dermatological
and respiratory diseases. In both these areas, the Company sees new product
opportunities. Diseases of the skin affect millions of people and are not
optimally treated with todays drugs. Nosocomial (hospital acquired) lung
infections are a leading cause of death among hospitalized patients. The total
US market size is over US$2.0 billion for dermatology products and US$3.0
billion for respiratory products (IMS 2002 data). The first indication that NUCRYST is targeting is eczema, a very common skin
disease characterized by inflammation and itching. Infection often accompanies
eczema as a result of excessive scratching, which damages or excoriates the
skin, and because eczema patients may lack endogenous antimicrobial substances
in their skin. The two leading anti-inflammatory therapies are topical
steroids and topical immunomodulators (TIMS). Today, there are no drugs
available for eczema that are both anti-inflammatory and antimicrobial. Due to
nanocrystalline silvers dual action (providing both antimicrobial and
anti-inflammatory activity), NUCRYST believes that its proprietary silver
formulation may be more effective than the leading drug classes available
today. Topical steroids are typically the first line of treatment for many skin
diseases, but are not always the most effective. Steroids are known to cause
many side effects such as atrophy (thinning of the skin), telangiectasia
(visible spider-like blood vessels) and striation (striping) of the skin. In
addition, topical steroids are vulnerable to tachyphylaxis (loss of efficacy
over time) and run the risk of systemic absorption. TIMS produce their anti-inflammatory effect by inhibiting the immune system.
Since they are potent immunosuppressants, they are generally indicated after
other treatments (such as topical steroids) have proven to be ineffective or
are deemed inadvisable. In addition to a burning sensation often experienced
upon application, side effects may include the increased risk of superficial
skin infections, such as shingles (herpes zoster virus infection) or eczema
herpeticum, due to TIMS potent immunosuppressant activity. NUCRYSTs nanocrystalline silver does not appear to significantly suppress the
immune system or damage the skin. Nanocrystalline silver has the added
potential benefit of combating secondary infections that are common to eczema
sufferers, something that steroids and TIMS cannot do. NUCRYSTs in vivo
laboratory results are very encouraging. Despite the risks and limitations of both topical steroids and TIMS, they have
a sizeable market, generating US$674 million and US$332 million in 2003 sales
respectively (IMS 2003 data), in the United States alone. TIMS have only been
on the market for three years, demonstrating that physicians and patients are
seeking and willing to try new, 8




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more effective treatments. NUCRYST believes that a new dual action drug that
addresses both inflammation and infection, without the risks associated with
steroids and TIMS, will be well received by doctors and patients. In 2003, NUCRYST filed an Investigational New Drug (IND) application with the
US Food and Drug Administration (FDA) for a nanocrystalline silver cream and
completed Phase 1 clinical studies. NUCRYSTs first dermatology drug, NPI
32101, is being tested in Phase 2 human clinical trial for atopic dermatitis.
This is a 180-patient multi-site double blind trial. One third of the
participants are being treated with a placebo cream, one third with a cream
with a certain dosage of active ingredient, and one third with a stronger
dosage of active ingredient. The study will show how well NPI 32101 addresses
the problems associated with this debilitating and common disease and will
gather information about possible side effects. With preliminary results from
this first Phase 2 study expected in late 2004, NUCRYST anticipates entering
its first Phase 3 trial in 2005. Phase 3 trials, which involve hundreds of
patients in numerous clinical centres, normally take a year or more to
complete. If favourable results are achieved, NUCRYST anticipates submitting a
New Drug Application to the FDA in the 2007 timeframe. In general, the regulatory pathway to FDA product approval for pharmaceuticals
includes:  (i)
    
    Pre-clinical Animal Studies These studies evaluate the safety and
potential efficacy of a therapeutic drug or medical device and are
necessary prior to initiation of human clinical studies.(ii)
    
    Phase 1 Clinical Studies These studies test the product in a small
number of volunteers to determine toxicity (safety), maximum dose
tolerance and pharmacokinetic (the absorption, distribution and excretion
of a drug) properties.(iii)
    
    Phase 2 Clinical Studies These studies assess safety and efficacy in
patients.(iv)
    
    Phase 3 Clinical Studies These studies involve a controlled evaluation
in an expanded patient population at multiple sites to determine
longer-term clinical safety and efficacy. It is from the data of these
studies that the benefit/risk relationship is established and the final
drug labeling claims are defined. Results of these controlled clinical studies are detailed in the filing of a
New Drug Application (NDA) for pharmaceuticals, together with detailed
information related to the drug manufacturing process. The FDA full approval
process is expected to take four to seven years. NUCRYST has begun preclinical research on the appropriateness of pursuing other
drug opportunities, including delivering its nanocrystals through aqueous-based
solutions. This early work could lead to potential therapeutic uses including
respiratory, oral cavity, nasal, mucous membrane, eyes and ears  through
sprays, foams, inhalers, nebulizers, rinses, drops or injectables  to treat
diseases involving inflammation and/or infection. This broad list will be
analyzed and prioritized over the next few years as further preclinical work is
conducted. The Company owns and operates a 43,000 sq. ft. production facility in Fort
Saskatchewan, Alberta and leases 19,000 sq. ft. of office and laboratory space
in Wakefield, Massachusetts for administration, marketing, and pharmaceutical
research and development. Depending on product specifications, the Fort
Saskatchewan facility is capable of producing up to $50 million of burn or
wound care product per year. NUCRYST employed 70 people in Canada and the U.S. as at December 31, 2003. NUCRYST holds 17 issued patents in the United States, has 21 pending
applications in the United States and numerous corresponding patents and
patent applications in various other countries. Where appropriate, NUCRYST
also maintains certain proprietary technology as trade secrets. Acticoat is a trademark of Smith & Nephew and SILCRYST is a trademark of
NUCRYST. 9




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##### 



DISCONTINUED OPERATIONS Coinage Division and Ethylene Coatings Business In 2002, the Company announced its intention to close the Coinage Division and
to sell or close its Ethylene Coatings business. As a result, these businesses
have been accounted for as discontinued operations. The decision to discontinue the Coinage business followed several quarters of
operating losses. The outlook for the business was unsustainable as a result
of weak demand and global over-capacity in the coin blank industry following
completion of the multi-year Euro coin project. Production assets were sold in
late 2002 and the 120,000 sq. ft. former Coinage facility in Fort Saskatchewan,
Alberta was sold in January 2004. The Ethylene Coatings business, Surface Engineered Products (SEP), produced
anti-coking coatings for furnaces used in the production of ethylene. SEPs
main target market, the ethylene industry, had been experiencing harsh economic
conditions and the rate of adoption of the anti-coking technology had not met
expectations. SEP operations were discontinued in 2003 after the completion of
contracted production and certain assets including intellectual property were
sold during the year. The 120,000 sq. ft. former Ethylene Coatings
manufacturing facility in Edmonton, Alberta is currently for sale. At December 31, 2003, there were no employees engaged in the Coinage Division
or Ethylene Coatings business. Ambeon The Ambeon division, including the Companys wholly owned subsidiary, Neomet
Limited, was sold on January 29, 2004. As a result, this business has been
accounted for as a discontinued operation. Proceeds from the sale
will be used to fund NUCRYSTs pharmaceutical development and iFires transition from
development to production of its flat screen technology. The Ambeon business segment designed, manufactured and marketed advanced
materials and products under three major product lines: turbine engine
materials, electronics materials and catalyst materials. Principal customers
were major jet engine manufacturers and distributors to the jet engine repair
and overhaul market. The Ambeon business segment also produced materials for
use in electromagnetic shielding applications. The Companys powders were
incorporated into tapes, gaskets, adhesives and other materials used in the
manufacture of portable devices such as cell phones. Included in the sale transaction were the 62,000 sq. ft. production facility
for aerospace and electronics powders in Fort Saskatchewan, Alberta, and the
13,000 sq. ft. leased facility in Marple, England, operated by the Companys
wholly-owned subsidiary, Neomet Limited. The Westaim Ambeon business segment employed 107 people as at December 31,
2003. INVESTMENTS Until early 2002, Westaim, and its Westaim Partners division, made early stage
investments in emerging technology businesses. In May 2002, the Company made
the decision to discontinue further early stage investments and began reducing
its existing investment portfolio. The Company recorded equity losses and
write downs related to these investments of $3.4 million in
2002. The Companys voting interest in each of the remaining investments is 12% or
less and is accounted for on a cost basis, with a total book value of $0.5
million. 10




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##### 



REVENUE BY SEGMENT Year Ended
    
    Year Ended(in thousands of Canadian dollars)
    
    December 31, 2003
    
    December 31, 2002Emerging TechnologiesNucryst Pharmaceuticals (Note 1)
    
    $
    16,212
    
    
    $
    8,344iFire Technology (Note 2)
    
    
    911
    
    
    
    4,270Other
    
    
    162
    
    
    
    1317,285
    
    
    
    12,627Discontinued Operations (Note 3)
    
    
    30,114
    
    
    
    46,719Consolidated Operations
    
    $
    47,399
    
    
    $
    59,346
 Note 1
    
    Nucryst revenues are earned from one customer, Smith & Nephew.Note 2
    
    iFire revenues are from a licensing agreement entered into in 2001 which was amortized over 3 years, ending in 2003.Note 3
    
    In January 2004, the Company sold its Ambeon business segment. As a
result, it has been accounted for on a discontinued basis. 2002
information has been restated accordingly. 2002 Discontinued Operations
includes revenues of the Coinage Division and Ethylene Coatings business,
Surface Engineered Products, which were shut down in 2002 and early 2003
respectively.
 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth certain financial information for the Company
for 2001 to 2003: Year Ended
    
    Year Ended
    
    Year Ended(in thousands of Canadian dollars, except per share data)
    
    December 31, 2003
    
    December 31, 2002
    
    December 31, 2001Revenue from continuing operations
    
    $
    17,285
    
    
    $
    12,627
    
    
    $
    14,106Loss from continuing operations
    
    
    (36,858
    )
    
    
    (39,110
    )
    
    
    (16,020
    )Loss per common share from continuing operations
    
    
    (0.47
    )
    
    
    (0.50
    )
    
    
    (0.21
    )Net loss
    
    
    (34,498
    )
    
    
    (49,762
    )
    
    
    (67,459
    )Net loss per common share
    
    
    (0.44
    )
    
    
    (0.64
    )
    
    
    (0.87
    )Total assets
    
    
    144,906
    
    
    
    184,183
    
    
    
    238,179Total long term debt
    
    
    
    
    
    
    
    
    
    
    Dividends declared
    
    
    
    
    
    
    
    
    
    
    
 As disclosed in Description of the Business  Discontinued Operations, the
Ambeon business segment has been accounted for as a discontinued operation in
2003. Prior years information has been restated accordingly. In 2002, the Company made the decision to close the Coinage Division and to
divest or shut down the Ethylene Coatings business. Accordingly, the results
of these operations and the cost of shutdown have been accounted for on a
discontinued basis. 11




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##### 



CONTRACTUAL COMMITMENTS Payments due by Period(in thousands of Canadian dollars)
    
    
    
    
    
    Less than
    
    1  3
    
    3  5
    
    More thanAs at December 31, 2003
    
    Total
    
    1 Year
    
    Years
    
    Years
    
    5 YearsLong term debt
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Capital lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    2,501
    
    
    
    1,011
    
    
    
    1,462
    
    
    
    28
    
    
    
    Supplier purchase obligations
    
    
    8,563
    
    
    
    8,563
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
reflected on the Companys
balance sheet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    11,064
    
    
    $
    9,574
    
    
    $
    1,462
    
    
    $
    28
    
    
    $
    
 SUPPLIES AND RAW MATERIALS Owing to the diversity of its products, Westaim purchases its raw materials
from a number of sources. Westaim suppliers are both domestic and
international. There are limited suppliers available for key raw materials for
the wound care products produced at NUCRYST. Inventory is maintained at levels
such that, in the event of the loss of a key supplier, production could
continue while a new supplier is located and approved. Silver, a key raw material used in NUCRYSTs wound care products, is a precious
metal subject to commodity market price fluctuations. NUCRYSTs products are
sold on a cost plus mark-up basis and therefore earnings are not significantly
impacted by changes in commodity prices. iFires production of prototype flat panels requires the use of certain raw
materials currently provided from single vendors. Alternate suppliers are
available and delays to the Companys research and development program would
not be expected to be significant. iFire is in the development stage of commercializing its flat screen technology
and is therefore not significantly impacted by fluctuations in the price of
materials used in its research and development. Westaim is provided certain utilities, services and materials from an unrelated
company at the Fort Saskatchewan plant site under long term supply and service
agreements. These agreements ensure the continued supply of these inputs which
are required for Westaims operations and which Westaim is not presently
equipped to supply itself. Westaim has the right under these agreements to
construct new facilities to supply its needs or to obtain supplies from third
parties in the open market. ENVIRONMENTAL Westaims businesses are subject to extensive federal, provincial and municipal
environmental statutes and regulations, including those relating to air
emissions, wastewater discharges, contaminated soil and groundwater and the
handling and disposal of hazardous substances and wastes. Westaim believes
that its operations are in substantial compliance with these statutes and
regulations, and it has an extensive environmental program in place to comply
with environmental regulations and to maintain its facilities in an
environmentally safe condition. The Company anticipates that it will continue to incur capital expenditures and
operating costs to comply, on an ongoing basis, with environmental statutes and
regulations. It does not believe that the costs of compliance will have a
material adverse effect on its operations, its competitiveness or its financial
position. However, Westaims 12




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##### 



businesses involve potential environmental risks, including the risk of harmful
substances entering the environment, which could cause damage or injury. Environmental liabilities under applicable statutes and regulations may arise
in respect of events which occurred prior to completion of the Viridian
Reorganization, when the businesses transferred to Westaim belonged to
Viridian. The agreements under which the Viridian Reorganization was
completed provide that Viridian, or its successors, will bear all costs
associated with these environmental liabilities that existed prior to June 1996
for the Fort Saskatchewan site. With respect to Westaims operations in
Ontario, the previous owner of iFires trial manufacturing plant has provided a
limited environmental indemnity to Westaim in respect of any pre-existing soil
or groundwater contamination. Westaims operations in its iFire subsidiary are conducted under a Certificate
of Approval granted by the Ministry of the Environment (Ontario) on February
16, 1999. For accounting purposes, the total estimated future costs of site restoration
are accrued. Future recoveries from third parties for site restoration costs
resulting from indemnification agreements are not accrued as the amount of
recovery cannot be reasonably estimated. EMPLOYEES As at December 31, 2003, Westaim and its subsidiaries employed a total of 344
employees which included 24 hourly employees represented by the Communications,
Energy and Paperworkers Union. The hourly employees worked for the Ambeon
business segment which was sold on January 29, 2004. As at April 30, 2004,
Westaim and its subsidiaries employed a total of 262 employees. Westaims
workforce includes a number of highly skilled professional, technical and
operational personnel. Many employees have specialized knowledge and skills
and are leaders in their fields. RISK FACTORS Westaim is primarily in the business of developing and commercializing new
technologies. There are a number of risks inherent in this type of business
model, including those set out below. The occurrence of events arising from
these risks could have a material adverse effect on the Companys business,
financial condition, and results from operations. Westaim may be unable to develop commercially viable products. Many of the Companys products, such as iFires flat panel television displays,
are still in the developmental stage. Westaim will likely incur significant
research and development costs before any of these products are commercially
viable, and there is no assurance that any of its products will ever reach this
stage or that the Company will achieve the level of market penetration that it
expects. Some or all of the technological obstacles that will need to be
overcome in order to make these products commercially viable may prove to be
insurmountable. Conversely, a market for these products may never materialize,
even if they prove to be technically sound. If new products have reliability
or quality problems, then reduced orders, higher manufacturing costs, delays in
acceptance of and payment for new products, and additional service and warranty
expenses may result. Some of the Companys proposed products, such as medical devices and
pharmaceutical products, will require regulatory approval before the Company is
allowed to sell them. The Company expects the regulatory approval 13




---



##### 



process to be lengthy and expensive and the Company will have the burden of
proving that its products are safe and effective. Regulatory agencies may make
their approval subject to conditions that the Company may be unable
to satisfy or that, if satisfied, would cause its products to become prohibitively
expensive. There is no assurance that the Company will ever obtain regulatory
approval to sell any of its proposed products, or that the conditions imposed
by regulators will be satisfactory to the Company. Regulatory requirements
imposed on its products could limit the Companys ability to test, manufacture
and commercialize its products. If Westaim fails to raise the capital necessary to fund its operations, it may
be unable to advance the development and commercialization of its technologies. A commitment of substantial resources by the Company and its collaborators to
conduct research and development, construct pilot manufacturing facilities and
conduct clinical studies will be required to successfully commercialize
products under development. It has not been necessary for the Company to raise
new capital since its inception and the Company believes that its current
financial position is strong. Nevertheless, the Company believes that many of
its businesses may grow extremely rapidly and the Company may not be able to
raise additional capital at the time it is needed to complete product
development and build manufacturing facilities. Additional capital may be
required to fund operations, fund clinical studies, continue the research and
development of product candidates, commercialize products and construct pilot
and full scale manufacturing facilities. If the Company is unable to raise additional funds when required, it may be
necessary to delay, reduce or eliminate some or all of its development
programs. The commercial potential of the Companys products depends upon certain issues
regarding pricing, production costs and medical reimbursement. The Companys ability to commercialize its pharmaceutical products successfully
will depend in part on the extent to which reimbursement for the cost of such
products and related treatments will be available from government health
administration authorities, private health insurers and other organizations.
Third party payers are increasingly challenging the price of medical products
and services. Significant uncertainty exists as to the reimbursement
status of newly approved healthcare products and there can be no assurance that adequate
third party coverage will be available for the Company to realize an
appropriate return on its investment in product development. The ability to commercialize iFires flat-screen technology successfully will
depend in part on its ability to price its products at a point that will
generate consumer demand, while allowing for an adequate profit margin. The
Company believes that its product can be produced at costs lower than other
flat-screen technologies but there is no assurance that there will be consumer
demand for the iFire product or that competing products will not be developed
and priced below the prices required by iFire to be profitable. Westaims success is dependent upon its ability to form partnerships to develop
and sell its products. The Companys ability to successfully develop, manufacture and market its
current and proposed products will depend, to a large extent, on its ability to
form partnerships or joint ventures with established corporations or other
collaborators. Except as described elsewhere in this document, the Company has
not yet entered into any material partnerships or joint ventures for the
development or marketing of these products, nor will it necessarily be able to
do so in the future. The Company may be unable to find suitable partners or be
unable to form a partnership or joint venture on terms that are beneficial. If
the Company does enter into a partnership or joint venture, it may suffer loss
if the partner becomes insolvent or otherwise fails to meet its obligations to
the Company. Westaims products may become technologically obsolete. The Company competes, and intends to compete, in markets that are characterized
by rapid adaptation to technological change. These markets include, but are
not limited to the medical devices, pharmaceuticals and flat-screen television
monitor markets. The Companys current and future products may be quickly
rendered obsolete 14




---



##### 



and unmarketable. The Company will need to continually develop new products
and enhance existing products to keep pace with evolving technologies, customer
preferences and industry standards. Westaim is developing products for highly competitive markets. The Company faces, and will face, competition from a number of other companies
including major domestic and international companies which have substantially
greater financial, technical, marketing, sales, distribution and other
resources. Many of these competitors may also have greater name or brand
recognition. The Companys competitors may produce more
technologically-advanced products, at a lower cost, than the Company is capable
of producing. Competition may cause the Company to lose market share and may
reduce profit margins on any products that it is able to sell. Westaim may be unable to protect its intellectual property. In order to succeed, the Company will need to prevent its intellectual property
from being misappropriated by third parties. To protect its intellectual
property, the Company relies primarily on its confidentiality agreements,
physical security at research and manufacturing facilities, as well as the
copyright, trade secret, trademark and patent laws of Canada, the United
States, and other countries in which the Company conducts, or will conduct,
business. The laws of other countries may not protect intellectual property
rights to the same extent as the laws of Canada and the United States and, in
any event, the methods that the Company has chosen may fail to adequately
prevent misappropriation of its intellectual property. The Company currently holds patents in Canada, the United States and other
countries around the world and has additional patent applications pending. The
Company cannot provide assurance that it will succeed in obtaining new patents,
that it will be able to enforce existing patents against third parties, or that
existing patents will not be successfully challenged by third parties. Even if the Company is able to prevent the misappropriation of intellectual
property, others may independently, and legally, develop technologies that are
substantially equivalent or superior. Westaim may become involved in expensive intellectual property or product
liability litigation. The Company may be required to commence litigation to enforce its intellectual
property rights. Others may claim that it has infringed upon their
intellectual property rights and commence litigation against the Company. The
Company believes that it will be subject to an increasing number of
infringement claims as it begins to produce more products in more industries. Some of the Companys existing and proposed products, such as its medical
devices and pharmaceuticals, are part of a class of product that is
particularly vulnerable to product liability litigation for a number of
reasons:  
    
    These types of products are extremely complex and the Company may fail
to discover product faults, despite its best efforts;
    
    These types of products will interact with very complex biological and
man-made systems and the Companys products may interact with these
systems in harmful ways that it was unable to anticipate, despite its
best efforts; and
    
    Because these products may be used by a large number of people, if the
Companys products do cause harm, it may be exposed to a large number
of claims for damages. The Company has tried to protect itself against product liability litigation by
including limitation of liability provisions in some of its sales agreements.
There is no assurance, however, that existing or future limitation of liability
provisions will be sufficient to protect the Company in all circumstances, nor
can the Company provide assurance that any of these provisions will be held to
be enforceable by the Courts. 15




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##### 



The Company believes that it has obtained sufficient product liability
insurance coverage to protect it against claims. However, the wording of its
insurance policies may exclude some claims. Furthermore, the Company cannot
provide assurance that its insurance limits will be sufficient, nor can it
ensure that it will be able to acquire satisfactory insurance in the future. Westaim may be unable to retain the required highly skilled people. The Companys technology businesses are dependent upon the talents and
knowledge of certain key individuals in each of the businesses. The
marketplace for people with these skills is highly competitive, and the Company
may not be able to retain a sufficient number of people with the skills that it
requires. Some of Westaims businesses may inadvertently harm the environment. The Company is subject to extensive federal, state, provincial and local laws
in Canada, the United States, and elsewhere, regarding pollution, the
protection of the environment and the use or cleanup of hazardous substances.
Although Westaim believes that it is in compliance with all of these laws, some
of its businesses may inadvertently harm the environment and be in violation of
these laws. If this occurs, the Company may be required to pay significant
fines, the cost of investigation and cleanup and civil damages. The Company
may also be ordered to permanently stop some of its operations, or it may be
ordered to cease its operations temporarily until it has adopted new and
potentially expensive environmental controls. The Company may suffer a
significant loss of reputation and risk lengthy and expensive litigation if it
harms the environment and is in breach of environmental laws. Westaim is subject to certain risks because of the international character of
its business. The Company estimates that sales to international customers accounted for
approximately 98% of its net sales in the fiscal year ended December 31, 2003
and Westaim anticipates that international sales will continue to represent a
material portion of net sales in the future. International sales are subject
to inherent risks, including variations in local economies, fluctuating
exchange rates, greater difficulty in the collection of accounts receivable,
changes in tariffs and other trade barriers, adverse foreign tax consequences
and burdens of complying with a variety of foreignlaws. The Company may also
encounter exchange rate risk in the event international sales are denominated
in a currency other than Canadian dollars. The Companys financial results are reported in Canadian dollars. A
significant portion of the Companys revenue and expenses, as well as accounts
payable, accounts receivable and other balance sheet items, are frequently
denominated in currencies other than the Canadian dollar, primarily in United
States dollars. Fluctuations in the exchange rate between these other
currencies and the Canadian dollar could reduce the Companys reported revenue,
increase the Companys costs or give rise to a charge related to foreign
currency translation, all of which could adversely affect operating results. Volatility of Share Price Market prices for securities of companies developing new technologies are
generally volatile. Factors such as announcements of technological
innovations, new commercial products, patents, the development of proprietary
rights, results of clinical trials, regulatory actions, publications, quarterly
financial results, the Companys financial position, public concern over the
safety of biotechnology, future sales of shares by the Company or by our
current shareholders, and other factors, could have a significant effect on the
market price and volatility of the Companys common shares. 16




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FORWARD-LOOKING STATEMENTS Forward-looking statements involve significant risks, uncertainties and
assumptions, and Westaims actual results could differ materially from those
anticipated by these forward-looking statements for various reasons generally
beyond Westaims control. Certain statements contained in this Annual Information Form, as well as other
public statements by Westaim, include forward-looking statements within the
meaning of Section 21E of the U.S. Securities Exchange Act of 1934. The words
may, could, should, would, will, suspect, outlook, believe,
anticipate, estimate, expect, intend, plan, and words and expressions
of similar import, are intended to identify forward-looking statements
concerning expected iFire and NUCRYST product introductions, performance,
market penetration, technology development, production costs, price advantages,
applications and sources of capital; potential size of the market for iFire and
NUCRYST technology; the timing of clinical studies and expected date and cost
of certain regulatory approvals, including from U.S. and Canadian authorities,
for NUCRYST pharmaceutical products; the expected commencement of iFire product
manufacturing and its introduction of new products into the market for consumer
television products; the expected global demand in 2006 for television
products, including for flat panel televisions; and environmental remediation
costs. Forward-looking statements are not guarantees of future performance.
They involve significant risks, uncertainties and assumptions and the Companys
actual results could differ materially from those anticipated by these
forward-looking statements for various reasons generally beyond our control,
including: (i) hurdles in the completion and patenting of the iFire technology;
(ii) complexities associated with developing the flat screen manufacturing
process; (iii) market and competing technology developments which might affect
the willingness of potential iFire partners to manufacture and market iFire
products; (iv) cost estimates based upon assumptions which may prove not to be
realistic; (v) delays or problems in receiving regulatory approvals for
NUCRYSTs products; (vi) market or economic conditions which might affect the
products development, clinical studies and demand for iFires or NUCRYSTs
products; (vii) general economic and financing conditions which may affect the
ability to raise new capital or affect potential partner ability to contribute
financially; (viii) general industry and market conditions and growth rates;
and (ix) the other risk factors set forth above. MANAGEMENTS DISCUSSION AND ANALYSIS The information set out under the heading Managements Discussion and
Analysis, on pages 22 through 33 of the Companys 2003 Annual Report, is
incorporated herein by reference. CAPITAL STRUCTURE The Companys authorized share capital consists of an unlimited number of
common shares, preferred A shares and preferred B shares. As at December 31,
2003, there were 78,073,386 common shares outstanding (2002  78,032,787).
There were no preferred shares outstanding at December 31, 2003 or December 31,
2002. The Company maintains an employee and director stock option plan under which
the Company may grant options for up to 11,000,000 shares of common stock of
the Company at an exercise price equal to the market price of the Companys
stock at the date of grant. As at December 31, 2003, there were 5,833,400
options outstanding (2002  5,665,599). 17




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##### 



DIVIDENDS The Companys current policy is to retain its cash reserves to finance capital
projects and business growth. No dividends have been paid in the Companys
history. MARKET FOR SECURITIES The Common Shares of Westaim are listed on The Toronto Stock Exchange (TSX)
under the symbol WED and on NASDAQ under the symbol WEDX. TSX Activity Summary  2003VolumeMonth
    
    High
    
    Low
    
    (thousands of shares)January
    
    $
    2.10
    
    
    $
    1.50
    
    
    
    7,278February
    
    
    2.05
    
    
    
    1.70
    
    
    
    2,732March
    
    
    2.17
    
    
    
    1.63
    
    
    
    3,401April
    
    
    2.45
    
    
    
    1.76
    
    
    
    5,470May
    
    
    2.96
    
    
    
    2.19
    
    
    
    11,188June
    
    
    2.55
    
    
    
    2.10
    
    
    
    7,878July
    
    
    2.82
    
    
    
    2.23
    
    
    
    5,900August
    
    
    2.77
    
    
    
    2.41
    
    
    
    4,295September
    
    
    3.85
    
    
    
    2.42
    
    
    
    10,863October
    
    
    3.68
    
    
    
    3.13
    
    
    
    3,442November
    
    
    3.35
    
    
    
    2.52
    
    
    
    3,276December
    
    
    3.68
    
    
    
    2.81
    
    
    
    11,753Year
    
    
    3.85
    
    
    
    1.50
    
    
    
    77,476
 18




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##### 



DIRECTORS AND OFFICERS The following table sets forth the names, municipality of residence and
principal occupation of the directors of the Company, and the period of service
as a director of the Company. Name and Municipality
    
    Principal Occupation
    
    Period of Serviceof Residence
    
    at Present5
    
    as DirectorNeil Carragher2,4,
Toronto, Ontario
    
    Chairman of The Corporate Partnership Ltd.(a management consulting group)
    
    May 1996 to dateIan W. Delaney4
Toronto, Ontario
    
    Chairman of Sherritt International Corporation(a nickel/cobalt mining and refining, oil and
gas exploration and production, coal mining and
electricity generation company)
    
    May 1996 to dateBarry M. Heck
Calgary, Alberta
    
    President and Chief Executive Officer of the
Company
    
    January 2003 to dateFrank W. King1,4
Calgary, Alberta
    
    President of Metropolitan Investment Corporation(a capital investment, management services
company)
    
    May 1996 to dateEdward M. Lakusta1,3,4Calgary, Alberta
    
    Private Business and Energy Consultant
    
    May 1996 to dateDaniel P. Owen2,3,4Toronto, Ontario
    
    Chairman of Molin Holdings Limited(an investment management company)
    
    May 1996 to dateGuy J. Turcotte2,3,4Calgary, Alberta
    
    President and Chief Executive Officer of
Western Oil Sands Inc.(an oil sands production company)
    
    April 1998 to dateBruce V. Walter1,4
Toronto, Ontario
    
    Vice-Chairman of Dynatec Corporation(a mining, drilling and metallurgical
technologies company)
    
    May 1997 to date
 Notes:  1.
    
    Messrs. King, Lakusta and Walter are members of the Audit Committee.2.
    
    Messrs. Carragher, Owen and Turcotte are members of the Compensation
Committee.3.
    
    Messrs. Lakusta, Owen and Turcotte are members of the Environmental,
Health and Safety Committee.4.
    
    Messrs. Carragher, Delaney, King, Lakusta, Owen, Turcotte and Walter are
members of the Corporate Governance Committee.5.
    
    Each of the Directors has been engaged for more than five years in his
present principal occupation except the following:Barry M. Heck  Prior to becoming President and Chief Executive
Officer of the Company on January 15, 2003, Mr. Barry Heck was Senior
Vice President of the Company from January 1997.Guy J. Turcotte  Mr. Turcotte became Chief Executive Officer of
Western Oil Sands Inc. in July 1999 and President in January 2002. He
has held the position of Chairman of Fort Chicago Energy Partners L.P.
since December 1997 and was Chief Executive Officer of that company
from December 1997 to December 2002.Bruce V. Walter  Prior to becoming Vice-Chairman of Dynatec
Corporation in March 2002, Mr. Walter was Chief Executive Officer of
Four Mile Investments Inc. from August 1993 and Managing Director, BMO
Nesbitt Burns Inc. from February 1999 to November 2001. Each of the Directors will hold office until the next meeting of shareholders
or until a successor is duly elected or appointed. The Westaim Corporation
does not have a standing executive committee. 19




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The following table sets forth the names, municipality of residence and office
of the executive officers of the Company. Names and Municipality of Residence
    
    Office with CompanyIan
W. Delaney,
Toronto, Ontario
    
    Chairman of the Board (non-employee)Barry
M. Heck,
Calgary, Alberta
    
    President and Chief Executive OfficerG.A.
(Drew) Fitch,
Calgary, Alberta
    
    Senior Vice President and Chief Financial OfficerAnthony
B. Johnston,
Calgary, Alberta
    
    Senior Vice PresidentBrian
D. Heck,
Sherwood Park, Alberta
    
    Vice President, General Counsel and Corporate
Secretary
 Barry Heck  Prior to becoming President and Chief Executive Officer of the
Company on January 15, 2003,
Mr. Barry Heck was Senior Vice President of the Company from January 1997. Brian Heck  Before becoming Vice President, General Counsel and Corporate
Secretary on March 1, 2004,
Mr. Brian Heck was General Counsel and Corporate Secretary of the Company from
February 2003. Mr. Brian Heck was in the private practice of law from November
2000 to March 2004, and has been Counsel to the law firm of Henning Byrne
Whitmore & McKall since June 2001. From November 1999 through October 2000,
Mr. Brian Heck practiced in the areas of corporate law and mergers and
acquisitions with the law firm of Bennet Jones. From October 1997 to May 1999,
Mr. Brian Heck was Vice President, General Counsel and Corporate Secretary to
ThermicEdge Corporation and MicroWear Corporation. All other officers have been in their current positions and these have been
their principal occupations for the past five years. The number and percentage of the Companys common shares beneficially owned,
directly or indirectly, or over which control or direction is exercised by all
directors and executive officers of the Company, as a group, as at
May 4, 2004 was 3,284,252 shares (4.21%). AUDIT COMMITTEE The Audit Committee of the Board of Directors consists of three independent
members: Frank King, Chairman; Edward Lakusta; and Bruce Walter. Bruce Walter
has been designated as the audit committee financial expert for the Audit
Committee and has been determined by the Board to meet the audit committee
financial expert criteria prescribed by the U.S. Securities and Exchange
Commission and the proposed TSX Guidelines. 20




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CODES OF CONDUCT The Company has adopted a Code of Conduct and Ethics for Directors, Officers
and Employees, as well as a Finance Code of Conduct for Chief Executive and
Senior Financial Officers. These codes can be found on the Companys website
at www.westaim.com. During the most recently completed fiscal year, no
amendments were made to these codes, and the Company has granted no waivers of
any of the provisions of these codes. AUDIT FEES The following summarizes fees paid to the Companys independent auditors,
Deloitte & Touche LLP, for the years ended December 31, 2003 and December 31,
2002. (in thousands of Canadian dollars)
    
    2003
    
    2002Audit Services Audit of the Companys annual consolidated financial statements
(Note 1)
    
    $
    196.7
    
    
    $
    226.8 Audit of Ambeon business segment consolidated financial
statements
    
    
    28.1
    
    
    
    Audit Related Services Consultation, research and advice
    
    
    12.0
    
    
    
    34.1 Internal audit assistance
    
    
    
    
    
    
    19.4 Other (Note 2)
    
    
    
    
    
    
    12.5Tax Services Tax compliance and consulting
    
    
    15.6
    
    
    
    41.6$
    252.4
    
    
    $
    334.4
 Note 1
    
    Includes reviews of quarterly consolidated financial statements and
annual review of the Companys subsidiaries financial statements,
and services related to regulatory filings.Note 2
    
    Other services were translation service in 2002.
 PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES BY INDEPENDENT AUDITORS The Audit Committee pre-approves all audit services provided to the Company by
its independent auditors. The Audit Committees policy regarding the
pre-approval of non-audit services is that all such services shall be
pre-approved by the Audit Committee as a whole or by the Chairman of the Audit
Committee, who must report all such pre-approvals to the Audit Committee at its
next meeting following the granting thereof. Prior to the granting of any
pre-approval, the Audit Committee or its Chairman, as the case may be, must be
satisfied that the performance of the services in question will not compromise
the independence of the independent auditors. 21




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ADDITIONAL INFORMATION Additional information, including directors and officers remuneration and
indebtedness, principal holders of the Companys securities, options to
purchase securities and interests of insiders in material transactions, where
applicable, is contained in the Companys information circular with respect to
its most recent annual meeting of shareholders. Additional financial
information is contained in the Companys comparative financial statements for
its most recently completed fiscal year. The Company undertakes, upon request to the Corporate Secretary, The Westaim
Corporation, to provide to any person, when the securities of the Company are
in the course of a distribution pursuant to a short form prospectus or when a
preliminary short form prospectus has been filed in respect of a distribution
of its securities:  (i)
    
    one copy of the Companys AIF, together with one copy of any document, or
the pertinent pages of any document, incorporated by reference in the AIF;(ii)
    
    one copy of the Companys comparative financial statements for its most
recently completed financial year together with the accompanying report of
the auditors and one copy of the most recent interim financial statements
that have been filed for any period after the end of its most recently
completed financial year;(iii)
    
    one copy of the Companys information circular in respect of its most
recent annual meeting of shareholders that involved the election of
directors; and(iv)
    
    one copy of any other documents that are incorporated by reference into
the preliminary short form prospectus or the short form prospectus and are
not required to be provided under (i) to (iii) above; or, at any other time, subject to payment of a reasonable charge if the request
is made by a person who is not a security holder of the Company, one copy of
any document referred to in (i), (ii) and (iii) above. Additional information with respect to the Company may be found on SEDAR at
www.sedar.com. 22