Westaim Corporation Announces 2006 Year-End Results

CALGARY, Feb. 15 /PRNewswire-FirstCall/ - The Westaim Corporation announced today that for the year ended December 31, 2006, it recorded a net loss of $50.6 million, or 54 cents per share compared to net income of $9.3 million, or 10 cents per share, in the previous year. For the three months ended December 31, 2006, the Company posted a net loss of $11.0 million, or 12 cents per share compared to net income of $22.0 million, or 24 cents per share in the same period in the previous year. Westaim's higher net loss in 2006 is primarily attributable to $14.8 million income from discontinued operations in 2005 and a $30.1 million gain on the issuance of shares of its NUCRYST subsidiary in the fourth quarter of 2005.

At December 31, 2006, Westaim had $62.8 million in consolidated cash and short-term investments, compared to $119.6 million at December 31, 2005.

"Westaim and its subsidiaries were impacted by some major challenges in 2006," said Barry M. Heck, President & CEO of Westaim. "NUCRYST experienced disappointing results in the Phase 2 clinical trial for NPI 32101 as a pharmaceutical candidate for the treatment of atopic dermatitis. iFire transitioned from R&D to pilot operations and has made progress in demonstrating the manufacturing processes required for mass production; however, we have not yet achieved the necessary performance characteristics required for commercial production which has delayed our commercialization efforts. We will continue to address these challenges in 2007 and maintain our course in working towards taking iFire's TDEL technology to the consumer market."

The Westaim Corporation's technology investments include iFire Technology Corp., which has developed a low-cost flat panel display technology and a 74.8 per cent interest in NUCRYST Pharmaceuticals Corp. , which develops, manufactures and commercializes medical products that fight infection and inflammation based on its nanocrystalline silver technology. Westaim's common shares are listed on NASDAQ under the symbol WEDX and on The Toronto Stock Exchange under the trading symbol WED. A more detailed discussion of Westaim's 2006 consolidated year end results can be found in the 2006 consolidated audited financial statements and Management's Discussion and Analysis, which will be available at www.westaim.com and www.sedar.com

The financial results in this news release are unaudited and are not a complete disclosure of Westaim's quarterly or annual financial results. 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 iFire's progress in demonstrating the manufacturing processes required for mass production, low cost panel displays, and the ability of NUCRYST's products to fight infection and inflammation. 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 2006 2005 2006 2005 ------------------------------------------------------------------------- Revenue $ 5,140 $ 5,607 $ 27,591 $ 28,560 (Loss) income from continuing operations (11,019) 19,483 (50,557) (5,508) Net (loss) income (11,019) 21,998 (50,557) 9,270 (Loss) income per common share - basic and diluted Continuing operations (0.12) 0.21 (0.54) (0.06) Net (loss) income (0.12) 0.24 (0.54) 0.10 Weighted average number of common shares outstanding (thousands) 93,979 92,901 93,523 92,852 ------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 Segmented Information - -------------------- -------------------- Continuing Operations 2006 2005 2006 2005 ------------------------------------------------------------------------- Revenue Nucryst Pharmaceuticals $ 5,140 $ 5,607 $ 27,591 $ 28,560 ------------------------------------------------------------------------- Continuing operations $ 5,140 $ 5,607 $ 27,591 $ 28,560 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Operating (loss) income Nucryst Pharmaceuticals $ (2,200) $ (2,087) $(11,216) $ 1,590 iFire Technology (8,825) (8,116) (37,556) (31,844) Other (including corporate costs) (1,311) (2,058) (6,128) (8,163) ------------------------------------------------------------------------- Continuing operations $(12,336) $ (12,261) $(54,900) $(38,417) ------------------------------------------------------------------------- ------------------------------------------------------------------------- December December Consolidated Balance Sheets 31, 2006 31, 2005 --------------------------------------------------- Cash and short-term investments $ 62,832 $119,627 Current assets 80,256 136,169 Other assets 68,083 76,292 Current liabilities 15,797 26,614 Shareholders' equity 112,977 157,640 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 ------------------------ ------------------------ except per share data) 2006 2005 2006 2005 ------------------------------------------------------------------------- Revenue $ 5,140 $ 5,607 $ 27,591 $ 28,560 Costs Manufacturing 2,899 2,830 17,324 10,799 Research and development 7,707 9,391 37,920 36,514 General and administrative 2,101 1,172 6,762 4,109 Depreciation and amortization 3,719 2,362 14,362 7,338 Corporate costs 1,050 2,113 6,123 8,217 ------------------------------------------------------------------------- Operating loss (12,336) (12,261) (54,900) (38,417) Foreign exchange 1,333 642 (897) 410 Interest 657 454 3,181 2,073 Write-down of capital assets and intangible assets (1,210) (567) (1,210) (570) Gain on disposal of assets - - 110 - (Loss) gain on issuance of shares of subsidiary (5) 30,055 (99) 30,055 Gain on sale of investment - 1,120 - 1,120 Non-controlling interest 466 - 3,222 - ------------------------------------------------------------------------- (Loss) income from continuing operations before income taxes (11,095) 19,443 (50,593) (5,329) Income tax recovery (expense) 76 40 36 (179) ------------------------------------------------------------------------- (Loss) income from continuing operations (11,019) 19,483 (50,557) (5,508) Income from discontinued operations net of income taxes - 2,515 - 14,778 ------------------------------------------------------------------------- Net (loss) income for the period $ (11,019) $ 21,998 $ (50,557) $ 9,270 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (Loss) income per common share Continuing operations - basic and diluted $ (0.12) $ 0.21 $ (0.54) $ (0.06) ------------------------------------------------------------------------- Net (loss) income - basic and diluted (0.12) 0.24 (0.54) 0.10 ------------------------------------------------------------------------- Weighted average number of common shares outstanding (thousands) 93,979 92,901 93,523 92,852 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Deficit at beginning of period $ (306,829) $ (289,289) $ (267,291) $ (276,561) Net loss (income) (11,019) 21,998 (50,557) 9,270 ------------------------------------------------------------------------- Deficit at end of period $ (317,848) $ (267,291) $ (317,848) $ (267,291) ------------------------------------------------------------------------- ------------------------------------------------------------------------- THE WESTAIM CORPORATION Consolidated Balance Sheets (unaudited) ------------------------------------------------------------------------- December 31 December 31 (thousands of dollars) 2006 2005 ------------------------------------------------------------------------- ASSETS Current Cash and cash equivalents $ 45,381 $ 115,673 Short-term investments 17,451 3,954 Accounts receivable 8,314 8,199 Inventories 8,506 7,773 Other 604 570 ------------------------------------------------------------------------- 80,256 136,169 Capital assets 63,958 71,112 Intangible assets 4,125 5,180 ------------------------------------------------------------------------- $ 148,339 $ 212,461 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current Accounts payable and accrued liabilities $ 7,797 $ 16,302 Current portion of long-term debt 8,000 10,312 ------------------------------------------------------------------------- 15,797 26,614 Long-term debt - 6,000 Provision for site restoration 6,760 6,760 ------------------------------------------------------------------------- 22,557 39,374 ------------------------------------------------------------------------- Non-controlling interest 12,805 15,447 Shareholders' equity Common shares 426,122 421,466 Contributed surplus 5,379 3,968 Cumulative translation adjustment (676) (503) Deficit (317,848) (267,291) ------------------------------------------------------------------------- 112,977 157,640 ------------------------------------------------------------------------- $ 148,339 $ 212,461 ------------------------------------------------------------------------- ------------------------------------------------------------------------- THE WESTAIM CORPORATION Consolidated Cash Flow Statements (unaudited) ------------------------------------------------------------------------- Three Months Ended Twelve Months Ended December 31 December 31 ------------------------ ------------------------ (thousands of dollars) 2006 2005 2006 2005 ------------------------------------------------------------------------- Operating Activities Loss from continuing operations $ (11,019) $ 19,483 $ (50,557) $ (5,508) Items not affecting cash Depreciation and amortization 3,720 2,362 14,362 7,338 Write-down of capital assets and intangible assets 1,210 570 1,210 570 Stock-based compensation expense 427 225 1,650 905 Non-controlling interest (466) - (3,222) - Foreign exchange on long-term debt - (352) 122 (1,637) Foreign exchange on short-term investments - - (52) - Gain on disposal of assets - - (110) - Gain on sale of investment - (1,120) - (1,120) Loss (gain) on issuance of shares of subsidiary 5 (30,055) 99 (30,055) ------------------------------------------------------------------------- Cash used in continuing operations before non-cash working capital changes (6,123) (8,887) (36,498) (29,507) Changes in continuing operations non-cash working capital Accounts receivable 1,698 6,581 (165) (2,541) Inventories (488) (1,639) (733) (4,341) Other 211 1,178 (30) (32) Accounts payable and accrued liabilities (2,245) 1,976 (7,605) 5,186 Site restoration expenditures net of recoveries - - - 52 ------------------------------------------------------------------------- Cash used in continuing operations (6,947) (791) (45,031) (31,183) Cash provided from (used in) discontinued operations - 97 - (518) ------------------------------------------------------------------------- Cash used in operating activities (6,947) (694) (45,031) (31,701) ------------------------------------------------------------------------- Investing activities Capital expenditures (811) (3,917) (7,880) (31,895) Maturity of short-term investments 1,285 8,442 30,594 98,335 Purchase of short-term investments (17,450) (3,954) (44,039) (90,289) Intangible assets (156) (202) (649) (977) Proceeds on disposal and sale of assets - - 312 - Proceeds on sale of investment - 1,620 - 1,620 Proceeds on sale of discontinued operations - 7,029 - 22,614 ------------------------------------------------------------------------- Cash (used in) provided from investing activities (17,132) 9,018 (21,662) (592) ------------------------------------------------------------------------- Financing activities Proceeds from long-term debt - 1,147 - 7,154 Repayment of long-term debt - - (10,434) - Issuance of common shares of subsidiary, net of share issuance costs 40 45,502 325 45,502 Issuance of common shares - - 4,484 171 Issuance of convertible debentures of subsidiary - - 2,000 6,000 ------------------------------------------------------------------------- Cash provided from (used in) financing activities 40 46,649 (3,625) 58,827 ------------------------------------------------------------------------- Effect of exchange rate changes on cash and cash equivalents 33 - 26 - ------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (24,006) 54,973 (70,292) 26,534 Cash and cash equivalents at beginning of period 69,387 60,700 115,673 89,139 ------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 45,381 $ 115,673 $ 45,381 $ 115,673 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Non-cash capital asset additions included in accounts payable and accrued liabilities $ 508 $ 1,304 $ 508 $ 1,304 ------------------------------------------------------------------------- -------------------------------------------------------------------------

Westaim Corporation

CONTACT: David Wills, Investor Relations, (416) 504-8464,info@westaim.com, www.westaim.com

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