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EXHIBIT 1.2

Managements Discussion and Analysis
for the year ended December 31, 2002





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The Westaim Corporation

ANNUAL REPORT 2002

MANAGEMENTS DISCUSSION AND ANALYSIS

THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE YEARS ENDED DECEMBER 31, 2002, AND DECEMBER 31, 2001, SHOULD BE READ IN
CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES.

CONSOLIDATED RESULTS

Overview

For the year ended December 31, 2002, The Westaim Corporation reported a net
loss of $49.8 million compared to a net loss of $67.5 million in 2001. Revenues
from continuing operations for the year ended December 31, 2002, were $49.1
million compared to $50.3 million in 2001.

The Company reported a loss from discontinued operations of $19.7 million in
2002 compared to $59.0 million in 2001 and a loss from continuing operations of
$30.1 million in 2002 compared to $8.4 million in 2001. The loss from
continuing operations in 2002 reflected a planned increase in net research and
development spending, lower equity losses, lower interest income and higher
income tax expense compared to 2001, while the loss from continuing operations
in 2001 benefited from a gain on sale of assets of $20.1 million.

In May 2002, the Company announced its intention to close the Coinage division
and to seek a strategic buyer for its Ethylene Coatings business. As a result,
these businesses have been accounted for as discontinued operations in 2002 and
2001. Write downs in the carrying value of assets of $34.7 million recorded in
continuing operations in 2001 have been reclassified to discontinued operations
in 2002 for comparative purposes.

The basic and diluted net loss per common share was $0.64 in 2002 compared to a
basic and diluted net loss per common share of $0.87 in 2001. The basic and
diluted loss per common share from continuing operations was $0.39 in 2002 and
$0.11 in 2001. Weighted average shares outstanding were 77.9 million and 77.7
million in 2002 and 2001 respectively.

A comparison of operating costs from continuing operations in 2002 compared to
the prior year is as follows:

|                                    |  |      |      |         |  |      |       |         |  |   |      |      |  |  |       | 
|----------------------------------- |  | ---- | ---- | ------- |  | ---- | ----- | ------- |  | - | ---- | ---- |  |  | ----- | 
|                                    |  |      |      |         |  | % of |       |         |  |   |      | % of
|($millions)                         |  | 2002 |      | Revenue |  | 2001 |       | Revenue
|                                    |  |      |      |         |  |      |       |        
|Manufacturing                       |  | $    | 24.8 |         |  |      | 50.5% |         |  | $ | 25.5 |      |  |  | 50.8% | 
|Selling, general and administrative |  |      | 8.5  |         |  |      | 17.2% |         |  |   | 11.7 |      |  |  | 23.3% | 
|Research and development            |  |      | 25.7 |         |  |      | 52.4% |         |  |   | 16.9 |      |  |  | 33.7% | 
|Depreciation and amortization       |  |      | 5.8  |         |  |      | 11.9% |         |  |   | 5.6  |      |  |  | 11.0% | 
|                                    |  |      |      |         |  |      |       |         |  |   |      |      |  |  |       | 
|                                    |  | $    | 64.8 |         |  |      |       |         |  | $ | 59.7 |      |  |  |       | 
|                                    |  |      |      |         |  |      |       |         |  |   |      |      |  |  |       | 

Manufacturing costs were generally consistent with the prior year. Lower
selling and administration costs were the result of the sale of the Acticoat
burn business to Smith & Nephew plc (Smith & Nephew) in May 2001 and the
concomitant transfer of marketing and sales activities for Acticoat products
to Smith & Nephew. The increase in research and development expenses primarily
reflected a planned reduction in funding contributions to iFire Technology Inc.
(iFire) from Technology Partnerships Canada (TPC), discussed below, and
increased research and development costs related to pharmaceutical development
at Nucryst Pharmaceuticals Corp. (Nucryst). All eligible research and
development expenditures qualify for a 20% tax credit that can be utilized when
the Corporation reaches a taxable position. No development costs were
capitalized in 2002 and 2001.

Corporate expenses for the year ended December 31, 2002, were $6.7 million,
down from $7.8 million in 2001, reflecting the impact of a corporate
reorganization in mid-2002.

Interest income on cash and cash equivalents and short-term investments was
lower in 2002 by $5.5 million reflecting lower interest rates, lower cash
balances and the effect of a strengthening Canadian dollar in 2002 compared to
2001. Future income tax expense, a non-cash item, increased by $6.1 million in
2002 primarily due to a reduction in the Companys future income tax asset.

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The Westaim Corporation

ANNUAL REPORT 2002

MANAGEMENTS DISCUSSION AND ANALYSIS

CONSOLIDATED RESULTS (CONTINUED)

Non-recurring items    2002

The 2002 equity loss of $3.4 million includes write downs of $2.4 million. The
Company made a strategic decision during the year to discontinue investment,
and reduce its holdings, in early stage emerging technology businesses made
through its Westaim Partners division.

Non-recurring items    2001

In May 2001, the Company received proceeds of $23.1 million and recorded a gain
of $20.1 million on the sale of assets related to Nucrysts burn business to
Smith & Nephew.

In the fourth quarter of 2001, the Company recorded a $34.7 million write down
in the carrying value of assets in the Coinage Products and the Ethylene
Coatings operating segments. The write down, discussed more fully in Note 15 to
the 2002 Audited Financial Statements, reflected uncertainty regarding the
ability to secure profitable future coin blank and other coinage-related
contracts due to over-capacity in the coinage products market, a significant
and sustained downturn in the global ethylene industry and changes to
manufacturing processes. This write down has been included in discontinued
operations.

Equity losses of $18.7 million in 2001 include write downs in the value of
investments accounted for under the equity method totaling $10.2 million,
reflecting lower valuations in 2001 for technology-based investments.

DISCONTINUED OPERATIONS

In May 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 are now 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.

The Ethylene Coatings business, Surface Engineered Products (SEP), produces
anti-coking coatings for furnaces used in the production of ethylene. SEPs
main target market, the ethylene industry, has been experiencing harsh economic
conditions and the rate of adoption of the anti-coking technology has not met
expectations. Subsequently, SEP operations were shut down in February 2003
after the completion of contracted production.

The loss from discontinued operations for the year ended December 31, 2002, of
$19.7 million includes provisions for workforce reductions and other shutdown
and asset disposal costs totaling $9.1 million. All expected future losses from
the Ethylene Coatings business were included in the net loss from discontinued
operations recorded in 2002. Accounts payable and accrued liabilities as at
December 31, 2002, include accruals and provisions of $7.5 million relating to
discontinued operations which will have a negative impact on working capital in
2003. Details of the financial impact of discontinued operations are found in
Note 4 to the 2002 Consolidated Audited Financial Statements.

OPERATIONS

Westaims operations are organized into two high-potential emerging technology
businesses: iFire Technology Inc. (iFire) and Nucryst Pharmaceuticals Corp.
(Nucryst); and one industrial materials technology business  Ambeon.
Westaims primary strategy is to invest in the independent technical, research,
operating, and marketing and sales capabilities of each of its technology
investments, through the early years of product development, introduction and
commercialization.

iFire Technology Inc.

iFire, based in Toronto, Ontario, has developed a proprietary full-colour solid
state display technology with applications in both the fast-growing large
screen TV market and small graphic display market. This business unit continues
to achieve strategic milestones towards proving the commercial viability of its
technology. In 2002, iFire entered into a technology collaboration agreement
with Sanyo Electric Co., Ltd. to provide research and development expertise to
iFire. iFire continues to make further technical improvements to its displays
as measured in colour, brightness, lifetime and electronics.

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The Westaim Corporation

ANNUAL REPORT 2002

MANAGEMENTS DISCUSSION AND ANALYSIS

OPERATIONS (CONTINUED)

The net loss in iFire for the year ended December 31, 2002, was $16.9 million
after Technology Partnerships Canada (TPC) funding compared to $10.1 million
in 2001. Licensing revenues recognized from the TDK Agreement were $4.3 million
in both 2002 and 2001. Total expenses for research, development and trial
manufacturing including depreciation, and before TPC funding, was $29.2 million
in 2002 compared to $27.2 million in 2001. The increase in expenses primarily
reflected salary and wage costs for research and development staff.

In 2001, iFire entered into a research and development contribution agreement
with the Government of Canada through TPC. Under the agreement, TPC has agreed
to contribute 28.371% of eligible research and development costs and related
capital expenditures incurred by iFire, until April 30, 2003 to a maximum of
$30 million. In exchange, iFire will pay a royalty to TPC equal to 1.065% of
eventual commercial sales of the technology under development. In addition, TPC
received warrants to purchase common shares of iFire, representing
approximately 0.5% of the current outstanding common shares of iFire.
Contributions from TPC are recorded as a reduction of the cost of the
applicable capital asset or credited to the statement of operations of iFire,
as determined by the nature of the expenditure being funded. Under this
arrangement, iFire is eligible to receive the balance of this funding of $6.5
million in 2003.

The impact of the TPC funding on the operating results of the iFire business
segment is summarized as below:

|                     |  |                    |      |                      |  |      |      |      |  |      |      |      |  |   |     |  |  |   |     |  |  |   |     | 
|-------------------- |  | ------------------ | ---- | -------------------- |  | ---- | ---- | ---- |  | ---- | ---- | ---- |  | - | --- |  |  | - | --- |  |  | - | --- | 
|                     |  | Operating Expenses |      | Capital Expenditures
|                     |  |                    |      |                     
|($millions)          |  | 2002               |      | 2001                 |  | 2000 |      | 2002 |  | 2001 |      | 2000
|                     |  |                    |      |                      |  |      |      |      |  |      |      |     
|Expenses  iFire     |  | $                  | 29.2 |                      |  | $    | 27.2 |      |  | $    | 25.5 |      |  | $ | 3.9 |  |  | $ | 3.1 |  |  | $ | 3.7 | 
|TPC funding          |  |                    | 8.0  |                      |  |      | 12.9 |      |  |      |     |      |  |   | 1.0 |  |  |   | 1.6 |  |  |   |    | 
|                     |  |                    |      |                      |  |      |      |      |  |      |      |      |  |   |     |  |  |   |     |  |  |   |     | 
|Net Expenses  iFire |  | $                  | 21.2 |                      |  | $    | 14.3 |      |  | $    | 25.5 |      |  | $ | 2.9 |  |  | $ | 1.5 |  |  | $ | 3.7 | 
|                     |  |                    |      |                      |  |      |      |      |  |      |      |      |  |   |     |  |  |   |     |  |  |   |     | 

In 2000, iFire entered into a strategic partnership with TDK, a major Japanese
electronics manufacturer. The transaction included the purchase of a 2.5%
equity investment in iFire and an up-front license fee of $11.8 million for the
non-exclusive right to use iFires proprietary technology to manufacture flat
panel displays under 12 inches in size and ongoing royalty payments on future
sales of displays manufactured by TDK using iFire technology. The up-front
license fees received from TDK are being recognized in revenue over three
years, the period that the services are provided. The remaining $0.6 million in
deferred licensing revenue will be recognized in 2003.

The 2003 outlook for iFire is to continue research and development at levels
comparable to 2002 and to make capital expenditure investments in the range of
$10-15 million. iFire intends to pursue a strategy of developing relationships
with major international electronics companies with a view to jointly
exploiting the commercialization of large format display products and sharing
in the development and capital costs of a large scale manufacturing facility.

Nucryst Pharmaceuticals Corp.

Nucryst researches, develops and commercializes medical devices and
pharmaceutical products based on its noble metal nanocrystalline technology.
The net loss for the year ended December 31, 2002, was $7.0 million compared to
$6.2 million in 2001. Revenues for the year ended December 31, 2002, were
lower, at $8.3 million compared to $9.8 million in the prior year which
included $3.5 million of sales in 2001 made directly to customers prior to the
Smith & Nephew transaction. Research and development, manufacturing, selling
and administration expenses including depreciation, were $15.3 million in 2002
compared to $16.1 million in 2001.

Nucrysts first products, Acticoat Burn Dressings and Acticoat 7
Antimicrobial Dressings, targeting the burn and chronic wound markets, were
developed and sold by Nucryst until May 2001 when a series of agreements were
completed with Smith & Nephew under which Smith & Nephew acquired an exclusive
global license to the Nucryst antimicrobial coating technology for wounds,
together with Nucrysts U.S. and Canada Acticoat burn dressing business. The
gain on sale of the burn portion of Nucrysts business amounted to $20.1
million. Nucryst continues to manufacture Acticoat products for Smith & Nephew
and receives royalty payments based on Smith & Nephews global sales. The two
companies are collaborating to develop the technology for the introduction of
new products for chronic and serious wounds.

Prior to May 2001, revenue reflected direct sales by Nucryst to customers.
Commencing in May 2001, revenue comprises licensing royalties, milestone
payments and manufacturing revenues relating to Acticoat products sold by and
produced for Smith & Nephew. Revenue from licensing and manufacturing in 2002
was $8.3 million while revenues from licensing and manufacturing and direct
sales totaled $8.2 million in 2001. In addition, milestone revenue of $1.6
million was recognized in 2001, reflecting payments from Smith & Nephew for the
achievement of certain sales targets. Total sales to end users of Acticoat
products increased by more than 50% in 2002 compared to 2001.

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The Westaim Corporation

ANNUAL REPORT 2002

MANAGEMENTS DISCUSSION AND ANALYSIS

OPERATIONS (CONTINUED)

Capital spending totaled $2.4 million in 2002 compared to $0.5 million in 2001.
This increase is primarily related to the addition of equipment that more than
doubles Nucrysts manufacturing capacity of Acticoat products. Nucrysts
administration and pharmaceutical research activities are primarily based in
Wakefield, Massachusetts, and manufacturing operations are located in Fort
Saskatchewan, Alberta.

The outlook is for continued growth in licensing and manufacturing revenues as
Acticoat products are launched in the United States and Europe by Smith &
Nephew. In January 2003, Nucryst received a US$3-million milestone payment from
Smith & Nephew related to certain regulatory approvals in Europe. Increases in
revenue are expected to be significantly more than offset by increases in
research and development expenditures as Nucryst expands clinical and
pre-clinical research into the pharmaceutical attributes of its noble metal
nanocrystalline technology. Nucrysts current research and development effort
is focused on obtaining U.S. Food and Drug Administration approval of one or
more drugs to be used in the treatment of dermatology indications and will
involve four to seven years of clinical development.

Ambeon

Westaims Ambeon division, with operations in Fort Saskatchewan, Alberta,
develops, manufactures and markets coating materials and products for customers
in the aerospace, electronics, catalyst and other markets.

The net earnings from Ambeon operations for the year ended December 31, 2002,
were $9.0 million on revenue of $36.4 million compared to net earnings of $7.7
million on revenue of $36.2 million in 2001. Revenue from core product lines
declined 18.3% from $33.8 million in 2001 to $27.6 million in 2002 and earnings
from core products declined to $2.6 million from $7.0 million in 2001,
reflecting the general downturn in the aerospace and electronics industries.

The cyclical decline in the core business has been offset by favourable results
from a one-time materials supply contract, which is expected to be completed in
the first quarter of 2003. Revenues and earnings from this contract were $8.9
million and $6.4 million respectively in 2002 compared to $2.4 million and $0.7
million in 2001.

Notwithstanding the downturn in its core business, Ambeon continued to invest
in future products with expenditures of $2.4 million in materials research and
development in 2002 compared to $2.1 million in 2001. Capital spending totaled
$1.2 million in 2002 compared to $3.2 million in 2001.

During the year, Ambeon sold 352 tonnes of nickel composite and other
nickel-based materials to the aerospace and electronics industries compared to
387 tonnes in 2001. Ambeon also sold 373 tonnes of nickel welding powders
compared to 545 tonnes in 2001.

The outlook for the division is for modest cyclical improvement in both the
aerospace and electronics powders segments during 2003. The Company will
continue to invest in research and development of new advanced materials based
on its core coatings technology expertise and expects to introduce several new
products to the market during the year.

INVESTMENTS

Until early 2002, Westaim, through 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 to
reduce its existing investment portfolio. The Company recorded equity losses
and write downs related to these investments of $3.4 million in 2002 compared
to $18.7 million of equity losses and write downs in 2001. The carrying value
of the remaining investments at December 31, 2002, was $0.5 million.

INVENTORY

Westaims inventories were $13.9 million at December 31, 2002, compared to
$18.5 million at December 31, 2001. The decline in inventory is primarily a
result of reduced activity and inventory management initiatives in Ambeon.
Inventories relating to Ambeon account for 71% of total inventory.

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The Westaim Corporation

ANNUAL REPORT 2002

MANAGEMENTS DISCUSSION AND ANALYSIS

LIQUIDITY AND CAPITAL RESOURCES

At December 31, 2002, the Corporation had cash and cash equivalents and
short-term investments of $102.9 million compared to $138.4 million at December
31, 2001. This reduction in liquidity of $35.5 million is primarily the result
of cash used in continuing operations before working capital changes of $17.7
million compared with $5.0 million in 2001, and cash used in discontinued
operations of $11.2 million compared with cash provided from discontinued
operations of $15.7 million in 2001. Changes in non-cash working capital
balances related to continuing operations generated cash of $2.9 million in
2002 compared to a use of cash of $5.6 million in 2001 and capital expenditures
for continuing operations totaled $7.2 million in 2002 compared to $5.7 million
in 2001.

Cash from discontinued operations in 2001 benefited from significant
collections of receivables relating to coinage contracts in 2000 that did not
continue in 2001. Cash in 2001 also benefited from the receipt of proceeds of
$23.1 million from the sale of Nucrysts North American burn business.

Management believes that current cash balances and cash generated from
operations will be sufficient to finance the Companys future operations and
capital expenditures.

DIVIDENDS

The Company did not pay cash dividends in 2002 or 2001 and has a policy of
retaining its cash reserves to finance capital projects and business growth.

RISKS AND UNCERTAINTIES

The Companys core operating businesses are the production and marketing of
metal-based powders and products. Earnings performance can be sensitive to
fluctuations in nickel commodity prices. From time to time, Westaim hedges its
exposure to nickel commodity price changes through the use of forward
contracts. The Companys earnings performance can also be sensitive to currency
and interest rate fluctuations. Westaim reduces this exposure by entering into
foreign currency forward transactions and interest rate forward rate agreements
from time to time.

The Company invests in new technologies with the objective of providing
leadership, strategy and capital to commercialize the technology as quickly as
possible. There is significant risk that the technology may not be able to be
commercialized in a timely or cost-effective manner or that it may not be
accepted by the marketplace. Westaim reduces this risk by investing in multiple
technologies and in businesses that have passed the early stages of
development.

The Companys technology businesses are dependent upon the talents and
knowledge of key individuals in each of the businesses. The risk of losing
valuable information in the event one of these individuals leaves the Company
is minimized by the use and enforcement of confidentiality agreements. The
Company also provides competitive remuneration and incentives for the retention
of key personnel.

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The Westaim Corporation

ANNUAL REPORT 2002

MANAGEMENTS DISCUSSION AND ANALYSIS

ENVIRONMENTAL MATTERS

The Companys operations are, and will continue to be, affected by federal,
provincial and local laws and regulations regarding the protection of the
environment. The Company and its subsidiaries have policies and procedures in
place comprehensive environmental management system that includes audits, legal
compliance and reporting.

The provision for site restoration increased by $0.6 million in 2002 to $7.7
million. The provision relates primarily to site restoration costs associated
with the discontinuance of DS nickel production as well as to soil and
groundwater reclamation and remediation costs, which have been based on
estimates provided by independent consultants. The Company expects to spend
approximately $3.4 million in remediation activities in 2003 related to the
decommissioning and decontamination of DS nickel production equipment and
sites. Thereafter, unless a plant site is decommissioned, it is expected that
only nominal amounts will have to be expended.

MARKET FOR SECURITIES

The common shares of The Westaim Corporation are listed on The Toronto Stock
Exchange under the symbol WED and on Nasdaq under the symbol WEDX.

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