Westaim announces 2005 year-end results

CALGARY, Feb. 15 /PRNewswire-FirstCall/ -- The Westaim Corporation announced today that for the year ended December 31, 2005, it recorded net income of $9.3 million, or 10 cents per share compared to a net loss of $25.2 million, or 30 cents per share, in the previous year. For the three months ended December 31, 2005, the Company posted net income of $22.0 million, or 24 cents per share compared to a net loss of $10.6 million, or 11 cents per share in the same period in the previous year. Westaim's results for both the year and the fourth quarter benefited from a $30.1 million gain on the issuance of shares of its NUCRYST subsidiary.

At December 31, 2005, Westaim had $119.6 million in cash and short term investments, compared to $101.1 million at December 31, 2004.

In the fourth quarter of 2005, Westaim's NUCRYST Pharmaceuticals subsidiary completed an initial public offering of 4,500,000 common shares at a price of US$10 per share. NUCRYST common shares are now traded on the Nasdaq National Market under the trading symbol NCST and on the Toronto Stock Exchange under the trading symbol NCS. Westaim continues to own approximately 75.3 per cent of NUCRYST's outstanding common shares.

"2005 marked a solid year of performance and significant milestone achievements for both NUCRYST and iFire," said Barry M. Heck, President & CEO of Westaim. "Westaim was pleased with the results of the IPO for NUCRYST and is encouraged with the progress of NUCRYST's pre-clinical research for its nanocrystalline silver. iFire is now in pilot manufacturing, a major step in the commercialization of its TDEL flat panel technology."

Review of Operations: iFire Technology

iFire Technology's pilot production facility began operation at the end of 2005. The $46-million pilot facility was completed on time and on budget. Through pilot production, iFire intends to complete the baseline processes for the manufacture of its displays and focus on continual improvements to both performance and manufacturing efficiency.

The pilot facility is intended to produce engineering samples of high- definition 34-inch flat panel display modules based on its proprietary thick dielectric electroluminescent (TDEL) technology and to simulate manufacturing in a commercial environment. iFire expects to commercialize its technology in partnership with industry leaders and plans to initially target the 30- to 45-inch screen size television segment. The pilot plant will provide information and experience to allow iFire to work with partners to construct and operate the first volume production facility. Initial planning work for this facility is under way.

NUCRYST Pharmaceuticals

NUCRYST's profitable wound care division continued to grow in 2005 with wound care product revenue of $22.7 million compared to $18.9 million in 2004 and total revenue including milestones of $28.6 million, compared to $31.9 million in 2004. The results for 2005 include one US$5-million milestone payment compared to two US$5-million milestone payments in 2004. NUCRYST's agreement with Smith & Nephew plc for the global sales and distribution of Acticoat(TM) dressings for burns and chronic wounds, includes up to US$56.5 million in milestone payments that can be earned upon the achievement of sales and regulatory milestones. To date, NUCRYST has earned US$19 million in milestone payments as a result of strong global sales of Acticoat(TM) dressings.

In 2005, NUCRYST initiated its second Phase 2 human clinical trial of a topical cream formulation of its nanocrystalline silver. The investigational drug (NPI 32101 topical cream) is being studied for the treatment of atopic dermatitis, a form of eczema, and other skin conditions. Results of the second Phase 2 human clinical trial are expected by the end of 2006.

NUCRYST completed a $7-million expansion of its production facility in Fort Saskatchewan, Canada to meet anticipated demand from Smith & Nephew for its Acticoat(TM) family of dressings. NUCRYST has initiated a further expansion of its production facility in Fort Saskatchewan, Canada in order to further increase its capacity to manufacture Acticoat(TM) dressings for Smith & Nephew.

NUCRYST has begun pre-clinical research to extend its nanocrystalline silver technology to the treatment of other dermatological and gastrointestinal conditions. Infection and inflammation are issues in many therapeutic areas and demand exists for effective pharmaceuticals and medical devices and products for the treatment of these common afflictions.

Financial Information Follows

The Westaim Corporation's technology investments include NUCRYST Pharmaceuticals Corp. (NASDAQ: NCST; TSX: NCS), which develops, manufactures and commercializes medical products that fight infection and inflammation based on its nanocrystalline silver technology and iFire Technology Corp, which has developed a low-cost flat panel display. Westaim's common shares are listed on NASDAQ under the symbol WEDX and on The Toronto Stock Exchange under the trading symbol WED.

Acticoat(TM) is a trademark of Smith & Nephew plc

This news release contains forward-looking statements. These statements are based on current expectations that are subject to risks and uncertainties, and Westaim can give no assurance that these expectations are correct. Various factors could cause actual results to differ materially from those projected in such statements, including but not limited to statements involving financial considerations, the completion of baseline manufacturing processes for iFire displays, intentions regarding production of engineering samples of iFire displays, statements related to manufacturing of iFire displays in a commercial environment, potential iFire partnering activities and strategies, the information and experience anticipated from the iFire pilot plant, anticipated demand from Smith & Nephew for NUCRYST dressings, and the expansion of NUCRYST's production facilities and resulting increased manufacturing capacity. Westaim disclaims any intention or obligation to revise forward-looking statements whether as a result of new information, future developments or otherwise. All forward-looking statements are expressly qualified in their entirety by this cautionary statement.

THE WESTAIM CORPORATION Financial Highlights (unaudited) (thousands of dollars except per share data) ------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 Consolidated Statements ----------------------- --------------------- of Operations 2005 2004 2005 2004 (Restated) (Restated) ------------------------------------------------------------------------- Revenue $ 5,607 $ 6,042 $ 28,560 $ 31,907 Income (loss) from continuing operations 19,483 (10,403) (5,508) (28,734) Net income (loss) 21,998 (10,600) 9,270 (25,177) Income (loss) per common share - basic and diluted Continuing operations 0.21 (0.11) (0.06) (0.34) Net income (loss) 0.24 (0.11) 0.10 (0.30) Weighted average number of common shares outstanding (thousands) 92,901 92,828 92,852 84,094 ------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 ----------------------- --------------------- 2005 2004 2005 2004 (Restated) (Restated) ------------------------------------------------------------------------- Revenue Nucryst Pharmaceuticals $ 5,607 $ 6,042 $ 28,560 $ 31,907 ------------------------------------------------------------------------- Continuing operations $ 5,607 $ 6,042 $ 28,560 $ 31,907 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating (loss) income Nucryst Pharmaceuticals $ (2,087) $ (301) $ 1,590 $ 6,079 iFire Technology (8,116) (7,286) (31,844) (27,884) Other 55 (529) 54 (1,189) ------------------------------------------------------------------------- Continuing operations $ (10,148) $ (8,116) $ (30,200) $ (22,994) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Balance December December Sheets 31, 2005 31, 2004 ------------------------------------------------- Cash and short-term investments $ 119,627 $ 101,139 Current assets 136,169 111,994 Other assets 76,292 60,269 Current liabilities 26,614 12,963 Shareholders' equity 157,640 147,797 THE WESTAIM CORPORATION Consolidated Statements of Operations and Consolidated Statements of Deficit (unaudited) ------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 ----------------------- --------------------- (thousands of dollars 2005 2004 2005 2004 except per share data) (Restated) (Restated) ------------------------------------------------------------------------- Revenue $ 5,607 $ 6,042 $ 28,560 $ 31,907 Costs Manufacturing 2,830 2,620 10,799 8,450 Research and development 9,391 8,648 36,514 35,489 General and administrative 1,172 1,538 4,109 5,240 Depreciation and amortization 2,362 1,352 7,338 5,722 ------------------------------------------------------------------------- Operating loss (10,148) (8,116) (30,200) (22,994) Corporate costs (2,113) (2,224) (8,217) (7,396) Foreign exchange 642 (645) 410 (563) Interest 454 684 2,073 2,362 Gain on issuance of shares of subsidiary 30,055 - 30,055 - Writedown of capital assets and intangible assets (567) (69) (570) (22) Gain on sale of investment 1,120 - 1,120 - ------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 19,443 (10,370) (5,329) (28,613) ------------------------------------------------------------------------- Income tax recovery (expense) 40 (33) (179) (121) ------------------------------------------------------------------------- Income (loss) from continuing operations 19,483 (10,403) (5,508) (28,734) Income (loss) from discontinued operations net of income taxes 2,515 (197) 14,778 3,557 ------------------------------------------------------------------------- Net income (loss) for the period $ 21,998 $ (10,600) $ 9,270 $ (25,177) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Income (loss) per common share Continuing operations - basic and diluted $ 0.21 $ (0.11) $ (0.06) $ (0.34) ------------------------------------------------------------------------- Net income (loss) - basic and diluted 0.24 (0.11) 0.10 (0.30) ------------------------------------------------------------------------- Weighted average number of common shares outstanding (thousands) 92,901 92,828 92,852 84,094 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Deficit at beginning of period $(289,289) $(265,961) $(276,561) $(251,384) Net income (loss) 21,998 (10,600) 9,270 (25,177) ------------------------------------------------------------------------- Deficit at end of period $(267,291) $(276,561) $(267,291) $(276,561) ------------------------------------------------------------------------- ------------------------------------------------------------------------- THE WESTAIM CORPORATION Consolidated Balance Sheets (unaudited) ------------------------------------------------------------------------- December December (thousands of dollars) 31 2005 31 2004 ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents $ 115,673 $ 89,139 Short-term investments 3,954 12,000 Accounts receivable 8,199 6,712 Inventories 7,773 3,605 Other 570 538 ------------------------------------------------------------------------- 136,169 111,994 Other receivable - 1,800 Capital assets 71,112 46,776 Capital assets available for sale - 5,500 Intangible assets 5,180 5,693 Investments - 500 ------------------------------------------------------------------------- $ 212,461 $ 172,263 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities $ 16,302 $ 12,963 Current portion of long-term debt 10,312 - ------------------------------------------------------------------------- 26,614 12,963 Long-term debt 6,000 4,795 Provision for site restoration 6,760 6,708 ------------------------------------------------------------------------- 39,374 24,466 ------------------------------------------------------------------------- Non-controlling interest 15,447 - Shareholders' equity Common shares 421,466 421,233 Contributed surplus 3,968 3,125 Cumulative translation adjustment (503) - Deficit (267,291) (276,561) ------------------------------------------------------------------------- 157,640 147,797 ------------------------------------------------------------------------- $ 212,461 $ 172,263 ------------------------------------------------------------------------- ------------------------------------------------------------------------- THE WESTAIM CORPORATION Consolidated Cash Flow Statements (unaudited) ------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 ----------------------- --------------------- (thousands of dollars) 2005 2004 2005 2004 (Restated) (Restated) ------------------------------------------------------------------------- Operating Activities Income (loss) from continuing operations $ 19,483 $ (10,403) $ (5,508) $ (28,734) Items not affecting cash Depreciation and amortization 2,362 1,352 7,338 5,722 Foreign exchange on long-term debt (352) - (1,637) - Provision for site restoration - 327 - 327 Writedown of capital assets and intangible assets 570 69 570 22 Gain on sale of investment (1,120) - (1,120) - Gain on issuance of shares of subsidiary (30,055) - (30,055) - Deferred licensing revenue - - - - Stock based compensation expense 225 612 905 1,210 ------------------------------------------------------------------------- Cash used in continuing operations before non-cash working capital changes (8,887) (8,043) (29,507) (21,453) Changes in continuing operations non-cash working capital Accounts receivable 6,581 3,791 (2,541) (670) Inventories (1,639) 150 (4,341) (831) Other 1,178 180 (32) 121 Accounts payable and accrued liabilities 1,882 (6,225) 4,045 2,996 Site restoration expenditures net of recoveries - (100) 52 (1,183) ------------------------------------------------------------------------- Cash used in continuing operations (885) (10,247) (32,324) (21,020) Cash used in discontinued operations 97 (93) (518) (2,221) ------------------------------------------------------------------------- Cash used in operating activities (788) (10,340) (32,842) (23,241) ------------------------------------------------------------------------- Investing activities Capital expenditures (3,823) (7,528) (30,754) (23,432) Redemption and sale of short-term investments 8,442 75,683 98,335 149,151 Purchase of short-term investments (3,954) - (90,289) (137,708) Intangible assets (202) (3,276) (977) (3,686) Proceeds on sale of assets - - - 61 Proceeds on sale of investment 1,620 - 1,620 - Proceeds on sale of discontinued operations 7,029 - 22,614 30,559 ------------------------------------------------------------------------- Cash provided from investing activities 9,112 64,879 549 14,945 ------------------------------------------------------------------------- Financing activities Proceeds from long-term debt 1,147 4,795 7,154 4,795 Issuance of common shares of subsidiary, net of share issuance costs 45,502 - 45,502 47,946 Issuance of common shares - - 171 - Issuance of convertible debentures of subsidiary - - 6,000 - ------------------------------------------------------------------------- Cash provided from financing activities 46,649 4,795 58,827 52,741 ------------------------------------------------------------------------- Net increase in cash and cash equivalents 54,973 59,334 26,534 44,445 Cash and cash equivalents at beginning of period 60,700 29,805 89,139 44,694 ------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 115,673 $ 89,139 $ 115,673 $ 89,139 ------------------------------------------------------------------------- -------------------------------------------------------------------------