<PAGE>

                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                          ANNUAL REPORT ON FORM 20-F/A
                                  Annual Report

                       Pursuant to Section 13 or 15(d) of
                       The Securities Exchange Act of 1934

                   For the Fiscal Year ended December 31, 2005

                         Commission file number 0-30214

                    ART ADVANCED RESEARCH TECHNOLOGIES INC./
                  ART RECHERCHES ET TECHNOLOGIES AVANCEES INC.
             (Exact name of registrant as specified in its charter)

                                     Canada
                    (Jurisdiction of Company or organization)

        2300 Alfred-Nobel Boulevard, Saint-Laurent, Quebec H4S 2A4 Canada
                     (Address of principal executive office)

Securities to be registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
Title of each class   Name of each exchange on which
to be so registered   each class is to be registered
-------------------   ------------------------------
<S>                   <C>
None                  N/A
</TABLE>

Securities registered or to be registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act:

                                      None

The number of outstanding shares of each of the issuer's classes of capital or
common stock as of the close of the period covered by the Annual Report:

42,664,523 Common Shares as of December 31, 2005.

6,341,982 Series 1 Preferred Shares as of December 31, 2005.

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.

     Yes:         No:    X
           -----       -----

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.

     Yes:         No:    X
           -----       -----

Note -- checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those sections.

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

     Large accelerated filer     Accelerated filer     Non-accelerated filer  X
                             ---                   ---                       ---

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes:         No:    X
           -----       -----

<PAGE>

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports, and (2) has been subject to such filing
requirement for the past 90 days.

     Yes:   X   No:
          -----     -----

The financial statement item the Registrant has elected to follow is Item 17.

EXPLANATORY NOTE

     This Amendment No. 1 on form 20F/A to our Form 20F for the fiscal year
ended December 31, 2005 (the "Annual Report") is being filed to add the full
version of our consolidated financial statements (which were only incorporated
by references).

     Except as described above, this Form 20-F/A does not include any other
revisions to the Annual Report and, accordingly, does not include any other
updated information about changes in events, estimates or other developments
subsequent to April 5, 2006, the date of the original filing of the Annual
Report.

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<S>                                                                           <C>
INTRODUCTION...............................................................    3

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.............    4
ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE...........................    4
ITEM 3.  KEY INFORMATION...................................................    4
ITEM 4.  INFORMATION ON THE COMPANY........................................   12
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS......................   55
ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES........................   72
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.................   91
ITEM 8.  FINANCIAL INFORMATION.............................................   92
ITEM 9.  THE OFFER AND LISTING.............................................   92
ITEM 10. ADDITIONAL INFORMATION............................................   94
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK........   81
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES............   97
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...................   97
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE
         OF PROCEEDS.......................................................   97
ITEM 15. CONTROL AND PROCEDURES............................................   97
ITEM 16. [RESERVED]........................................................   83
ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT..................................   83
ITEM 16B CODE OF ETHICS....................................................   83
ITEM 16C PRINCIPAL ACCOUNTANT..............................................   83
ITEM 16D EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES............   84
</TABLE>

<PAGE>

                                      -2-


<TABLE>
<S>                                                                           <C>
ITEM 16E PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
         PURCHASERS........................................................   84
ITEM 17. FINANCIAL STATEMENTS..............................................   99
ITEM 18. FINANCIAL STATEMENTS..............................................   99
ITEM 19. EXHIBITS..........................................................   99
</TABLE>

         UNLESS OTHERWISE INDICATED ALL FIGURES SET FORTH IN THIS ANNUAL REPORT
         ARE IN UNITED STATES DOLLARS. CERTAIN FINANCIAL INFORMATION SET FORTH
         HEREIN HAS BEEN PROVIDED IN CANADIAN DOLLARS. AS AT DECEMBER 31, 2005,
         THE EXCHANGE RATE BETWEEN THE CANADIAN DOLLAR AND THE US DOLLAR WAS CA
         $1.00 = US $0.8598.

<PAGE>

                                       -3-


                                  INTRODUCTION

ART Advanced Research Technologies Inc. ("ART" or the "Company") is engaged in
the research, design, development and commercialization of optical molecular
imaging products for the medical and pharmaceutical industries. The Company's
principal business is the application of optical imaging technology to the
biomedical sector. ART has targeted the biomedical sector because of the
significant growth that it has experienced in recent years. The Company believes
that its technology is particularly well-suited to surmount a variety of
important challenges that confront the medical sector in the detection of
diseases such as breast cancer, which is the leading overall cause of cancer
death for women between the ages of 20 and 59 in the United States. To this end,
ART has developed an optical breast imaging device known as SoftScan(R) which
uses time resolved imaging (also known as "time domain") technology to detect,
diagnose and characterize breast cancer. Based on the same technology platform,
ART has also developed and launched in June 2003 a novel and proprietary
molecular imaging technology (originally known as "SAMI(TM)" and now known and
distributed under the name "eXplore Optix(TM)") designed to characterize,
visualize and measure cellular and molecular processes and pathways in small
animals. In February 2006, ART signed a definitive agreement to acquire
substantially all of the imaging technology and product assets of Alerion
Biomedical, Inc., a US-based developer and manufacturer of biomarkers and
contrast media for preclinical and clinical imaging devices. This transaction
has enabled ART to effectively enter a new market segment. This market segment
is part of the $5.0 B global preclinical and clinical imaging contrast and
radiopharmaceutical market in which the Company was not present until now and
which represents a potential source of recurring revenue.

ART's mission is to be a market leader in the development and commercialization
of optical molecular imaging systems for the medical and pharmaceutical
industries. ART is in the process of bringing to market SoftScan(R), an optical
imaging device, which uses the Company's time domain technology to detect,
diagnose and characterize breast cancer. This product represents a new imaging
solution for the detection, diagnosis and characterization of breast cancer
without the adverse consequences associated with more invasive technology. The
Company believes that SoftScan(R) also offers a solution to issues relating to
quality of care and treatment costs that the medical sector is facing. In order
to gain rapid entry into the market for breast cancer detection, diagnostic and
characterization devices, SoftScan(R) is initially being introduced as a
diagnostic device able to complement other screening and diagnostic
technologies, such as digital X-ray, that are designed to detect breast cancer.
The Company is also actively pursuing strategic relationships with leading
organizations in order to facilitate SoftScan(R)'s early market entry. To date,
the Company has entered into strategic alliances or relationships with
Massachusetts General Hospital ("MGH") and with the National Optics Institute
("INO"). The Company and GE Healthcare (formerly known as "GE Medical Systems")
have also concluded a strategic alliance consisting of an equity investment, an
agreement for the development of new optical molecular imaging applications as
well as an agreement for the marketing, manufacture and distribution of
SoftScan(R). Under the terms of the agreement, ART retains full ownership and
control of all of ART's intellectual property and of its technology platform.
The Company's imaging technologies are also capable of being leveraged for
various applications. The potential demonstrated by time domain optical imaging
opened the door to a new and promising field of biomedical applications:
molecular imaging. ART has applied this technology to the imaging of small
laboratory animals used in the pharmaceutical industry, in order to determine
the toxicity of new drugs and to identify their pathways in the bodies of
animals, thus providing a tool for

<PAGE>

                                       -4-


improved efficiency and accuracy in drug development. Originally known as
"SAMI(TM)", and now known and distributed by GE Healthcare under the name
"eXplore Optix(TM)", this new proprietary molecular imaging product was launched
in 2003 and was specifically designed to characterize, visualize and measure
cellular and molecular processes and pathways in small animals. With the closing
of the Alerion Biomedical, Inc. transaction in March 2006, ART acquired the
exclusive rights for the development and commercialization of Fenestra(TM), a
novel biomarker technology designed to provide exceptional vascular and
hepatobiliary imaging enhancement. The Fenestra(TM) technology is comprised of
iodinated lipids that provide contrast enhancement integrated into a novel
oil-in-water lipid emulsion that selectively localizes the lipids to various
sites within the body. The Fenestra(TM) product family represents the first
agents designed and optimized for use in microCT imaging. The company looks to
further expand the Fenestra(TM) product family into micro MRI and optical
molecular imaging. Additionally, these biological products have expansion
potential into human clinical markets as either diagnostic or therapeutic
molecular probes.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

     A. Selected financial information

The following table sets forth selected historical financial information of the
Company for the years ended December 31, 2005 and December 31, 2004, the
eight-month period ended December 31, 2003 and each of the previous three years
ending April 30th. The information under Statement of Operations and Deficit
Data and Balance Sheets Data is derived from the Financial Statements of the
Company contained elsewhere in this Annual Report. The information set forth
under Other Data is derived from financial information used to prepare the
Financial Statements of the Company. The Company's Financial Statements have
been prepared in accordance with generally accepted accounting principles
("GAAP") in Canada and using the U.S. dollar as reporting currency. See note 22
to the financial statements for a reconciliation to U.S. GAAP. The following
information should be read in conjunction with, and is qualified in its entirety
by "Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the Company's " Financial Statements".

<PAGE>

                                       -5-


STATEMENT OF OPERATIONS AND DEFICIT
Amounts Under Canadian GAAP(a)

<TABLE>
<CAPTION>
                                                                         Eight-month               Year Ended
                                             Year ended    Year ended   period ended  ------------------------------------
                                            December 31,  December 31,  December 31,   April 30,    April 30,    April 30,
                                                2005          2004          2003        2003(b)      2002(b)      2001(b)
                                            ------------  ------------  ------------  -----------  -----------  ----------
<S>                                         <C>           <C>            <C>          <C>          <C>          <C>
SALES
Product                                     $ 3,626,100   $ 1,935,000    $  681,875   $        --  $        --  $       --
Maintenance                                     499,450            --            --            --           --          --
                                            -----------   -----------    ----------   -----------  -----------  ----------
                                              4,125,550     1,935,000       681,875            --           --          --
COST OF SALES
Product                                       2,379,802       915,087       377,744            --           --          --
Maintenance                                     409,783            --            --            --           --          --
                                            -----------   -----------    ----------   -----------  -----------  ----------
                                              2,789,585       915,087       377,744            --           --          --
                                            -----------   -----------    ----------   -----------  -----------  ----------
GROSS MARGIN                                  1,335,965     1,019,913       304,131            --           --          --

OPERATING EXPENSES
Research and development                      9,154,960     7,511,485     3,491,641     5,734,470    6,284,211   4,637,301
Selling, general and administrative           3,918,236     3,474,446     2,239,324     2,885,065    3,215,654   3,746,212
Amortization                                    285,806       249,627       136,643       138,173      210,328      93,430
                                            -----------   -----------    ----------   -----------  -----------  ----------
                                             13,359,002    11,235,558     5,867,608     8,757,708    9,701,193   8,476,943
                                            -----------   -----------    ----------   -----------  -----------  ----------
Operating loss                               12,023,037    10,215,645     5,563,477     8,757,708    9,701,193   8,476,943
Interest expense on convertible debentures      884,191            --            --            --           --          --
Interest income                                (241,708)     (300,221)      (63,384)      (99,281)    (180,548)   (287,520)
Foreign Exchange loss (gain)                    463,664        13,179       331,932       219,065     (175,162)         --
Other expenses                                       --            --            --     1,467,621           --          --
                                            -----------   -----------    ----------   -----------  -----------  ----------
Loss from continuing operations before
   income taxes                              13,129,184     9,928,603     5,832,025    10,345,113    9,345,483   8,189,423
Current income taxes recovered                       --            --            --    (1,318,668)          --          --
                                            ===========   ===========    ==========   ===========  ===========  ==========
Loss from continuing operations              13,129,184     9,928,603     5,832,025     9,026,445    9,345,483   8,189,423
Loss (profit) from discontinued operations           --            --            --    (2,479,841)   1,536,017   1,675,948
                                            -----------   -----------    ----------   -----------  -----------  ----------
NET LOSS (CANADIAN GAAP)                    $13,129,184   $ 9,928,603    $5,832,025   $ 6,546,604  $10,881,500  $9,865,371
                                            ===========   ===========    ==========   ===========  ===========  ==========
Basic and diluted loss per share - from
   continuing operations (Canadian GAAP)    $      0.31   $      0.24    $     0.20   $      0.38  $      0.46  $     0.47
                                            ===========   ===========    ==========   ===========  ===========  ==========
</TABLE>

----------
(a)  In certain respects, Canadian GAAP differs from U.S. GAAP. For a more
     extensive discussion of the differences between Canadian GAAP and U.S.
     GAAP, see note 22 to the Financial Statements.

(b)  See Note 13 of the Financial Statements

<PAGE>

                                       -6-


<TABLE>
<S>                                         <C>           <C>            <C>          <C>          <C>          <C>
Basic and diluted earnings (loss) per
   share from discontinued operations
   (Canadian GAAP)                          $        --   $        --    $       --   $    (0.10) $      0.08  $      0.09
                                            ===========   ===========    ==========   ==========  ===========  ===========
Basic and diluted net loss per share
   (Canadian GAAP)
                                            $      0.31   $      0.24    $     0.20   $     0.28  $      0.54  $      0.56
                                            ===========   ===========    ==========   ==========  ===========  ===========
NET LOSS (U.S. GAAP)                        $13,211,043   $10,126,100    $5,998,847   $6,816,725  $12,049,632  $11,432,121
                                            ===========   ===========    ==========   ==========  ===========  ===========
Basic and diluted net loss per share -
   U.S. GAAP                                $      0.31   $      0.25    $     0.20   $     0.29  $      0.60  $      0.65
                                            ===========   ===========    ==========   ==========  ===========  ===========
</TABLE>
<PAGE>

                                      -7-


BALANCE SHEET DATA Amounts Under Canadian GAAP(a)

<TABLE>
<CAPTION>
                            December 31,   December 31,   December 31,   April 30,   April 30,    April 30,
                                2005           2004           2003          2003        2002        2001
                            ------------   ------------   ------------   ---------   ---------   ----------
<S>                         <C>            <C>            <C>            <C>         <C>         <C>
   Cash and Term Deposit      5,116,039        880,748      4,431,520    1,039,298     872,620      254,812
   Short-term investments     4,000,096     10,950,403      4,993,040    3,647,515   2,239,908    5,953,380
   Total assets              15,232,209     16,764,887     13,704,796    8,032,130   6,115,134   10,498,989
   Shareholders' equity       9,368,813     14,609,814     11,412,392    6,212,899   4,613,936    7,353,947
OTHER DATA
   Working capital            8,339,458     12,534,875      9,611,990    4,139,946   3,190,683    5,850,180
</TABLE>

----------
(a)  In certain respects, Canadian GAAP differs from U.S. GAAP. For a more
     extensive discussion of the differences between Canadian GAAP and U.S.
     GAAP, see note 22 to the Financial Statements.

     B.   Capitalization and Indebtedness

Not applicable.

     C.   Reasons for the Offer and Use of Proceeds

Not applicable.

     D.   Risk Factors

ABSENCE OF PROFITABILITY

To date, the Company has not generated sufficient revenues to offset its
research and development costs and accordingly has not generated positive cash
flows or made an operating profit. While the Company has benefited to date from
the receipt of government grants, there can be no assurance that grants will
continue to be available to the Company or, if so, at what level. There can be
no assurance that the Company will ever achieve significant revenues or
profitable operations.

UNCERTAINTY OF LIQUIDITY AND CAPITAL REQUIREMENTS

The Company's future capital requirements will depend on many factors, including
progress in both the commercialization of eXplore Optix(TM) and in the clinical
development and trials for SoftScan(R), time and expense associated with filing,
prosecuting and enforcing its patent claims and costs associated with obtaining
regulatory approvals for its products. In order to meet such capital
requirements, the Company may consider collaborative research and development
and/or distribution arrangements, and additional public or private financing
(including the incurrence of debt and the issuance of additional equity
securities) to fund all or a part of its particular programs. The Company may
have to raise additional financing, as required, through strategic alliance
arrangements, the exercise of options and warrants, and the issuance of new
share capital, as well as through other financing opportunities. There can be no
assurance that these financing efforts will be successful or that we will
continue to be able to meet our ongoing cash requirements. It is possible that
financing may not be available or, if available, will not be on favorable terms.
The availability of financing will be affected by the results of our scientific
and clinical research, our ability to attain regulatory approvals, the market
acceptance of our products, the state of the capital markets generally (with
particular reference to biotechnology

<PAGE>

                                      -8-


and medical device companies), the status of strategic alliance agreements, and
other relevant commercial considerations. If adequate funds are not available,
the Company may have to substantially reduce or eliminate expenditures for
research and development, testing, production and marketing of its products, or
obtain funds through arrangements with corporate partners that may require the
Company to relinquish rights to certain of its technologies or products. There
can be no assurance that the Company will be able to raise additional capital if
its capital resources are exhausted.

NO ASSURANCE OF SUCCESSFUL DEVELOPMENT

Generally, prospects for companies in the biomedical sector may be regarded as
uncertain given the nature of the industry and, accordingly, investments in such
companies should be regarded as speculative. While eXplore Optix(TM) has now
entered the commercialization stage, there can be no assurance that the
Company's products will be accepted by the pharmaceutical and medical sectors.
Moreover, SoftScan(R) is still undergoing clinical development, has not yet been
approved by regulatory authorities in the relevant jurisdictions, and has not
yet been marketed commercially. ART's business entails significant risks,
including the costs and time involved in obtaining the required regulatory
approvals, its current reliance on primarily one product, the adequacy of its
patent protection, the uncertainties involved in clinical testing, the
availability of capital to continue development and commercialization of its
products, and competition from pharmaceutical and biotechnology companies. There
can be no assurance that the Company's ongoing preclinical and clinical research
activities will provide positive outcomes or that the results of clinical trials
will meet the desired clinical endpoints established in the clinical study
protocols. Even if the clinical studies are successful, there can be no
assurance that the Company will be successful in obtaining the necessary
regulatory approvals or, once obtained, in maintaining these approvals. There
can also be no assurance that the Company will be successful in marketing and
distributing its products, or achieve reimbursement from government or private
health authorities.

The actual schedules for the SoftScan(R) clinical trials and registration plan
could vary significantly from the Company's forecast due to a number of factors.
A key risk factor is patient recruitment rates into these trials, which are
subject to the timely initiation of a sufficient number of clinical sites that
have both an appropriate patient population available and the necessary research
capacity. Site initiation activities include identifying qualified sites,
achieving the necessary internal approvals at the sites, executing contracts
with the sites, and providing the SoftScan(R) device to the sites. Any delay in
the initiation and completion of the Company's clinical trials could cause the
price of our common shares to decline. There can be no assurance that the
research and development programs conducted by the Company will result in
commercially viable products. To achieve profitable operations, the Company,
alone or with others, must successfully develop, introduce and market its
products. To obtain regulatory approvals for products currently being developed
for the medical industry (such as SoftScan(R)) and to achieve commercial success
therein, human clinical trials must demonstrate that the products are safe and
that they show efficacy. Unsatisfactory results obtained from a particular study
relating to a program may cause the Company to abandon its commitment to that
program. No assurances can be provided that any future clinical test, if
undertaken, will yield favorable results.

<PAGE>

                                      -9-


NO ASSURANCE OF SUCCESSFUL MANUFACTURING OR MARKETING

The Company has limited experience in large-scale manufacturing and in marketing
its new products. Thus, there can be no assurance that such efforts will be
successful. To the extent that the Company relies on third parties such as GE
Healthcare to manufacture or market its products, the commercial success of such
products may be outside of its control. There can be no assurance that the
pharmaceutical and medical sectors will accept the Company's products, even if
the Company's products prove to be safe and effective and are approved for
marketing by regulatory authorities in the United States, Canada, Europe or
other jurisdictions. Market acceptance of the Company's current or future
products may also depend upon other factors that are also beyond its control,
such as third parties' reimbursement practices (eg. insurance, Medicare and
Medicaid), which enable patients to obtain medical treatment payment assistance.
There can be no assurance that the Company's products, even in the event that
approval is obtained from the FDA and similar regulatory agencies, will meet
insurance companies and/or Medicare/Medicaid reimbursement criteria. Moreover,
there can be no assurance that the products which the Company's products are
intended to complement will be sold at a rate which will enable the Company to
introduce its products sufficiently quickly to achieve significant revenues or
profitable operations.

NO ASSURANCE OF SUCCESSFUL COMMERCIAL ACCEPTANCE

Market acceptance of the Company's current or future technologies and products
will depend upon a number of factors that are also beyond its control, including
developing and marketing technologies and products providing benefits comparable
to or greater than other current technologies. There can be no assurance that
the Company's current or future technologies and products will be viable for any
commercial applications and, if viable, that potential customers will utilize
the Company's technologies. Additionally, even if the completion of the research
and development of the Company's technologies results in commercially viable
applications, there can be no assurance that the Company will recover its
research and development costs.

DEPENDENCE ON THIRD PARTY RELATIONSHIPS

The Company's ability to develop products depends upon its ability to develop
relationships with third parties, including leading research institutions, for
assistance in the conduct of research efforts, pre-clinical development and
clinical studies. In addition, the Company may rely on third parties to assist
in seeking regulatory approvals, to manufacture and to market certain of the
Company's products. Although the Company believes that its strategic partners
(eg. GE Healthcare) have an economic motivation to assist with the
commercialization of the Company's products, the amount and timing of the
resources devoted by such third parties may be affected by factors beyond the
Company's control. Moreover, some of the Company's agreements with its strategic
partners are subject to meeting customary milestones and there can be no
assurance that these milestones will be met. There can also be no assurance that
the Company will be able to arrive at satisfactory terms under its existing
agreements with respect to the commercialization of its products.

<PAGE>

                                      -10-


PATENTS AND PROPRIETARY TECHNOLOGY

The Company's success will depend, in part, on its ability to obtain patents,
maintain trade secret protection and operate without infringing the rights of
third parties. The Company has filed numerous applications for patents in the
United States, Canada and other jurisdictions. There can be no assurance that
the Company's existing patent applications will be allowed, that the Company
will develop future proprietary products that are patentable, that any issued
patents will provide the Company with any competitive advantages or will not be
successfully challenged by any third parties, or that the patents of others will
not have an adverse effect on the ability of the Company to do business. In
addition, there can be no assurance that others will not independently develop
similar products, duplicate some or all of the Company's products or, if patents
are issued to the Company, design their products so as to circumvent the patent
protection held by the Company.

In addition, the Company may be required to obtain and maintain licenses under
patents or other proprietary rights of third parties. No assurance can be given
that any licenses required under such patents or proprietary rights will be
available on terms acceptable to the Company. If the Company does not obtain
such licenses, it could encounter delays in introducing one or more of its
products to the market while it attempts to design around such patents, or could
find that the development, manufacture or sale of products requiring such
licenses could be foreclosed. While the Company has entered into certain
licenses with respect to the use of patents held by third parties, there can be
no assurances that the ownership of such patents will not be challenged. In
addition, the Company could incur substantial costs in defending itself in suits
brought against the Company on such patents or in suits in which the Company
attempts to enforce its own patents against other parties.

Patent applications relating to, or affecting, the Company's business may be
filed by other companies or academic institutions. A number of these
technologies applications or patents may conflict with our technologies or
patent applications and such conflict could reduce the scope of patent
protection which the Company could otherwise obtain or even lead to refusal of
the Company's patent applications.

Moreover, much of the Company's technology, which is not patentable, may
constitute trade secrets. Therefore, employees, consultants, advisors and
collaborators are regularly required to enter into confidentiality agreements.
However, no assurance can be given that such agreements will provide for a
meaningful protection of the Company's trade secrets, know-how or other
proprietary information in the event of any unauthorized use or disclosure of
information, or that the confidentiality of the Company's trade secrets can be
maintained or that such trade secrets will not be independently discovered by
others.

COMPETITION

Competition in some segments of the markets of the imaging industry may be
intense. The Company may have to compete with other companies to develop
products aimed at the same target markets of the imaging industry. The Company's
time domain optical imaging technology will face competition from companies that
rely on magnetic resonance imaging, positron emission tomography, X-Ray and
other imaging technologies. Although the Company believes

<PAGE>

                                      -11-


that time domain optical imaging offers a competitive edge in terms of the
functional information derived from its image, there can be no assurance that
this competitive advantage will be maintained. The Company may have to compete
with other companies to develop products aimed at the same target markets. Many
of these companies may have substantially greater resources than the Company.
There can be no assurance that developments by others will not render the
Company's products or technologies non-competitive or obsolete or adversely
affect the commitment of the Company's commercial partners.

GOVERNMENT REGULATION

Securing regulatory approval for the marketing of medical devices by Health
Canada, the FDA in the United States and similar regulatory agencies in other
countries can be a long and expensive process, which can delay or prevent
product development and marketing. Regulatory approval of market products may be
for limited applications or may not be received at all. Such events would have a
material adverse effect on the sales and profitability of the Company.

PRODUCT LIABILITY AND INSURANCE

The sale and use of the Company's products entail risk of product liability.
Although the Company currently has product liability insurance, which it
believes to be adequate, it will require additional product liability insurance
for its products. There can be no assurance that the Company will be able to
obtain appropriate product liability insurance. An inability to obtain insurance
on economically feasible terms or to otherwise protect against potential product
liability claims could inhibit or prevent the commercialization of products
developed by the Company. The obligation to pay any product liability claim or a
recall of a product could have a material adverse effect on the business,
financial condition and future prospects of the Company.

DEPENDENCE ON KEY EMPLOYEES

The Company's ability to develop products depends, to a great extent, on its
ability to attract and retain highly qualified scientific and engineering
personnel. Competition for such personnel is intense. The Company is highly
dependent on the principal members of its management staff as well as its
advisors and collaborators, the loss of whose services might impede the
achievement of development objectives. The loss of key employees may affect the
speed and success of product development.

RAPID TECHNOLOGICAL CHANGES

The biomedical sector is subject to rapid and substantial technological change.
There can be no assurance that developments by others will not render the
Company's products or technologies non-competitive or that the Company will be
able to keep pace with technological developments. Competitors have developed
technologies, which could be the basis for competitive products. Some of these
products have an entirely different approach or means of accomplishing the
desired effect than products being developed by the Company and may be more
effective and less costly than the products developed by the Company.

<PAGE>

                                      -12-


MANAGEMENT OF GROWTH

The Company expects that if its efforts are successful it will experience rapid
growth, which could place a significant strain on its resources. If the
Company's management is unable to manage growth effectively, operations could be
adversely affected.

VOLATILITY OF SHARE PRICE

Market prices for securities of technology companies are generally volatile.
Factors such as public announcements of technological innovations, new
commercial products, patents, the development of proprietary rights by the
Company or others, results of clinical trials, regulatory actions, publications,
quarterly financial results or public concerns over the safety of technology,
future sales of securities by the Company or by its current shareholders and
other factors could have a significant effect on the market price of the Common
Shares. In particular, any delay in the initiation and completion of the
SoftScan clinical trials could cause the price of the Company's common shares to
decline.

POTENTIAL FLUCTUATIONS IN FINANCIAL RESULTS AND FORECASTING

The Company expects revenues and operating results to vary significantly from
quarter to quarter. As a result, quarter-to-quarter comparisons of the Company's
revenues and operating results may not be meaningful. In addition, due to the
Company's stage of development, the Company cannot predict future revenues or
results of operations accurately. It is likely that in one or more future
quarters the Company's operating results will fall below the expectations of
securities analysts and investors. If this happens, the trading price of the
Common Shares might be materially and adversely affected.

FOREIGN CURRENCIES

The Company's operations are in some instances conducted in currencies other
than the Canadian dollar (principally in US dollars), and fluctuations in the
value of foreign currencies relative to the Canadian dollar could cause the
Company to incur currency exchange losses.

INTEREST RATE SENSITIVITY

The Company's investment policy is made of high-grade government, banks and
corporate securities with varying maturities usually less than 180 days. The
Company does not have a material exposure to interest risks. The Company is also
exposed to interest rate risk on borrowings under the credit facility. The
credit facility bears interest based on Canadian dollar prime rate.

ITEM 4. INFORMATION ON THE COMPANY

A. History and development of the company

ART Advanced Research Technologies Inc. ("ART" or the "Company") was
incorporated under the Canada Business Corporations Act on July 13, 1993 under
the name ART Aerospace

<PAGE>

                                      -13-


Research Technologies Inc. On June 22, 1999, the Company's articles were amended
to change the name of the Company to its current name, ART Advanced Research
Technologies Inc./ART Recherches et Technologies Avancees Inc. The Company has
two wholly-owned subsidiaries: SAMI System Inc., which was incorporated under
the Canada Business Corporations Act on March 30, 1998, and ART Aerospace
Research Technologies U.S., Inc., a Delaware corporation incorporated on July 2,
1997.

ART's shares are traded on the Toronto Stock Exchange under the trading symbol
"ARA".

The Company's head office and principal place of business is located at 2300
Alfred-Nobel Boulevard, Saint-Laurent, Quebec, Canada H4S 2A4. The Company's
phone number is (514) 832-0777 and its facsimile number is (514) 832-0778. ART's
website is located at www.art.ca. The information contained in this website is
not part of this Report.

Since inception, the Company has devoted most of its efforts to the research and
development of innovative technologies, primarily in the field of optical
imaging. Today, ART possesses a powerful and unique multiproduct platform, a
strong intellectual property portfolio and a strategic alliance with GE
Healthcare. The principal milestones that characterize the development of the
Company's business are listed below.

In 1996, ART completed a series of private placements, which resulted in gross
proceeds of US$2.0 million to the Company.

Also in 1996, ART entered into the first of a series of agreements with the
National Optics Institute, a leading privately funded Canadian based research
and development organization in the fields of optics and photonics, in
conjunction with the development of a laser-based optical imaging device.

In August 1997, ART completed an additional private placement, which resulted in
gross proceeds of US$3.4 million to the Company.

In 1998, ART completed the pre-clinical stage testing of its SoftScan(R) optical
breast imaging device and completed an additional series of private placements,
which resulted in gross proceeds of US$7.0 million to the Company.

In 1999, ART successfully completed its first pilot study of SoftScan(R) and
entered into a research agreement with Massachusetts General Hospital ("MGH"), a
teaching hospital affiliated with Harvard Medical School.

In March 1999, a share exchange took place with the former shareholders of SPEQ
Aerospace Research Technologies Inc. ("SPEQ") whereby 3,748,060 shares of the
Company were issued to former shareholders of SPEQ in exchange for the shares of
SPEQ held by such shareholders. As a result of this corporate reorganization,
the Company became the sole shareholder of SPEQ and SPEQ was subsequently
liquidated and dissolved.

In July 1999, ART changed its name to its current name, ART Advanced Research
Technologies Inc./ART Recherches et Technologies Avancees Inc.

<PAGE>

                                      -14-


In March 2000, ART entered into a scientific collaboration agreement with GE
Medical Systems (now known as GE Healthcare), a division of General Electric
Company and a market leader in the development and distribution of medical
diagnostics imaging devices. In October 2000, this scientific collaboration
agreement was renewed for an additional six-month period.

In the spring of 2000, the Company began its second pilot (controlled) study for
the testing of SoftScan(R). The purpose of this trial was to assess the safety
of SoftScan(R) and its effectiveness in detecting abnormalities that were
detected by X-ray mammography.

In April 2000, ART established a Scientific Advisory Board composed of leading
members of the medical and scientific community. The Scientific Advisory Board
provides advice and scientific expertise to the Company on an ongoing basis. ART
currently has eight (8) members on its Scientific Advisory Board. Also in April
2000, ART completed an additional series of private placements, which resulted
in gross proceeds of approximately US$11.4 million to the Company.

On May 5, 2000, the Company held an annual and special shareholders' meeting at
which shareholders approved, among other matters, amendments to the articles of
the Company to: (i) change its share capital so that its authorized capital now
consists of two classes of shares: an unlimited number of common shares (the
"Common Shares") and an unlimited number of preferred shares (the "Preferred
Shares"); (ii) convert all of its previously issued and outstanding class B
shares to Common Shares of the Company; and (iii) cancel the class A, B, C, D,
E, F and G shares in the share capital of the Company.

On June 21, 2000 the Company effected a two-for-one stock split by declaring and
paying to its shareholders a stock dividend of one Common Share for each issued
and outstanding Common Share.

On June 29, 2000, ART completed an initial public offering of 1,850,000 Common
Shares and the listing of its Common Shares on the Toronto Stock Exchange. The
transaction yielded gross proceeds to ART of US$11.2 million. The Company used
the proceeds to fund SoftScan(R)'s research and development and selling, general
and administrative expenses, and to fund ISIS(R)'s research and development and
selling, general and administrative activities.

In September 2000, ART successfully completed its second pilot study of the
SoftScan(R) optical breast imaging device.

On November 9, 2000, the results of the second pilot study of the SoftScan(R)
optical breast imaging device were announced. The results confirmed the
technological potential for SoftScan(R) as a breast cancer detection device. The
study also revealed that SoftScan(R) is a safe and non-invasive technology,
which involves a more comfortable procedure for the patient than X-ray
mammography. On April 11, 2001, ART acquired an exclusive worldwide licence with
respect to an important patent portfolio developed by Emeritus Professor Dr.
Britton Chance and owned by Non-Invasive Technology Inc., which pertains to the
imaging of tissue using time domain technology.

On June 19, 2001, ART completed a private placement with OppenheimerFunds, Inc.
(U.S.), which resulted in gross proceeds of US$7.5 million to the Company.

<PAGE>

                                      -15-


On July 10, 2001, ART completed an additional private placement with BioCapital
Biotechnology and Healthcare Fund (Canada), which resulted in gross proceeds of
US$2 million to the Company.

On October 18, 2001, Mr. Serge Huot became the new President and Chief Executive
Officer of ART.

In November 2001, ART reorganized its activities in order to focus on the
bio-medical sector and reduce its operating costs.

In May 2002, ART began clinical testing in collaboration with the McGill
University Health Center ("MUHC") in order to validate the recent changes made
to the configuration of the SoftScan(R) device.

In July 2002, ART concluded the sale of its ISIS(R) division to Photon Dynamics,
Inc. for US$5.5 million.

On September 3, 2002, Ms. Micheline Bouchard succeeded Mr. Serge Huot as
President and Chief Executive Officer of ART.

On October 22, 2002, ART concluded a strategic alliance with GE Medical Systems
(now known as GE Healthcare), consisting of an equity investment, an agreement
for the development of new applications in the field of molecular imaging, as
well as an agreement for the marketing, manufacture and distribution of
SoftScan(R).

On October 23, 2002, ART held an annual and special meeting of its shareholders.
The shareholders voted in favor of the adoption of a resolution, which approved
an amendment to the stock option plan of the Company so as to increase the
maximum number of Common Shares available for issuance from 1,770,462 to
2,650,000 Common Shares. ART's shareholders also gave their advance approval for
the issuance by the Board of Directors of a number of Common Shares by private
placement that exceeded 25 % of the Company's issued and outstanding share
capital.

Between November 8 and November 15, 2002, ART closed a total of US $7.5 million
by way of a private placement (US$2.5 million with Oppenheimer Funds, Inc.,
US$2.0 million with former President and Chief Executive Officer Serge Huot and
US$3.0 million with General Electric Company).

On February 18, 2003, ART announced the appointment of Mr. Benoit La Salle and
Mr. Jacques Courville to its Board of Directors. Mr. La Salle succeeded Mr.
Bernard Allaire as Chairman of the Board of ART.

On June 9, 2003, ART announced the start of a multi-centre clinical trial for
SoftScan(R) with Sunnybrook and Women's College Health Sciences Centre as the
first approved clinical site.

On June 18, 2003, ART announced the official commercial launch of its
pre-clinical molecular imaging product, SAMI(TM) (now known as eXplore
Optix(TM))

<PAGE>

                                      -16-


In August 2003, ART concluded an agreement under which GE Medical Systems, a
unit of General Electric Company, acts as exclusive worldwide distributor for
SAMI(TM).

On September 12, 2003, ART announced the change in its financial year-end from
April 30 to December 31, effective as of December 31, 2003, to be aligned with
most other companies in the bio-optical imaging sector.

On September 18, 2003, ART announced the start of a multi-centre clinical trial
for SoftScan(R) with the Ottawa Regional Women's Breast Health Centre at the
Civic Campus of The Ottawa Hospital as one of the approved clinical site.

On September 19, 2003, ART and GE Medical Systems, acting as worldwide
distributor for ART's pre-clinical optical molecular imager, announced the first
sale of a SAMI(TM) to the U.S. National Institutes of Health (NIH).

On September 23, 2003, ART announced the completion of a private placement of
more than US$10.3 million.

On December 8, 2003, ART announced the continued success of its
commercialization efforts with additional sales of its SAMI(TM) pre-clinical
optical molecular imager to the pharmaceutical and academic research sectors,
and a change in the name under which the SAMI(TM) product will be distributed to
"eXplore Optix(TM)".

On December 15, 2003, ART announced that it acquired exclusive worldwide
licensing rights to the extensive optical molecular imaging patent portfolio of
Dr. Joseph Lakowicz, a world- renowned biochemist and molecular biologist as
well as a pioneer in the field of fluorescence spectroscopy.

On December 22, 2003, ART completed a private placement of US$ 658,395.

On January 12, 2004, ART announced the strengthening of its senior executive
team by the appointment of Mr. Warren Baker as Chief Operating Officer and Dr.
Joseph Kozikowski as Chief Medical Officer of ART.

On March 10, 2004, the Company closed a treasury offering of 7,500,000 Common
Shares representing gross proceeds of US$11.3 million, followed by the partial
exercise of an over-allotment option on March 19, 2004, which resulted in the
issuance of 920,000 additional Common Shares representing additional gross
proceeds of US$1.4 million.

On March 28, 2004, the Company presented results of in vivo studies
demonstrating the high quantitation and high sensitivity capabilities of eXplore
Optix(TM) in the nanomolar range at the Annual Meeting of the American
Association for Cancer Research. These in vivo studies demonstrated subnanomole
fluorophore quantity detection capabilities at a depth of between 10 and 15 mm.

On March 29, 2004, ART presented at the Annual Meeting of the Academy of
Molecular Imaging the results of a study demonstrating the high quantitation,
precise three-dimensional localization, and fluorescence lifetime in vivo
capabilities of the eXplore Optix(TM) system in the murine animal model. The
results of a second study were also presented which demonstrated the

<PAGE>

                                      -17-


system's abilities to localize and discriminate between multiple endogenous and
exogenous molecules. Time-domain resolution of fluorescent lifetimes as small as
0.2 nanoseconds was achieved.

On April 29, 2004, ART received the Health Technology Entrepreneurship Award at
the 4th edition of the Genesis Awards during the Biomedex conference-exhibition,
in Montreal, Canada.On April 30, 2004, ART announced positive clinical study
results from product research and development with ART's SoftScan(R) breast
imaging system. Those results confirmed SoftScan(R)'s ability to discriminate
between normal and malignant tissue.

On May 13, 2004, ART announced - following discussions with the U.S. Food and
Drug Administration (FDA) - that it will participate in the FDA's STED Pilot
Program with a submission to have its SoftScan(R) breast imaging system reviewed
and approved under a harmonized format. ART expects that this
globally-harmonized regulatory review process will bring added efficiency to
SoftScan(R)'s review process, enable ART to gain market entry with SoftScan(R)
in a more cost-effective manner and enable SoftScan(R) to be available more
quickly to the international community.

On June 2, 2004, ART and LAB Preclinical Research International Inc., a
preclinical contract research organization based in Laval, Canada, announced the
signing of an agreement under which LAB Preclinical Research International Inc.
will act as a preclinical demonstration site and provide real-time testing and
evaluation of ART's eXplore Optix(TM) time-domain small animal molecular imaging
system.

On June 17, 2004, ART received the Armand-Frappier Foundation 2004 Award in the
"Innovation" category.

On July 6, 2004, ART announced the appointment of Dr. Martin Yaffe as Chairman
of ART's Scientific Advisory Board.

On July 13, 2004, ART announced the sale of its pre-clinical optical molecular
imager, eXplore Optix(TM), to the University of Bergen (UiB), Norway's
International University.

On July 20, 2004, ART announced it received its certificate of registration to
the International Organization for Standardization ISO 9001:2000 quality
management standard.

On September 16, 2004, the Company presented its unique and innovative optical
3D image reconstruction software for the eXplore Optix(TM) at the Society for
Molecular Imaging Conference held in Saint-Louis (USA) from September 9 to
September 12, 2004. The 3D optical reconstruction software product, which will
be distributed by GE Healthcare, extends the unique capability of eXplore
Optix(TM) to allow the generation of 3D volume sets of fluorescence data that
can be co-registered with other modalities.

On October 19, 2004, ART announced the appointment of an outstanding group of
clinical physicians and scientists, considered to be leading experts in the
field of breast imaging and radiology, to its Clinical Advisory Board.

On November 16, 2004, ART announced the appointment of Mr. George N. Fugelsang
to its Board of Directors.

<PAGE>

                                      -18-


On December 2, 2004, ART announced the selection of the Centre Hospitalier de
l'Universite de Montreal (CHUM) and the McGill University Health Centre (MUHC)
as the first of its clinical research sites for the conduct of its SoftScan(R)
pivotal clinical study in Canada and the United States.

On February 22, 2005, ART announced its participation as a Bronze Sponsor and
exhibitor in the 2005 edition of The Breast Course, which was held at the
Fairmount Chateau Frontenac in Quebec City, from February 27 to March 2, 2005.

On March 8, 2005, ART announced its participation in a mission to the Greater
Boston area, focused on Technology partnering for medical devices, and organized
by the Consulate General of Canada in Boston.

On March 14, 2005, ART announced the global launch of the multiwavelength system
module and expansion of ART's eXplore Optix(TM) time-domain small animal
molecular imaging system product line.

On March 17, 2005, ART announced it obtained authorization from Health Canada's
Therapeutic Products Directorate (TPD) to begin its pivotal clinical study in
Canada for its SoftScan(R) optical breast imaging system.

On March 21, 2005, ART announced its participation at the annual conference of
the AMI, which was held at the Gaylord Palms Resort and Convention Center in
Orlando, Florida, from March 18 to 23, 2005.

On March 29, 2005, ART announced the demonstration of its range of products at
the 2005 edition of BIOMEDEX, which was held at the Fairmount The Queen
Elizabeth in Montreal, from March 30 to 31, 2005.

On April 4, 2005, ART announced the demonstration of the new eXplore Optix(TM)
multi-wavelength system at the GE booth during the first annual conference on
Image Analysis and in-Vivo Pharmacology (IAVP), which was held at the Hotel
Comwell Roskilde in Roskilde, Denmark, from April 7 to 9, 2005. In addition, ART
participated in the scientific program with a presentation on the applications
of time-domain imaging technologies.

On April 14, 2005, ART announced its participation at the annual conference of
the American Association for Cancer Research (AACR), which was held at the
Anaheim Convention Center in Anaheim, California, from April 16 to 20, 2005.

On May 5, 2005, ART announced its participation in break out sessions at an FDA
workshop on the use of medical imaging as a drug development tool, which was
held in Bethesda, Maryland, from May 5 to 6, 2005.

On July 14, 2005, ART closed a total of US$5.9 million by way of a private
placement of convertible preferred shares by the Company with OppenheimerFunds,
Inc., a long-time shareholder of ART.

On July 19, 2005, ART announced that the Company's Management system had been
certified to ISO 13485:2003.

<PAGE>

                                      -19-


On July 28, 2005, ART closed a US$5 million private placement of senior secured
convertible debentures with a limited number of U.S. institutional investors who
retain the option to invest an additional US$2.5 million in convertible
debentures.

On August 25, 2005, ART announced that results from an engineering optimization
study conducted at the Cedars Breast Center of the Royal Victoria Hospital in
Montreal, Quebec, Canada, under the supervision of Dr. David Fleiszer, have been
published in the August issue of Academic Radiology. The article, entitled
"Time-Domain Optical Mammography SoftScan(R) : Initial Results" illustrates the
sensitivity of near-infrared (NIR) optical techniques to the metabolic functions
of breast tissue.

On September 2, 2005, ART announced its participation at the 4th Annual Meeting
of the Society of Molecular Imaging (SMI), to be held at the Gurzenich Congress
Center, in Cologne, Germany, from September 7 to 10, 2005.

On September 8, 2005, ART announced the appointment of Mr. Mario Khayat as Vice
President, Optical Products, and that ART's Chief Operating Officer, Mr. Warren
Baker, had been assigned exclusively to lead ART's strategic growth initiatives
which is to become a key priority for the Company over the next few months.

On October 4, 2005, ART announced that on Friday, October 7, 2005, Micheline
Bouchard, President & CEO, would be presenting an update on ART's recent
developments in achieving key milestones at the BioContact Quebec 2005 investor
conference to be held at the Fairmount Chateau Frontenac in Quebec City (Canada)
from October 5 to 7, 2005.

On October 7, 2005, ART announced that a SoftScan(R) clinical study was underway
at the first clinical research sites in the United States, Massachusetts General
Hospital (MGH), in Boston, MA. Led by Dr. Daniel B. Kopans, Director of Breast
Imaging at the Massachusetts General Hospital, and a leading authority on breast
cancer screening, this clinical study will provide results to be used by ART in
its submission to the U.S. Food and Drug Administration (FDA) to support the
Company's SoftScan(R) Pre-Market Approval ("PMA") application.

On October 24, 2005, ART announced the launch of a pivotal clinical study, in
collaboration with the Cedars Breast Clinic of the McGill University Health
Centre (MUHC). This pivotal study, North American in scope, is the final stage
prior to commercializing SoftScan(R), an optical breast imaging system designed
to improve the diagnosis and treatment of breast cancer.

On November 16, 2005, ART reported that Dr. David R. Vera, Adjunct Professor,
Department of Radiology, University of California-San Diego (UCSD) will make a
presentation entitled "In Vivo Fluorescence Applications in Small Animal Imaging
and Development of Diagnostic Imaging Agent" at the 2nd annual In Vivo Molecular
Imaging (IVMI) conference in La Jolla, California.

On November 23, 2005, ART announced that it is undertaking trials in Western
Canada, in collaboration with the Central Alberta Medical Imaging Services
(CAMIS), as part of its North American pivotal study for the SoftScan(R) optical
breast imaging system.
<PAGE>

                                      -20-


B.   Business Overview

INDUSTRY OVERVIEW

The Company's principal goal is to become a market leader in the development and
commercialization of molecular imaging systems for the medical and
pharmaceutical sectors.

Medical Diagnostic Imaging Devices

Diagnostic imaging devices create images of body organs and tissues, in order to
assist in the detection and diagnosis of diseases and injuries. These devices
represent an important component of health care expenditures and are
encountering solid market growth. According to the Frost & Sullivan market study
"U.S. Medical Imaging Industry Outlook", the primary factors driving strong
growth for the medical imaging industry include greater imaging needs of the
aging population, advanced technologies that allow imaging to replace invasive
procedures, the introduction of products with increased functionality that draw
interest from groups outside of the radiology department, increased
digitization, and a movement towards molecular imaging. Worldwide revenues for
medical imaging market is expected to grow from US$30.8 billion in 2005
(including US$19.5 billion for imaging equipment alone) to more than US$38
billion in 2008, representing a compound annual growth rate (CAGR) of 7.7%. As
imaging is still primarily used to diagnose, the technology is also increasingly
being deployed for early detection, and for intermittent use between treatments
to make sure a specific treatment plan is efficacious. Frost & Sullivan confirms
that as much as molecular imaging is important today, it will become even more
important in the years to come.

Cancer Facts and Figures

According to the Canadian Cancer Society ("CCS"), an estimated 149,000 new cases
of cancer and 69,500 deaths from cancer occurred in Canada in 2005. Cancer is
the leading cause of premature death in Canada, being responsible of almost 31%
of all potential years of life lost. Comparable statistics can be found with
respect to the United States. The American Cancer Society ("ACS") estimated that
about 1,399,790 new cancer cases will be diagnosed in 2006. (These estimates do
not include carcinoma in situ - non-invasive cancer - of any site except urinary
bladder, and do not include basal and squamous cell skin cancers.) This year
about 564,830 Americans are expected to die of cancer, which represents more
than 1,500 people a day. Cancer is the second leading cause of death in the
U.S., exceeded only by heart disease. The National Institutes of Health in the
U.S. estimates overall costs for cancer in 2005 at $209.9 billion: $74.0 billion
for direct medical costs (total of all health expenditures); $17.5 billion of
indirect morbidity costs (costs of lost productivity due to illness); and $118.4
billion for indirect mortality costs (costs of lost productivity due to
premature death).

In 2005 the most frequently diagnosed cancers in Canada were expected to be
breast cancer for women and prostate cancer for men. According to the World
Health Organization ("WHO"), breast cancer is the most common form of cancer
among women worldwide. Breast cancer accounts for 29.7% of all new cancer cases
in Canadian women and 31.3% in American women and ranks second among cancer
deaths in women in Canada and ranks third in the U.S. In the United States, an
estimated 212,920 new invasive cases of breast cancer are expected to occur
among women during 2006 and about 1,720 new cases are expected in men in 2006.
An estimated 41,430 deaths (40,970 women, 460 men) are anticipated from breast
cancer in 2006 in

<PAGE>

                                      -21-


the U.S. In addition to invasive breast cancer, 61,980 new cases of in situ
breast cancer are expected to occur among women during 2006. Likewise in Canada,
an estimated 21,600 new cases of breast cancer were expected to occur among
women and about 150 new cases were expected in men in 2005. The CCS estimates
that during their lifetimes, 1 in 9 women are expected to develop breast cancer
and 1 in 27 women are expected to die from it.

Following a small but steady annual increase between 1975 and 1992, breast
cancer incidence among women levelled off in 1993 in Canada and most recent data
showed that the breast cancer mortality rate is at its lowest since 1950. This
pattern of divergent trends is consistent with the benefits being achieved
through screening programs and improved treatments. Similar trends have also
been reported in the United States, the United Kingdom and Australia.

However, the report, "Annual Report to the Nation on the Status of Cancer,
1973-1999" published in May 2002 by the NCI, ACS, the North American Association
of Central Cancer Registries, the National Institute on Aging ("NIA"), the
Centers for Disease Control and Prevention, the National Center for Health
Statistics, and the National Center for Chronic Disease Prevention and Health
Promotion, concludes that the most important risk factor for cancer is age. The
report also concluded that although death rates for all cancers combined
continued to decline, the number of cancer cases can be expected to increase
because of the growth and aging of the population in coming decades. Because the
U.S. population is both growing and aging, the authors focused on how, even if
rates of cancer remain constant, the number of people diagnosed with cancer will
increase. The authors projected the cancer burden in about 50 years from now by
applying U.S. Census Bureau population projections to current cancer incidence
rates. The authors anticipate a doubling from 1.3 million people to 2.6 million
diagnosed with cancer. NIA Director Richard J. Hodes, M.D. notes that, "The data
presented in the report underscore a critical need for expanded and coordinated
cancer control efforts to serve an aging population and reduce the burden of
cancer in the elderly."

Such findings - combined with pressure from a variety of sources including
women's action groups - have led health care systems across the globe to put
more emphasis on early detection and screening. A woman's chances of surviving
breast cancer improve tremendously with early diagnosis. According to the ACS,
the five-year survival rate decreases from 97.9% to 81.3% after the cancer has
spread to the lymph nodes, and to 26.1% after it has spread to other organs such
as the lung, liver, or brain. As well, early detection can reduce the need for
biopsies and surgery, reduce the debilitating effects of therapy and reduce the
cost of treatment. However, according to the ACS, traditional mammography
devices do not detect, on an average, 10-20% of breast cancers in women without
symptoms. Therefore, the demand for more effective diagnostic devices, as well
as for more screening is expected to grow. The WHO states that if facilities are
available, screening by mammography alone - with or without physical examination
of the breasts, plus follow-up of individuals with positive or suspicious
findings - will reduce mortality from breast cancer by up to one-third among
women aged 50-69 years.

Breast cancer screening is generally recommended as a routine part of preventive
healthcare for women over 20. For these women, ACS has published guidelines for
breast cancer screening including: (i) yearly mammograms starting at age 40 and
continuing for as long as a woman is in good health; (ii) clinical breast exams
(CBE) should be part of a periodic health exam, about every three years for
women in their 20s and 30s and every year for women 40 and over; (iii) women
should report any breast change promptly to their health care providers. Breast
self-exam

<PAGE>

                                      -22-


(BSE) is an option for women starting in their 20s; and (iv) women at increased
risk (e.g., family history, genetic tendency, past breast cancer) should talk
with their doctors about the benefits and limitations of starting mammography
screening earlier, having additional tests (e.g., breast ultrasound or MRI), or
having more frequent exams.

Spending in the health care sector has risen dramatically in recent years.
According to the U.S. Centers for Medicare & Medicaid Services, health care
expenditures in the United States increased more than seven times between 1980
and 2004, increasing from US$254.9 billion to approximately US$1.88 trillion.
The United States and Canada are estimated to be among the world's top five per
capita spenders on health care. As a result, purchasers of medical diagnostic
imaging devices in North America, which include hospitals, group purchasing
organizations, specialized imaging centers, research institutes and medical
clinics, are striving to reduce costs while offering superior service to
patients. They are demanding devices that provide the most complete information
possible, that are reliable and that are safe for both patient and doctor.

Diagnostic Mammography Devices

Current methods of detecting breast cancer typically include physical
examination by the patient or a medical professional and conventional X-ray
mammography. Conventional X-ray mammography is commonly used for both routine
breast cancer screening and as a diagnostic tool. A mammogram based on this
technology produces an image on film of the internal structure of the breast
that is intended to display lesions as white spots against the black and/or
white background of normal tissue. If a suspicious lesion is identified, or if
other breast cancer symptoms are present, an additional diagnostic mammography
is typically ordered. In a diagnostic mammogram, radiologists seek to analyze
suspicious lesions. However, a conventional X-ray mammogram has only a limited
ability to identify early stage tumors or tumors in women with radio dense
breast tissues (most women have radiologically dense breast tissues). The
limitations to conventional X-ray technology means that radiologists frequently
have difficulty in differentiating between malignant and benign tumors.

If a radiologist cannot reach a conclusion on the nature of the lesion or tumor,
an ultrasound exam is often required. To determine if a lesion is malignant or
benign, a breast biopsy will typically be performed on the potentially malignant
tissue. In the United States there are approximately 33 million mammography
procedures conducted annually, of which some 3.3 million require additional
testing and 8% to 10% of these will require a biopsy. A biopsy involves the use
of a needle or surgery in order to remove fluid or fragments of tissue. Patients
who are referred to biopsy are usually required to schedule the procedure in
advance and generally must wait up to 48 hours for their biopsy results. Only
one fifth of biopsies reveal cancer. This means that in a majority of cases a
patient without cancer has undergone an expensive procedure, which is often
painful, can result in scarring and gives rise to considerable anxiety.
Moreover, X-ray mammography exposes patients to potentially harmful ionizing
radiation and requires painful procedures designed to compress the breast in
order to produce a clearer image.

Some companies in the X-ray mammography field are offering digital X-ray systems
that overcome some of the limitations inherent in conventional X-ray technology.
Digital X-ray does not print images on photographic film. Instead, images are
captured electronically and viewed on a computer monitor. This permits the
radiologist to change magnification, brightness and contrast after the image is
produced in order to show cancers more clearly. It also means that the

<PAGE>

                                      -23-


image can be transmitted electronically and does not require costly processing
associated with film. While digital X-ray systems represent an improvement over
conventional X-ray and are therefore likely to gain market acceptance, they will
not eliminate all of the limitations associated with X-ray technology. For
example, digital X-ray still requires ionizing radiation and painful
compression, and has a limited ability to image dense breast tissue. This is
because digital X-ray systems are only an enhanced version of the existing
conventional X-ray technology. In order to reduce costs and the pain and
suffering of patients along with improving the early detection of cancer, a new
technology is needed. The Company believes that its time domain based imaging
solution, SoftScan(R), offers an improved solution that will address the
limitations of both conventional and digital X-ray systems.

New Technologies

Until recently, light-based imaging techniques were not sophisticated enough to
detect anomalies in human tissue. The scattering effect of human tissue on
optical signals, the insensitivity of existing instrumentation and the
difficulties of analyzing the image captured by the existing technology have
been the major obstacles to using light-based techniques in breast cancer
detection.

Recent advances in laser technologies and semiconductor detectors, coupled with
powerful new software algorithms, now permit the development of more accurate
detection and diagnostic systems. These next generation optical digital systems
are not limited to providing a two-dimensional image that is dependent on the
processing of film, but are instead able to produce a computer generated image
of human tissue. The new technologies that underlie optical digital imaging
include: continuous wave imaging, frequency domain imaging and time domain
imaging. Continuous wave imaging uses a laser source with a continuous output
and a solid-state detector which monitors signal strength. Frequency domain
imaging uses the same type of laser source but an alternating signal modulates
the intensity of the laser's output. Time domain based digital imaging
technology uses a laser to produce high peak energy pulses of very short
duration with a high repetition rate and a detector to measure signal strength
over time.

Since time domain optical imaging technology allows more precise recovery of
optical parameters than either frequency domain or continuous wave optical
imaging technologies, it is fully expected that the additional information will
result in the superior performance of time domain optical imaging for the
diagnosis and detection of breast cancer.

Since its inception, the Company has concentrated on developing time domain
technology. The Company believes that it is an industry leader in the
development of applications of this technology to the medical diagnostic imaging
sector. To the Company's knowledge, no company other than ART has publicly
acknowledged that it is currently working with time domain based imaging
technology.

                             BUSINESS OF THE COMPANY

Corporate Strategy

The Company's principal goal is to become a leading provider of optical
molecular imaging products for the healthcare and pharmaceutical industries. In
order to achieve this goal, the Company's strategy is to:

<PAGE>

                                      -24-


MAINTAIN AND EXTEND ITS TECHNOLOGY LEADERSHIP POSITION

The Company has established and will continue to extend its leadership position
in the design, development and application of optical imaging solutions for the
biomedical sector based on the Company's time domain technology. To this end,
the Company has put in place a management team with the skills and experience
required to build on its technology leadership position and to sustain the
accelerated growth that the Company anticipates will flow from market acceptance
of its products. The Company will also continue to add to the team of scientists
and specialists that drive its in-house research and development program. The
Company believes that its in-house research and development capabilities will
provide it with a competitive advantage in the speed with which it can develop
and convert its proprietary technology into products targeting high growth
market segments.

PURSUE HIGH GROWTH SEGMENTS WITHIN THE BIOMEDICAL IMAGING MARKET

The overall markets for diagnostic imaging devices and small animal laboratory
instruments are already large and are expected to continue growing in the
future. Within these markets there are segments, such as digital mammography and
molecular imaging, that have substantially higher growth rates than other
segments. The Company's strategy is to focus on product development efforts to
meet the needs of these high growth market segments, and to deliver products
quickly and efficiently with a view to maximizing ART's growth and
profitability. In order to bring its products to market rapidly and establish a
"first to market" presence, the Company pursues strategies designed to secure,
when applicable, regulatory approval for its products as quickly and efficiently
as possible.

LEVERAGE ITS TECHNOLOGY TO DEVELOP NEW PRODUCTS

By leveraging its knowledge and expertise with respect to medical and
bio-optical applications for its technology, the Company will continue to
develop new applications, which complement or add to its existing product line.
ART may also acquire technologies that will allow the Company to complement or
expand its existing product line. At the same time, the Company will exploit
opportunities to develop applications of its proprietary technology to the small
animal molecular imaging sector, which will not require regulatory approval from
the health authorities thus allowing a faster time-to-market. In the longer
term, the Company intends to pursue opportunities to apply its optical imaging
technology to challenges beyond breast cancer and drug development. These
challenges include new possible applications of the SoftScan(R) technology to
the fields of neurology and cardiology, and with respect to prostate cancer.
Through continuous market data gathering and analysis, ART will ensure that its
"quick to market" capability is focused on products with identified needs in
market segments which are attractive to the Company.

EXPAND STRATEGIC RELATIONSHIPS AND ALLIANCES WITH INDUSTRY LEADERS

To facilitate early entry into its target markets, ART is actively pursuing
strategic relationships with leading organizations. This is particularly
important in the biomedical sector because strategic relationships can prove
instrumental in ensuring that a new product gains broad market acceptance,
bringing a company's product to market through a well-developed and extensive
service and distribution network. Developing strategic relationships can also
help ensure that the Company complements its in-house research and development
with knowledge gained from

<PAGE>

                                      -25-


leading research organizations working in the same field. The Company will also
continue to expand other relationships in order to secure market acceptance of
its products, including relationships with hospitals, group purchasing
organizations, imaging centres, research institutes and medical clinics, while
maintaining and developing relationships with other biomedical technology
industry leaders.

Corporate Objectives

ART's mission is to be recognized a market leader in the development and
commercialization of molecular imaging systems for the healthcare and
pharmaceutical sectors. The Company has set short, medium and long-term
objectives in order to reach its goal of becoming a leading provider of optical
imaging solutions to the biomedical sector. In the short-term, the Company
intends to complete clinical trials for SoftScan(R) in accordance with its
regulatory strategy which seeks to obtain approval for SoftScan(R) as an adjunct
diagnostic device to X-ray mammography as a first clinical indication. At the
same time, the Company will pursue the commercialization of its eXplore
Optix(TM) device through its exclusive worldwide distributor, GE Healthcare. Its
pre-clinical optical imaging technology has been brought to market quickly
because it is not used on humans and did not require regulatory approvals by
health authorities. The Company anticipates that revenues generated from this
first commercial application for small animals could assist in funding further
research to adapt optical molecular imaging for human applications. In the
medium-term, the Company plans to secure regulatory approval for SoftScan(R) in
Canada and in the United States, and thereafter in Europe. The Company will
proceed to commercialize SoftScan(R) as soon as it has obtained approval for its
first indication.

With the recent acquisition of the Fenestra(TM) biomarker technology, resulting
from the Alerion Biomedical, Inc. transaction, the Company has effectively
positioned itself to develop a presence in the rapidly expanding global
preclinical and clinical imaging contrast and radiopharmaceutical market which
could represent a potential source of recurring revenue.

The Company will continue its research and development program and pursue its
growth strategy with the long-term objective of developing, acquiring and
commercializing new technologies and additional products that fit with the
Company's vision and mission and that complement or add to its product line.

THE COMPANY'S PRODUCTS

SOFTSCAN(R)

Overview

ART has developed SoftScan(R), a device used for detecting, characterizing and
diagnosing breast diseases. SoftScan(R) uses time domain optical imaging
technology, which the Company believes is the most promising technology for
purposes of detecting, characterizing and diagnosing breast cancer. SoftScan(R)
is designed to help address critical and unmet needs in breast tissue analysis:
the need for a device that provides functional and physiological information
about a tumor. Furthermore, SoftScan(R) is also expected to be effective for
imaging and diagnosing diseases in radiologically dense breasts, which represent
a large segment of the population, particularly of

<PAGE>

                                      -26-


young women, which also comprises a large proportion of pre-menopausal women. It
is essential to be able to provide an effective imaging solution for this
segment of the population since the younger a woman, the more devastating breast
cancer will be if left undetected.

Using SoftScan(R), the Company believes that medical practitioners will be able
to obtain data about key aspects of breast cancer which were not previously
available, such as angiogenesis and hyper metabolism.

Time domain optical imaging technology provides a more realistic description of
the tissue being imaged by allowing the separation of light which is scattered
in the tissue from light that is absorbed. This approach should lead to a more
accurate measure of blood volume and oxygen saturation levels within the breast.
For example, an active tumor would typically demonstrate angiogenesis, to
survive and metastasize (spread), reflected by a different metabolic behavior
than healthy tissue, thus displaying contrast in the optically recovered
physiological parameters.

The Company anticipates that SoftScan(R) will have several advantages over other
breast imaging devices for a number of different groups, including patients,
medical practitioners and health care providers (i.e. governments, insurance
companies and health management organizations that pay for such devices).

Some of the key anticipated advantages are set out below.

<TABLE>
<CAPTION>
GROUP                   ANTICIPATED ADVANTAGES
-----                   ----------------------
<S>                     <C>
Patients                -    No painful compression of breast.

                        -    No harmful ionizing radiation.

                        -    Early characterization of anomalies.

                        -    Improved diagnosis.

                        -    Improved quality of care.

                        -    Reduction in need for painful biopsies.

Medical Practitioners   -    Higher degree of precision in diagnosis and
                             treatment.

                        -    Ability to image the breast and part of the
                             axillary area (area between the breast and armpit).

                        -    Ability to image patients as many times as needed,
                             without ionization.

                        -    Ability to image patients

                             (i)  with radio-dense breast tissue,

                             (ii) who have had breast surgery,

                             (iii) and who are on hormonal replacement therapy.

                        -    Ability to distinguish malignant from benign
                             tumors.

                        -    Ability to monitor breast cancer treatments.

                        -    Ability to tailor treatment to individual needs.

Health Care Providers   -    Increased overall productivity.

                        -    Decrease in treatment costs and operational costs;
                             and

                        -    Low operating costs.
</TABLE>

<PAGE>

                                      -27-


Technology

SoftScan(R), which is based on time domain optical imaging technology,
represents the first generation of a computerized time-resolved optical breast
imaging system. This system measures photon migration through the breast at many
optical wavelengths, selected to be sensitive to clinically significant
physiological parameters in breast tissue. The SoftScan(R) system is comprised
of an optical acquisition unit, a patient table, scanning accessories and a
processing and display workstation installed on a separate mobile table. In a
clinical setting, the SoftScan(R) system can be located and installed in any
type of space similar in size to an X-ray mammography suite.

The laser emitter and the detectors of the SoftScan(R) system are located
opposite each other, on the outside of the stabilizing plates. These two
components travel together in a raster pattern over the breast. The technique
consists of launching brief pulses of near-infrared energy into the breast and
measuring the temporal distribution of the emerging photons on the far side of
the breast. The temporal point spread function ("TPSF") of the photons is used
to mathematically derive the absorption and scattering coefficients for the
pixel or scanner position imaged.

The data collected by the detection module during the sweep is channelled to the
computer for processing by SoftScan(R) proprietary algorithms. Once the scan is
complete, the raw data are saved on DVD and transferred to an review workstation
where the data is analyzed with the help of the SoftScan(R) algorithms. The
program proceeds to reconstruct a curve representing the intensity of captured
photons as a function of time for each point in the scan. From this curve, the
optical parameters (absorption and scattering) of the tissue scanned at each
point are extracted.

The result is a functional map that provides information about blood volume and
blood oxygen content that traditional anatomical imaging modalities do not
generate. Moreover SoftScan(R)'s time domain optical technology captures a
greater amount and quality of data than other optical imaging technologies,
including those based on continuous wave technology. Continuous wave optical
technology is not able to separate light scattering and absorption
coefficientsbecause it only provides intensity information without the ability
to derive functional images as allowed with time domain optical technology.. The
Company believes that SoftScan(R)'s ability to determine whether lesions are
malignant or benign at an earlier stage through functional imaging will offer a
solution to the limitations inherent in other technologies.

The addition of functional information in the clinical process is an important
development. This is because functional data provided by SoftScan(R) enables a
medical practitioner to qualify several of the parameters which often accompany
cancer such as increased tissue blood supply due to angiogenesis, which is the
formation of new small blood vessels; and the oxygen saturation of this blood
due to a localized increase in metabolic activity generated by a cancer's rapid
growth. Also, the scatter component recovered through SoftScan(R)'s time domain
optical imaging technology should provide an indication of the changes in the
microscopic structure of the tissues and blood vessels that are affected by the
onset of cancer. SoftScan(R) will therefore enable practitioners to identify key
aspects of breast cancer simultaneously, thereby facilitating the determination
of whether a tumor is malignant or benign.

In addition, unlike conventional and digital X-ray, SoftScan(R)'s imaging
technique will not subject the breast to invasive procedures or harmful ionizing
radiation and will not require painful compression of the breast during the
imaging procedure.

<PAGE>

                                      -28-


The Company believes that this technology will improve diagnostic and treatment
practices, thereby helping to save lives and, in turn, saving the medical system
millions of dollars in patient work-up, treatment and post-treatment costs. Due
to its functional imaging capability, the Company believes that SoftScan(R) has
the potential to assist the medical community at two levels: (i) by being a
significantly different option chosen by practitioners to assist in diagnosis
and treatment decision making; and (ii) by permitting monitoring and repeated
follow-up imaging (due to the absence of ionizing radiation) that will assist in
monitoring the success of the selected treatment.

Strategic Alliances

To facilitate early market entry, the Company seeks strategic alliances with
market leaders who could be instrumental in bringing the Company's product to
market quickly and efficiently through a well developed and extensive
distribution capability. The Company expects that global medical market leaders
offering a range of screening and diagnostic devices will wish to enhance their
own competitive position by being able to offer cutting edge imaging devices
that complement new detection devices such as digital X-ray.

The Company has signed a research agreement with MGH, a teaching hospital
affiliated with Harvard Medical School, which has one of the largest
hospital-based research programs in the United States. In addition, the Company
has benefited through agreements with the INO, which employs more than 185
scientists and technologists focused on pursuing innovative research in the
optics field. ART will also have the opportunity to benefit from GE Healthcare's
expertise through its strategic alliance with this company. ART and GE
Healthcare have signed multi-year agreements in which GE Healthcare will develop
with ART new optical molecular imaging applications and help market, manufacture
and distribute SoftScan(R).

Regulatory Process

Most countries, including the United States, Canada and countries in the
European Union, require regulatory approval prior to the commercial distribution
of medical devices. Sales of medical devices in Canada are subject to regulation
principally by Health Canada's Therapeutics Products Directorate (TPD). To
secure TPD approval, the Company must demonstrate that: (i) as a diagnostic
device, the device provides information that measurably contributes to a
diagnosis of a disease or condition, (ii) the device is safe, and (iii) the
device has been designed, developed and manufactured in compliance with
appropriate quality standards. In the Canadian context for most medical devices,
it is estimated that Health Canada's TPD review process may take up to 120 days
once the medical device license application has been submitted.

In the United States, the FDA classifies medical devices intended for human use
into three classes: Class I; Class II; and Class III. In general, Class I
devices are products with respect to which the FDA can determine that safety and
effectiveness can be reasonably assured by general controls relating to such
matters as permitted changes to the product, misbranding, registration,
notification, records and reports, and good manufacturing practices ("GMP").
Class II devices are products with respect to which the FDA determines that
these general controls are insufficient to provide reasonable assurance of
safety and effectiveness, and that therefore require special controls such as
the promulgation of performance standards, post-market surveillance, patient
registries, or such other actions as the FDA deems necessary. Class III devices
are devices with respect to which the FDA has insufficient information to
conclude that

<PAGE>

                                      -29-


either general controls or special controls would be sufficient to assure safety
and effectiveness, and which are life-supporting, life-sustaining, of
substantial importance in preventing impairment of human health (e.g. a
diagnostic device to detect a life-threatening disease), or which present a
potential unreasonable risk of illness or injury. Devices in Class III, such as
SoftScan(R), require pre-market approval ("PMA") before they can be sold and
distributed as a medical device. Pre-market approval by the FDA is a process of
regulatory and scientific review to ensure the safety and effectiveness of a
medical device.

To obtain FDA approval to market a medical device such as SoftScan(R), the FDA
requires, among other information, proof of safety and efficacy obtained as a
result of human clinical trials, sometimes performed under an Investigational
Device Exemption ("IDE"). An IDE application must contain pre-clinical test
data, information on manufacturing processes and procedures, and proposed
clinical protocols. If the FDA approves the application, and upon approval from
an Institutional Review Board ("IRB"), human clinical trials may begin in the
United States. The results obtained from these and any other trials, if
satisfactory, are accumulated and are submitted together with other information
on the device to the FDA in support of a PMA application.

To obtain the FDA's approval in the case of a diagnostic device, the PMA
application must demonstrate that: (i) the device provides information that
measurably contributes to a diagnosis of a disease or condition; (ii) the device
is safe; and (iii) the device has been designed, developed and manufactured in
compliance with the Quality System Regulation ("QSR"). The QSRs include testing,
manufacturing and design controls and documentation requirements. Upon receipt
of the PMA application, the FDA makes a threshold determination as to whether
the application is sufficiently complete to permit a substantive review. If the
FDA determines that the PMA application is sufficiently complete to permit a
substantive review, the FDA will file the application. Once a PMA application
has been filed, the FDA has up to 180 days to conduct its review. The review
time may be extended by the FDA as it may request more information. During the
review period, an advisory committee may also evaluate the application and
provide recommendations to the FDA as to whether the device should be approved.
In addition, the FDA will inspect the manufacturing facility to ensure
compliance with the FDA's GMP requirements prior to approval of a PMA
application.

Sales of medical devices are also subject to foreign regulatory requirements
that vary widely from country to country. The time required to obtain approval
for sale in foreign countries may be longer or shorter than that required for
Health Canada and FDA clearance or approval, and the requirements may differ.
The laws of certain European and Asian countries may permit the Company to begin
marketing SoftScan(R) in Europe and Asia before marketing would be permitted in
the United States. In order to sell its products within Europe, the Company is
required to achieve compliance with requirements of the Medical Devices
Directive ("MDD") and affix a CE mark (Conformite Europeenne, French for
"European Conformity") on its products to attest such compliance.

The Company has selected a U.S. based contract research organization ("CRO")
with considerable experience in clinical programs in the field of imaging, to
help formulate its regulatory strategy and clinical plans in the United States
and Canada. The Company is also in the process of selecting its Notified Body
for Europe. A Notified Body is a certification body

<PAGE>

                                      -30-


from the private sector, which is authorized to assess a manufacturer's
compliance with the MDD. Such compliance will enable the Company to affix a CE
mark on SoftScan(R).

The length and breadth of the clinical program that a medical diagnostic imaging
device must go through is dependent upon the claims (intended uses) that the
company seeking approval wishes to make with respect to its device. For
instance, if the device is intended to be used for general screening
mammography, the clinical program will most probably have to span several years,
as patients will have to be monitored for a lengthy period to assess screening
effectiveness, with a sample of thousands of patients being required. This
process would have to be completed before the Company could apply for and obtain
marketing approval for the device. If the device is instead intended to be used
as a diagnostic device complementary to X-ray mammography in a sub-population of
patients, for example, those who have dense breast tissue, then the clinical
program can be completed much more rapidly, follow-up monitoring will not be
required and the sample of patients that need to be studied will be
significantly smaller.

The Company is pursuing a strategy that will see SoftScan(R) proven safe and
effective as an adjunct diagnostic device to X-ray mammography in clinical
trials for certain targeted groups of women. Parallel clinical studies may also
be undertaken to prove that the device is safe and effective as a breast cancer
pre-operative chemotherapy-monitoring device for women. The Company believes
that the regulatory strategy adopted with respect to SoftScan(R) will ensure
that diffusion of the Company's technology occurs through well-conceived steps,
ensuring that SoftScan(R) gains broader acceptance within the medical community.

The PMA application process has in the past frequently been a lengthy and
expensive one for many companies. However, the Company will seek to take
advantage of reforms enacted in the FDA Modernization Act of 1997 ("FDAMA") in
order to file for expedited review of its PMA application. The FDAMA requires
the FDA to focus its resources on the regulation of those devices that pose the
greatest risk to the public and those that offer the most significant benefits
with the intention of accelerating the introduction of safe and effective
devices. The FDAMA reforms are designed to create a collaborative review process
that will reduce PMA application review times. The Company will seek to take
advantage of this new regulatory environment to obtain expedited review of
SoftScan(R). In particular, the Company will use the following approaches, which
are now permitted:

1.   The Company will seek to eliminate having to submit an IDE application
     prior to conducting its pivotal trial by establishing that the use of
     SoftScan(R) represents no significant risk to the patient as an adjunct
     diagnostic device to X-ray mammography.

2.   The Company will seek to submit the PMA application using an approach that
     permits blocks of data to be submitted as they become available (modular
     approach). The Company expects that it will have available and will
     therefore file product design data prior to the final clinical data results
     becoming available. The FDA will review these data and, if satisfied, will
     give its approval up to 90 days after the submission of each module. The
     Company believes that it should therefore be able to accelerate approval of
     its PMA.

3.   The Company will work closely with the FDA to rapidly bring to resolution
     issues that may be raised during the course of the approval process. The
     Company intends to follow the FDA's guidance and meeting protocols to
     thereby minimize the duration of the approval process.

<PAGE>

                                      -31-


The same pre-clinical and clinical data relating to SoftScan(R) will be used for
regulatory applications in the United States, Canada and Europe. Laboratory
studies and initial studies have already been concluded. Pre-clinical trials
have been successful in verifying a methodology for constructing an image, which
includes a method for acquiring data and tools for composing an image with that
data. In addition, all relevant theoretical and simulation work was validated
through the use of a simulated biological system.

The Company has initiated informal discussions with the FDA and will continue to
do so, thus ensuring that the most efficient approach to regulatory approval is
agreed upon. In May 2004, the Company announced - following discussions with the
FDA - that it will participate in the FDA's STED Pilot Program with a submission
to have its SoftScan(R) breast imaging system reviewed and approved under a
harmonized format. The FDA's STED Pilot Program is a voluntary pilot premarket
review program that is expected to reduce the burden on manufacturers who face
conflicting premarket submission format and content requirements in different
countries. The program's focus is the harmonized premarket submission format and
content known as "Summary Technical Documentation for Demonstrating Conformity
to the Essential Principles of Safety and Performance of Medical Devices
("STED") developed by the Global Harmonization Task Force ("GHTF"), a voluntary
international group comprised of device regulatory officials and industry
representatives from the five founding members, namely the United States,
Canada, Australia, the European Union, and Japan. A major objective of GHTF is
the harmonization of regulatory systems to reduce the regulatory burden on
regulated industry, and the GHTF believes that achieving this objective will
bring added efficiency to the device review process. This globally harmonized
regulatory review process is expected to bring added efficiency to SoftScan(R)'s
review process, enable ART to gain market entry with SoftScan(R) in a more
cost-effective manner and enable SoftScan(R) to be available more quickly to the
international community.

In Canada, consultations with the TPD are ongoing. Consultations with key
European jurisdictions (e.g. United Kingdom, France and Germany) will be
undertaken at the appropriate time.

Pilot Study Results

In the first pilot study conducted in Montreal and Quebec City, nine (9) healthy
volunteer subjects were scanned with a prototype of SoftScan(R). This study was
successful in evaluating the healthy human breast, its optical coefficients, and
its density. In addition, no adverse events were reported during the study.
Furthermore, the trial results were used to improve the prototypical design of
the SoftScan(R).

In September 2000, a second pilot study was completed in Quebec City. Thirty-one
(31) subjects were scanned according to a pre-determined methodology. The
primary purpose of this study was to evaluate SoftScan(R)'s effectiveness in
capturing and analyzing the variations in optical parameters caused by breast
lesions, both benign and malignant. In addition, the study evaluated
SoftScan(R)'s effectiveness in capturing and analyzing the variations in optical
parameters in radiologically dense breasts, in breasts where surgery has been
performed, and in breast of women on hormone replacement therapy. SoftScan(R)
effectively imaged a variety of breast characteristics and disease conditions,
including cysts, solid benign lesions, and malignant lesions. Furthermore, no
adverse events were reported during the study.

<PAGE>

                                      -32-


The study demonstrated that interactions between the emitted, pulsed laser
energy and human tissue in the SoftScan(R) system are neither harmful nor
cumulative. ANSI (American National Standard Institute) Z136.1-2000 and ANSI
Z136.3-1996, the recognized standards for the safe use of lasers in health care
facilities were followed in safety evaluations and system design for the
SoftScan(R) system. Thermal effects on the skin are very unlikely because the
laser is operating at only 20-50% of the maximum permissible exposure, which is
the level at which a heat effect might be felt. Internal software communication
between the laser, scanner and main processor includes a safety feature that
closes the laser shutter if the scanner stops moving.

The primary objective of the SoftScan(R) second pilot trial was to assess the
feasibility and safety of SoftScan(R) in detecting breast anomalies and in
differentiating malignant lesions (i.e., cancer) from other anomalies. Test
volunteers first underwent X-ray mammography, and then were imaged with
SoftScan(R). The optical images were then compared to X-ray mammography and
biopsy findings by a trained breast radiologist. The sample included women with
a variety of breast characteristics and disease conditions, including cysts,
solid benign lesions, and malignant lesions. Results of the trial revealed that
SoftScan(R) effectively imaged three of the four malignancies (one was outside
the scan area), three of the six solid benign lesions (two were outside of the
scan area), and six of the seven cysts. SoftScan(R) was also able to identify
scar tissue. All lesions detected by SoftScan(R) were later confirmed by biopsy.

In May 2002, a clinical study in collaboration with the McGill University Health
Center ("MUHC") was initiated after formal approvals from both Health Canada and
the MUHC Royal Victoria Hospital Research Ethics Board. The objective of this
study was to evaluate several design evolutions and configuration changes made
to the SoftScan(R) device. In April 2004, the MUHC Engineering study which began
in May 2002 of ART's SoftScan(R) breast imaging system was concluded. In
addition to validating several design evolutions and configuration changes made
on SoftScan(R), ART was able to derive positive clinical study results, which
confirmed SoftScan(R)'s ability to discriminate between normal and malignant
tissue.
<PAGE>

                                      -33-


Ongoing Studies

In June 2003, a multi-centre clinical study was initiated in collaboration with
Sunnybrook and Women's College Health Sciences Centre, and with Ottawa Regional
Women's Breast Health Centre. On December 2, 2004, the Company announced the
selection of the Centre Hospitalier de l'Universite de Montreal (CHUM) and the
MUHC as the first of ART's clinical research sites for the conduct of its
SoftScan(R) pivotal clinical study.

Based on past industry experience, the Company expects that marketing clearance
may be granted in Canada and possibly Europe before it is granted in the United
States. The following chart sets out the steps through which the Company
currently anticipates SoftScan(R) will proceed.

<TABLE>
<CAPTION>
                                                       CLINICAL VALIDATION
                                                             (TISSUE
                PILOT STUDY                             CHARACTERIZATION)     CLINICAL PIVOTAL     TPD/FDA/ EUROPEAN
               (CONTROLLED)      ENGINEERING STUDIES         STUDIES              STUDIES            AUTHORITIES
            ------------------  --------------------  --------------------  -------------------  --------------------
<S>         <C>                 <C>                   <C>                   <C>                  <C>
PURPOSE     Evaluate safety     Validate design       Demonstrate clear     Verify safety and    Review process and
            and effectiveness   changes and optimize  diagnosis regardless  effectiveness in     approval.
            in patient          performance in order  of breast             patient volunteers.
            volunteers.         to improve data       characteristics of
                                quality, reduce scan  various patient
                                time and improve      volunteers.
                                breast coverage.

TIME FRAME  Completed in 2000.  Completed in 2004     Ongoing since 2003.  Started in 2005.      TPD review expected
                                                                                                 to start in 2006.(1)
</TABLE>

In addition to becoming compliant with the FDA's Quality System Regulation, the
Company is also seeking to achieve compliance with international standards such
as ISO 13485 and EN 46001 (Quality System - Particular Requirements for Medical
Devices).

Timing of Regulatory Approval Basis

The Company initiated its pivotal study in 2005. Regulatory applications are
expected to be submitted in the United States, Canada and Europe. The Company
expects to file for regulatory approval for its SoftScan(R) optical breast
imaging device in at least one of these jurisdictions in 2006. While the Company
believes that this is a reasonable timeframe, there can be no assurance that the
Company will successfully adhere to this schedule due to the unforseeability of
the regulatory approval process. Among other matters, regulatory authorities may
require additional pre-clinical and clinical data than what is initially
submitted by the Company and may reject or disallow the Company's claims and
conclusions.

----------
(1)  Subject to section of Management's Discussion & Analysis contained at page
     14 of Company's 2005 Annual Report.

<PAGE>

                                      -34-


Third Party Reimbursement Criteria

In the United States, most physicians prescribe the diagnostic imaging
procedures with approved payment codes and third-party reimbursement coverage.
The Centers for Medicare and Medicaid Services ("CMS") formerly known as the
Health Care Finance Administration ("HCFA") is the agency in the United States
that establishes, for Medicare, coverage for certain diagnostic imaging
procedures. Generally, CMS does not cover new diagnostic imaging procedures
before the technology has obtained FDA marketing clearance. Most insurance
companies' reimbursement plans establish coverage for their clients based upon
the companies' own experience, and, for new procedures, based upon CMS's
coverage decisions. The Company believes that diagnostic imaging procedures with
SoftScan(R) will be covered after FDA marketing clearance is granted.

Target Market

The Company expects that demand for SoftScan(R) will in part be tied to changes
in purchasing criteria for medical devices. These purchasing criteria are
evolving in a manner that the Company believes will provide its products with
significant competitive advantages. Traditional models based on return on
investment are being displaced by models designed to assess the cost of new
equipment relative to the overall cost to the health care system for a patient
in whom a disease has initially gone undetected, and who therefore requires more
substantial treatment in the long term. Furthermore, insurance companies are
increasingly placing importance on devices that fill a real clinical need and
are able to provide a useful clinical outcome for the patient. Because
SoftScan(R) is designed to provide new functional information about the early
stages of breast cancer, the Company believes that it will provide clinical
information not easily available currently as well as help reduce expenditures
that might otherwise have been required if the cancer had gone undiagnosed.

According to the American Cancer Society, it is estimated that in the United
States almost 213,000 women will be diagnosed with breast cancer this year. In
the United States, breast cancer kills more than 40,000 women every year. In
Canada, it is estimated that more than 21,000 women per year will be diagnosed
with breast cancer and that about 5,300 women died of breast cancer in 2005.
Over the years, the ability to treat breast cancer has improved; the five-year
survival rate for localized breast cancer has increased from 72% in the 1940s to
nearly 97.9% today. However, if the breast cancer has spread regionally, the
survival rate is 81.3% and if it has metastasized, the survival rate falls to
26.1%. In other words, survival is ultimately dependent on when the cancer is
first diagnosed: the earlier it is diagnosed, the better the chances that a
woman will have a longer life. Furthermore, the more accurately tumors can be
targeted and characterized and the more efficiently the effects of treatment can
be determined, the more effectively breast cancer can be treated. The Company
believes that functional imaging can play a new and important role in detecting,
diagnosing and characterizing tumors and in characterizing the course of cancer
treatment.

In recent years there has been significant consolidation in the U.S. health care
sector. In particular, distribution channels have seen hospitals join together
to form integrated health networks and have also seen the growth of major group
purchasing organizations ("GPOs") that purchase medical devices and other
medical equipment and drugs. Overall, about 72 % of purchases that hospitals in
the United States make are done using GPO contracts. The Company believes that
GPOs will continue to dominate spending for medical equipment and drugs.

<PAGE>

                                      -35-


Furthermore, the Company believes that because GPOs have very large budgets that
cover expenditures ranging from devices designed to detect cancer to devices and
drugs designed to treat cancer, they are prepared to make additional investments
in devices designed to detect, diagnose and characterize cancer more effectively
if it means that the cost of doing so will be more than offset by a reduction in
expenditure on devices and drugs used to treat cancer. The Company believes that
SoftScan(R)'s ability to detect, diagnose and characterize cancer more
effectively than other technologies will provide compelling economic and
clinical logic for GPOs and other purchasers to invest in this technology.

Marketing and Distribution

The Company's marketing and distribution strategy is two-fold: the first
component is linked to its regulatory strategy, which is designed to give it a
"first to market" advantage and to ensure broad distribution and market
acceptance. On October 22, 2002, ART and GE Medical Systems (now known as GE
Healthcare), a unit of General Electric Company, signed a series of multi-year
strategic financial, R&D, manufacturing and commercial alliance agreements.
Under the SoftScan(R) Commercial Alliance Agreement (the "SoftScan(R)
Agreement"), GE Healthcare will manufacture and distribute globally SoftScan(R)
as of the full-production phase (the phase following the clinical and
pre-production phases). Prior to the full-production phase, ART will manufacture
the SoftScan(R) device. During the pre-production phase, GE Healthcare's
specialists will receive SoftScan(R) specific training in order to prepare for
commercialization, with a focus on using GE Healthcare's distribution channels.
The further commercial terms of the SoftScan(R) Agreement will be negotiated
once regulatory approval for the SoftScan(R) device has been obtained. Under the
Research and Development Alliance Agreement, GE Healthcare and ART will jointly
collaborate on research and development projects in the field of optical
molecular imaging. Also, GE Healthcare agreed to make an investment of US$3.0
million in the share capital of ART. The closing of this investment occurred on
November 15, 2002, and was effected by way of private placement.

The second component of the marketing and distribution strategy is linked to the
unique advantages of functional imaging. The Company will seek indications where
SoftScan(R) can fill a true unmet clinical need.

Moreover, the Company also believes that it is important to familiarize breast
cancer action groups with SoftScan(R). Third-party alliance building is
instrumental in introducing women to SoftScan(R), as well as creating public
awareness of the product. Initiating third-party outreach will allow ART to
build awareness, identify opportunities to leverage cooperative patient and
physician education programs, explore opportunities for distributing educational
materials and position ART as a leader in cancer detection, diagnosis and
characterization technology.

Several groups have been identified in the United States and Canada. For
example, in the United States, ART has identified several advocacy groups
including the National Alliance of Breast Cancer Organizations, the Susan G.
Komen Breast Cancer Foundation and other leading action groups. In Canada, ART
has initiated contact with Breast Cancer Action, which is part of the Canadian
Breast Cancer Network.

Competition

The breast cancer field has many devices that provide good anatomical
information. However, safe functional imaging devices are not as prevalent. The
Company believes that SoftScan(R)'s

<PAGE>

                                      -36-


ability to identify early stage tumors and to determine whether they are
malignant or benign through functional imaging will offer a solution to the
limitations inherent in the other technologies which provide anatomical
information.

The Company also believes that because the regulatory process and the need for
major strategic alliances pose significant barriers to entry for new players in
the medical diagnostic imaging market, the Company has or will have a
significant competitive advantage. To the Company's knowledge, no company other
than ART has publicly acknowledged that it is currently working with time domain
based optical imaging technology.

EXPLORE OPTIX(TM)

Molecular Imaging Overview

ART has developed a pre-clinical molecular imaging device ("eXplore Optix(TM)")
to answer an unmet need in the drug development process and in basic research by
allowing scientists to track dynamic biological processes at a cellular level in
a living system (in vivo). This field of research has been termed molecular
imaging. Imaging is made possible by the injection of a contrast agent or a
molecular probe, which highlights the cell or process of interest. The methods
employed in molecular imaging are very sensitive and it is now within reach to
detect the functional indications of a disease on a molecular level prior to the
appearance of anatomical signs of the disease.

eXplore Optix(TM) is an example of the Company's ability to leverage its base
optical technological platform to fill a need in a leading-edge research area -
that of imaging cellular and molecular events in living animals.

The Company believes that optical imaging techniques are particularly suited for
molecular imaging Since eXplore Optix(TM) is classified as laboratory equipment,
it does not face the same regulatory hurdles as its human counterpart,
SoftScan(R).

The Company believes that there is an important need in the drug development
process for longitudinal in vivo information from animal models regarding drug
targets, pharmacokinetics (drug absorption, distribution, metabolism and
excretion), efficacy, toxicity and side effects. This information ultimately
provides critical pre-clinical information. Standard practice is to sacrifice
animals for tissue analysis or to take blood or urine at regular time points.
This requires time-consuming analysis and extrapolation of in vitro data to make
the data applicable to the in vivo situation. Since optical imaging is
non-invasive, molecular events can be detected and characterized in real-time,
and perhaps more importantly, over time, in the same animal. Following a single
animal over time allows researchers to accurately monitor the effects of
interventions on disease progression and outcome. This ultimately results in a
faster and less costly drug development cycle.

Market Overview

The Company believes that the market for ART's pre-clinical molecular imaging
device is comprised of the pharmaceutical industry, specialized CROs that
conduct research for the pharmaceutical industry and academic institutions.

<PAGE>

                                      -37-


In particular, the Company believes that eXplore Optix(TM) can significantly
improve research practices and that the advantages to the pharmaceutical
industry are important. Specifically, this small animal imaging device can
obtain important pharmacokinetic data from small animal pre-clinical trials. ART
believes that eXplore Optix(TM) can diminish the costs relating to the testing
of small animals, as an animal can be scanned by eXplore Optix(TM) several times
a day without being harmed. This in turn permits the analysis of a greater
number of different drug targets subjected to different drug candidates. Perhaps
most importantly, the use of eXplore Optix(TM) can improve the quality of small
animal pre-clinical trials. These factors all speed the time to market for
drugs. The information from small animal trials will accelerate the screening of
new drugs entering human trials, thus potentially saving millions for the
pharmaceutical industry, especially in the United States where the FDA is
requiring more extensive safety data sets for new drug applications, rising
clinical development costs. The information can be used to further knowledge
about the drugs that fail, and thus prevent even more flawed drugs from entering
expensive animal or human trials. In January 2006, the FDA issued guidelines
permitting the use of innovative molecular imaging technologies to track drug
"microdoses" in preclinical studies in order to allow pharmaceutical companies
to enter into phase I faster.

According to the Pharmaceutical Research and Manufacturers of America (PhRMA),
it takes between 10 to 15 years to bring a drug from concept to market, which
reflects the greater complexity of target diseases, the longer and larger
clinical trials required by the FDA, and the medical system's growing demand for
more complex data about new drugs. The cost of developing a new, novel drug is
about US$802 million per drug - almost 6 times greater than what it was in 1975.
The number of new drugs produced by the pharmaceutical industry has risen only
modestly despite a six-fold increase in research spending to more than US$38
billion annually. The FDA has publicly stated, among its concerns, the need to
speed and improve development and approval of new genetic and traditional drugs
and medical devices.

Pressure to improve productivity is expected to greatly increase research and
development expenses for an average pharmaceutical company in the coming years.
Controlling clinical costs, which has outpaced discovery and pre-clinical
development cost growth, will be a major factor in reducing the rapid increase
in overall research & development spending.

Technology

eXplore Optix(TM) is based on ART's optical imaging platform and enables an
extensive characterization of fluorescent material embedded in organic tissue.
The innovative design uses the dynamics of time domain light detection to
extract a wealth of data from each set of measurements providing quantitative
information. eXplore Optix(TM) does not use ionizing radiation or radioactive
probes. Instead, eXplore Optix(TM) relies on the injection of fluorescent
probes, which are safe, sensitive, and can be specifically conjugated to small
molecules, antibodies, and proteins. In addition, eXplore Optix(TM) provides the
potential for very high sensitivity (for example, nanomolar concentrations at
depths of 5-8 mm in tissue with similar optical properties as a mouse).

The key features of the device, which the Company feels are valuable to the
industry, are listed below:

     -    In vivo visualization of fluorescence intensity and lifetime;

<PAGE>

                                      -38-


     -    Longitudinal studies of disease progression and regression in mice and
          rats;

     -    Quantitative localization of depth and concentration;

     -    Depth sensitivity for biodistribution and pharmacokinetics;

     -    Higher combined sensitivity and specificity than other pre-clinical
          modalities;

     -    Lower operational costs.

In 2005, the Company brought to market an expanded version of the eXplore
Optix(TM) device offering multiple excitation wavelengths in one package. Dubbed
the eXplore Optix(TM) MX, this newer apparatus can support up to four lasers
covering the usage of most popular fluorescent probes commercially available.
Transition to the eXplore Optix(TM) MX system occurred in early 2005 and it
replaced the first generation product in ART's product portfolio. An upgrade
service for existing customers of the first generation device was also proposed.
In addition, development efforts were done on this new system to increase its
sensitivity in the short-wavelength range of the visible spectrum, broadening
the number of fluorescent probes that the device can operate with. This new
development work is currently in evaluation.

The Company also put major efforts on completing the development of a software
product offering expansive data processing capabilities. This eXplore Optix(TM)
Analysis Workstation software supports depth and concentration quantification,
single- and dual-fluorescence lifetime recovery, various background removal and
filtering tools as well as many data visualization and export capabilities.

Regulatory Process

The sale and commercialization of pre-clinical research imaging devices are not
subject to the same regulatory process as medical devices for humans and, as
such, the Company did not seek Health Canada and FDA approval before
commercializing eXplore Optix(TM).

Over the longer term, validation of optical molecular imaging tests conducted on
small animals will make it possible to design clinical trials for a variety of
purposes. An optical molecular imaging device that could be used to monitor the
results of treatments in the fields of oncology, cardiology or neurology would
be subject to regulatory approval from Health Canada and the FDA in the United
States.

Marketing and Distribution

From January 2003 through May 2003 inclusively, four large pharmaceutical
companies and research centres were involved in the beta testing of eXplore
Optix(TM) (originally known as "SAMI(TM)").

On June 18, 2003, ART announced the official commercial launch of eXplore
Optix(TM), ART's pre-clinical molecular imager.

In August 2003, the Company concluded an agreement under which GE Medical
Systems (now known as GE Healthcare) acts as exclusive worldwide distributor for
ART's eXplore Optix(TM) pre-clinical molecular imaging device. Under this
agreement, GE Healthcare purchases eXplore

<PAGE>

                                      -39-


Optix(TM) units from ART and ART retains manufacturing and sourcing for all
eXplore Optix(TM) units sold through GE Healthcare. ART also retains all rights
to the technology and intellectual property. GE Healthcare is responsible for
sales, distribution, training, marketing and after-sales service.

On September 19, 2003, ART announced the first sale of eXplore Optix(TM), to the
National Institutes of Health (NIH) in the United States.

On October 20, 2003, ART announced the sale of eXplore Optix(TM), to Novartis
Pharma AG.

On December 8, 2003, the Company announced the continued success of its
commercialization efforts with additional sales of its SAMI(TM) pre-clinical
optical molecular imager to the pharmaceutical and academic research sectors,
and a change in the name under which the SAMI(TM) product will be distributed to
"eXplore Optix(TM)".

On March 29, 2004, the Company presented results of in vivo studies
demonstrating the high quantitation and high sensitivity capabilities of eXplore
Optix(TM) in the nanomolar range at the Annual Meeting of the American
Association for Cancer Research. These in vivo studies demonstrated subnanomole
fluorophore quantity detection capabilities at a depth of between 10 and 15 mm.
Furthermore, volumetric reconstruction of this time-domain data was also
achieved.

On March 30, 2004, ART presented at the Annual Meeting of the Academy of
Molecular Imaging the results of a study demonstrating fluorescence lifetime in
vivo capabilities of the eXplore Optix(TM) system in the murine animal model.
The results of a second study were also presented which demonstrated the
system's abilities to localize and discriminate between multiple endogenous and
exogenous molecules. Time-domain resolution of fluorescent lifetimes as small as
0.2 nanoseconds was achieved.

On June 2, 2004, ART and LAB Preclinical Research International Inc., a
preclinical contract research organization based in Laval, Canada, announced the
signing of an agreement under which LAB Preclinical Research International Inc.
acts as a preclinical demonstration site and provide real-time testing and
evaluation of ART's eXplore Optix(TM) time-domain small animal molecular imaging
system.

On July 13, 2004, ART announced the sale of eXplore Optix(TM) to the University
of Bergen (UiB), Norway's International University.

On October 8, 2004, ART reported that four (4) of the world's top ten
multinational pharmaceutical companies had as of that date selected eXplore
Optix(TM) and that ART had sold eleven (11) systems over the preceding eleven
(11) months.

On March 14, 2005, ART and GE Healthcare announced the global launch of the
multiwavelength system module and the expansion of ART's eXplore Optix(TM)
time-domain small animal molecular imaging system product line.

On March 21, 2005, ART announced its participation at the annual conference of
the AMI. ART's technology was featured in the "Meet the Authors" poster session,
with two research

<PAGE>

                                      -40-


teams headed by Dr. S. Sam Gambhir, Director of the Molecular Imaging Program at
Stanford University, presenting scientific posters. The first poster was
entitled: "Characterization of a Time-Domain Fluorescence Imaging System with
Cy5.5 and Quantum Dot (Q-dot) Probes", and describes the capacity of the eXplore
Optix(TM) time-domain optical imaging system to detect sub-nanomolar
concentrations of Cy5.5 and Q-dot probes, which will then allow for the
determination of shape, location and concentration of fluorescent inclusions in
three-dimensions. The second Stanford team presented a poster entitled:
"Comparison of Time-Domain Versus Continuous Wave Fluorescence Imaging Using
Cy5.5 and Q-dots" which presents results demonstrating that the ART system is
more sensitive at detecting minute concentrations of Cy5.5 and Q-dots, and has
improved depth sensitivity, compared to Xenogen's IVIS-200.

On September 2, 2005, ART announced its participation at the 4th Annual Meeting
of the Society of Molecular Imaging (SMI), being held at the Gurzenich Congress
Center, in Cologne, Germany, from September 7 to 10, 2005. At the SMI
conference, results obtained from ART's eXplore Optix(TM) system were featured
in the Novel Probes and Activation Strategies Poster Session. A poster entitled
"Optical Molecular Imaging Using a Novel Peripheral Benzodiazepine Receptor
(PBR)-Targeted Near Infrared Probe for Enhanced in vivo Breast Cancer Detection"
was presented by a research team headed by Dr. Darryl J. Bornhop, Professor in
Vanderbilt University's Department of Chemistry.

On November 16, 2005, ART reported that Dr. David R. Vera, Adjunct Professor,
Department of Radiology, University of California-San Diego (UCSD) made a
presentation entitled "In Vivo Fluorescence Applications in Small Animal Imaging
and Development of Diagnostic Imaging Agent" at the 2nd annual In Vivo Molecular
Imaging (IVMI) conference in La Jolla, California. Dr. Vera discussed results
recently published in Nuclear Medicine and Biology, which validate the
capability of the eXplore Optix(TM) system in obtaining sufficient sensitivity
and temporal resolution for pharmacokinetic analysis.

Competition

Many of the imaging technologies, such as nuclear imaging, magnetic resonance
imaging, computed tomography and ultrasound, originally developed for human use,
have recently been scaled down to allow imaging in small animals, particularly
mice.

                          eXplore Optix(TM) Competition

<PAGE>

                                      -41-


<TABLE>
<CAPTION>
                                                   USER REQUIREMENTS
                    -------------------------------------------------------------------------------
                                                              No ionizing
                                                              radiation or             Fluorescence
MODALITY            Functional   Targeted(1)   Anatomical   radioactivity(2)   Depth     Lifetime
--------            ----------   -----------   ----------   ----------------   -----   ------------
<S>          <C>    <C>          <C>           <C>          <C>                <C>     <C>
OPTICAL      TD*         X            X                             X            X           X
IMAGING      CW**        X            X                             X            ~

NUCLEAR
IMAGING                  X            X                                          X

ULTRASOUND
IMAGING                  ~                          X               X            X

MAGNETIC
RESONANCE
IMAGING                  ~                          X               X            X

COMPUTED
TOMOGRAPHY               ~                          X                            X

<CAPTION>
                                                       USER REQUIREMENTS
                    --------------------------------------------------------------------------------------
                                                        Real
                                                      Time/In        Cost          User -      Acquisition
MODALITY            Quantitative   Pharmacokinetics     vivo    Effectiveness   friendliness       time
--------            ------------   ----------------   -------   -------------   ------------   -----------
<S>          <C>    <C>            <C>                <C>       <C>             <C>            <C>
OPTICAL      TD*          X                X             X            X               X             X
IMAGING      CW**         ~                X             X            X               X             X

NUCLEAR
IMAGING                   X                X             X                            X             X

ULTRASOUND
IMAGING                                                  X            X                             X

MAGNETIC
RESONANCE
IMAGING                   X                              X                            X

COMPUTED
TOMOGRAPHY                X                              X            X               X             X
</TABLE>

1:   targeted exogenous chromophores

2:   ionizing radiation and radioactivity limits the use of an animal in
     longitudinal studies

*:   Time Domain Technology

**:  Continuous Wave Technology

Unique Benefits of the Time Domain Optical Imaging Strategy:

     -    Surface information of the embedded fluorescent material.

     -    Depth information of the embedded fluorescent material.

          The temporal information (TPSF) contained in the signal enables
          quantification of inclusion depth. The CW intensity measurement
          includes all photons, whereas time domain temporally discriminates
          photons, which have probed different depths, resulting in greater
          depth sensitivity.

     -    Recovery of fluorophore relative concentration.

          Depth information leads to recovery of fluorophore relative
          concentration when the data is reconstructed in post-processing.

     -    3D localization.

          Due to the temporal dimension in time domain measurements, the signal
          contains volumetric information about the tissue, thus 3D localization
          can be achieved.

     -    Fluorescence lifetime.

          This can allow the distinction between different fluorescent materials
          (fluorescent probes multiplexing). Furthermore, with an appropriately
          designed probe, changes in fluorescence lifetime occur with varying
          tissue properties such as pH, oxygenation level and calcium levels,
          and can thus be used to establish those properties. Finally, lifetime
          imaging can offer increased image contrast compared to intensity
          imaging.

Revenues

The Company recorded sales of US$4,125,550 during the year ended December 31,
2005, as compared to US$1,935,000 during the year ended December 31, 2004, as
compared to

<PAGE>

                                      -42-


US$681,875 during the eight-month period ended December 31, 2003 and as compared
to none in the year ended April 30, 2003. These revenues originated from sales
in North America, Europe, and Asia and were generated through ART's distributor,
GE Healthcare. New units and repeat orders were delivered in the multiwavelength
module version of eXplore Optix(TM) and many customers elected to upgrade their
single wavelength equipment to a multiwavelength version. Also, existing
customers who decided to upgrade their system have also decided to purchase
additional diodes ("add-ons") to expand their capability.

FENESTRA(TM)

Overview

The Fenestra(TM) product family was acquired as a result of the Alerion
Biomedical, Inc. transaction and represents the first agents designed and
optimized for use in microCT imaging. The transaction responded to a need to
create recurring revenue for the Company and establish a presence in the
biomarker and radiopharmaceutical sector which represents a growing global
market in excess of US$5.0 billion. An advantage inherent to the Fenestra(TM)
biomarker technology is that it enhances imaging on a user-friendly and
non-radioactive basis, which makes it more cost effective in that it permits
multiple scans on the same specimens over long periods of time. The technology
was developed following more than five years of research at the University of
Michigan and investment of over US$10 million in combined research and
development funding. Initial customers have included leading pharmaceutical and
biotech companies as well as the National Institutes of Health (NIH).

Technology

The Fenestra(TM) technology is comprised of iodinated lipids that provide
contrast enhancement integrated into a novel oil-in-water lipid emulsion that
selectively localizes the lipids to various sites within the body.

Fenestra(TM) LC provides visualization of the entire hepatobiliary system by
exploiting the endogenous lipid metabolism pathways present in the body.
Chylomicron remnants (CMR) represent a class of naturally-occurring plasma
lipoproteins that selectively shuttle lipids to hepatocytes in the liver.
Fenestra(TM) LC mimics CMR particles and thereby localizes the
contrast-producing lipids it contains into the hepatic parenchyma following
intravenous administration. Because the uptake and clearance profiles of the
lipid molecules are determined by the metabolic status of extra cellular and
intracellular liver lipases, Fenestra LC provides the ability to assess both
hepatobiliary anatomy as well as liver function by CT imaging.

Fenestra(TM) VC is a refined version of Fenestra(TM) LC in which the surface of
the lipid emulsion particle is modified so as to slow the recognition of the
particle by the receptors on hepatocytes that are responsible for its uptake
into the liver. With Fenestra(TM) VC, the delayed uptake by liver cells produces
an agent with prolonged blood pool imaging properties that provides superior
contrast enhancement of the entire vasculature for up to several hours after
injection. Moreover, the agent remains truly intravascular as long as the
endothelial integrity of the vessel is maintained, opening the door for conduct
of specialized studies characterizing vascular function and vessel permeability.
<PAGE>

                                      -43-


Applications

Fenestra(TM) can be used in a wide range of microCT and CT imaging applications.
To date, seven different animal species (mouse, rat, rabbit, dog, pig, monkey
and woodchuck) have been studied successfully using the agent in numerous normal
and disease model conditions. Because of its prolonged in vivo vascular
residence time, Fenestra(TM) VC has shown particular utility in microCT imaging.
Fenestra(TM) VC has been used to visualize cardiac, abdominal, cerebral and
peripheral vasculature, organ blood flow, and even tumor vasculature in living
mice. Fenestra(TM) VC can also be used to non-invasively assess tumor-induced
angiogenesis and the effectiveness of anti-angiogenesis drugs, restriction of
vascular flow due to thrombosis, embolism or atherosclerotic plaque and the
disruption of the blood brain barrier observed in brain cancer. Moreover, the
Fenestra(TM) VC formulation is a truly intravascular agent, opening a whole new
window of opportunity for quantitative vascular characterization. Clearly,
Fenestra(TM) VC provides substantial flexibility in the type and scope of
studies that can be performed.

RESEARCH AND DEVELOPMENT

The Company conducts the majority of its research and development activities
in-house. The Company has assembled a core team of high-level scientists, most
of whom hold specialized doctorates in the fields of biomedical imaging, medical
engineering, electro-optics, spectroscopy and modelling. As of December 31,
2005, the Company had 43 employees directly engaged in research, development,
production, customer support and engineering work with respect to SoftScan(R),
eXplore Optix(TM) and molecular imaging related products. The Company's in-house
research and development efforts are focused primarily on completing the
development of SoftScan(R) and researching new applications for its proprietary
technology.

In addition to its in-house research program, the Company collaborates with
academic and research institutions, including Dartmouth College, which is
working with the Company on the SoftScan(R) project and INO which is
collaborating on its eXplore Optix(TM) project as well as other related
projects, to support research in areas of interest to the Company.

Since inception up to December 31, 2004, the Company has invested approximately
US$35.9 million into the development of its proprietary time domain optical
technology gross of investment tax credits (US$3.8 million). The Company has
been able to control its research and development costs as a result of the
following factors: (i) extensive in-house expertise; (ii) strong collaboration
agreements with leading research institutions; and (iii) its ability to leverage
effectively its knowledge of applications of optical imaging technologies (iv)
its utilization of an ISO compliant Quality Management System.

QUALITY MANAGEMENT

ART's goal and strategy is to ensure customer satisfaction, regulatory
compliance, and product quality by:

     -    Implementing and maintaining an effective and efficient Quality
          Management System;

     -    Achieving compliance to recognized quality management standards and
          regulations.

To support the commercial introduction and sale of its small animal molecular
imager (eXplore Optix(TM)), ART has successfully achieved ISO 9001:2000 (Quality
Management

<PAGE>

                                      -44-


System - Requirements) certification of its Quality Management System (QMS).
This certification was part of an incremental approach to ART's QMS
implementation. It has served as a stepping-stone for the continued
implementation of new management standards and regulations in order to achieve
regulatory compliance and market approval for ART's medical device
(SoftScan(R)).

Following its ISO 9001:2000 certification, ART has also successfully
demonstrated compliance of its QMS to ISO 13485:2003 under the Canadian Medical
Devices Conformity Assessment System (CMDCAS). This latest certification will be
required to support the medical device license application of SoftScan(R) in
Canada in accordance with the Canadian Medical Devices Regulations.

To achieve successful regulatory approval of the SoftScan(R) device, ART's QMS
must comply with medical device regulations of the United States (governed by
the Food & Drug Administration), Canada (governed by Health Canada) and
countries of the European Union (governed by the respective competent
authorities).

For FDA approval, the Company is required to comply with the Code of Federal
Regulation Title 21, Part 820 (Quality System Regulation). For approval by
Health Canada and European authorities, the Company is required to comply with
ISO 13485 (Medical Devices - Quality management system - Requirements for
regulatory purposes).

PRODUCT DEVELOPMENT

The Company continually evaluates the likelihood and ease with which
complementary products, derived from its core technology or from existing
products, can be identified, developed and introduced. For instance, the need to
transition applications such as new drug development from a pre-clinical stage
(eXplore Optix(TM)) to clinical applications (SoftScan(R)) has led the Company
to look at other possible applications, such as molecular probes. The
development of additional products that fit with the Company's vision and
mission are an integral part of the Company's strategy. When the Company is
prepared to expand its current addressed markets and wishes to pursue new
products, a new product development team is formed and authorized by the
Executive Management team to identify specific new market opportunities for our
technologies. This team uses and develops various internal and external sources
of ideas, concepts and innovations to further develop existing products as well
as novel electro-optic technologies aimed at the bio-medical sector. The Company
has established a New Product Development process, which it has expanded into a
full Product Life Cycle process that takes into account market potential,
technology and business factors.

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                                      -45-


ART has several development projects that fall into three principal categories:

     (a)  Projects that will lead to functional and, or, cost improvements to
          the existing product lines.

     (b)  Projects for products evolving from present technology within current
          markets.

     (c)  Projects for innovative products to enter new markets.

The Company expects that a majority of its projects will fall within the first
two categories for the near term and then as the company achieves profitability,
it will look to expand its served markets.

To help with the assessment of the requisite resource allocation, ART has
created a systematic decision-making process. The first phase involves technical
and commercial analysis of a project. In this first phase, technical, patent and
market issues are evaluated. Based on this analysis, as well as on evaluation of
the strategic and tactical attractiveness and the risk of the project, a
decision is made as to whether to proceed. The second phase explores the
technical and legal feasibility of the project and assesses its market
positioning. The third and final phase seeks to establish significant
competitive advantages and create barriers to entry for others through business
best practices and global intellectual property protection. This involves
performing value engineering, functional and systems specification for the
product and developing prototypes. A business plan is drafted for the project
and the expected technological and financial returns are assessed.

The Company has also established a competitive intelligence process using
internal and external resources. The process is aimed at gathering information
about existing and potential markets, technologies and existing and expected
competition. This data enables the Company to anticipate or forecast the
competition's reaction to ART's positioning.

The Company also has access to external research and development resources and
facilities. It has ongoing contracts and activities with internationally
recognized centers-of-excellence such as the INO, located in Quebec City. The
Company is in close association with MGH, a teaching hospital affiliated with
Harvard Medical School, which has one of the largest hospital-based research
programs in the United States.

The Company is presently involved in extending its product range by applying
ART's core technology to other challenges in the health, life sciences and other
sectors.

SCIENTIFIC ADVISORY BOARD

The Company has established a Scientific Advisory Board composed of leading
members of the medical and scientific community. The Scientific Advisory Board
provides advice and scientific expertise to the Company on an ongoing basis. The
Scientific Advisory Board is regularly informed on the development of the
Company's research and development projects. The Scientific Advisory Board
provides feedback and ideas intended to accelerate the development process and
reduce time-to-revenue. Members of the Scientific Advisory Board also fulfill
the role of external advisors involved in the project-specific system design
reviews. Scientific

<PAGE>

                                      -46-


Advisory Board members enhance the Company's innovation process and provide
support for the Company's technical and scientific personnel.

The Company currently has eight members on its Scientific Advisory Board. The
individuals are the following:

     Samuel Achilefu -- Dr. Achilefu is Associate Professor of Radiology,
     Division of Radiological Sciences at the Washington University School of
     Medicine. Professor Achilefu utilizes a multidisciplinary approach to
     discover or develop bioactive molecules for various medical applications.
     Specifically, his work involves the design, synthesis and performance of in
     vitro and in vivo evaluation of molecular beacons for use in optical,
     scintigraphic, ultrasonic and magnetic resonance imaging of cancer. He is
     also interested in the development of cancer-related multi-modal imaging
     and therapeutic drugs. He holds a Ph.D. in Chemistry from the University of
     Nancy, France, and was a Postdoctoral Research Fellow, Bioorganic/Inorganic
     Chemistry at Oxford University, from 1991 to 1993.

     Irving J. Bigio -- Dr. Bigio received his Ph.D. in Physics from the
     University of Michigan in 1974. From then until 2000 he was a scientific
     staff member at Los Alamos National Laboratory, including service as Leader
     of the Laser Science and Applications Group (1988-1994). He has been a
     Fulbright Senior Scholar at the Weizmann Institute of Science, in Israel, a
     Visiting Professor at the University of Copenhagen, Denmark and a Guest
     Fellow of Pembroke College at the University of Oxford, England. Dr. Bigio
     holds several patents for biomedical optics instrumentation, and has
     received three R&D-100 Awards for the development of biomedical optical
     devices. Since February 2001 he has been Professor at Boston University in
     the Departments of Biomedical Engineering, Electrical & Computer
     Engineering, Physics and Gastroenterology. Dr. Bigio serves on several
     government advisory panels and on external advisory boards for companies
     and academic institutions. He is a Fellow of the Optical Society of
     America, the American Institute of Medical and Biological Engineering and
     the American Society for Laser Medicine & Surgery, and is a member of the
     American Physical Society and the SPIE. In addition to other research
     programs in biomedical optics, Dr. Bigio is currently leading a
     multi-institutional program under the NIH/NCI Network for Translational
     Research in Optical Imaging, comprising several medical research centers in
     the US and Europe.

     David Boas -- Dr. Boas received his B.Sc. in Physics at Rensselaer
     Polytechnic Institute in 1991 and his Ph.D. in Physics at the University of
     Pennsylvania in 1996. He has worked in the field of biomedical optics since
     1992 with a focus on developing a new medical imaging technique based on
     diffuse near-infrared light. He has published more than 50 papers on this
     topic. He presently holds the positions of Associate Professor at Harvard
     Medical School and Assistant Physicist at the Massachusetts General
     Hospital's Department of Radiology.

     Britton Chance -- Eldridge Reeves Johnson University Professor Emeritus of
     Biophysics, Physical Chemistry, and Radiologic Physics at the University of
     Pennsylvania (University of Pennsylvania: Physical Chemistry, 1940; Ph. D.
     Cambridge University: Biology "B", Physiology, 1942; D. Sc. Cambridge
     University: Biology "B", Physiology, 1952), Dr. Britton Chance has a
     multitude of scientific and engineering accomplishments to his name,
     ranging from development of the stopped flow method for

<PAGE>

                                      -47-


     observation of rapid biological reactions in 1935 (still available
     commercially), to Director of the Precision Circuits Group at the MIT
     Radiation Laboratory during World War II (developments in radar still in
     use today; first use of card-controlled computer for global positioning),
     to development of the commercially successful dual-wavelength
     spectrophotometer, to pioneering research into cell bioenergetics including
     the formation of enzyme-substrate compounds and development of the first
     non-linear differential equations to describe these reactions, as well as
     NADH and flavoprotein, the fluorescent components of the electron transport
     chain (research continuing actively today). Since 1980, Dr. Chance has been
     the "father" of the field of optical imaging. He has published more than
     1400 referred papers and is founder and President of Non-Invasive
     Technology, Inc. His current research interests include cancer detection,
     cognitive imaging, skeletal muscle function, cardiac myopathy, and cancer
     heterogeneity, all investigated using optical spectroscopy and imaging.

     Amir H. Gandjbakhche -- Dr. Amir H. Gandjbakhche received his Ph.D. in
     Physics from the University Denis Diderot (Paris 7) in 1989. From 1990 to
     1995, he was Visiting Fellow, and, from 1995 to 1996, Visiting Associate at
     the Physical Sciences Laboratory of the Division of Computer Research &
     Technology (DCRT), which was part of the National Institutes of Health
     (NIH). In 1995, Dr. Gandjbakhche also received the NIH Fellows Award for
     Research Excellence. In 1997, he became a Senior Staff Fellow of the
     Laboratory of Integrative and Medical Biophysics at the National Institute
     of Child Health and Human Development (NICHD), NIH. In 1999, Dr.
     Gandjbakhche held the position of Investigator, Chief Unit on Biomedical
     Stochastic Physics at the Laboratory of Integrative and Medical Biophysics,
     NICHD. In 2004, he was promoted to Senior Investigator and Section Chief.
     Dr. Gandjbakhche is an active member of the scientific community. He is
     namely a member of the Optical Society of America Bio-Optics Advisory
     Committee and a member of the Program Committee of the Optical Society of
     America Conferences on Advances in Optical Imaging, Photon Migration and
     Tissue Optics. He was the Chair of the Biomedical Optical Imaging Technical
     Committee of the Optical Society of America. Since the beginning of his
     career, Dr. Gandjbakhche has published more than 95 papers on Biophysics
     and Optical Imaging.

     Daniel B. Kopans -- Dr. Kopans is Chairman of the Clinical Advisory Board.
     A brief biography of Dr. Kopans is included below in the section entitled
     "Clinical Advisory Board".

     Joseph Lakowicz -- Dr Joseph R. Lakowicz is a world-renowned Fluorescence
     Spectroscopist, in the top 5 % of all cited scientists. Over the last 25 or
     so years Dr. Lakowicz has made many contributions to fluorescence and its
     applications, contributing no fewer than 400 peer-reviewed publications, he
     has founded 3-peer reviewed journals, has edited more than 20 hard-bound
     volumes and is the author of the very popular monograph, "Principles of
     Fluorescence Spectroscopy", now its 3rd edition, with 20,000 copies been
     disseminated around the world since the first volume in the 1980's. Dr
     Lakowicz founded the CFS in 1988 as a vehicle by which to propagate
     fluorescence and its applications into biomedical spectroscopy. Since that
     time, the Center for Fluorescence Spectroscopy (CFS) has truly thrived
     under his expert leadership, and is widely considered to be the central
     focus for fluorescence based-technologies, and a hub for spectroscopists in
     the world today.Since 1988, Professor Lakowicz holds the position of
     Director, Center for Fluorescence Spectroscopy at the

<PAGE>

                                      -48-


     University of Maryland, School of Medicine. His work has focused on
     advancing the field of fluorescence spectroscopy. This involves chemical
     synthesis of new fluorophores, development of novel fluorescence
     measurements, development of instrumentation for time-resolved
     fluorescence, and the chemical applications of fluorescence sensing. Much
     of this work has resulted in inventions, patents and licensing. His
     laboratory is also involved in the more advanced topics of multi-photon
     excitation, in which molecules are excited by the simultaneous absorption
     of two or more long wavelength photons.

     Martin Yaffe (Chairman) -- Dr. Yaffe holds a doctorate in Medical
     Biophysics from the University of Toronto, where he conducts his research.
     He is a renowned specialist in medical imaging, more specifically in the
     early detection of breast cancer and chairs the Committee on Mammographic
     Image Quality for the International Commission on Radiological Units
     (ICRU). Dr. Yaffe has been working toward advancing research in the early
     detection of breast cancer since the start of his career, and has been
     involved in many important initiatives intended to improve related
     technologies. He is a member of the International Atomic Energy Agency
     committee to develop harmonized quality control standards for digital
     mammography. He also serves on several committees of the American College
     of Radiology. Professor and researcher in Medical Biophysics at the
     University of Toronto, Dr. Yaffe is currently Senior Scientist in
     Imaging/Bioengineering Research at the Sunnybrook & Women's College Health
     Sciences Centre in Toronto and a Consultant Physicist for the Ontario
     Breast Screening Program. Dr. Yaffe has authored many scientific
     communications and conferences and acts as reviewer for numerous scientific
     publications, including Medical Physics and the International Journal of
     Radiation Oncology. He is co-author of the recently published book: Digital
     Mammography.

CLINICAL ADVISORY BOARD

The Company has established a Clinical Advisory Board ("CAB") composed of
clinical physicians and scientists who provide clinical advice and medical
expertise to ART on an ongoing basis. The principal objective of the CAB is to
have these leading experts in the field of breast imaging and radiology
contribute to, and support, the implementation of the clinical development
program for the Company's SoftScan(R) breast optical imaging device. The CAB is
regularly informed of the Company's clinical research, strategy and medical
product developments. The CAB provides feedback and ideas intended to accelerate
the regulatory approval and reimbursement process and reduce time-to-revenue.
The CAB also fulfills the role of external advisors involved in reviewing
clinical data, product positioning and plans.

The Company currently has six members on its Clinical Advisory Board. The
individuals are the following:

     Daniel B. Kopans (Chairman) -- Dr. Kopans is an honors graduate from
     Harvard College and he received his M.D. from the Harvard Medical School,
     where he graduated as a member of the Alpha Omega Alpha honors society. He
     is Professor of Radiology at the Harvard Medical School and has been the
     Director of the Breast Imaging Division at the Massachusetts General
     Hospital (MGH) since 1978, soon after completing his residency training in
     Diagnostic Radiology at MGH. Dr. Kopans has taught and written

<PAGE>

                                      -49-


     widely on all facets of breast imaging and is an expert in all aspects of
     breast cancer detection and diagnosis. He leads efforts in the
     investigation of methods for improving breast cancer detection and
     diagnosis including digital mammography, magnetic resonance imaging (MRI)
     of the breast, ultrasound, and nuclear medicine. He is a leading authority
     on breast cancer screening. Inventor, author, investigator, and educator,
     Dr. Kopans has authored more than 200 peer-reviewed articles on breast
     cancer detection and diagnosis. He is the author of a textbook on breast
     imaging that is now in its third edition (Breast Imaging, Philadelphia:
     Lippincott-Raven Publishers, 2006) and is one of the standards in the
     field.

     Jessica W.T. Leung -- MD, Assistant Professor in Residence, Director of
     Breast Imaging Research and Education, Division of Breast Imaging,
     Department of Radiology, UCSF Medical Center, University of California, San
     Francisco, USA. Dr. Leung has helped lead advancements in clinical breast
     imaging, mammography, ultrasound, MRI, and percutaneous breast biopsy
     techniques. She received her medical training at Harvard University.

     Lawrence W. Margolis -- MD, FACR, Clinical Professor Emeritus, Department
     of Radiation Oncology and Dermatology, University of California, San
     Francisco, USA. Dr. Margolis was awarded the "Teacher of the Year Award" by
     the Association of Residents in the Department of Radiation Oncology and
     Dermatology, for four consecutive years. Dr. Margolis has received the
     honor of "Best Doctor in America" four times and his research experience
     includes evaluation of biomarkers in DCIS (Ductal carcinoma in situ) and
     the use of MRI after neoadjuvant clinical therapy. He is an active member
     of numerous societies including the American Society of Breast Diseases
     (ASBD) and the American Society for Therapeutic Radiology and Oncology
     (ASTRO).

     Mark D. Novick -- MD, has broad clinical and business experience in breast
     imaging modalities including MRI, digital mammography, ultrasound, and
     breast biopsy. He is the medical director, lead interpreting radiologist,
     and operator of three outpatient breast imaging centers and one whole body
     MRI center in New York City, USA.

     Alfred B. Watson, Jr. -- MD, MPH, FACR, FACPM, Professor of Radiology and
     Vice Chairman Department of Radiology, Adjunct Professor of Physical
     Medicine and Rehabilitation, Assistant Program Director, Diagnostic
     Radiology Residency, and Coordinator of Radiology Medical Student Education
     at Baylor College of Medicine, Texas Medical Center, Houston, USA. Dr.
     Watson is Chief of Radiology at BCM Affiliated Ben Taub General Hospital
     and Community Health Clinics of the Harris County Hospital District. He is
     Chief of Breast Imaging at Baylor College of Medicine and the Ben Taub
     General Hospital and has extensive experience in various breast imaging
     modalities, including mammography, breast biopsies and ultrasound, for the
     screening, diagnosis, and treatment of breast cancer. He has published
     numerous articles in medical imaging and has been member or chair of
     several educational and clinical advisory committees.

     Martin Yaffe -- Dr. Yaffe is Chairman of the Scientific Advisory Committee.
     A brief biography of Dr. Yaffe is included in the previous section entitled
     "Scientific Advisory Committee".

<PAGE>

                                      -50-


BUSINESS ADVISORY COUNCIL

The Company has established the ART Business Advisory Council ("BAC" or the
"Council") to further the achievement of ART's corporate goals and objectives.
The purpose of the Council is to advise the President and CEO of ART on the
overall strategic direction of the company in regards to its long-term corporate
growth as well as to the marketing and commercialization of its products and
services. More specifically, the Council provides advice on such matters as
business and corporate development, market segmentation, customers and
end-users, strategic alliances and relationships, clinical and health practices,
government and health-care group reimbursement policies, regulatory bodies,
competitors, lobby groups and community and stakeholder relations.

In order to address important issues which relate to ART's most promising target
markets, the Council is structured on a regional basis comprising a Canadian
BAC, an American BAC and a European BAC. This structure will allow ART to
efficiently leverage the expertise, leadership and contacts of the individual
members of the regional Councils.

The members of the Canadian BAC are the following:

     Gerard J. Taillon -- Since 1984, Mr. Taillon has been Senior Vice-President
     and Managing Director of BMO Nesbitt Burns Limited. Mr. Taillon is also
     Chairman of the Board of BMO Nesbitt Burns Financial Services Inc. and
     Chairman of the Management Committee of the Private Client Group of the
     Bank of Montreal Group of Companies (Quebec). He also sits on the
     Management Board Counsel of the Bank of Montreal and is a member of the
     Executive Committee of the Bank of Montreal Group of Companies for the
     Quebec Region. Mr. Taillon has over 30 years of experience in the
     securities field. He joined Burns Fry (now BMO Nesbitt Burns Limited) in
     1984, and prior to joining Burns Fry, Mr. Taillon held the position of
     Vice-President at a leading brokerage firm. Mr. Taillon was a member of the
     Board of Governors of the Montreal Stock Exchange in 1993 and 1994. He was
     also a member of the Board of the Investment Dealers Association, Quebec
     from 1993 to 2005, and acted as Chairman from 2003 to 2005.

     Monique Lefebvre -- Dr. Monique Lefebvre is a psychologist specialized in
     business coaching, a consultant in strategic management and a director of
     companies. She serves on the board of directors of a number of public and
     private companies, of which Transcontinental Inc., Desjardins Financial
     Security and Groupe Contact Image. During the past 25 years, she was
     successively Dean of advanced studies and research, and then Vice-Rector
     teaching/research at the Universite du Quebec a Montreal; President and
     Chief Executive Officer of the Centre de recherche informatique de
     Montreal; President of Quebecor Multimedia, President of Innovatech of
     Large Montreal, Vice President of Ericsson Canada and Chairperson of the
     Transition Committee for the new City of Montreal. She is a member of the
     Board of Trustees of the Canadian Foundation for Innovation and chairman of
     the board of directors of the Hema-Quebec Foundation.

     Brian Levitt -- Mr. Levitt is Partner and Co-Chair of Osler, Hoskin &
     Harcourt LLP, one of Canada's leading law firms specializing in business
     law, tax, litigation, competition and antitrust. Mr. Levitt was President
     of Imasco Limited from 1991 to 2000. From 1976

<PAGE>

                                      -51-


     to 1991, he was successively Associate and Partner at Osler, Hoskin &
     Harcourt LLP. Mr. Levitt is a director of a number of Canadian companies
     such as BCE Inc. and Domtar Inc. He holds degrees in Applied Science
     (B.A.Sc.) and in Law (LL.B.) from the University of Toronto. Mr. Levitt was
     called to the Ontario Bar in 1975 and the Quebec Bar in 2001.

     Colin Mallet -- During the course of his career, Mr. Mallet held several
     senior positions in the pharmaceutical industry in Canada, United Kingdom,
     Switzerland, Sweden and South East Asia. From 1987 to 1995, he was
     President and Chief Executive Officer of Sandoz Canada Inc. (renamed
     Novartis Pharmaceuticals Canada Inc. in 1996). Mr. Mallet was Chair of the
     Canadian Health Research Foundation from 1989 to 1991. From 1990 to 1993,
     he was also the Founding Chair of the Institute for Industrial Pharmacy
     Research. From 1991 to 1993, he was Vice Chair, and, from 1993 to 1994,
     Chair, of Canada's Research-Based Pharmaceutical Companies (Rx&D). Mr.
     Mallet is currently a director of Axcan Pharma Inc., Migenix Inc., AnorMED
     Inc., MethylGene Inc. and MedGenesis Inc. Mr. Mallet holds a B.A. in
     Economics (1965) from Cambridge University, United Kingdomand has completed
     the Advanced Management Program at Harvard University.

The members of the American BAC are the following:

     William J. Webb -- Mr. Webb is a medical industry executive with
     approximately 25 years of senior management experience. Mr. Webb began his
     medical industry career at General Electric Company (GE Medical Systems)
     where he served in top management positions. From 1982 to 1999, Mr. Webb
     held a number of senior management positions at Picker International, Inc,
     one of the world's leading medical imaging company. From 1999 to 2001, Mr.
     Webb was President and Chief Executive Officer of Trex Medical, Inc. Trex
     Medical consisted of five separate companies, which supplied x-ray
     equipment worldwide through five individual sales and distributor networks
     to the medical and dental markets. Mr. Webb holds a Bachelor of Science
     Degree in Electrical Engineering (BSEE) from Drexel University (1967).

     Ronald Lane Goode -- Mr. Goode is President of The Goode Group, a
     consulting company that provides advice to Boards of Directors, CEOs,
     investment funds, and private individuals. From 2001 to 2004, he was
     President and Chief Executive Officer of eXegenics, Inc., a pharmaceutical
     company dedicated to the acquisition, rapid development and
     commercialization of drug therapies for use by physician specialists. He
     also served on the board of directors of eXegenics, Inc. from 2001 to 2003,
     the final year of which he also served as Chairman. From 1976 to 1986, Mr.
     Goode has held key management positions at Pfizer Pharmaceuticals, and,
     from 1986 to 1997, at G. D. Searle & Co. From 1997 to 1999, Mr. Goode was
     President and CEO of Unimed Pharmaceuticals, Inc., positioning the company
     for sale to Solvay Et Cie, the Belgium-based conglomerate. Mr. Goode
     presently serves on the board of directors of Genitope and on the advisory
     board of Greystone Medical. Mr. Goode is also a director of several
     not-for-profit organizations. Other public companies that he has served as
     director include Vitro Diagnostics, Inc. and Hokuriku Seiyaku, a Japanese
     company. He received his Ph.D. in Microbiology from the University of
     Georgia.

The member of the European BAC is the following:

<PAGE>

                                      -52-


     Jean Marsac -- Mr. Marsac is the founder and President of the executive
     board of H2i-Management SA. Throughout his career, Mr. Marsac has held
     different scientific and management positions in the medical and
     biotechnology sectors. He started his career as Professor in pneumology
     medicine. During that period, he was at the head of a hospital centre and a
     research unit in clinical pharmacology, which specialized in the treatment
     of asthma and allergies. Mr. Marsac also acted as Scientific Counsel at the
     Agence du Medicament (renamed the Agence Francaise de Securite Sanitaire
     des Produits de Sante), a French-governmental organization. In 1989, Mr.
     Marsac joined the pharmaceutical industry and successively held the
     positions of Medical Director at Roussel-Uclaf, and Vice President Research
     and Development at Synthelabo and Sanofi-Synthelabo.

INTELLECTUAL PROPERTY

ART has significant intellectual property, which includes technical know-how,
expertise, designs, process techniques and patents. While procedures are in
place to protect intellectual property, ART believes that its success depends to
a large extent on the time and investment required to develop competing
technology and on its continued commitment to research and development.

The Company has been granted eleven patents related to its optical imaging
technology in the United States and has patent applications pending in the
United States and Canada. Several of these patent applications have
corresponding patent applications in Europe or internationally by ART. In
addition, the Company intends to apply or is in the process of applying for
several additional patents in the United States, Canada and internationally
regarding technology used in SoftScan(R), in eXplore Optix(TM) and in other
optical molecular imaging applications. The Company has also developed
proprietary computer software for its products for which it relies on copyright
and trade secret for protection.

The eleven patents related to optical imaging and to the detection and diagnosis
of diseases which have been granted to ART can be described as follows: The
first U.S. patent entitled "Method and Apparatus for Detecting Malignancies in
Living Tissue" (Number: 5,808,304) filed on November 18, 1996, was granted on
September 15, 1998 and expires on November 18, 2016. The invention relates to a
method and an apparatus for detecting malignancies in living, biological tissue,
and in particular to a method and apparatus for detecting breast cancer. The
second U.S. patent entitled " Optical Imaging through Scattering Media: Fit to
an Inhomogeneous Diffusion Model for Differentiation" (Number: 6,148,226) filed
on February 13, 1998, was granted on November 14, 2000 and expires on February
13, 2018. The invention relates to an optical method for imaging through a
scattering medium in which a fit is made to an inhomogeneous diffusion model.
The method provides a simple means to separate the absorption and scattering
contributions of inhomogeneities. The third U.S. patent entitled "Scanning
Module for Imaging through Scattering Media" (Number: 6,332,093) filed on August
6, 1998, was granted on December 18, 2001 and expires on August 6, 2018. The
invention relates to a scanning module image through scattering media while
alleviating adverse effects on the weak transmission through highly scattering
media. The fourth U.S. patent entitled "Optical Imaging of Turbid Media with
Depth-Related Discrimination" (Number: 6,415,172) filed on January 21, 2000, was
granted on July 2, 2002 and expires on January 21, 2020. The invention relates
to a method for scanning a turbid medium and displacing an optical signal source
over a first face of the medium and a corresponding optical

<PAGE>

                                      -53-


detector over an opposite face from one respective spatial location to another.
The fifth U.S. patent entitled "Optical Imaging of Turbid Media with
Depth-Related Discrimination" (Number: 6,678,049) filed on January 25, 2002, was
granted on January 30, 2004 and expires on January 30, 2024. The invention
relates to an optical imaging system for detecting light from an excitation
source through a scattering medium. The system includes a photo detector for
receiving light from the scattering medium, an amplification circuit coupled
from the photo-detector, an electro-optical source coupled from the
amplification circuit for providing a secondary light signal, and a streak
camera receiving the secondary light signal and providing an image of the
scattering medium. The sixth U.S. patent entitled "Choice of Wavelengths for
Multiwavelength Optical Imaging" (Number: 6,694,159) filed on November 2, 2001,
was granted on February 17, 2004 and expires on November 2, 2021. The invention
relates to a method for wavelength selection in a multi-wavelength TPSF-based
optical imaging system. The seventh U.S. patent entitled "Method and Apparatus
for Positioning a Patient on a Table for a Medical Procedure on a Breast"
(Number: 6,883,194) filed on November 8, 2002, was granted on April 26, 2005 and
expires on November 8, 2022. The eighth U.S. patent entitled "Method and
Apparatus for Positioning the Arm of a Patient on a Table for a Medical
Procedure on a Breast" (Number: 6,886,198) filed on December 12, 2002, was
granted on May 3, 2005 and expires on December 12, 2022. The invention provides
a table for positioning a patient for a medical procedure on a breast, which
includes an armrest for positioning and supporting a forearm such that a
shoulder adjacent to the axilla region is at desired height. The ninth U.S.
patent entitled "Table for Positioning a Patient for a Medical Procedure on a
Breast" (Number: 6,922,859) filed on November 29, 2002, was granted on August 2,
2005 and expires on November 29, 2022. The invention provides a table for
positioning a patient for a medical procedure on a breast, which includes a
membrame-like contour surface for a surrounding breast area. The tenth U.S.
patent entitled "Continuous Wave Optical Imaging Assuming a Scatter-Law"
(Number: 6,954,663) filed on January 7, 2003, was granted on October 11, 2005
and expires on January 7, 2023. The invention relates to a method and a system
for determining the concentration of chromophores and reconstructing images in
turbid media, such as animal tissues, using a continuous wave optical approach.
The eleventh U.S. patent entitled "Method and Apparatus for Time Resolved
Optical Imaging of Biological Tissues as Part of Animals" (Number: 6,992,762)
filed on September 22, 2003, was granted on January 31, 2006 and expires on
September 22, 2023. The invention relates to a method and a system for
collecting optical data for use in time resolved optical imaging wherein light
is directionally propagated through free-space optics to impinge on a plurality
of illumination at the surface of a biological tissue such as that comprised in
small animals.

ART also has twenty patent applications pending in the United States and Canada
in the biomedical field.

Furthermore, the Company has an exclusive worldwide license to use the
inventions and patents developed by Emeritus Professor Dr. Britton Chance, which
are owned by Non-Invasive Technology Inc., with respect to the imaging of tissue
using time domain optical technology. On December 15, 2003, ART acquired
exclusive worldwide licensing rights to Dr. Joseph Lakowicz's extensive optical
molecular imaging patent portfolio.

The ownership of any intellectual property is protected through employment
agreements with ART's employees. These agreements contain clauses that assign
patent and invention ownership rights to ART and require confidentiality,
non-disclosure and non-competition. ART also seeks to protect the use and
application of its developed technology by securing its technical know-

<PAGE>

                                      -54-


how and trade secrets and by copyright, patent and trade-mark filings in the
United States, Canada and, in certain cases, other countries.

The protection of ART's proprietary information and documentation is managed
through extensive backup and off-site storage procedures for ART's information
systems. All design and product information is created and stored on one of the
Company's (separate) computer systems. Each system is backed up daily to high
density media, and backups are transported off-site for fire storage at regular
intervals. The backup procedures and methods used by the Company are aimed at
limiting the potential loss of data.

PRODUCTION AND OPERATIONS

ART's optical imaging products are currently assembled at its main facility in
Saint-Laurent, Quebec, Canada. The Company's production and manufacturing
operations consist primarily of: (i) designing and developing its products, (ii)
assembling them from components outsourced to, or ordered from, selected
third-party manufacturers, and (iii) quality control and final testing. The
Company subcontracts certain of the design engineering aspects of its products
to independent design firms. The Company purchases its laser scanners, cameras
and optical fibre from outside suppliers for the production of SoftScan(R). The
assembly of both eXplore Optix(TM) and SoftScan(R) is done in the Company's main
Saint-Laurent facility. These materials are assembled and tested during final
production at ART's manufacturing facility.

ART purchases supplies built according to ART's designs and specification from
third parties. This allows ART to select the suppliers that offer the best
technology and hence best yield/cost performance. Although the Company seeks to
reduce exposure to single source suppliers through inventory maintenance either
at ART or through suppliers, the Company does not have guaranteed supply
agreements.

C. Organizational structure

The Company has two wholly-owned subsidiaries: SAMI System Inc., which was
originally incorporated as ISIS Infrared Screening Inspection Solutions Inc.
under the Canada Business Corporations Act on March 30, 1998, and ART Aerospace
Research Technologies U.S., Inc., a Delaware Company incorporated on July 2,
1997.

D. Property, plants and equipment

The Company's head office and principal place of business is located at 2300
Alfred-Nobel Blvd., Saint-Laurent, Quebec H4S 2A4. This 21,580 square foot
property is under a fifteen-year lease, which expires on September 30, 2012. The
Company also leases a 5000 square foot production facility at 5897 Chemin
St-Francois, Saint-Laurent, Quebec H4S 1B6. The Company believes that these
facilities currently provide suitable space for its activities.

<PAGE>

                                      -55-


ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     A. Operating results

The following is a discussion and analysis of the financial condition and
operating results of ART Advanced Research Technologies Inc. ("ART" or the
"Company") at and for the periods indicated and of certain factors that the
Company believes may affect its prospective financial condition, cash flows and
results of operations. This discussion and analysis should be read in
conjunction with the audited financial statements of the Company and the notes
thereto for the year ended December 31, 2005. Unless indicated otherwise, all
financial information is expressed in U.S. dollars and has been prepared in
accordance with Canadian generally accepted accounting principles (GAAP). The
following contains statements that are forward-looking in nature. Statements
preceded by the words "believe," "expect," "anticipate," "aim," "target,"
"plan," "intend," "continue," "estimate," "may," "will," "should" and similar
expressions are forward-looking statements. Forward-looking statements are
necessarily based upon a number of estimates and assumptions that, while
considered reasonable by management, are inherently subject to known and unknown
risks and uncertainties such as, but not limited to, the availability of
financing, uncertainties involved in clinical testing, acceptance of ART's
products by the pharmaceutical and medical sectors, successful development or
regulatory approval of SoftScan(R), reliance on third parties to manufacture or
market its products, competition from companies in these sectors, impact of
general economic conditions, general conditions in the pharmaceutical and
medical sectors, changes in the regulatory environment in the jurisdictions in
which ART does business, stock market volatility, fluctuations in costs, changes
to the competitive environment due to consolidation, and other factors
referenced herein and in ART's public filings with the securities regulators in
Canada and the United States. Therefore, ART's actual results may be materially
different from those expressed or implied by such forward-looking statements.
Investors are cautioned not to place undue reliance on these forward-looking
statements. The statements are made as of the date hereof and supersede any
forward-looking statements contained in any previous MD&A and investors are
cautioned not to rely on any forward-looking statements contained in any
previous MD&A. ART does not undertake to update such forward-looking statements
to reflect new or subsequent information, events, circumstances or developments.
Additional information relating to ART, including its Annual Report on Form
20-F, is available online at www.sedar.com or at www.art.ca. This MD&A is
current as of March 3, 2006.

OVERVIEW

ART is committed to be a market leader in the development and commercialization
of molecular imaging products for the medical and pharmaceutical sectors, with
the goal of bringing to market quality products that will accelerate the
delivery of better therapies and cures. ART is engaged in the research, design,
development and commercialization of optical imaging systems for the medical and
pharmaceutical industries. ART possesses a powerful and unique multiproduct
platform, a strong intellectual property portfolio, strategic relationships with
leading organizations, a set of valuable core competencies and a strong
management team to build on its technology leadership position. ART has evolved
from a primarily technology-driven company to a market-focused organization as
it now commercializes eXplore Optix MX, its

<PAGE>

                                      -56-


multiwavelength preclinical optical molecular imager, through a worldwide
exclusive distribution agreement with GE Healthcare, as well as the Fenestra(TM)
biomarker product line.

The Company was focused on delivery on four top priorities in 2005:

     1)   Increase market share in the preclinical optical imaging sector by
          continuing to ramp up sales of eXplore Optix through its distribution
          agreement with GE Healthcare

Following the launch of eXplore Optix in June 2003, the Company systematically
continued to gain market share in the preclinical optical imaging sector. As a
result, since it delivered on its first order 27 months ago, the worldwide
installed base of the eXplore Optix reached 34 units as of December 31, 2005.
ART experienced a 113% growth in revenues from the sales of its eXplore Optix
product in 2005 compared to 2004. For the year ended December 31, 2005, revenues
were $4,125,550, compared to $1,935,000 for the year ended December 31, 2004.
These revenues originated from sales in North America, Europe, and Asia and were
generated through ART's distributor, GE Healthcare. New units and repeat orders
were delivered in the multiwavelength module version of eXplore Optix and many
customers elected to upgrade their single wavelength equipment to a
multiwavelength version. Also, existing customers who decided to upgrade their
system have also decided to purchase additional diodes ("add-ons") to expand
their capability. Early customer response to the new product has thus been
extremely favorable and has confirmed the soundness of the Company's decision to
expand the eXplore Optix product line.

     2)   Complete pivotal clinical trials of SoftScan and file its submission
          for regulatory approval

SoftScan, ART's time-domain optical breast imaging device, is now undergoing
clinical trials and has demonstrated that it can safely characterize normal and
malignant tissue. Among the many advantages offered by SoftScan is that laser
imaging, unlike X-ray mammography, does not expose patients to radiation or
painful compression of the breast. SoftScan may also prove invaluable
post-diagnosis, enabling the physician to monitor the progress of the disease
and its regression, adjust treatment and thereby accelerate the cure, as well as
reduce side effects and discomfort. Interim results of clinical trials are
positive and the Company has thus begun pivotal trials for SoftScan. Assuming
the results of the clinical trials are conclusive, and subject to the risks
identified in this MD&A in the section titled "Risk and Uncertainties", the
Company intends to file for regulatory approval in Canada by June 30, 2006.

     During the year, the Company actively pursued finalizing agreements with
sites to conduct pivotal studies with the SoftScan device and began enrolling
patients under the pivotal study protocol. The upcoming phases will involve the
continued recruitment of volunteers, scanning of patients, gathering and
analysis of the data, finalizing the agreements with some of the sites and
obtaining approvals from the sites' Institutional Review Boards (IRBs) to begin
pivotal trials at these sites. During the year, ART obtained authorization from
Health Canada's Therapeutic Products Directorate to begin its pivotal clinical
study in Canada using the SoftScan optical breast imaging system. The Health
Canada Investigational Testing Authorization (ITA) authorizes ART to initiate
patient enrolment at clinical sites in Canada, the McGill University Health
Centre (MUHC) being the first such site. The requirements for a Class III
medical device, such as SoftScan, are highly demanding. The Health Canada
authorization signifies approval of

<PAGE>

                                      -57-


the protocol for pivotal studies in Canada and is part of the ongoing regulatory
process prior to commercialization and the filing of a Pre-Market Approval
("PMA") application with the U.S. Food and Drug Administration ("FDA"). The
pivotal study will be conducted with the objective of demonstrating safety and
efficacy in patient volunteers. ART will seek to enrol up to 950 volunteers in
its SoftScan pivotal clinical study. In order to minimize the time to complete
the study, ART has selected sites generating high biopsy volumes. During 2005
and in early 2006, ART pursued the preparation of the selected sites with the
shipment and installation of the SoftScan system, as well as by providing
training to on-site technologists and investigators.

     On a parallel basis, during 2005, ART pursued patient enrolment in its
ongoing clinical validation studies, including its SoftScan tissue
characterization study, both at the Centre Hospitalier de l'Universite de
Montreal (CHUM) and the MUHC. These studies are being conducted to demonstrate
clear diagnosis regardless of the breast characteristics of the various patient
volunteers. Under the same protocol, ART announced that a SoftScan clinical
study is now underway at the first of its clinical research sites in the United
States, the Massachusetts General Hospital (MGH), in Boston. Led by Dr. Daniel
B. Kopans, Director of Breast Imaging at the Massachusetts General Hospital, and
a leading authority on breast cancer screening, this clinical study will provide
results to be used by ART in its submission to the FDA to support the Company's
SoftScan PMA application. The Company plans to pursue its tissue
characterization study on an ongoing basis during 2006.

     3)   Obtain certification to the medical device quality standard (ISO
          13485) and achieve U.S. Quality System Regulation (QSR) compliance

During 2005, ART obtained the ISO 13485:2003 certification, applicable to
medical device manufacturers, and pursued its efforts to be fully compliant with
the Quality System Regulation (QSR) in the United States.

     4)   Increase the visibility and support of ART within the medical,
          scientific and financial communities internationally

During the fourth quarter of 2005, ART continued to be visible on several
fronts. In the medical and scientific communities, the Company presented in vivo
fluorescent applications using eXplore Optix for pharmacokinetic studies at the
In Vivo Molecular Imaging (IVMI) conference in California. At the IVMI
conference, Dr. David R. Vera, Adjunct Professor in Radiology, UCSD, discussed
results recently published in Nuclear Medicine and Biology, which validate the
capability of the eXplore Optix system in obtaining sufficient sensitivity and
temporal resolution for pharmacokinetic analysis. At the Society of Molecular
Imaging (SMI) conference in Germany, a user group meeting included eXplore Optix
demonstrations of new developments and applications in preclinical research by
many users and experts in the optical molecular imaging sector. In addition, an
article published in the peer-reviewed journal Academic Radiology presented
results from an engineering optimization study on the SoftScan breast imaging
device, indicating significant discrimination of malignant and benign tissue
based on eoxyhemoglobin content. Finally, ART presented updates on recent
developments in achieving key milestones at various financial venues, such as
the BioContact Quebec 2005 investor conference.

ART ALIGNED WITH TWO HIGH-GROWTH SECTORS
<PAGE>

                                      -58-


ART operates in two sectors for financial reporting purposes: the medical sector
and the pharmaceutical sector. The medical sector includes the research, design,
development and marketing of the SoftScan time-domain optical breast imaging
device. The pharmaceutical sector includes the research, design, development and
commercialization of the eXplore Optix product. ART's expenses include primarily
the cost of sales (including royalty payments), the operating expenses that
comprise research and development costs (including the cost of clinical trials)
and selling, general and administrative expenses (including marketing
activities).

OUTLOOK

In 2006, ART expects to incur continued losses from operations. The Company
expects that the revenues and expenses of the pharmaceutical sector will come
from the development, marketing and sales activities of eXplore Optix, which is
distributed and co-branded with GE Healthcare, as ART pursues its market
penetration of the preclinical optical imaging sector. ART will benefit from the
recent acquisition of Alerion Biomedical, Inc. and its FENESTRA(TM) product
line, providing a revenue stream and an ideal complement to our technology
platform. In 2006, ART expects to pursue its activities in the medical sector as
its SoftScan device undergoes pivotal trials.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in accordance with Canadian GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements. Significant estimates and assumptions made
by management include the amount of development expenditures expensed as opposed
to capitalized; the establishment of the liability and equity component of the
convertible debentures issued in 2005; the fair value of options and common
share purchase warrants; the income tax valuation allowance; the investment tax
credits receivable; and the impairment of patents. Actual results could differ
from these estimates. Discussed below are those policies that we believe are
critical and require the use of complex judgment in their application.

DEVELOPMENT EXPENDITURES EXPENSED AS OPPOSED TO CAPITALIZED

Development costs are expensed as incurred unless they meet the criteria under
Canadian generally accepted accounting principles for deferral and amortization.
During the year ended December 31, 2005, the Company has deferred $423,416 of
such development costs. Amortization of deferred development costs will begin
with commercial production of the related product or application.

ESTABLISHMENT OF THE LIABILITY AND EQUITY COMPONENT OF THE CONVERTIBLE
DEBENTURES

For accounting purposes, the debentures contain both a liability component and
an equity component, which represent the holder's conversion option and the
warrants. The liability component's carrying amount has been determined at
$3,129,305, the conversion option has been valued at $1,510,467 and the warrants
have been valued at $360,228. The above values were determined by a combination
of Black-Scholes (for the conversion option and the warrants)

<PAGE>

                                      -59-


and a discounted cash flow (for the liability component) of future capital and
interest payments until their maturity dates, at a discount rate that
represented the borrowing rate available to the Company for similar debentures
having no conversion rights.

FAIR VALUE OF OPTIONS AND COMMON SHARE PURCHASE WARRANTS

The Company uses the Black-Scholes option pricing model to calculate the fair
value of stock-based payments, which requires assumptions, including the average
expected life and volatility of the Company's stock, to be made at the time of
grant. The Company amortizes the fair value of the options over the expected
service period, which is reviewed for changes from period to period.

INCOME TAX VALUATION ALLOWANCE

The Company has a net tax benefit resulting from non-capital losses carried
forward, scientific research and experimental development expenditures and
non-refundable investment tax credits. In view of the recent net losses and
expected future losses, management is of the opinion that it is unlikely that
these tax assets will be realized in the foreseeable future and hence, a full
valuation allowance has been recorded against these income tax assets.
Accordingly, no future income tax assets or liabilities are recorded on the
balance sheet.

INVESTMENT TAX CREDIT RECEIVABLE

Investment tax credits, based on qualifying research and development expenses,
are applied against research and development expenses or capitalized development
costs in the year in which the expenses are incurred. They are calculated on the
basis of the Company's experience and the application of the investment tax
credit program. The Company has always been conservative when accounting for
investment tax credits. It is possible that, subsequent to government audits,
the receivable amount will change.

IMPAIRMENT OF PATENTS

Patents are recorded at cost and are amortized according to the straight-line
method over a five-year period commencing in the year the related products are
marketed. The carrying value is tested for impairment whenever events or changes
in circumstances indicate that their carrying amount may not be recoverable.
Should this test, for any reason, including but not limited to invalidation of
the technologies, indicate that patents will not be recoverable, their carrying
value would be reduced by the estimated impairment.

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                       Eight-month
                                         Year ended     Year ended    period ended   Year ended
                                        December 31,   December 31,   December 31,    April 30,
                                            2005           2004           2003          2003
                                        ------------   ------------   ------------   ----------
<S>                                     <C>            <C>            <C>            <C>
Sales                                    $ 4,125,550    $ 1,935,000    $   681,875   $       --
</TABLE>

<PAGE>

                                      -60-


<TABLE>
<S>                                     <C>            <C>            <C>            <C>
Loss from continuing operations          $13,129,184    $ 9,928,603    $ 5,832,025   $9,026,445
Net loss                                 $13,129,184    $ 9,928,603    $ 5,832,025   $6,546,604
Basic and diluted loss per share from
   continuing operations                 $      0.31    $      0.24    $      0.20   $     0.38
Basic and diluted net loss per share     $      0.31    $      0.24    $      0.20   $     0.28
Total assets                             $15,232,209    $16,764,887    $13,704,796   $8,032,130
</TABLE>

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 2005 AND 2004

FOREIGN CURRENCY CONSIDERATIONS

The following information provides a discussion and analysis of the expenses for
the year ended December 31, 2005, compared to the year ended December 31, 2004.
The majority of these expenses, which include the cost of sales and operating
expenses, are incurred in Canadian dollars. Following a rapid appreciation of
the Canadian currency over the U.S., non-favourable variances were created for
these expenses in 2005, compared to last year.

SALES

For the year ended December 31, 2005, revenues were $4,125,550, compared to
$1,935,000 for the year ended December 31, 2004. Products sales for the year
ended December 31, 2005 amounted to $3,626,100, compared to $1,935,000 a year
ago. Maintenance sales totaled $499,450, compared to nil in the year ended
December 31, 2004. The increase in revenues comes from an increase in the
Company's eXplore Optix product and maintenance sales as the Company pursued its
market penetration in preclinical optical imaging. During the year ended
December 31, 2005, the Company sold 19 eXplore Optix units, including one demo
unit, as compared to 11 units last year. During 2005, the Company upgraded five
single-wavelength systems to the new multiwavelength system, compared to none
during last year. Sales from products include the new multiwavelength system as
well as add-ons, which include diodes, purchased by existing customers, offering
broader capability compared to the single-wavelength system. Sales resulting
from maintenance include upgrades of the single-wavelength system to the new
multiwavelength system and the sale of demonstration units.

COST OF SALES

For the year ended December 31, 2005, the total cost of sales was $2,789,585,
compared to $915,087 in the year ended December 31, 2004. As a result, ART
generated a combined gross margin of 32% during the year ended December 31,
2005, and 53% last year. The combined gross margin decrease during the year,
compared to last year, was due to the fact that: 1) ART transitioned to the new
multiwavelength base system, which is a more costly system, and offered the
possibility to its existing customers to upgrade their base system to the new
system at a preferential price; and 2) the rapid appreciation of the Canadian
currency over the U.S., as indicated above. During the year ended December 31,
2005, ART generated a gross margin of 34% from the sales of its products and a
gross margin of 18% from sales resulting from

<PAGE>

                                      -61-


maintenance. Cost of sales consisted principally of raw materials, royalties and
manufacturing costs.

RESEARCH AND DEVELOPMENT

The Company's research and development ("R&D") expenditures for the year ended
December 31, 2005, net of investment tax credits, amounted to $9,154,960,
compared to $7,511,485 for the year ended December 31, 2004. The R&D
expenditures consist principally of the salaries and benefits for personnel
involved in R&D projects, of consultation fees paid for clinical studies, the
cost associated with the preparation and conduct of the clinical studies and of
the cost of prototypes. The increase in R&D expenditures for the year ended
December 31, 2005, compared to last year, relates to the medical sector and is
mainly due to the cost associated with the preparation and conduct of the
clinical studies, which includes the manufacturing of the SoftScan clinical
prototypes, the negotiation of the protocols with the selected sites and the
cost related to site selection both in Canada and in the U.S. During the year
ended December 31, 2005, the manufacturing cost to build SoftScan clinical
prototypes was $1,369,309. The Company also made the decision to build three
additional SoftScan prototypes, to be prepared if more sites were needed to
execute the clinical plan.

     In the pharmaceutical sector, ART pursued the development of eXplore Optix
product extensions. During the year ended December 31, 2005, ART capitalized
$423,416 of development costs that met generally accepted criteria and that were
related to the eXplore Optix product extensions. As a result, during the year
ended December 31, 2005, 81% of the R&D expenditures were dedicated to the
medical sector and 19% to the pharmaceutical sector.

INVESTMENT TAX CREDITS

The investment tax credits ("ITC") represented $298,680, or 3% of the overall
expenditures in R&D, for the year ended December 31, 2005, compared to
$1,264,856, or 14% of the overall expenditures, for the year ended December 31,
2004. The decrease of the overall expenditures in R&D is mainly due to the fact
that, last year, the ITC included a positive review by the tax auditors, which
resulted in a surplus to what was originally accrued. ART applied this
non-recurring surplus against R&D expenditures.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative ("SG&A") expenses for the year ended
December 31, 2005 totalled $3,918,236, compared to $3,474,446 for the year ended
December 31, 2004. SG&A expenses consist principally of salaries, professional
fees and other costs associated with marketing activities. The increase in SG&A
expenses compared to last year comes principally from Investor Relations
activities. SG&A expenses were engaged to support commercial activities related
to the eXplore Optix product, as well as support its overall activities. During
the year ended December 31, 2005, 62% of the SG&A expenditures were dedicated to
the medical sector and 38% to the pharmaceutical sector.

AMORTIZATION

<PAGE>

                                      -62-


Amortization for the year ended December 31, 2005 totalled $285,806, compared to
$249,627 for the year ended December 31, 2004. Amortization consisted
principally of amortization of property and equipment.

INTEREST EXPENSE ON CONVERTIBLE DEBENTURES

Interest expense for the year ended December 31, 2005 totalled $884,191,
compared to zero for the year ended December 31, 2004. The interest expense on
convertible debentures includes the interest calculated at the effective
interest rate and the amortization of the deferred financing costs related to
the $5 million in secured convertible debentures contracted during the year
2005.

INTEREST INCOME

Interest income for the year ended December 31, 2005 totalled $241,708, compared
to $300,221 for the year ended December 31, 2004. Last year's interest income
was higher due to a higher average cash and short-term investment position
during the same period.

FOREIGN EXCHANGE LOSS

Foreign exchange loss for the year ended December 31, 2005 amounted to $463,664,
compared to $13,179 for the year ended December 31, 2004. The foreign exchange
loss results from the fluctuation of the U.S. currency compared to the Canadian
currency. These exchange rate fluctuations, though significant from an
accounting point of view, do not affect the Company's ability to pay its U.S.
dollardenominated expenditures. ART holds U.S. dollars in anticipation of these
expenditures.

NET LOSS

Net loss for the year ended December 31, 2005 was $13,129,184 or $0.31 per
share, compared to $9,928,603 or $0.24 per share for the year ended December 31,
2004.

COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO EIGHT-MONTH PERIOD ENDED DECEMBER
31, 2003

To align reporting with most companies in its industry, ART changed its year-end
from April 30 to December 31, effective December 31, 2003, and consequently, ART
reported its financial results in 2003 over an eight-month period ended December
31, 2003, and a twelve-month period ended April 30, 2003. As a result of this
change in reporting period, ART's financial results for 2004 and 2003 are not
directly comparable to the financial results for the immediately preceding year.

SALES

Revenues for the year ended December 31, 2004 were $1,935,000, compared to
$681,875 for the eight-month period ended December 31, 2003. The increase in
revenues came from an increase

<PAGE>

                                      -63-


in the Company's eXplore Optix product sales as ART pursued its market
penetration of the preclinical optical imaging market. In the fiscal year ended
December 31, 2004, the Company sold 11 eXplore Optix units, as compared to 4
units in the eight months ended December 31, 2003.

COST OF SALES

For the year ended December 31, 2004, the cost of sales was $915,087, compared
to $377,744 in the eight-month period ended December 31, 2003. Cost of sales
consisted principally of raw materials, royalties and manufacturing costs. As a
result, ART generated a gross margin of 53% from its eXplore Optix products in
2004 and 45% in the preceding period. The increase in the gross margin in the
fiscal year ended December 31, 2004, as compared to the eight-month period ended
December 31, 2003, resulted from a lower selling price to its early adopters
when the Company sold its first units during the eight-month period ended
December 31, 2003. As the Company transitioned to the new multiwavelength base
system and product extensions, and offered upgrades to its existing customer
base, it was expected that the gross margin would fluctuate in the coming year.

RESEARCH AND DEVELOPMENT

The Company's research and development ("R&D") expenditures for the year ended
December 31, 2004, net of investment tax credits, amounted to $7,511,485,
compared to $3,491,641 for the eight-month period ended December 31, 2003. The
increase in research and development expenses in the fiscal year ended December
31, 2004, as compared to the eight-month period ended December 31, 2003 (aside
from the differences in the period sizes), resulted from an increase in the
costs entailed by the development of the eXplore Optix multiwavelength system
and the development of the SoftScan device. In the medical sector, ART pursued
its efforts towards the preparation of pivotal trials for its SoftScan device.
As a result, the Company invested in finalizing the design of SoftScan,
manufacturing the clinical prototypes, preparing the protocols and selecting its
clinical sites. In the pharmaceutical sector, ART pursued the development of
eXplore Optix product extensions, such as the world's first commercial 3-D
time-domain optical image reconstruction software for preclinical research, and
of its new eXplore Optix multiwavelength system. In 2004, ART also obtained ISO
9001:2000 certification. During the year ended December 31, 2004, 74% of the R&D
expenditures were dedicated to the medical sector and 26% to the pharmaceutical
sector. (Before 2004, the Company was not operating in two separate sectors.)

INVESTMENT TAX CREDITS

The ITC represented $1,264,856, or 14% of the overall expenditures in R&D, for
the year ended December 31, 2004, compared to $433,865, or 11% of the overall
expenditures, for the eight-month period ended December 31, 2003. The ITC
increase followed a positive review by the tax authorities for research and
development tax credit claims previously submitted. ART applied this
non-recurring amount against R&D expenditures in the year ended December 31,
2004.

SELLING, GENERAL AND ADMINISTRATIVE

<PAGE>

                                      -64-


Selling, general and administrative ("SG&A") expenses for the year ended
December 31, 2004 totalled $3,474,446, compared to $2,239,324 for the
eight-month period ended December 31, 2003. The increase in selling, general and
administrative expenses corresponded to the difference in the period sizes.
Selling, general and administrative expenses were principally engaged to support
commercial activities related to the eXplore Optix product and raise funds to
strengthen the Company's financial position, as well as support its overall
activities. During the year ended December 31, 2004, 62% of the SG&A
expenditures were dedicated to the medical sector and 38% to the pharmaceutical
sector. (Before 2004, the Company was not operating in two separate sectors.)

AMORTIZATION

Amortization for the year ended December 31, 2004 totalled $249,627, compared to
$136,643 for the eight-month period ended December 31, 2003. Amortization
consisted principally of amortization of property and equipment. The increase
was mainly due to the rapid amortization of a demonstration unit.

INTEREST INCOME

Interest income for the year ended December 31, 2004 totalled $300,221, compared
to $63,384 for the eight-month period ended December 31, 2003. The increase was
mainly explained by the increase in the Company's cash and short-term
investments resulting from the financing closed in the first quarter of the year
ended December 31, 2004.

FOREIGN EXCHANGE LOSS

Foreign exchange loss for the year ended December 31, 2004 amounted to $13,179,
compared to $331,932 for the eight-month period ended December 31, 2003. The
foreign exchange loss resulted from the fluctuation of the U.S. currency
compared to the Canadian currency. These exchange rate fluctuations, though
significant from an accounting point of view, did not affect the Company's
ability to pay its U.S. dollar denominated expenditures. ART held U.S. dollars
in anticipation of these expenditures.

NET LOSS

As a result of the foregoing, net loss for the year ended December 31, 2004 was
$9,928,603 or $0.24 per share, compared to $5,832,025 or $0.20 per share for the
eight-month period ended December 31, 2003.

COMPARISON OF EIGHT-MONTH PERIOD ENDED DECEMBER 31, 2003 AND YEAR ENDED APRIL
30, 2003

To align reporting with most companies in its industry, ART changed its year-end
from April 30 to December 31, effective December 31, 2003. Consequently, the
results reported discrepancies between the two years, which were primarily due
to the fact that the periods compared were different.

SALES

<PAGE>

                                      -65-


The Company recorded sales of $681,875 during the eight-month period ended
December 31, 2003, as compared to none in the year ended April 30, 2003. These
revenues came from the first sales of eXplore Optix units to the biomedical
sector.

COST OF SALES

For the eight-month period ended December 31, 2003, the cost of sales was
$377,744, compared to none in the year ended April 30, 2003. Cost of sales
consisted principally of costs of raw materials, royalties and manufacturing
costs. As a result, ART generated a gross margin of 45% in the eight-month
period ended December 31, 2003, compared to none in the year ended April 30,
2003.

RESEARCH AND DEVELOPMENT

The Company's R&D expenditures for the eight-month period ended December 31,
2003, net of investment tax credits, amounted to $3,491,641, compared to
$5,734,470 for the year ended April 30, 2003. The investment tax credits
represented $433,865, or 11% of the overall expenditures in R&D, for the
eight-month period ended December 31, 2003, compared to $570,792, or 9% of the
overall expenditures, for the year ended April 30, 2003. R&D expenditures were
engaged for the development of the current generation of eXplore Optix units.
Moreover, ART continued to develop its SoftScan system and pursued clinical
trials with the McGill University Health Centre, the Sunnybrook and Women's
College Health Sciences Centre and the Ottawa Regional Women's Breast Health
Centre at the Civic Campus of The Ottawa Hospital. The decrease in R&D
expenditures was explained principally by the fact that we compared a period
comprising eight months with one of twelve months. During the eight-month period
ended December 31, 2003, the Company increased its development costs for its
eXplore Optix product, which was offset by the lower cost to manufacture
SoftScan prototypes incurred during the previous fiscal year.

SELLING, GENERAL AND ADMINISTRATIVE

Selling, general and administrative expenses for the eight-month period ended
December 31, 2003 were $2,239,324, compared to $2,885,065 for the year ended
April 30, 2003. Selling, general and administrative expenses were engaged to
support commercial activities of eXplore Optix, increase the Company's
visibility, and support the Company's activities. The decrease in SG&A
expenditures was explained principally by the fact that we compared a period
comprising eight months with one of twelve months.

FOREIGN EXCHANGE LOSS

Foreign exchange loss for the eight-month period ended December 31, 2003
increased by $112,867, to a loss of $331,932, compared to a loss of $219,065 for
the year ended April 30, 2003. The foreign exchange loss resulted from the
fluctuation of the U.S. currency compared to the Canadian currency. These
exchange rate fluctuations, though significant from an accounting point of view,
did not affect the Company's ability to pay its U.S. dollar-denominated
expenditures. ART held U.S. dollars in anticipation of these expenditures.

<PAGE>

                                      -66-


OTHER EXPENSES

Other expenses for the eight-month period ended December 31, 2003 were nil,
compared to $1,467,621 for the year ended April 30, 2003. During the year ended
April 30, 2003, ART paid management fees of $750,000 in cash for services
rendered in the negotiation and ratification of strategic agreements with
General Electric Company. Also, the Company granted share purchase warrants to
General Electric Company. The fair market value of those share purchase warrants
was recorded as a non-cash expense of $717,621.

CURRENT INCOME TAXES RECOVERED

Current income taxes recovered for the eight-month period ended December 31,
2003 were nil, compared to $1,318,668 for the year ended April 30, 2003. The
current tax recovery in the year ended April 30, 2003 represented the
utilization of tax losses for the year to recover current income taxes resulting
from the gain related to the disposal of the ISIS thermal imaging division.

NET LOSS

As a result, the net loss for the eight-month period ended December 31, 2003 was
$5,832,025, or $0.20 per share, compared to $6,546,604, or $0.28 per share, for
the year ended April 30, 2003.

COMPARISON OF YEARS ENDED APRIL 30, 2003 AND 2002

     REVENUES: The Company recorded no revenues for the year ended April 30,
2003, as it launched its pre-clinical optical imaging device eXplore Optix(TM)
in the biomedical sector after the fiscal year-end.

     RESEARCH AND DEVELOPMENT EXPENDITURES: The Company's R&D expenditure for
the year ended April 30, 2003, net of investment tax credits, amounted to
$5,734,470, down $549,741, or 9%, from $6,284,211 in the previous year. The
investment tax credits represent $570,792, or 9% of overall R&D expenditures,
compared to $329,946, or 5% in 2002. The decrease in R&D expenses is primarily
due to the fact that certain costs incurred during the last year for the
planning and development of the clinical program and protocols were not repeated
in the year ended April 30, 2003. The increase in the investment tax credits is
mainly due to the fact that more R&D activities were eligible under the tax
credit program in the year ended April 30, 2003.

     SELLING, GENERAL AND ADMINISTRATIVE EXPENDITURES: Selling, general and
administrative expenses for the year ended April 30, 2003 declined $330,589, or
10%, to $2,885,065, compared to $3,215,654 for the year ended April 30, 2002.

     The decline in selling, general and administrative expenses can be
explained by tight controls over expenses and by an internal reorganization.

<PAGE>

                                      -67-


     FOREIGN EXCHANGE LOSS (GAIN): Foreign exchange loss (gain) for the year
ended April 30, 2003, declined $394,227, to a loss of $219,065, compared to a
gain of $175,162 for the year ended April 30, 2002. During the year ended April
30, 2003, the US dollar depreciated compared to the CA dollar which resulted in
a loss of $219,065. During the year ended April 30, 2002, the US dollar
appreciated compared to the CA dollar, which resulted in a gain of $175,162. In
order to protect itself against adverse exchange rate movements, the Company
maintains a US dollar bank account to assume US dollar payments.

     OTHER EXPENSES: Other expenses for the year ended April 30, 2003 were
$1,467,621 compared to nil for the year ended April 30, 2002. During the year
ended April 30, 2003, ART paid management fees of $750,000 in cash for services
rendered in the negotiation and ratification of strategic agreements with
General Electric Company. Also, the Company granted share purchase warrants to
General Electric Company. The fair market value of those share purchase warrants
was recorded as a non-cash expense of $717,621.

     CURRENT INCOME TAXES RECOVERED: Current income taxes recovered for the year
ended April 30, 2003 were $1,318,668 compared to nil for the year ended April
30, 2002. The current tax recovery represents the utilization of tax losses for
the year to recover current income tax resulting from the gain related to the
disposal of the ISIS thermal imaging division.

     LOSS (PROFIT) FROM DISCONTINUED OPERATIONS: Loss (profit) from discontinued
operations for the year ended April 30, 2003 was a profit of $2,479,841 compared
to a loss of $1,536,017 for the year ended April 30, 2002. The discontinued
operations represent the ISIS thermal imaging division sold, whose net operating
expenses were reclassified under this line.

     NET LOSS: As a result, the net loss for the year ended April 30, 2003 was
$6,546,604, or $0.28 per share, compared to $10,881,500, or $0.54 per share, for
the year ended April 30, 2002.

COMMITMENTS

The following table discloses aggregate information about the Company's
contractual obligations and periods in which payments are due as of December 31,
2005.

<TABLE>
<CAPTION>
                                          Payment Due by Period
                        ---------------------------------------------------------
                                     Less Than                             After
                           TOTAL       1 year    1-3 years   4-5 years    5 years
                        ----------   ---------   ---------   ---------   --------
<S>                     <C>          <C>         <C>         <C>         <C>
Long-term obligations   $2,932,392    $546,179    $829,435    $829,017   $727,761
</TABLE>

RELATED PARTY TRANSACTION

<PAGE>

                                      -68-


In the normal course of its business, the Company has entered into an agreement
with Clinivation Inc. (Clinivation), a company controlled by one of its
officers. Clinivation acts as ART's Contract Research Organization (CRO) and
provides management services and contract research services related to the
clinical development, regulatory approval, and commercialization of SoftScan.

Management services: Clinivation provides the management and professional
services of Joseph Kozikowski, MD, who serves as ART's Chief Medical Officer
(CMO).

Contract Research Services: Clinivation works toward the clinical development
and approvals of SoftScan. During the year ended December 31, 2005, the Company
received management services for an amount of $165,771 and received contract
research services for an amount of $2,174,255. These transactions were settled
in cash.

QUARTERLY RESULTS FROM OPERATIONS

Our business fluctuates according to the Company's sales and development cycle,
and addresses emerging markets. The following table presents the Company's
operating results by quarter for each of the last eight quarters. The
information for each of these quarters is un-audited and has been prepared on
the same basis as the audited financial statements for the year ended December
31, 2005. This data should be read together with the financial statements and
the notes to such statements.

<TABLE>
<CAPTION>
                                  Sales      Net loss    Basic and diluted
                               ----------   ----------   -----------------
<S>                            <C>          <C>          <C>
December 2005 financial year
December 31                    $1,239,700   $3,313,319         $0.08
September 30                    1,122,000    3,870,288          0.09
June 30                           752,500    2,701,883          0.06
March 31                        1,011,350    3,243,694          0.08

December 2004 financial year
December 31                       599,000    2,714,207          0.06
September 30                      760,000    2,438,606          0.06
June 30                           190,000    2,694,042          0.06
March 31                          386,000    2,081,748          0.06
</TABLE>

DISCLOSURE ABOUT MARKET RISKS

The Company is exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. The Company does not use derivative
financial instruments for speculative or trading purposes. The Company does not
use off-balance sheet financing or similar special purpose entities. Inflation
has not had a significant impact on the Company's results of operations.

FOREIGN CURRENCIES

The Company's operations are in some instances conducted in currencies other
than the Canadian dollar (principally in U.S. dollars), and fluctuations in the
value of foreign currencies relative to the Canadian dollar could cause the
Company to incur currency exchange losses.
<PAGE>

                                      -69-


INTEREST RATE SENSITIVITY

ART's investment policy consists of holding high-grade government, bank and
corporate securities with varying maturities, usually less than 180 days. ART
does not have material exposure to interest risks.

RISK AND UNCERTAINTIES

The Company's future capital requirements will depend on many factors, including
progress in both the commercialization of eXplore Optix and in the clinical
development and trials of SoftScan. To the extent that the Company relies on
third parties such as GE Healthcare to manufacture or market its products, the
commercial success of such products may be outside of its control. While eXplore
Optix has entered the commercialization stage, there can be no assurance that
the Company's products will be accepted by the pharmaceutical and medical
sectors. Moreover, SoftScan is still in development, has not yet been approved
by regulatory authorities in the jurisdictions targeted by ART for SoftScan
commercialization, and has not yet been marketed commercially. ART's business
entails significant risks, including the costs and time involved in obtaining
the required regulatory approvals, its current reliance on primarily one
product, the adequacy of its patent protection, the uncertainties involved in
clinical testing, the availability of capital to continue development and
commercialization of its products, and competition from companies in the
pharmaceutical and medical sectors. There can be no assurance that the Company's
ongoing preclinical and clinical research activities will provide positive
outcomes or that the results of clinical trials will meet the desired clinical
endpoints established in the clinical study protocols. Even if the clinical
studies are successful, there can be no assurance that the Company will be
successful in obtaining the necessary regulatory approvals or, once obtained, in
maintaining these approvals. There can also be no assurance that the Company
will be successful in marketing and distributing its products, or achieve
reimbursement from government or private health authorities.

     The actual schedules for the SoftScan clinical trials could vary
significantly from our forecast due to a number of factors. A key risk factor is
patient recruitment rates into these trials, which are subject to the timely
initiation of a sufficient number of clinical sites that have both an
appropriate patient population and flow available as well as the necessary
research capacity. Site initiation activities include identifying qualified
sites, achieving the necessary internal approvals at the sites, executing
contracts with the sites and providing the SoftScan device to the sites. Any
delay in the initiation and completion of our clinical trials could cause the
price of our common shares to decline.

     The Company sets goals for and makes public statements regarding timing of
the accomplishment of objectives material to its success, such as the
commencement and completion of clinical trials, anticipated regulatory approval
dates, time of product launch and sales targets. The actual timing of these
events can vary dramatically due to factors such as delay or failures in our
clinical trials, the uncertainties inherent in the regulatory approval process,
and delays in achieving the product development, manufacturing, or marketing
milestones necessary to commercialize our products and achieve our sales
objectives. There can be no assurance that the clinical trials will be completed
as planned, that the Company will make regulatory submissions or receive
regulatory approvals as planned, that the Company will be able to adhere to its
current schedule for the scale-up of manufacturing and launch of any of its
products, or that the

<PAGE>

                                      -70-


Company will meet its sales objectives. If we fail to achieve one or more of
these milestones or objectives as planned, the price of our common shares could
decline.

     Under the debentures issued in 2005, the Company has agreed to respect
certain covenants relating, among other things, to the achievement of specific
quarterly and annual revenue levels, quarterly gross margins, the maintenance of
certain minimum cash and cash equivalent thresholds and a submission date for
regulatory approval for SoftScan. However, there can be no assurance that the
Company will be successful in continuing to meet these covenants in the future
and, thus, not be confronted to an event of default under the debentures.

     The Company may have to raise additional financing, as required, through
strategic alliance arrangements, the exercise of options and warrants, and the
issuance of new share capital, as well as through other financing instruments or
opportunities. However, there can be no assurance that these financing efforts
will be successful or that we will continue to be able to meet our ongoing cash
requirements. It is possible that financing may not be available or, if
available, will not be on favourable terms. The availability of financing will
be affected by the results of our scientific and clinical research, our ability
to attain regulatory approvals, the market acceptance of our products, the state
of the capital markets generally (with particular reference to biotechnology and
medical device companies), the status of strategic alliance agreements and other
relevant commercial considerations.

     B. Liquidity and Capital Resources

The Company has financed its activities by issuing common shares through private
placements, an initial public offering, a follow-on public offering and, in
2005, through a $5.9 million private placement of convertible preferred shares
and a $5 million private placement of senior secured convertible debentures.
Since its creation in 1993 until December 31, 2005, the Company has issued
42,664,523 common shares, 6,341,982 preferred shares and 4,022,817 share
purchase warrants for a total amount of $87,131,724.

     In 2005, ART closed a $5.9 million private placement of convertible
preferred shares with an existing institutional investor. The private placement
of 6,341,982 preferred shares was made at a subscription price of C$1.14 per
preferred share. The preferred shares are entitled to a cumulative dividend of
7%, payable in cash or common shares, at the Company's option. The preferred
shares are convertible at the investor's option at any time into common shares
at a fixed conversion price of C$1.26 per share (being an effective conversion
rate of 0.9036 common share for each Series 1 preferred share). The agreement
also provides that, if on the first anniversary of the closing of the
transaction, the weighted average trading price of the common shares for the
previous ten (10) days does not exceed C$1.20 per share, the investor will have
the option to convert some or all of the preferred shares at a conversion price
of 112.5% of the weighted average trading price for the ten (10) trading days
prior to the date of conversion. The right to convert at the adjusted conversion
price shall only be available for a period ending on the third anniversary of
the closing of the transaction. The agreement also provides that the Company may
force the conversion of the preferred shares into common shares at the
conversion price of C$1.26 per share upon the occurrence of certain events or
the achievement of certain milestones. For a period of twelve (12) months
commencing from the closing date, the investor shall have the option to purchase
an additional 2,000,000 preferred shares at a price of C$1.14 per additional
preferred share, for a total potential additional investment of C$2,280,000.
Each

<PAGE>

                                      -71-


such additional preferred share shall be convertible into common shares at a
fixed conversion price of C$1.08 per share (being an effective conversion rate
of 1.0556 common share for each Series 2 preferred share).

     Also in 2005, ART closed a $5 million private placement of senior secured
convertible debentures with a limited number of U.S. institutional investors.
The debentures are secured by a perfected security interest and hypothec on all
assets of the Company. The debentures mature on January 28, 2008 and bear
interest at a rate of 9% per annum, payable quarterly, subject to certain
quarterly adjustments. The debentures are convertible at the investor's option
at any time into common shares at a fixed conversion price of C$0.99 per share.
The agreement provides that, at ART's option, any cash payments contemplated
under the debentures may be made in freely tradable common shares issued at a
10% discount to market. In addition, if after November 28, 2006 the trading
price of ART's stock exceeds 225% of the conversion price for 20 consecutive
trading days (equivalent to C$2.23 per share), ART may require the investors to
convert the debentures into common shares at the fixed conversion price of
C$0.99 per share. The debentures have certain covenants relating to the
achievement of specific quarterly and annual revenue levels, quarterly gross
margins, and the maintenance of minimum cash and cash equivalents thresholds.
These covenants also provide that the Company shall file a submission for
regulatory approval for SoftScan by June 30, 2006.

     The debentures also have certain customary covenants regarding, among other
things, the debt that ART may incur. In an event of default under the
debentures, ART may be required to repay any outstanding amounts plus accrued
and unpaid interest, plus a 20% premium. For the year ended December 31, 2005,
these covenants were all met.

     Also, ART issued to the investors 5-year warrants to purchase 1,110,139
common shares at an exercise price of C$1.16 per share and 5-year warrants to
purchase 123,349 common shares at an exercise price of C$1.39 per share.
Finally, for a period of twelve (12) months commencing from the closing date,
the investors have the option of purchasing additional senior convertible
debentures for a total investment of $2.0 million; and, for a period of twelve
months (12) months following shareholder approval, the investors have the option
of purchasing additional senior convertible debentures for a total investment of
$500,000. The agreement also provides that ART may force this additional
investment to be made if ART's stock price closes above 150% of the conversion
price for 20 consecutive trading days (equivalent to C$1.49 per share). With
this financing, ART has terminated its credit facility of C$1,000,000 to cover
fluctuations in cash, as well as its C$1,300,000 facility to finance investment
tax credits.

     For accounting purposes, the debentures contain both a liability component
and an equity component, which represent the holder's conversion option and the
warrants. The liability component's carrying amount has been determined at
$3,129,305, the conversion option has been valued at $1,510,467 and the warrants
have been valued at $360,228. The above values were determined by a combination
of Black-Scholes (for the conversion option and the warrants) and a discounted
cash flow (for the liability component) of future capital and interest payments
until their maturity dates, at a discount rate that represented the borrowing
rate available to the Company for similar debentures having no conversion
rights.

     Cash flows used for operating activities for the year ended December 31,
2005 increased by $2,607,027, or 27%, to $12,412,284, from $9,805,257 for the
year ended December 31, 2004.

<PAGE>

                                      -72-


The increase in cash flows used for operating activities primarily results from
the increase in the net loss. Cash flows from investing activities for the year
ended December 31, 2005 were up to $5,195,751, from negative $4,761,508 for the
year ended December 31, 2004. The increase is explained by the fact that, during
the year ended December 31, 2005, a portion of the 2005 private placement was
kept as cash and cash equivalents. Cash flows from financing activities
decreased by $1,471,792, to $9,975,959 for the year ended December 31, 2005,
from $11,447,751 for the year ended December 31, 2004. During the year ended
December 31, 2005, ART closed private placements for a total value of $10.9
million, compared to the closing of a treasury offering of $12.7 million in the
year ended December 31, 2004.

     C. Research and development, patents and licenses, etc.

See "Item 4B - Business Overview - The Company's Products, Quality Management,
Product Development, Scientific Advisory Board, Business Advisory Council and
Intellectual Property".

     D. Trend information

See "Item 4B. - Business Overview".

     E. Off-balance Sheet Arrangements

The Company does not use off-balance sheet arrangements.

     F. Tabular Disclosure of Contractual Obligations

The following table discloses aggregate information about the Company's
contractual obligations and periods in which payments are due as of December 31,
2005:

<TABLE>
<CAPTION>
                                          Payment Due by Period
                        ---------------------------------------------------------
                                     Less Than                             After
                           TOTAL       1 year    1-3 years   4-5 years    5 years
                        ----------   ---------   ---------   ---------   --------
<S>                     <C>          <C>         <C>         <C>         <C>
Long-term obligations   $2,932,392    $546,179    $829,435    $829,017   $727,761
</TABLE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     A. Directors & Senior Management

     The following tables set forth the name, municipality of residence,
position with the Company and principal occupation of each of the directors and
executive officers of the Company as at February 28, 2006. The Board of
Directors of the Company is currently comprised of the six individuals mentioned
below. Directors are elected until the next annual meeting of shareholders or,
in the case of a vacancy or resignation, until a successor is elected or
appointed.

<PAGE>

                                      -73-


DIRECTORS

<TABLE>
<CAPTION>
                                                                                  YEAR OF EXPIRY OF
NAME AND MUNICIPALITY OF RESIDENCE   POSITION WITH THE COMPANY   DIRECTOR SINCE     TERM OF OFFICE         PRINCIPAL OCCUPATION
----------------------------------   -------------------------   --------------   -----------------   ------------------------------
<S>                                  <C>                         <C>              <C>                 <C>
MICHELINE BOUCHARD................   President, Chief                 2002               2006         President and CEO of ART
(Montreal, Quebec, Canada)           Executive Officer and                                            Advanced Research Technologies
                                     Director                                                         Inc., former Corporate
                                                                                                      Vice-President and General
                                                                                                      Manager, Enterprise Services
                                                                                                      Organization, Motorola Inc.
                                                                                                      (2001-2002) and former
                                                                                                      Chairman, President and CEO of
                                                                                                      Motorola Canada Ltd.
                                                                                                      (1998-2000)

JACQUES COURVILLE(1)..............   Director                         2003               2006         Former Vice President, Medical
(Montreal, Quebec, Canada)                                                                            Research, Merck Frosst Canada
                                                                                                      Inc.

RAYMOND CYR(1)(2).................   Director                         1998               2006         Chairman of the Board,
(Montreal, Quebec, Canada)                                                                            Polyvalor Inc.

PIERRE DUTHEIL (2)................   Director                         2004               2006         Independent Corporate
(Paris, France)                                                                                       Advisor

BENOIT LA SALLE(1)(2).............   Chairman of the Board and        2003               2006         Founder and President & CEO of
(Montreal, Quebec, Canada)           Director                                                         Semafo Inc.

GEORGE N. FUGELSANG (1)...........   Director                         2004               2006         Former Chief Executive Officer
(Greenwich, Connecticut, United                                                                       of Dresdner Kleinwort Benson
States of America)                                                                                    North America.
</TABLE>

(1)  Member of the Corporate Governance, Human Resources & Compensation
     Committee.

(2)  Member of the Audit & Environment Committee.

<PAGE>

                                      -74-


MANAGEMENT

<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF RESIDENCE         POSITION WITH THE COMPANY         WITH THE COMPANY SINCE
----------------------------------   -------------------------------------   ----------------------
<S>                                  <C>                                     <C>
JACQUES BEDARD....................   Chief Financial Officer                          1996
Mirabel, Quebec, Canada

WARREN G. BAKER...................   Chief Operating Officer                          2004
Montreal, Quebec, Canada

MICHELINE BOUCHARD................   President and Chief Executive Officer            2002
Montreal, Quebec, Canada

PIERRE COUTURE....................   Vice President, Sales & Marketing                2003
Montreal, Quebec, Canada

SEBASTIEN GIGNAC..................   Vice President, Corporate Secretary              1998
Westmount, Quebec, Canada            and General Counsel

JOSEPH G. KOZIKOWSKI..............   Chief Medical Officer                            2004
Weston, Massachusetts, United
   States of America

MARIO KHAYAT......................   Vice President, Optical Products                 2005
Montreal, Quebec, Canada
</TABLE>

     The following are brief biographies of ART's directors and executive
officers.

     Micheline Bouchard - During the course of her career, Ms. Bouchard has held
several executive positions with major companies in the high technology sector.
In particular, she was President and CEO of Motorola Canada Inc., and until
recently, she held a key executive position with worldwide responsibilities at
Motorola Inc.'s headquarters in Chicago. Over the years, Ms. Bouchard oversaw
the development and worldwide commercialization of numerous high technology
products. She has wide-ranging international experience in the marketing and
distribution of new products, as well as in the execution of financing
strategies. She holds a Bachelor's degree in Engineering Physics (1969), and
holds a Master's degree in Electrical Engineering (1978) from Ecole
Polytechnique de Montreal. Ms. Bouchard has been a director of several
corporations, and has been awarded honorary doctorates from different
universities, namely HEC Montreal Business School, and the universities of
Ryerson, Waterloo, Ottawa and McMaster. She is also a member of the Order of
Canada.

     Jacques Courville -- Mr. Courville recently retired from Merck Frosst
Canada Inc. where he was Vice President, Medical Research from 1998 until 2002.
He joined Merck Frosst in 1989 as Director of Clinical Research after holding
the position of Medical Director at ICN Canada Ltd. from 1988 to 1989. Before
joining the pharmaceutical industry, he pursued a career in academia and played
an active role in the scientific research community: from 1967 to 1970, he was
Assistant Professor and Director of the Neuroanatomy Laboratory in the
Department of Neurology, Neurosurgery and Anatomy at McGill University; from
1968 to 1970, he was Scholar of the Medical Research Council of Canada; from
1970 to 1976, Associate-Professor, and, from 1977 to 1984, full Professor, in
the Department of Physiology at the University of

<PAGE>

                                      -75-


Montreal; from 1984 to 1988, Director of the Department of Anatomy at the
University of Montreal. He was also a member of the MRC Research Group in
Neurological Sciences at the University of Montreal from 1972 to 1981. Mr.
Courville holds a B.A. (1954), a Doctorate in Medicine (1960) and a M.Sc. in
Physiology (1962) from the University of Montreal as well as an L.M.C.C. in
Medicine (1960) from the Medical Council of Canada. He also holds a Doctorate in
Neuroanatomy from the University of Oslo. He is a Fellow of the Royal Society of
Canada since 1989.

     Raymond Cyr -- Mr. Cyr has more than 40 years of experience in the
telecommunications industry. He spent most of his career with Bell Canada where
he held several key positions. He was chairman of the board of BCE Inc. from
1989 to 1993 and Chairman and CEO of Bell Canada from 1992 until his retirement
in 1996. He was also director of Nortel and SPAR Aerospace Ltd. Throughout his
career, Mr. Cyr has received many awards in recognition of his achievements in
the telecommunications industry. He was appointed an Officer of the Order of
Canada in 1988 and was granted an Honorary Doctor of Laws degree by Concordia
University in Montreal in 1988. Mr. Cyr is currently chairman of Polyvalor Inc.
and a director of Canadian National, G.T.C. Transcontinental Ltd., IsacSoft Inc.
and a number of high technology companies. Mr. Cyr is a member of l'Ordre des
ingenieurs du Quebec.

     Pierre Dutheil -- Mr. Dutheil has more than 30 years of experience in
international business and the advanced technology sector. Mr. Dutheil has been
an independent corporate advisor since 1992. From 1980 to 1992, he held various
executive and managerial positions at an international level with Thomson-CSF
(renamed Thales in 2000), a global leader in defence and civil electronics. Mr.
Dutheil served on the board of directors of Acetex, a world-class manufacturer
of acetyl chemicals and specialty polymers, from 1995 until it was sold to
Celanese Corporation in July 2005.

     Benoit La Salle -- Mr. La Salle is the founder and President & CEO of
Semafo Inc., a company listed on the Toronto Stock Exchange. In 1980, he
co-founded Grou, La Salle & Associates, a chartered accountants' firm. Mr. La
Salle is a director of a number of Canadian companies involved in the
biotechnology sector, including Vasogen and Systemes Medicaux LMS. Mr. La Salle
holds a bachelor's degree in business from McGill University. In 1975, he
successfully completed the Canadian Institute of Chartered Accountants
examinations. Mr. La Salle also holds a MBA from IMD in Lausanne, Switzerland.

     George N. Fugelsang -- Mr. Fugelsang was Chief Executive Officer of
Dresdner Kleinwort Benson North America, the U.S.-based investment banking
business of Dresdner Bank AG, from 1994 through 2001. Mr. Fugelsang was also
Chairman of the Board of Dresdner Bank Mexico, S.A., Chairman of the Board of
Dresdner Bank Canada and a member of the Board of Dresdner RCM Global Investors
LLC. He joined Dresdner Bank AG in 1994 as President of Dresdner Securities
(USA), Inc. Later that year, he was named Senior General Manager of Dresdner
Bank AG in Frankfurt and Chief Executive, North America. As Chairman of the
North American Management Committee, Mr. Fugelsang worked with and was
responsible for the activities of all of Dresdner Bank's entities in North
America. Mr. Fugelsang joined Dresdner Bank AG after eight years as Managing
Director in Morgan Stanley's Investment Banking Division in New York and London.
Prior to that, he spent more than twenty years at Citicorp/Citibank in various
positions. Mr. Fugelsang is currently a member of the Board of Trustees of
Thunderbird (the Garvin School of International Management) and the Board of

<PAGE>

                                      -76-


Trustees of Mrs. Fields Famous Brands, Inc. Mr. Fugelsang graduated from the
University of Oregon in 1962 with a major in Political Science. He holds a
degree in international business from the American Graduate School of
International Management in Phoenix, Arizona.

     Warren Baker -- During the course of his career, Mr. Baker has held several
management and executive positions with major companies or global leaders in
various fields of the medical and information technology sectors. Until
recently, Mr. Baker was President and CEO of Electromed Imaging, a global leader
in Cardiac Image Information Management Systems (CIIMS), which he first joined
as Chief Operating Officer in 2002. From 1996 to 2002, he was President & CEO
and co-founder of Pacific Northwest Networks, a premier solution developer for
global Corporations needing to manage and secure enterprise production
environments. From 1985 to 1996 he was worldwide marketing manager and
alliances, merger and acquisitions program manager for Hewlett-Packard's
diagnostic cardiology business in which capacity he managed, among other things,
the global market development for all of HP's diagnostic cardiology products. He
was also responsible for the development of strategic product plans and
distribution to meet the needs of the global cardiology market. Mr. Baker holds
a B.S. in Biology and Biochemistry from Illinois College (1975) and has
completed an AEA Executive MBA program from Stanford University (1989).

     Jacques Bedard -- Mr. Bedard held several positions as an auditor before
joining Softimage Inc. in 1990. He was promoted to the position of CFO in 1992
and actively participated in the growth of the company before its acquisition by
Microsoft Corporation in 1994. As Softimage's CFO, he was involved in two public
offerings, the development of financial services on both the national and
international levels, and in setting up the European network of branches for
Softimage. Mr. Bedard left Softimage in 1996 to join ART. Mr. Bedard holds a
B.A.A. in Finance from Universite du Quebec a Montreal (1984) and is a C.G.A.
(1986).

     Pierre Couture - Mr. Couture was appointed Vice President, Sales &
Marketing of ART on September 10, 2003. Prior to his engagement with ART, Mr.
Couture held several positions in the sales, marketing and market development
field within the healthcare and medical industry. Mr. Couture spent the greater
part of his career at Mallinckrodt Inc.: from 1978 to 1981, he was Regional
Sales Manager for Eastern Canada; from 1981 to 1987, he was National Sales
Director; from 1987 to 1991, he was Business Manager of the Cardiology and
Radiology Division; from 1992 to 1995, he was Marketing Director, Contrast Media
and Diagnostic Catheters; from 1995 to 1997, he was Director of Marketing and
Market Development, Medical Imaging and Anesthesia; from 1997 to 1999, he was
Director of Marketing and Market Development, Medical Imaging. From 1999 to
2001, he was Director of the Hexabrix and Devices Marketing on the American
market. Following the merger between Mallinckrodt Inc. and Tyco International,
Mr. Couture held the position of Marketing Manager, Medical Imaging at Tyco
Healthcare Group Canada, from 2001 to 2003. He also successfully completed the
Advanced Management Course for Senior Executives at McGill University (1985).

     Sebastien Gignac -- From 1996 to 1998, Mr. Gignac was an attorney
practicing with a Montreal law firm specializing in business law with a focus on
counseling early development stage companies in high technology industries,
particularly the biotechnology and information technology industries. His areas
of specialty included corporate and commercial law as well as securities
regulation. Mr. Gignac also held the position of senior policy advisor to a
cabinet minister in the Government of Canada prior to entering private practice
in 1996. He holds an

<PAGE>

                                      -77-


undergraduate degree from York University (B.A. Honours), a graduate degree from
the Norman Paterson School of International Affairs of Carleton University
(M.A.) and degrees in civil and common law from McGill University (B.C.L.,
LL.B.). He is a former law clerk to the Honourable James K. Hugessen at the
Federal Court of Appeal of Canada. He was called to the Quebec Bar in 1990 and
the Ontario Bar in 1992.

     Joseph Kozikowski, M.D. -- Since 1994, Dr. Kozikowski has acted as Chairman
and CEO of Proformant Inc., a firm focused on biomedical corporate development.
Dr. Kozikowski has over 20 years of successful clinical and industry experience
in medical devices, diagnostics, and biopharmaceuticals. He has designed and led
development and approval programs from the preclinical stage through
commercialization for a wide range of new products from every major medical
specialty. Representative clients include Johnson & Johnson, Biogen, Millennium,
Mallinckrodt, and Baxter. He has crafted and implemented highly efficient,
turnkey projects that integrate and deliver well-negotiated Rx and OTC FDA
approvals, tightly-executed preclinical and clinical studies, and
adoption-driving peer-reviewed publications. He has designed and directed Phase
I through IV clinical and outcome studies, and has been responsible for all
related functions of protocol development, IRB submission and approval,
investigator recruiting, trial site auditing and management, data management and
biostatistics, and report and publication authorship. He has written and
supported numerous U.S. and international regulatory submissions, and
represented his client companies at meetings with U.S. and European regulatory
authorities and advisory panels. His biomedical research has resulted in more
than 20 clinical and scientific publications. Dr. Kozikowski studied finance at
The Harvard University Graduate School of Business Administration, and
regulatory law at the Food and Drug Law Institute in Washington, D.C. He was
Principal Investigator at The Massachusetts General Hospital of a NIH SBIR
grant, and he holds active medical licensure in medicine and surgery. He was a
Tau Beta Pi National Engineering Fellow and graduate of The Johns Hopkins
University School of Medicine (1990), where he was awarded NIH, USPHS, and other
grants for new medical products. He graduated summa cum laude from Villanova
University (1984), where he completed undergraduate and graduate coursework in
electrical engineering and physics, received national awards for biomedical
innovation, and was named the nation's top biomedical engineering undergraduate
by the Alliance for Engineering in Medicine and Biology.

     Mario Khayat -- Mr. Khayat joined ART in 2004 as Executive Director,
Clinical Systems, with responsibility for the SoftScan development program. He
was appointed Vice President, Optical Products in September of 2005. Prior to
joining ART, Mr. Khayat was Director, Product Management and Marketing worldwide
at Evolved Digital Systems (formerly Electromed), a developer and manufacturer
of image networking and archiving solutions for the medical sector, from 2003 to
2004. He was Manager of the North American network management product line and
architecture group at Marconi Optical Networks from 2000 to 2002, where he
developed products for the management of hybrid optical networks. Mr. Khayat has
more than 15 years of experience in R&D and management in the medical and
telecommunications fields. Mr. Khayat holds a Bachelor of Science in Biomedical
Engineering from Boston University, a Masters in Electrical Engineering as well
as a Masters in Business Administration from McGill University.
<PAGE>

                                      -78-


     B.   Compensation

     The Corporation changed its financial year-end from April 30 to December 31
effective December 31, 2003. For reference purposes, the previously completed
financial reporting period covering the eight months ended December 31, 2003
will be referred to as the "Fiscal Period ended December 31, 2003" or the
"Fiscal Transition 2003".

Compensation of Named Executive Officers

The following table sets forth all compensation for the years ended December 31,
2005 and December 31, 2004, and the Fiscal Transition 2003, in respect of the
individuals who were, as at December 31, 2005, the Chief Executive Officer, the
Chief Financial Officer and the three (3) most highly compensated executive
officers of the Company who earned salary and bonus of more than C$150,000 (the
"Named Executive Officers"). The Company had five (5) Named Executive Officers
whose total annual salary and bonus exceeded C$150,000 for the year ended
December 31, 2005.

<TABLE>
<CAPTION>
                                                                                   LONG TERM
                                                                                 COMPENSATION
                                                                                    AWARDS
                                                    ANNUAL COMPENSATION          ------------
                                            ----------------------------------    SECURITIES      ALL OTHER
                                                        CASH      OTHER ANNUAL       UNDER      COMPENSATION
                                             SALARY     BONUS     COMPENSATION      OPTIONS     ------------
NAME AND PRINCIPAL POSITION      YEAR          C$        C$           C$(2)        GRANTED #        C$
---------------------------   ---------     --------   ------     ------------    ----------      ------
<S>                           <C>           <C>        <C>        <C>            <C>            <C>
Micheline Bouchard            Dec. 2005      325,000       --          --                --           --
President & Chief
Executive Officer             Dec. 2004      325,000   90,187(3)       --           247,713           --
                              Dec. 2003(1)   212,500       --(4)       --           100,000           --

Jacques Bedard                Dec. 2005      192,500       --          --                --           --
Chief Financial Officer       Dec. 2004      192,500   51,253(3)       --           157,000           --
                              Dec. 2003(1)   125,865       --(5)       --                --           --

Warren Baker                  Dec. 2005      223,365       --          --                --           --
Chief Operating Officer       Dec. 2004      176,923   40,426(3)       --           200,000       12,000(6)
                              Dec. 2003(1)        --       --          --                --       35,250(7)

Pierre Couture                Dec. 2005      160,000       --          --                --           --
Vice President,               Dec. 2004      150,020   25,653(3)       --           142,000           --
Sales and Marketing           Dec. 2003(1)    43,275       --          --             8,000       12,000(8)
</TABLE>

<PAGE>

                                      -79-


<TABLE>
<S>                           <C>           <C>        <C>        <C>            <C>            <C>
Sebastien Gignac              Dec. 2005      145,500   15,000          --                --           --
Vice President, Corporate     Dec. 2004      145,500   35,574(3)       --           164,156           --
Secretary &General Counsel    Dec. 2003(1)    94,915       --(9)       --                --           --
</TABLE>

(1)  The Fiscal Year ended December 31, 2003 corresponds to an eight-month
     period only.

(2)  Perquisites and other benefits do not exceed the lesser of C$50,000 and 10%
     of the total annual salary for the Named Executive Officers.

(3)  The Board of Directors has determined that the Named Executive Officers,
     based on their annual performance, were entitled to a cash bonus for the
     year ended December 31, 2004 payable in two installments: 50% as of March
     31, 2005 and the balance upon the realization of certain financial
     objectives by the end of 2005, which was effectively paid as of August 4,
     2005.

(4)  Based on her annual performance, the Board of Directors has determined that
     Ms. Bouchard was entitled to a total cash bonus for the Fiscal Period ended
     December 31, 2003 of C$123,094; however in consideration for renouncing in
     its entirety the cash bonus to which she was otherwise entitled, Ms.
     Bouchard was granted, effective January 27, 2004, options to purchase
     147,713 Common Shares at an exercise price of C$3.23 which are exercisable
     immediately without being subject to any vesting period.

(5)  Based on his annual performance, the Board of Directors has determined that
     Mr. Bedard was entitled to a total cash bonus for the Fiscal Period ended
     December 31, 2003 of C$47,500; however in consideration for renouncing in
     its entirety the cash bonus to which he was otherwise entitled, Mr. Bedard
     was granted, effective January 27, 2004, options to purchase 57,000 Common
     Shares at an exercise price of C$3.23 which are exercisable immediately
     without being subject to any vesting period.

(6)  Represents consulting fees paid to Mr. Baker as Chief Operating Officer.

(7)  Represents consulting fees paid to Mr. Baker prior to becoming Chief
     Operating Officer.

(8)  Represents incentive compensation paid to Mr. Couture to join the
     Corporation.

(9)  Based on his annual performance, the Board of Directors has determined that
     Mr. Gignac was entitled to a total cash bonus for the Fiscal Period ended
     December 31, 2003 of C$28,463; however in consideration for renouncing in
     its entirety the cash bonus to which he was otherwise entitled, Mr. Gignac
     was granted, effective January 27, 2004, options to purchase 34,156 Common
     Shares at an exercise price of C$3.23 which are exercisable immediately
     without being subject to any vesting period.

Option Grants During the the year ended December 31, 2005 to Named Executive
Officers

The following table sets forth the options granted under the Corporation's stock
option plan to the Corporation's Named Executive Officers (including the Chief
Executive Officer and the Chief Financial Officer) during the year ended
December 31, 2005.

<PAGE>

                                      -80-


<TABLE>
<CAPTION>
                                          % OF TOTAL
                         NUMBER OF     OPTIONS GRANTED
                       COMMON SHARES   UNDER THE PLAN       MARKET PRICE AT
                       UNDER OPTIONS        IN THE        CLOSING ON DAY PRIOR
        NAME              GRANTED        FISCAL YEAR        TO DATE OF GRANT      EXERCISE PRICE     EXPIRATION DATE
        ----           -------------   ---------------   ---------------------   -----------------   ---------------
                                                         (C$ PER COMMON SHARE)   (C$ PER SHARE)(1)
<S>                    <C>             <C>               <C>                     <C>                 <C>
Micheline Bouchard..         --               --                   --                    --                 --
Warren Baker........         --               --                   --                    --                 --
Jacques Bedard......         --               --                   --                    --                 --
Pierre Couture......         --               --                   --                    --                 --
Sebastien Gignac....         --               --                   --                    --                 --
</TABLE>

(1)  The amounts set forth in this column are determined by the Board of
     Directors based on the closing price of the Common Shares on the trading
     day immediately preceding the date of grant.

Aggregated Options Exercised and Option Values

The following table sets forth the options exercised by the Corporation's Named
Executive Officers (including the Chief Executive Officer and the Chief
Financial Officer) during the year ended December 31, 2005.

<TABLE>
<CAPTION>
                                                         UNEXERCISED OPTIONS AT        VALUE OF UNEXERCISED
                       COMMON SHARES                        DECEMBER 31, 2004        IN-THE-MONEY OPTIONS AT
                          ACQUIRED     AGGREGATE VALUE      (#) EXERCISABLE /         DECEMBER 31, 2004 (C$)
        NAME            ON EXERCISE        REALIZED         UNEXERCISABLE(1)      EXERCISABLE / UNEXERCISABLE(2)
        ----           -------------   ---------------   ----------------------   ------------------------------
<S>                    <C>             <C>               <C>                      <C>
Micheline Bouchard..         --               --             522,714/99,999                   Nil/Nil
Warren Baker........         --               --             66,668/133,332                   Nil/Nil
Jacques Bedard......         --               --             231,334/66,666                   Nil/Nil
Pierre Couture......         --               --              52,668/97,332                   Nil/Nil
Sebastien Gignac....         --               --             130,490/86,666                   Nil/Nil
</TABLE>

----------
(1)  Options granted under the Corporation's stock option plan are not
     exercisable during the first year after the grant date, and thereafter
     generally vest in three cumulative equal installments over three years from
     the effective date of grant, on each anniversary of the grant date. Options
     are fully exercisable on and after three years from the grant date until
     the expiry date. However, the options granted to Ms. Bouchard, Mr. Bedard
     and Mr. Gignac on January 27, 2004 are not subject to any vesting period
     (See table included above, under the section entitled "Compensation of
     Named Executive Officers").

(2)  Market value of underlying Common Shares at December 30, 2005 minus the
     exercise price. The market value of the Common Shares at December 30, 2005
     was C$0.64 per Common Share.

Long Term Incentive Plans

Other than its stock option plan, the Corporation does not have any plans which
provide compensation intended to serve as an incentive to Named Executive
Officers for performance to occur over a period greater than one financial year.

<PAGE>

                                      -81-


Employment Agreement

On August 16, 2002, the President and Chief Executive Officer, Micheline
Bouchard, and the Corporation entered into an agreement outlining the terms and
conditions of Ms. Bouchard's employment for the period from September 3, 2002 to
September 2, 2005. Under this agreement, Ms. Bouchard's annual salary is
established at C$325,000 and Ms. Bouchard was granted, effective August 16,
2002, options to purchase 275,000 Common Shares at an exercise price based on
the weighted average trading price on the Toronto Stock Exchange of such shares
for the thirty trading days preceding the grant date. Ms. Bouchard is also
entitled, on each of the first and second anniversary date of the beginning of
her employment with the Corporation, to receive additional options to purchase
100,000 Common Shares. Consequently, Ms. Bouchard was granted, effective
September 10, 2003, options to purchase 100,000 Common Shares at an exercise
price based on the average trading price on the Toronto Stock Exchange of such
shares for the thirty trading days preceding the grant date. Ms. Bouchard was
also granted, effective December 9, 2004, options to purchase 100,000 Common
Shares at an exercise price based on the average trading price on the Toronto
Stock Exchange of such shares for the thirty trading days preceding the grant
date. The agreement includes specific provisions regarding Ms. Bouchard's
non-solicitation and non-competition obligations, as well as the protection of
the Corporation's interests, such as intellectual property and confidential
information. Ms. Bouchard's employment agreement provides for an annual cash
bonus based on the achievement of business goals and overall Corporation
performance. This agreement also sets out Ms. Bouchard's entitlement under the
Corporation's incentive program and other customary perquisites.

The Corporation may terminate Ms. Bouchard's employment by providing 3 months'
prior written notice of termination and a separation package equivalent to 18
months base salary. In the event of a change of control, the Corporation may
terminate Ms. Bouchard's employment without prior notice, by providing her with
a compensation package equivalent to 24 months base salary. Both separation and
compensation packages are payable in one lump sum payment. No notice or further
compensation or benefits is required where the Corporation terminates employment
for just cause, or the occurrence of Ms. Bouchard's death, retirement or
incapacity, or her voluntary resignation. Upon Ms. Bouchard's termination of
employment or resignation following a change of control of the Corporation, any
unvested options to purchase Common Shares will become 100% vested and
exercisable on Ms. Bouchard's last day of employment.

On May 15, 2005, Ms. Bouchard's employment agreement was renewed for another 2
years following the initial 3-year term of the agreement, that is until
September 3, 2007, upon the following terms and conditions: Ms. Bouchard's
annual salary will remain at $325,000 and she will also remain eligible to an
annual cash bonus based on the achievement of business goals and overall
Corporation performance. All other terms and conditions of the Executive
Employment Agreement entered into between Ms. Bouchard and the Corporation on
August 16, 2002 will remain in effect unamended.

On January 9, 2004, the Chief Operating Officer, Warren Baker, and the
Corporation entered into an executive employment agreement for an initial
one-year term commencing on January 12, 2004. This agreement provided for the
employment of Mr. Baker at annual base salary originally set at $200,000 and was
readjusted on the recommendation of the Corporate

<PAGE>

                                      -82-


Governance, Human Resources & Compensation Committee of the Board of Directors
on December 9, 2004 at $225,000 effective January 9, 2005. This agreement also
provided that Mr. Baker was eligible to an annual cash bonus of up to 30 % of
its base salary depending on the achievement of business goals and overall
Corporation performance. Under the agreement, Mr. Baker was granted, effective
January 9, 2004, options to purchase 100,000 Common Shares at an exercise price
of $3.00 per Common Shares. The Corporation's Board of Directors at its sole
discretion may determine any additional options issued to Mr. Baker. Mr. Baker
was granted, effective December 9, 2004, options to purchase 100,000 Common
Shares at an exercise price based on the average trading price on the TSX of
such shares for the thirty trading days preceding the grant date. The agreement
included specific provisions regarding Mr. Baker's non-solicitation and
non-competition obligations, as well as the protection of the Corporation's
interests, such as intellectual property and confidential information. This
agreement also set out Mr. Baker's entitlement under the Corporation's incentive
program and other customary perquisites.

No notice or further compensation or benefits were required where the
Corporation terminated employment for just cause, or the occurrence of Mr.
Baker's death, retirement or incapacity, or his voluntary resignation. Upon Mr.
Baker's termination of employment or resignation for any reason, the options
were to lapse on the date of termination of employment with the Corporation
except that they could be exercised for 90 days after the date of termination,
to the extent they would have vested on such date. This agreement was set to be
automatically renewed for successive and continuing one-year periods, unless Mr.
Baker or the Corporation decided to terminate the agreement by providing a
notice at least 3 months prior to the expiration of the initial term or the term
of any one-year renewal period thereof.

In accordance with the agreement, a notice of non-renewal was given to Mr. Baker
as of September 2, 2005 and as of the date of filing of this Annual Report on
Form 20-F, Mr. Baker continues to be employed as an executive of the
Corporation.

Compensation of Directors

During the year ended December 31, 2005, directors were compensated for their
participation on the Corporation's Board of Directors in part in cash and in
part in options granted under the Corporation's stock option plan. A total of
20,000 options were granted to each director upon their original appointment to
the Board. An additional 10,000 options were granted to the Chairman of the
Board upon his original appointment. Each director is entitled to receive 10,000
options per year for their participation on the Corporation's Board of
Directors. Consequently, during the financial year ended December 31, 2005, each
director was granted options to purchase 10,000 Common Shares. Other than being
compensated in options, directors received a fee for each Board and committee
meeting they attended during the year ended December 31, 2005. The Corporation's
fee structure for participation on the Board of Directors is as follows: with
the exception of the Chairman of the Board who receives a higher annual retainer
fee, each director receives an annual retainer fee of C$7,500, as well as a fee
of C$1,000 per meeting of the Board attended in person or by phone. The
Corporation's fee structure for participation on the committees of the Board of
Directors is as follows: with the exception of each committee's president who
receives a higher annual retainer fee, each member receives an additional annual
retainer fee of C$2,500, as well as a fee of C$1,000 per meeting of any
committee attended in

<PAGE>

                                      -83-


person or by phone. Each committee's president receives an annual retainer fee
of $5,000. In addition to the fees payable for attending the meeting of the
Board and its committees, the Chairman of the Board is paid an annual retainer
fee of C$35,000. Directors who are employees or executive officers of the
Corporation do not receive any additional compensation for their services as
directors of the Corporation. Reasonable expenses incurred by directors in
connection with attendance at meetings, including out-of-pocket travel, lodging
and related expenses, are also reimbursed. The Corporation has no further
arrangements, standard or otherwise, pursuant to which directors were
compensated by the Corporation for their services in their capacity as directors
during the year ended December 31, 2005.

Attendance Record for Board Meetings

The Board held nine (9) meetings during the financial year ended December 31,
2005, while the Audit & Environment Committee met four (4) times and the
Corporate Governance, Human Resources & Compensation Committee met three (3)
times during the year. A record of attendance by individual director at meetings
of the Board and its Committees is set out below.

<TABLE>
<CAPTION>
                               NUMBER OF MEETINGS ATTENDED
                      ---------------------------------------------
                                 AUDIT &     CORPORATE GOVERNANCE,
                               ENVIRONMENT      HUMAN RESOURCES &
      DIRECTOR         BOARD    COMMITTEE    COMPENSATION COMMITTEE
      --------        ------  ------------   ----------------------
<S>                   <C>      <C>           <C>
Micheline Bouchard    9 of 9       N/A               N/A
Jacques Courville     9 of 9       N/A             3 of 3
Raymond Cyr           9 of 9     4 of 4            3 of 3
Pierre Dutheil        9 of 9     4 of 4              N/A
George N. Fugelsang   8 of 9       N/A             1 of 1 (1)
Benoit La Salle       9 of 9     4 of 4            3 of 3
</TABLE>

(1)  Mr. George Fugelsang was nominated to the Corporae Governance, Human
     Resources & Compensation Committee on May 26, 2005 and attended the only
     meeting held during the last financial year after that date.

Indebtedness of Directors, Executive Officers and Employees

None of the directors, executive officers or employees of the Company was
indebted to the Company during the year ended December 31, 2005.

Insurance and Indemnification of Directors and Officers

The Company maintains a directors' and officers' liability insurance policy for
C$10 million to insure directors and officers for losses as a result of claims
against any of them in their capacity as directors and officers. The current
total annual premium of C$71,908 is paid by the Company. This policy is for a
term extending from August 31, 2005 to August 31, 2006. This policy has a
corporate deductible of C$100,000, per loss.
<PAGE>

                                      -84-


Equity Compensation Plan Information

The following table summarizes the compensation plans under which equity
securities of the Corporation are authorized for issuance as of the end of the
most recently completed fiscal year:

<TABLE>
<CAPTION>
                                           NUMBER OF                                  NUMBER OF COMMON
                                         COMMON SHARES        WEIGHTED AVERAGE        SHARES REMAINING
                                       TO BE ISSUED UPON      EXERCISE PRICE OF     AVAILABLE FOR FUTURE
                                          EXERCISE OF       OUTSTANDING OPTIONS,   ISSUANCE UNDER EQUITY
                                     OUTSTANDING OPTIONS,    WARRANTS AND RIGHTS     COMPENSATION PLANS
                                      WARRANTS AND RIGHTS            C$               (EXCLUDING (A))
       PLAN CATEGORY                          (A)                    (B)                    (C)
       -------------                 --------------------   --------------------   ---------------------
<S>                                  <C>                    <C>                    <C>
EQUITY COMPENSATION PLANS
   APPROVED BY SECURITYHOLDERS (1)         6,507,296                2.13                 1,379,167

EQUITY COMPENSATION PLANS
   NOT APPROVED BY SECURITYHOLDERS               N/A                 N/A                       N/A

TOTAL                                      6,507,296                2.13                 1,379,167
</TABLE>

(1)  See "Stock Option Plan" below for further information.

Stock Option Plan

As the cornerstone of its long-term compensation strategy for retaining the
services of key people, the Company has instituted a stock option plan which
provides for the issuance of options to purchase Common Shares. The Stock Option
Plan (the "Plan") was approved by its shareholders on June 14, 1996. It was
amended and restated prior to the completion of the Corporation's initial public
offering of Common Shares on June 29, 2000, as well as on October 23, 2002 and
on May 26, 2005. The principal purposes of the current Plan are to promote a
proprietary interest in the Corporation among its employees, directors, officers
and consultants in order to retain, attract and motivate them, to provide a long
term incentive element in overall compensation, and to promote the Corporation's
long term profitability. Eligible persons under the Plan, who may be granted
options to purchase Common Shares, include any directors, officers, employees
and consultants who are motivated towards ensuring the Corporation's success and
acquiring shares of the Corporation.

The maximum number of Common Shares of the Corporation which may be
reserved for issuance under the current Plan is 4,563,486 Common Shares, being
7.6% of the currently issued and outstanding Common Shares, which includes the
Common Shares issuable upon the exercise or conversion of debentures, warrants
or similar securities other than options. As of December 31, 2005, the total
number of Common Shares (a) issued on the exercise of options granted under the
Plan, and (b) issuable under outstanding options granted under the Plan, and the
respective percentages of the Corporation's issued and outstanding Common Shares
represented by such shares, were as follows:

<PAGE>

                                      -85-


<TABLE>
<CAPTION>
                                             Percentage of
                                              Issued and
                                              Outstanding
       Stock Option Plan           Number    Common Shares
       -----------------         ---------   -------------
<S>                              <C>         <C>
Number of Common Shares issued
on the exercise of options
granted under the Plan........     699,840        1.2

Number of Common Shares
issuable under outstanding
options granted under the Plan   1,659,957        2.8
Total.........................   2,359,797        4.0
</TABLE>

Accordingly, 1,379,167 Common Shares remain issuable pursuant to options that
may be granted under the Plan.

The Plan contains the following provisions:

     a)   options to purchase Common Shares may be granted to employees,
          directors, officers or consultants of the Corporation, as determined
          by the Corporation's Board of Directors or the Corporate Governance,
          Human Resources & Compensation Committee;

     b)   the aggregate number of Common Shares authorized for issuance to
          insiders under the Plan (whether pursuant to options issued under the
          Plan or otherwise) may not exceed 10% of the Common Shares outstanding
          from time to time (on a non-diluted basis but including Common Share
          which are issuable upon the exercise or conversion of outstanding
          securities of the Corporation other than options);

     c)   the aggregate number of Common Shares authorized for issuance to any
          one person under the Plan (whether pursuant to options issued under
          the Plan or otherwise) may not exceed 5% of the Common Shares
          outstanding from time to time (on a non-diluted basis but including
          Common Share which are issuable upon the exercise or conversion of
          outstanding securities of the Corporation other than options);

     d)   the exercise price of options granted is determined by the Board of
          Directors of the Corporation, but shall not be less than the latest
          closing price of the Common Shares on the TSX;

     e)   each option, unless sooner terminated pursuant to the provisions of
          the Plan, will expire ten years from the date of issuance unless the
          Board of Directors or the Corporate Governance, Human Resources &
          Compensation Committee determines otherwise at the time the option is
          granted;

<PAGE>

                                      -86-


     f)   each option will vest in three equal annual instalments commencing on
          the first anniversary of its grant or pursuant to any other vesting
          schedule established by the Board of Directors or the Corporate
          Governance, Human Resources & Compensation Committee, the whole
          subject to a vesting and expiry acceleration provision in the event of
          the sale of the Corporation;

     g)   options will lapse upon termination of employment (or the end of the
          business relationship) with the Corporation except that they may be
          exercised for 90 days after termination (other than termination for
          serious reason) or the end of the business relationship other than due
          to death or disability, to the extent they will have vested on such
          date;

     h)   options are non-assignable except to (i) the spouse of an optinee,
          (ii) a minor child of an optionee, (iii) a minor grandchild of an
          optionee, (iv) a corporation controlled by an optionee, and whose
          other shareholders consist solely of persons described in (i), (ii) or
          (iii), and (v) a family trust, where the Optionee is a trustee and the
          beneficiaries consist solely of persons described in (i), (ii) or
          (iii), provided that such assignment is approved by either the
          Corporate Governance, Human Resources & Compensation Committee or the
          Board of Directors and that no consideration is paid for the
          assignment;

     i)   options are fully exercisable in the case of death or physical or
          mental disability (in which case the optionee's legal personal
          representative may exercise the options for up to one year
          thereafter);

     j)   the Board of Directors may amend the terms of the Plan, subject to the
          receipt of all necessary approvals from the applicable stock
          exchanges.

The Corporation does not provide any financial assistance to optionees in order
the facilitate the purchase of Common Shares pursuant to the exercise of options
granted under the Plan. The Plan does not contemplate the transformation of a
stock option into a stock appreciation right.

In January 2005, the TSX amended its security-based compensation rules (the "TSX
Rules") to permit companies to adopt "evergreen" stock option plans pursuant to
which a percentage of the issued and outstanding shares of the company, instead
of a fixed maximum number of shares, could be reserved for issuance upon
exercise of stock options. The Board of Directors of the Corporation considered
this option and determined it was in the best interest of the Corporation to
adopt "evergreen" stock option plans as this would give the Board increased
flexibility to more closely align the interests of the directors, officers and
employees with those of the shareholders of the Corporation and ensure ongoing
investment by the directors, officers, employees and consultants in the
Corporation. Under the TSX Rules, any "evergreen" stock option plan must first
be approved at the time of its adoption and then every three years by the
Corporation's directors, unrelated directors and shareholders.

The Board of Directors of the Corporation also determined that it was in the
best interest of the Corporation to adopt a separate stock option plan for
members of the Board of Directors (the "Director Plan"). The Corporation has
developed a separate plan for the Directors, following a request made by one of
its institutional shareholder. (By adopting a separate plan for the

<PAGE>

                                      -87-


directors, who are eligible participants under the current plan, the board of
directors wishes to increase transparency by specifying a distinct "Evergreen"
maximum percentage of the issued and outstanding common shares that can be
reserved for issuance to the directors upon exercise of stock options.)

At the Annual and Special Meeting of Shareholders of the Corporation that will
be held on May 25, 2006, the shareholders of the Corporation will be asked to
consider and, if deemed advisable, adopt a resolution to approve amendments to
the Plan and the adoption of a separate stock option plan for members of the
Board of Directors.

     C. Board Practices

The mandate of the Board of Directors (the "Board of Directors" or the "Board")
is to assume responsibility for the stewardship of the Company, to oversee the
conduct of the business and affairs of the Company and to supervise the
executive management of the Corporation which is responsible for the conduct of
the business. The Board assumes special responsibility for the following
matters, either directly or through one of its committees: (a) the adoption of a
strategic planning process for the Company; (b) the identification of the
principal risks associated with the Company's activities and the implementation
of appropriate systems to manage these risks; (c) the appointment, training,
evaluation and supervision of senior management as well as succession planning;
(d) a communications policy with shareholders and the public at large; and (e)
the integrity of the Company's internal controls and management information
systems.

While management is responsible for the development of long-term corporate
strategy, the Board ensures that a strategic planning process is in place,
reviews and approves the strategy, and monitors management's success in
implementing the strategy and the corporate objectives which the Chief Executive
Officer is responsible for attaining. The Board also discharges its supervisory
role by reviewing and adopting an annual business plan, an operating and capital
budget, as well as the financial statements of the Company. The Board looks to
management to be responsible for the day-to-day operations of the Company and
the efficient management of the business of the within the strategic framework
approved by the Board. The Board approves any material agreements and any action
leading to a material change in the nature of the business of the Company and
any other significant matters affecting the Company which are outside of its
ordinary course of business. The Board also approves banking relationships and
key borrowing and financing decisions.

The Audit & Environment Committee

The Audit & Environment Committee (the "Audit Committee") is responsible for
overseeing the Company's internal control and management reporting systems, as
well as identifying the principal risks of the Company's business and ensuring
that the systems are in place to identify, monitor and manage these risks. The
responsibilities of the Audit Committee include the review of annual and interim
financial statements as well as the management discussion and analysis section
to be included in the Annual Report. The Audit Committee also reviews with
management and with the external auditors the Company's financial reporting
procedures in connection with the annual audit and the preparation of the
financial statements. The Audit Committee recommends to the Board the
appointment and remuneration of the external auditors. The Audit Committee is
composed of three (3) outside directors, all of whom are unrelated. The Audit
Committee has direct

<PAGE>

                                      -88-


communications channels with the external auditors to discuss and review
specific issues as appropriate. The Audit Committee also has oversight
responsibility of internal control and management information systems.

The Corporate Governance, Human Resources & Compensation Committee

The principal mandate of the Corporate Governance, Human Resources &
Compensation Committee (the "Corporate Governance Committee") is to determine,
develop and monitor the approach to corporate governance issues, including the
Company's response to applicable guidelines on corporate governance; to
establish procedures for the identification of new nominees to the Board; to
develop and implement orientation procedures for new directors; and to assess
the effectiveness of the Board and its committees. The Corporate Governance
Committee has the responsibility to annually review the composition of the Board
and to assess the skills, the personal qualities, the business experience, and
the diversity within the Board members. The criteria for the selection of the
directors include the experience of the candidates in the clinical and medical
field or the information technology sector, as well as the ability to negotiate
with large companies and give advice on the marketing and medical devices. The
Corporate Governance Committee has also been given the responsibility for
succession planning of executive positions and to review and make
recommendations to the Board of Directors concerning the President and Chief
Executive Officer's performance and compensation and, taking into consideration
the President and Chief Executive Officer's recommendations, for reviewing the
performance and compensation of those executive officers and senior managers
that report directly to the President and Chief Executive Officer. The Corporate
Governance Committee also reviews and makes recommendations to the Board of
Directors on the adequacy and form of compensation to be paid to directors and
ensures that this compensation realistically reflects the responsibilities and
risk involved in being an effective director. The Corporate Governance Committee
specifically assesses the performance of the President and Chief Executive
Officer and determines her compensation based on the attainment of objectives
set by the Board of Directors that are consistent with the Company's strategic
plan. The Corporate Governance Committee also determines the options to be
granted to eligible persons under the stock option plan. The Corporate
Governance Committee is composed of four (4) outside directors, all of whom are
unrelated.

Shareholder Communications

The Board assumes responsibility, through the Disclosure Policy Committee, for
the Corporation's communications' policy with shareholders and the public at
large. In addition to its required public filings, the Company regularly
communicates with its shareholders and the investment community by use of its
quarterly reports, annual report and press releases. All communications from
shareholders are referred to the appropriate corporate officer for consideration
and response. Management promptly brings to the attention of the Board of
Directors of the Company any significant issues raised by shareholders.
Furthermore, the question period reserved for shareholders at the end of each
annual meeting is intended to allow shareholders to ask questions or address
their comments directly to the President and Chief Executive Officer.

     D. Employees

As of December 31, 2005, the Company employed 64 persons including 43 working in
research, development, production, customer support and engineering activities.
Of these 64 employees,

<PAGE>

                                      -89-


24 hold a Ph.D., M.Sc., M.B.A. and/or other Master's degree. The Company
maintains affiliations with research centres including MGH and INO.

ART currently has a comprehensive human resource management system, which
includes several key compensation components and a comprehensive benefit
package. In addition, an incentive program will allow individuals to earn salary
supplements based on performance. Contribution to long-term performance is
encouraged with an employee stock option plan.

ART's employees are not represented by any collective bargaining organization,
and the Company has never experienced a work stoppage. The Company believes that
its relations with its employees are good.

     E. Share ownership

The following table sets forth, as of December 31, 2005, the number of the
Company's Common Shares beneficially owned by (a) the directors and members of
senior management of the Company, individually, and as a group, and (b) the
percentage ownership of the outstanding Common Shares represented by such
shares.

<TABLE>
<CAPTION>
                         COMMON SHARES
                          BENEFICIALLY
                           OWNED (1)
                       -----------------
NAME                    NUMBER   PERCENT
----                   -------   -------
<S>                    <C>       <C>
Micheline Bouchard      66,000        *
Jacques Courville        6,000        *
Raymond Cyr             62,500        *
Pierre Dutheil          30,200        *
Benoit La Salle         10,000        *
George N. Fugelsang      2,000        *
Jacques Bedard          61,000        *
Warren G. Baker         14,000        *
Pierre Couture           5,000        *
Sebastien Gignac        27,200        *
Joseph G. Kozikowski    14,000        *
Mario Khayat             6,500        *
                       -------    ----
TOTAL                  304,400    0.71%
                       =======    ====
</TABLE>

*    Less than 1%.

The following table sets forth, as of December 31, 2005, the number of options
to acquire Common Shares, which were issued to the directors and members of
senior management of the Company:
<PAGE>

                                      -90-


<TABLE>
<CAPTION>
                         SECURITIES UNDER    EXERCISE PRICE (1)
NAME                   OPTIONS GRANTED (#)     (C$ PER SHARE)       EXPIRATION DATE
----                   -------------------   ------------------   ------------------
<S>                    <C>                   <C>                  <C>
Micheline Bouchard          275,000                 $1.72           August 15, 2012
                            100,000                 $3.51          September 9, 2013
                            147,713                 $3.23          January 26, 2014
                            100,000                 $1.10          December 8, 2014

Jacques Courville            20,000                 $1.91          February 9, 2013
                              9,167(2)              $2.14            June 20,2014
                             10,000                 $0.68          November 8, 2015

Raymond Cyr                  20,000                 $6.00          February 14, 2009
                             20,000                 $7.50           March 19, 2010
                             20,000                 $2.35          November 13, 2012
                             10,000                 $2.14            June 20, 2014
                             10,000                 $0.68          November 8, 2015

Pierre Dutheil                7,500                 $1.81          February 26, 2013
                             20,000                 $2.14            June 20, 2014
                             10,000                 $0.68          November 8, 2015

Benoit La Salle              20,000                 $1.91          February 9, 2013
                             10,000                 $1.91          February 9, 2013
                              9,167                 $2.14           June 20, 2014
                             10,000                 $0.68          November 8, 2015

George N. Fugelsang          20,000                 $1.28          November 15, 2014
                             10,000                 $0.68          November 8, 2015

Jacques Bedard               30,000                 $1.70           August 20, 2006
                             16,000                 $4.60           August 28, 2007
                             15,000                 $6.00          February 14, 2009
                             30,000                 $7.50           March 19, 2010
                             20,000                 $3.85          December 13, 2011
                             30,000                 $2.39           June 18, 2012
                             57,000                 $3.23          January 26, 2014
                            100,000                 $1.10          December 8, 2014

Warren G. Baker             100,000                 $3.00           January 8, 2014
                            100,000                 $1.10          December 8, 2014

Pierre Couture                8,000                 $3.51          September 9, 2013
                             12,000                 $3.04          January 26, 2014
                             30,000                 $2.14           June 20, 2014
                            100,000                 $1.10          December 8, 2014

Sebastien Gignac             10,000                 $6.00          February 14, 2009
                             18,000                 $7.50           March 19, 2010
                              5,000                 $3.85          December 13, 2011
                             20,000                 $2.39            June 18, 2012
                             34,156                 $3.23          January 26, 2014
                             30,000                 $2.14            June 20, 2014
                            100,000                 $1.10          December 8, 2014

Joseph G. Kozikowski         50,000                 $3.00           January 8, 2014

Mario Khayat                 15,000                 $3.04          January 26, 2014
                             36,000                 $1.10          December 8, 2014
                             50,000                 $0.78         September 28, 2015
</TABLE>

<PAGE>

                                      -91-


(1)  The amounts set forth in this column are determined by the Board of
     Directors based on the closing price of the Common Shares on the trading
     day immediately preceding the date of grant.

(2)  Of these 9,167 options, Mr. Jacques Courville has exercised 6,000 options
     to acquire Common Shares on May 1, 2004.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     A. Major shareholders

As of February 28, 2006, there were 42,664,523 issued and outstanding Common
Shares. To the knowledge of the Company's directors and executive officers, the
following table sets forth the names of the shareholders owning on record or
beneficially, directly or indirectly, more than 5% of the Common Shares of the
Company as at February 28, 2006, as well as the total amount of voting
securities owned by the directors and officers as a group:

<TABLE>
<CAPTION>
                                                          NUMBER OF      PERCENTAGE OF CLASS
IDENTITY OF PERSON OR GROUP             TITLE OF CLASS   SHARES HELD   AS OF FEBRUARY 28, 2006
---------------------------             --------------   -----------   -----------------------
<S>                                     <C>              <C>           <C>
Capital Technologies CDPQ Inc.              Common        2,678,572             6.28%
(formerly Sofinov, Societe Financiere
d'Innovation Inc.)

General Electric Company                    Common        2,586,392             6.06%

Oppenheimer Funds, Inc.                     Common        4,595,652            10.80%
(through Oppenheimer International
Growth Fund, Massmutual
International Equity Fund and another
related fund)

Directors and Officers as a group           Common          304,400             0.71%
</TABLE>

To the knowledge of the Company's directors and executive officers, the Company
is not directly or indirectly owned or controlled by another company, by any
foreign government or by any other natural or legal person severally or jointly.

As of February 28, 2005, 6,423,097 Common Shares of the Company were held by 19
registered holders with United States addresses, representing 15.06% of our
outstanding Common Shares.

     B. Related party transactions

In the normal course of business, the Company carried out the following
transactions with certain directors, officers and companies related to these
directors and officers:

<TABLE>
<CAPTION>
                                                               Eight-month
                        Year ended          Year ended         period ended       Year ended
                    December 31, 2005   December 31, 2005   December 31, 2003   April 30, 2003
                    -----------------   -----------------   -----------------   --------------
<S>                 <C>                 <C>                 <C>                 <C>
Professional fees       $2,340,026          $1,952,581             $--              $58,046
                        ==========          ==========             ===              =======
</TABLE>

These transactions were recorded at their exchange value, which is the
consideration established and agreed upon by the related parties.

<PAGE>

                                      -92-


No director or officer or associate of a director or officer nor, to the
knowledge of the directors or officers of the Company after having made
reasonable enquiry, any person or company who beneficially owns directly or
indirectly, more than 10% of the Common Shares of the Company outstanding at the
date hereof, or any associate or affiliate thereof, had any material interest,
direct or indirect, over the past three years in any material transaction of the
Company nor do any such persons have a material interest in a proposed material
transaction of the Company.

     C. Interest of experts and counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

     A. Financial Statements

See "Item 19 - Exhibits".

Legal Proceedings

The Company is not involved in any legal proceedings nor is it aware of any
proceedings that are contemplated that it believes could have a material adverse
effect upon its financial condition or results of operation.

Dividend Distribution Policy

The Company has never paid a cash dividend on its Common Shares. In the future,
declared dividends, if any, would be declared in Canadian dollars. For
shareholders who are United States residents, dividends would be converted and
paid in U.S. dollars at the rate of exchange prevailing on the declaration date.

     B. Significant Changes

Since January 2004, the Company operates in two sectors for financial reporting
purposes; the medical and the pharmaceutical. The medical sector includes the
research, design, development and marketing of SoftScan(R) time domain optical
breast imaging device. The pharmaceutical sector includes the research, design,
development and commercialization of the eXplore Optix(TM) system.

ITEM 9. THE OFFER AND LISTING

     A. Offer and listing details

ART's Common Shares have been listed on the TSX on June 29, 2000. The Common
Shares are not listed on any other stock exchange and have not been publicly
traded outside Canada.

The table below sets forth for the periods indicated (i) the high and low
reported prices of the Common Shares on the TSX (in Canadian dollars).

(I)  ANNUAL HIGH AND LOW MARKET PRICES FOR THE LAST FISCAL PERIOD:

<PAGE>

                                      -93-


<TABLE>
<CAPTION>
                                  COMMON SHARES (IN C$)
                                  ---------------------
                                       HIGH    LOW
                                      -----   -----
                                          (TSX)
<S>                               <C>         <C>
FISCAL PERIOD
2005 (From January 1st, 2005 to
   December 31, 2005)                 $1.28   $0.46
                                      -----   -----
</TABLE>

(II) HIGH AND LOW MARKET PRICES FOR EACH FULL FINANCIAL QUARTER FOR THE MOST
     RECENT FISCAL PERIOD:

<TABLE>
<CAPTION>
                             COMMON SHARES (IN C$)
                             ---------------------
                                  HIGH    LOW
                                 -----   -----
                                     (TSX)
<S>                          <C>         <C>
2005
First Quarter
(From January 1st, 2005 to
   March 31, 2005)               $1.28   $0.91
Second Quarter
(Ended June 30, 2005)            $1.00   $0.88
Third Quarter
(Ended September 30, 2005)       $0.95   $0.70
Fourth Quarter
(Ended December 31, 2005)        $0.74   $0.46
</TABLE>

(III) HIGH AND LOW MARKET PRICES EACH MONTH FOR THE MOST RECENT SIX MONTHS:

<TABLE>
<CAPTION>
                 COMMON SHARES (IN C$)
                 ---------------------
                      HIGH    LOW
                     -----   -----
                         (TSX)
<S>              <C>         <C>
MONTH
September 2005       $0.82   $0.70
October 2005         $0.74   $0.62
November 2005        $0.72   $0.52
December 2005        $0.64   $0.46
January 2006         $0.70   $0.60
February 2006        $0.90   $0.60
</TABLE>

     B. Plan of distribution

Not applicable.

     C. Markets

See "Item 9" - The offer and listing- Part A. Offer and listing details.

<PAGE>

                                      -94-


ITEM 10. ADDITIONAL INFORMATION

     A. Share capital

Not applicable.

     B. Memorandum and Articles of association

ART's Memorandum and Articles are incorporated by reference to the information
in our registration statement on Form 20-F filed with the Securities and
Exchange Commission to which our Articles of Incorporation and Memorandum were
filed as exhibits.

     C. Material contracts

In April 2001, the Company acquired an exclusive worldwide license from an
affiliate of a member of its Scientific Advisory Board for a consideration of
$250,000 and the issuance of 98,840 Common Shares. The agreement also stipulates
that royalties shall be paid on the sale of the licensed technology or on the
sale of medical products to be developed by the Company, to the extent that they
incorporate the licensed technology. These transactions were recorded at their
exchange value, which was the consideration established and agreed upon by the
related parties.

On October 22, 2002, ART and GE Medical Systems (now known as GE Healthcare), a
unit of General Electric Company, signed a multi-year agreement in which GE
Medical Systems will market, manufacture and distribute ART's Softscan(R) breast
imaging system. Under the SoftScan(R) Commercial Alliance Agreement, GE
Healthcare will manufacture and distribute globally SoftScan(R) as of the
full-production phase (the phase following the clinical and pre-production
phases). Prior to the full-production phase, ART will manufacture the
SoftScan(R) device. During the pre-production phase, GE Healthcare' specialists
will receive SoftScan(R) specific training in order to prepare for
commercialization, with a focus on using GE Healthcare' distribution channels.
Under the Research and Development Alliance Agreement, GE Healthcare and ART
will jointly collaborate on research and development projects in the field of
optical molecular imaging.

On August 14, 2003, ART and GE Healthcare (formerly known as GE Medical Systems)
signed an exclusive worldwide distribution agreement under which GE Healthcare
will distribute ART's pre-clinical molecular imaging device (the "eXplore
Optix(TM) Distribution Agreement"). Under the eXplore Optix(TM) Distribution
Agreement, GE Healthcare purchases eXplore Optix(TM) units from ART, and is also
responsible for sales, distribution, training, marketing and after-sales
service. ART retains manufacturing and sourcing for all eXplore Optix(TM) units
sold through GE Healthcare, and all rights to the technology and intellectual
property.

     D. Exchange controls

Not applicable.

<PAGE>

                                      -95-


     E. Taxation

Certain Canadian Federal Income Tax Considerations

The following is a summary of the principal Canadian federal income tax
considerations under the Income Tax Act (Canada) (the "Canadian Tax Act")
generally applicable to a person (a "U.S. Holder") who holds Common Shares and
who at all times while the U.S. Holder holds such Common Shares, for purposes of
the Canadian Tax Act and the Canada-United States Income Tax Convention (1980)
(the "Tax Treaty"): (i) has not been and will not be resident, or deemed to be
resident in Canada and is a resident of the United States, (ii) deals at arm's
length with the Company (for the purposes of the Canadian Tax Act), and is not
affiliated (within the meaning of the Canadian Tax Act) with the Company, (iii)
holds the Common Shares as capital property, and (iv) does not have a "permanent
establishment" or "fixed base" in Canada (as defined in the Tax Treaty), (v)
does not own (and is not treated as owning) 10% or more of the outstanding
voting shares of the Company, and (vi) does not use or hold, and is not deemed
to use or hold, Common Shares in the course of carrying on a business in Canada
at any time. This summary does not apply to a person that carries on an
insurance business in Canada and elsewhere.

This summary is based upon the Tax Treaty, the current provisions of the
Canadian Tax Act, the regulations thereunder (the "Canadian Regulations"), all
specific proposals to amend the Canadian Tax Act and the Canadian Regulations
announced by or on behalf of the Minister of Finance (Canada) prior to the date
hereof (the "Proposals") and the Company's understanding of the administrative
and assessing policies of the Canada Revenue Agency. The summary is not
exhaustive of all potential Canadian tax consequences to a U.S. Holder and,
except for the Proposals, nor does it otherwise take into account or anticipate
any changes in law, whether by judicial, governmental or legislative decision or
action. The discussion does not take into account the tax laws of the various
provinces or territories of Canada or foreign jurisdictions. It is intended to
be a general description of the Canadian federal income tax considerations and
does not take into account the individual circumstances of any particular
shareholder.

THIS SUMMARY IS OF A GENERAL NATURE ONLY AND U.S. HOLDERS SHOULD CONSULT THEIR
OWN TAX ADVISORS WITH RESPECT TO THE INCOME TAX CONSEQUENCES TO THEIR HOLDING
AND DISPOSING OF COMMON SHARES HAVING REGARD TO THEIR PARTICULAR CIRCUMSTANCES.

Taxation of Dividends

Dividends paid or credited or deemed to be paid or credited on Common Shares
owned by a U.S. Holder will be subject to Canadian withholding tax under the
Canadian Tax Act at a rate of 25% on the gross amount of the dividends. The rate
of withholding tax generally is reduced under the Tax Treaty to 15% where the
U.S. Holder is the beneficial owner of such dividends. Under the Tax Treaty,
dividends paid or credited to certain religious, scientific, literary,
educational or charitable organizations and certain pension organizations that
are resident, and exempt from tax, in the United States and that have complied
with certain administrative procedures are exempt from this Canadian withholding
tax.

Disposition of Common Shares

Gains realized by a U.S. Holder on a disposition or deemed disposition of Common
Shares will not be subject to tax under the Canadian Tax Act unless the Common
Shares constitute "taxable Canadian property" (within the meaning of the
Canadian Tax Act) to a U.S. Holder at the time of

<PAGE>

                                      -96-


the disposition or deemed disposition. Generally, a Common Share will not be
taxable Canadian property to a U.S. Holder if, at the time of the disposition,
the Common Shares are listed on a prescribed stock exchange (which currently
includes the Toronto Stock Exchange on which the Common Shares are presently
listed), and the U.S. Holder, persons with whom the U.S. Holder does not deal at
arm's length for the purposes of the Canadian Tax Act, or the U.S. Holder
together with such persons, has not owned (taking into account any interest in
or option in respect of such shares) 25% or more of the shares of any class or
series of the Company at any time during the sixty month period that immediately
precedes the disposition or deemed disposition of the Common Share.

A holder's Common Shares may be deemed to be taxable Canadian property in
certain circumstances. A deemed disposition of Common Shares will arise on the
death of a U.S. Holder. Furthermore, a disposition or deemed disposition by a
U.S. Holder of Common Shares that are taxable Canadian property of the U.S.
Holder are generally not subject to tax in Canada under the Tax Treaty provided
that the value of such shares is not derived principally from real property
situated in Canada.

     F. Dividends and paying agents

Not applicable.

     G. Statement by experts

Not applicable

     H. Documents on display

Copies of the documents that the Company has filed or incorporated by reference
as exhibits in this Annual Report may be inspected at the public reference
facilities of the Securities and Exchange Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549, U.S.A.

     I. Subsidiary information

Not applicable.

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks associated with changes in foreign
currency exchange rates, changes in interest rates and credit risks from
customer trade receivables.

Foreign Currency Exchange Risks

The Company is exposed to foreign currency exchange rate risks as a result of
its importing and exporting activities. The primary functional currency of the
Company is the CA dollar. The reporting currency is the U.S. dollar. As a
result, the Company is exposed to risk from changes in foreign currency exchange
rates against the CA dollar and from changes in the foreign exchange rate
between the CA dollar and the U.S. dollar. However, since the Company does not
generate a significant volume of commercial transactions, the foreign currency
exchange variation has a minimal impact on its earnings.

<PAGE>

                                      -97-


Interest Rate Risks

The Company is not subject to significant interest rate risks as its borrowings
are not significant.

Credit Risks

In the normal course of business, the Company incurs credit risk from the trade
debtors, which the Company manages with its credit policy. The Company monitors
this exposure on a regular basis. The Company's credit risk from its trade
debtors is limited due to the size of its customers.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
     PROCEEDS

     A. Material modifications to the rights of security holders

None.

     B. Use of proceeds

Not applicable.

ITEM 15. CONTROLS AND PROCEDURES

     A. Evaluation of disclosure controls and procedures.

     The Company's principal executive officer and its principal financial
     officer, evaluated the effectiveness of the Company's disclosure controls
     and procedures as of the end of the period covered by this report. Based on
     that evaluation, such principal executive officer and principal financial
     officer concluded that, the Company's disclosure controls and procedures as
     of the end of the period covered by this report have been designed and are
     functioning effectively to provide reasonable assurance that the
     information required to be disclosed by the Company in reports filed under
     the Securities Exchange Act of 1934 is recorded, processed, summarized and
     reported within the time periods specified in the SEC's rules and forms.
     The Company believes that a controls system, no matter how well designed
     and operated, cannot provide absolute assurance that the objectives of the
     controls system are met, and no evaluation of controls can provide absolute
     assurance that all control issues and instances of fraud, if any, within a
     company have been detected.

     B. Change in Internal Control over Financial Reporting.

     No change in the Company's internal control over financial reporting
     occurred during the Company's most recent fiscal quarter that has
     materially affected, or is reasonably likely to materially affect the
     Company's internal control over financial reporting.

<PAGE>

                                      -98-


ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Company's board of directors has determined that the Company has at least
one audit committee financial expert and that Mr. Benoit La Salle and Mr.
Raymond Cyr are the "audit committee financial experts" of the Company serving
on the audit committee of the board of directors. Mr. La Salle and Mr. Cyr are
independent of Management.

ITEM 16B. CODE OF ETHICS

The Company has not adopted a Code of Ethics for its principal executive and
financial officers, because the laws of Canada -the Company's home country- do
not require it to adopt one.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Audit Committee establishes the independent auditors' compensation,
determines which non-audit services the independent auditors are prohibited from
providing and authorizes permitted non-audit services to be performed by the
independent auditors to the extent those services are permitted by the
Sarbanes-Oxley Act. For the years ended December 31, 2005 and 2004 and for the
eight-month period ended December 31, 2003, the aggregate fees billed by Raymond
Chabot Grant Thornton, LLP, are as follows:

<TABLE>
<CAPTION>
                        DEC. 31, 2005   DEC. 31, 2004   DEC. 31, 2003
                            (US $)          (US $)          (US $)
                        -------------   -------------   -------------
<S>                     <C>             <C>             <C>
Audit Fees(1)              $54,632         $ 37,939        $43,944
Audit-related Fees(2)       25,933            6,989            Nil
Tax Fees(3)                  3,987           11,634            Nil
All Other Fees(4)                0           60,076            Nil
                           -------         --------        -------
Total                      $84,552         $116,638        $43,944
</TABLE>

----------
(1)  Audit Fees consist of fees billed for the annual audit of the Company's
     financial statements or services that are normally provided by the
     accountant in connection with statutory and regulatory filings or
     engagements. They also include fees billed for other audit services, which
     are those services that only the external auditor reasonably can provide,
     and include the review of documents filed with the SEC and the Quebec
     Autorite des Marches Financiers.

(2)  Audit-related Fees consist of fees billed for assurance and related
     services that are reasonably related to the performance of the audit or
     review of the company's financial statements or that are traditionally
     performed by the external auditor, and include mainly consultations
     concerning financial accounting and reporting standards.

(3)  Tax Fees include fees billed for tax compliance services, including the
     preparation of original and amended tax returns and claims for refund; tax
     consultations, such as assistance and representation in connection with tax
     audits and appeals.

(4)  Other fees include fees billed for a prospectus, translation services and
     training services.

ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
<PAGE>

                                      -99-


During the year ended December 31, 2005, no purchase of equity securities were
made by or on behalf of the issuer or any "affiliated purchaser", as defined in
subparagraph (a)(3)(i) of the Rule 10b-18 under the Exchange Act.

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 17. Reference
is made to Item 19 for a list of all financial statements filed as part of this
Annual Report.

Our financial statements are stated in U.S. dollars and are prepared in
accordance with Canadian GAAP. See note 22 to the financial statements for a
reconciliation to U.S. GAAP.

ITEM 18. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 17.

ITEM 19. EXHIBITS

     A.   Financial Statements

Auditors' Report for the years ended December 31, 2005 and December 31, 2004,
the eight-month period ended December 31, 2003 and the year ended April 30,
2003.

Balance Sheets as at December 31, 2005 and December 31, 2004

Statement of Operations and Deficit for the years ended December 31, 2005 and
December 31, 2004, the eight-month period ended December 31, 2003 and the year
ended April 30, 2003.

Statement of Cash Flows for the years ended December 31, 2005 and December 31,
2004, the eight-month period ended December 31, 2003 and the year ended April
30, 2003.

Notes to Financial Statements.

     B.   Exhibits

<TABLE>
<CAPTION>
              Incorporate
Exhibit No.    By Ref. To    Description of Exhibit
-----------   -----------   -----------------------
<S>           <C>           <C>
     1.1       1.1+         Certificate of Incorporation of the Company, as
                            amended.
     1.2       1.2+         By-laws of the Company.
     1.3       1.3+         English version of Amendment to Certificate of
                            Incorporation (for the Recapitalization).
     3.1       3.1+         Shareholders Agreements.
     4.1       3.2+         Agreements with National Optics Institute.
     4.2       3.3+         Quebec Real Property Lease.
     4.3       3.4+         Patent Portfolio License (+)
     4.4       3.5++        Asset Purchase Agreement
     4.5       [3.5+++]     SoftScan(R) Commercial Alliance Agreement (+)
     4.6       [3.5++++]    eXplore Optix(TM) Distribution Agreement (+)
    12.1                    CEO Certification pursuant to Rule 13A-14(a)
    12.2                    CFO Certification pursuant to Rule 13A-14(a)
    13.1                    CEO Certification pursuant to Section 1350
    13.2                    CFO Certification pursuant to Section 1350
</TABLE>

----------
+    Filed with the Company's Registration Statement on Form 20 and incorporated
     by reference.

<PAGE>

                                     -100-


(+)  Pursuant to a Confidential Treatment Application filed with the SEC,
     certain confidential information has been redacted from this document and
     filed separately with the SEC.

++   Filed with the Company's Annual Report on Form 20-F for the year ended
     April 30, 2002 and incorporated by reference.

+++  Filed with the Company's Annual Report on Form 20-F for the year ended
     April 30, 2003 and incorporated by reference.

++++ Filed with the Company's Annual Report on Form 20-F for the eight-month
     period ended December 31, 2003 and incorporated by reference.

<PAGE>

                                     -101-


SIGNATURE

Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all requirements for filing on Form
20-F and has duly caused this Annual Report to be signed on its behalf by the
undersigned, thereto duly authorized.

                                        ART ADVANCED RESEARCH
                                        TECHNOLOGIES INC.


Date: March 31, 2006                    By: (s) Micheline Bouchard
                                            ------------------------------------
                                            Micheline Bouchard
                                            President and Chief Executive
                                            Officer

<PAGE>

                                     -102-


                                    GLOSSARY

Set forth below are the definitions of certain terms used in this document:

<TABLE>
<S>                            <C>
ANGIOGENESIS                   The process of new blood vessel formation,
                               commonly induced in response to malignant tissue
                               and other diseases.

BIOPSY                         The process of removing and examining tissue or
                               other material from the body for the purposes of
                               determining the nature of an illness or
                               suspected illness.

CONTINUOUS WAVE IMAGING        An imaging technology which uses a near infrared
                               laser source with a continuous output and a
                               solid state detector to monitor signal strength.

FREQUENCY DOMAIN IMAGING       An imaging technology which uses a near infrared
                               laser source whose output intensity varies
                               rapidly in time with an alternating signal and a
                               detector to monitor signal amplitude and phase.

IONIZING RADIATION             Radiation of sufficient energy to dissociate
                               atoms or molecules in the tissue which has been
                               subjected to the radiation and which may
                               therefore harm that tissue.

PHOTON                         A quantity of electromagnetic energy (i.e.,
                               energy exhibited by electricity and magnets)
                               behaving as if it were a particle and a wave,
                               but possessing no mass (when at rest) and no
                               charge. The energy of X-rays and light is
                               carried by photons.

PULSE LASER                    A laser, which emits short bursts of light in a
                               repetitive fashion.

RADIOLOGICALLY BREAST TISSUE   Breast tissue which is resistant to the passage
                               or penetration of X-rays.

TIME RESOLVED IMAGING          An imaging technology which uses a near infrared
(TIME DOMAIN)                  laser to produce high peak energy pulses of very
                               short duration and very high repetition rate and
                               a detector to monitor signal strength over time.

ULTRASOUND                     An imaging device that uses sound waves to
                               create an image.

X-RAY                          An imaging device that uses electromagnetic
                               radiation with short wavelengths. The X-ray
                               image is formed by the differential absorption
                               of photons by the tissues through which they
                               pass. When the beam is focused on photographic
                               film set up behind the patient, shadows are
                               created of different intensity and create an
                               image. Digital X-ray transforms the latent X-ray
                               image into an electronic digital image.

X-RAY MAMMOGRAM                An X-ray image of breast tissue.

X-RAY MAMMOGRAPHY              A technology which uses X-rays to produce an
                               image of breast tissue.
</TABLE>
<PAGE>

Auditors' Report

To the Shareholders of ART Advanced Research Technologies Inc.

We have audited the balance sheets of ART Advanced Research Technologies Inc. as
at December 31, 2005 and 2004 and the statements of operations and deficit and
cash flows for the years ended December 31, 2005 and 2004, the eight-month
period ended December 31, 2003 and the year ended April 30, 2003. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards and with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at December 31, 2005 and 2004
and the results of its operations and its cash flows for the years ended
December 31, 2005 and 2004, the eight-month period ended December 31, 2003 and
the year ended April 30, 2003 in accordance with Canadian generally accepted
accounting principles.

The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included consideration
of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion.


(Raymond Chabot Grand Thornton LLP)

Chartered Accountants

Montreal, Canada
February 10, 2006


                                                                              25

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Comments by Auditors on
Canada-United States of America Reporting Differences

In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when
there is a change in accounting principles that has a material effect on the
comparability of the Company's financial statements, such as the changes
described in Note 2 to the financial statements. Our report to the shareholders
dated February 10, 2006 is expressed in accordance with Canadian reporting
standards which do not require a reference to such changes in accounting
principles in the auditors report when the change is properly accounted for and
adequately disclosed in the financial statements.


(Raymond Chabot Grand Thornton LLP)
Chartered Accountants

Montreal, Canada
February 10, 2006


26

ART | ANNUAL REPORT | 2005

<PAGE>

Balance Sheets
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                           December 31,   December 31,
                                                                               2005           2004
                                                                           ------------   ------------
<S>                                                                        <C>            <C>
ASSETS
Current assets
   Cash                                                                    $  4,858,085   $    631,164
   Term deposit, 2% (1.45% in 2004), maturing in April 2006                     257,954        249,584
   Commercial paper, 4.27% (2.24% to 2.51% in 2004), maturing April 2006      4,000,496     10,950,403
   Accounts receivable (Note 4)                                               1,102,124        883,604
   Investment tax credits receivable                                            691,273        815,760
   Inventories (Note 5)                                                       1,226,812      1,014,551
   Prepaid expenses                                                             399,567        144,882
                                                                           ------------   ------------
                                                                             12,536,311     14,689,948
Property and equipment (Note 6)                                                 554,929        547,406
Patents (Note 3)                                                              1,529,092      1,527,533
Deferred costs (Note 7)                                                         611,877             --
                                                                           ------------   ------------
                                                                           $ 15,232,209   $ 16,764,887
                                                                           ============   ============

LIABILITIES
Current liabilities
   Accounts payable and accrued liabilities (Note 9)                       $  2,052,381   $  2,155,073
   Deferred grant                                                                89,872             --
   Current portion of convertible debentures (Note 10)                        2,054,600             --
                                                                           ------------   ------------
                                                                              4,196,853      2,155,073
Convertible debentures (Note 10)                                              1,666,543             --
                                                                           ------------   ------------
                                                                              5,863,396      2,155,073

SHAREHOLDERS' EQUITY
Share capital and share purchase warrants (Note 11)                          87,131,724     80,696,107
Equity component of convertible debentures (Note 10)                          1,510,467             --
Contributed surplus (Notes 11 e) and 12)                                        721,051        474,698
Deficit                                                                     (82,033,557)   (68,122,241)
Cumulative translation adjustment                                             2,039,128      1,561,250
                                                                           ------------   ------------
                                                                              9,368,813     14,609,814
                                                                           ------------   ------------
                                                                           $ 15,232,209   $ 16,764,887
                                                                           ============   ============
</TABLE>

Commitments and contingency (Notes 18 and 19)

The accompanying notes are an integral part of the financial statements.

On behalf of the Board,


/s/ Benoit La Salle                     /s/ Raymond Cyr
-------------------------------------   ----------------------------------------
Director                                Director


                                                                              27

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Operations and Deficit
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                                             Eight-month    Year ended
                                                               Year ended     Year ended    period ended    April 30,
                                                              December 31,   December 31,   December 31,       2003
                                                                  2005           2004           2003        (Note 13)
                                                              ------------   ------------   ------------   -----------
<S>                                                           <C>            <C>            <C>            <C>
Sales
   Product                                                    $ 3,626,100    $ 1,935,000    $   681,875    $        --
   Maintenance                                                    499,450             --             --             --
                                                              -----------    -----------    -----------    -----------
                                                                4,125,550      1,935,000        681,875             --

Cost of sales
   Product                                                      2,379,802        915,087        377,744             --
   Maintenance                                                    409,783             --             --             --
                                                              -----------    -----------    -----------    -----------
                                                                2,789,585        915,087        377,744             --
                                                              -----------    -----------    -----------    -----------
Gross margin                                                    1,335,965      1,019,913        304,131             --
                                                              -----------    -----------    -----------    -----------
Operating expenses
   Research and development (Note 15)                           9,154,960      7,511,485      3,491,641      5,734,470
   Selling, general and administrative                          3,918,236      3,474,446      2,239,324      2,885,065
   Amortization                                                   285,806        249,627        136,643        138,173
                                                              -----------    -----------    -----------    -----------
                                                               13,359,002     11,235,558      5,867,608      8,757,708
                                                              -----------    -----------    -----------    -----------
Operating loss                                                 12,023,037     10,215,645      5,563,477      8,757,708
Interest expense on convertible debentures                        884,191             --             --             --
Interest income                                                  (241,708)      (300,221)       (63,384)       (99,281)
Foreign exchange loss                                             463,664         13,179        331,932        219,065
Other expenses (Note 11 c))                                            --             --             --      1,467,621
                                                              -----------    -----------    -----------    -----------
Loss from continuing operations before income taxes            13,129,184      9,928,603      5,832,025     10,345,113
Current income taxes recovered (Note 16)                               --             --             --     (1,318,668)
                                                              -----------    -----------    -----------    -----------
Loss from continuing operations                                13,129,184      9,928,603      5,832,025      9,026,445
Profit from discontinued operations (Note 13)                          --             --             --     (2,479,841)
                                                              -----------    -----------    -----------    -----------
Net loss                                                       13,129,184      9,928,603      5,832,025      6,546,604
Deficit, beginning of period                                   68,122,241     56,753,062     49,561,034     42,309,220
Share and share purchase warrant issue expenses                   782,132      1,440,576      1,360,003        705,210
                                                              -----------    -----------    -----------    -----------
Deficit, end of period                                        $82,033,557    $68,122,241    $56,753,062    $49,561,034
                                                              ===========    ===========    ===========    ===========
Basic and diluted loss per share from continuing operations   $      0.31    $      0.24    $      0.20    $      0.38
                                                              ===========    ===========    ===========    ===========
Basic and diluted earnings per share
   from discontinued operations                               $        --    $        --    $        --    $     (0.10)
                                                              ===========    ===========    ===========    ===========
Basic and diluted net loss per share (Note 3)                 $      0.31    $      0.24    $      0.20    $      0.28
                                                              ===========    ===========    ===========    ===========
Basic and diluted weighted average number
   of common shares outstanding                                42,664,523     41,220,856     29,456,248     23,493,351
                                                              ===========    ===========    ===========    ===========
</TABLE>

The accompanying notes are an integral part of the financial statements.


28

ART | ANNUAL REPORT | 2005

<PAGE>

Cash Flows
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                                                  Eight-month        Year ended
                                                           Year ended          Year ended         period ended     April 30, 2003
                                                       December 31, 2005   December 31, 2004   December 31, 2003      (Note 13)
                                                       -----------------   -----------------   -----------------   --------------
<S>                                                    <C>                 <C>                 <C>                 <C>
OPERATING ACTIVITIES
Net loss                                                 $(13,129,184)        $(9,928,603)        $(5,832,025)      $ (6,546,604)
Items not affecting cash
   Amortization                                               285,806             249,627             136,643            138,173
   Stock-based compensation (Note 12)                         246,353             142,516              18,206                 --
   Interest on convertible debentures                         683,768                  --                  --                 --
   Other expenses (Note 11 c))                                     --                  --                  --            717,621
Net changes in working capital items
   Accounts receivable                                       (174,513)            (18,427)           (635,388)            61,298
   Investment tax credits receivable                          140,658             382,500            (150,125)          (563,018)
   Inventories                                               (140,746)           (584,827)           (321,780)                --
   Prepaid expenses                                          (239,182)             26,492              79,717           (175,242)
   Accounts payable and accrued liabilities                  (171,772)            (74,535)            269,149            164,623
   Deferred grant                                              86,528                  --                  --                 --
                                                         ------------         -----------         -----------       ------------
Cash flows from continuing operating activities           (12,412,284)         (9,805,257)         (6,435,603)        (6,203,149)
Cash flows from discontinued activities                            --                  --                  --         (4,330,520)
                                                         ------------         -----------         -----------       ------------
Cash flows from operating activities                      (12,412,284)         (9,805,257)         (6,435,603)       (10,533,669)
                                                         ------------         -----------         -----------       ------------
INVESTING ACTIVITIES
Short-term investments                                      5,784,836          (4,402,764)           (919,619)        (1,130,730)
Property and equipment                                       (222,189)           (234,972)           (166,078)           (53,408)
Other assets                                                   (5,339)           (123,772)            500,017           (647,768)
Deferred costs                                               (361,557)                 --                  --                 --
                                                         ------------         -----------         -----------       ------------
Cash flows from continuing investing activities             5,195,751          (4,761,508)           (585,680)        (1,831,906)
Cash flows from discontinued activities (Note 13)                  --                  --                  --          5,500,000
                                                         ------------         -----------         -----------       ------------
Cash flows from investing activities                        5,195,751          (4,761,508)           (585,680)         3,668,094
                                                         ------------         -----------         -----------       ------------
FINANCING ACTIVITIES
Issue of senior convertible debentures                      5,000,000                  --                  --                 --
Issue of convertible preferred shares                       5,900,000                  --                  --                 --
Common shares and share purchase warrants                          --          12,888,327          11,605,148          7,502,855
Equity and debt issue expenses                               (924,041)         (1,440,576)         (1,360,003)          (705,210)
                                                         ------------         -----------         -----------       ------------
Cash Flows from financing activities                        9,975,959          11,447,751          10,245,145          6,797,645
Effect of foreign currency translation adjustments            466,645             551,957             146,261            200,666
                                                         ------------         -----------         -----------       ------------
                                                           10,442,604          11,999,708          10,391,406          6,998,311
                                                         ------------         -----------         -----------       ------------
Net increase (decrease) in cash and cash equivalents        3,226,071          (2,567,057)          3,370,123            132,736
Cash and cash equivalents, beginning of period              1,633,071           4,200,128             830,005            697,269
                                                         ------------         -----------         -----------       ------------
Cash and cash equivalents, end of period                 $  4,859,142         $ 1,633,071         $ 4,200,128       $    830,005
                                                         ============         ===========         ===========       ============
CASH AND CASH EQUIVALENTS
Cash                                                     $  4,858,085         $   631,164         $ 4,200,128       $    830,005
Commercial paper                                                1,057           1,001,907                  --                 --
                                                         ------------         -----------         -----------       ------------
                                                         $  4,859,142         $ 1,633,071         $ 4,200,128       $    830,005
                                                         ============         ===========         ===========       ============
Supplemental disclosure of cash flow information
Interest paid                                            $    (88,986)        $        --         $        --       $       (393)
Interest received                                             225,135             246,680              47,753             90,366
                                                         ============         ===========         ===========       ============
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                                                              29

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 1. Governing statutes, nature of operations and change in fiscal year-end

ART Advanced Research Technologies Inc. (the "Company"), incorporated under the
Canada Business Corporations Act, is involved in the research, design,
development and marketing of optical molecular imaging systems for the medical
and pharmaceutical sectors. The Company's shares have been listed on the Toronto
Stock Exchange since June 29, 2000.

     The Company evolved from a primarily technology-driven company with its two
main products, eXplore Optix and SoftScan, to a market-focused organization. The
Company currently sells eXplore Optix, its preclinical optical molecular imager,
through a worldwide distribution agreement with General Electric Company ("GE").
SoftScan, its time-domain optical breast imaging device, is currently undergoing
clinical trials.

     As the Company is moving towards full commercialization, the Company
estimates that there will be additional capital requirements relating to its
research and development activities and commercialization of its products. The
ability to generate positive net income and cash flows from operations in the
future is dependent upon many factors, including the Company's ability to raise
additional capital, the level of market acceptance for the Company's products,
the degree of competition encountered by the Company and general economic
conditions.

     In 2003, the Company changed its fiscal year-end from April 30 to December
31. Accordingly, the comparative financial statements for December 31, 2003 are
for an eight-month period. During the year ended April 30, 2003, the Company had
no commercial operations.

Note 2. Changes in accounting policies

On May 1, 2002, the Company adopted prospectively the recommendations of the
Canadian Institute of Chartered Accountants (CICA) Handbook Section 3870,
Stock-based Compensation and Other Stock-based Payments. This Section defines in
particular the recognition, measurement and disclosure standards for stock-based
compensation to non-employees and employees. Under these new standards, all
stock-based payments made to non-employees must be systematically accounted for
in the Company's financial statements. These standards define a fair-value-based
method of accounting and encourage entities to adopt this method of accounting
for their stock-based employee compensation plans. Under this method, the
compensation cost should be measured at the grant date based on the fair value
of the award and should be recognized over the related service period. An entity
that does not adopt the fair value method of accounting for its awards granted
to employees is required to include in its financial statements pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting had been applied. From May 1, 2002 to April 30, 2003, the Company has
adopted the latter alternative treatment.

     In September 2003, the transitional provisions of CICA Handbook Section
3870 were revised to provide the same alternative methods of transition as are
provided in the United States of America for voluntary adoption of the
fair-value-based method of accounting. These provisions may be applied
retroactively or prospectively. However, the prospective application is
available only to enterprises that elect to apply the fair-value-based method of
accounting for fiscal years beginning January 1, 2004. During the eight-month
period ended December 31, 2003, effective as of the beginning of the period, the
Company chose to record an expense for the stock options granted to employees
using the fair value method. The effect of the adoption of the recommendations
has resulted in a charge of $18,206 in the statement of operations and deficit
for the eight-month period ended December 31, 2003.

     On May 1, 2002, the Company adopted prospectively the recommendations of
CICA Handbook Section 3062, Goodwill and Other Intangible Assets. This section
prescribes that an intangible asset with a limited useful life should be
amortized over its useful life. Moreover, the section requires new financial
statement disclosure with respect to intangible assets subject to amortization,
the gross carrying amount, accumulated amortization and the amount of intangible
assets subject to amortization that were acquired since the beginning of the
year. The supplementary information required by this section is presented in
Note 3.

Note 3. Accounting policies

The financial statements are expressed in United States of America dollars (U.S.
dollars) and have been prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP). These financial statements differ in
certain respects from those prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP), and are not
intended to provide certain disclosures which would typically be found in
financial statements prepared in accordance with U.S. GAAP. The principal
differences between Canadian and U.S. GAAP are described in Note 22.

Use of estimates

These financial statements have been prepared in accordance with Canadian GAAP,
which require management to make estimates and assumptions that affect the
amounts reported in the financial statements and the accompanying notes. These
estimates are based on management's best knowledge of current events and actions
that the Company may undertake in the future. Actual results could differ from
those estimates.

Principles of consolidation

The financial statements include the accounts of the Company and its wholly
owned subsidiaries, SAMI System Inc., formerly known as ISIS Infrared Screening
Inspection Solutions Inc., and ART Aerospace Research U.S. Inc. These companies
are inactive, therefore, there are no significant intercompany accounts or
transactions to eliminate.


30

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 3. Accounting policies (continued)

Revenue recognition

Revenue from sales of the Company's products is recorded when there is
persuasive evidence of an arrangement, goods have been delivered to the
customer, there are no uncertainties surrounding product acceptance, the related
revenue is fixed and determinable and collection is considered reasonably
assured. A warranty provision is recorded at the time revenue is recognized,
based on estimated customer returns and allowances.

Accounts receivable

Accounts receivable are stated at amounts due from customers, based on
agreed-upon payment terms, net of an allowance for doubtful accounts. Accounts
outstanding longer than the agreed-upon payment terms are considered past due.
The Company determines its allowance for doubtful accounts by considering a
number of factors, including the length of time trade accounts receivable are
past due, the customer's current ability to pay its obligation to the Company,
and the condition of the general economy and the industry as a whole. The
Company writes off accounts receivable when they are determined to be
uncollectible, and any payments subsequently received on such receivables are
credited to the allowance for doubtful accounts.

Inventories

Finished goods and work in process are valued at the lower of cost and net
realizable value. Raw materials are valued at the lower of cost and replacement
cost.

     Cost is determined by the first in, first out method.

Amortization

Property and equipment are recorded at cost and are amortized over their
estimated useful lives on a straight-line basis over the following periods:

<TABLE>
<S>                                     <C>
Computer equipment                      3 years
Office furniture, tools and equipment   3 to 5 years
Leasehold improvements                  Term of lease
</TABLE>

Patents

Patents are recorded at cost and are amortized according to the straight-line
method over a five-year period commencing in the year the related products are
marketed. Patent maintenance costs are expensed as incurred. Patents are tested
for recoverability whenever events or changes in circumstances indicate that
their carrying amount may not be recoverable. Should this test indicate that
patents will not be recoverable, their carrying value would be reduced by the
estimated impairment. Information relating to the patents is detailed as
follows:

<TABLE>
<CAPTION>
                                     December 31, 2005   December 31, 2004
                                     -----------------   -----------------
<S>                                  <C>                 <C>
Gross carrying value                     $1,658,256          $1,598,926
Accumulated amortization                    129,164              71,393
                                         ----------          ----------
Net carrying value                       $1,529,092          $1,527,533
                                         ==========          ==========
Patents acquired during the period       $    5,712          $  150,588
                                         ==========          ==========
</TABLE>

Research and development expenses

Research expenses are charged against income in the year in which they are
incurred. Development expenses, including the costs of preparing prototypes, are
charged against income in the year in which they are incurred, unless the
criteria for capitalization under Canadian GAAP are met. The Company has
deferred $423,416 of development costs to date (Note 7). Amortization of
development costs will begin with commercial production of the related product
or application.

     Investment tax credits, based on qualifying research and development
expenses, are applied against research and development expenses or capitalized
development costs in the year in which the expenses are incurred.

Issue expenses

Share and share purchase warrant issue expenses are accounted for as an increase
to the deficit. Expenses incurred to issue debt are deferred and amortized using
the effective interest rate method.

Income taxes

The Company uses the liability method of accounting for income taxes. Under this
method, future income tax assets and liabilities are determined according to
differences between the accounting bases and tax bases of assets and
liabilities. They are measured by applying enacted or substantively enacted tax
rates and laws at the date of the financial statements for the years in which
the temporary differences are expected to reverse. The Company records a
valuation allowance against any future tax asset if, according to management, it
is more likely than not that the asset will not be realized.


                                                                              31

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 3. Accounting policies (continued)

Cash and cash equivalents

The Company presents cash and highly liquid investments having a term of three
months or less from the acquisition date with cash and cash equivalents.

     Cash equivalents are carried at cost, which approximates fair value.

Reporting currency and translation of foreign currencies

The Company adopted the U.S. dollar as its reporting currency effective May 1,
1999. The Company's financial statements have been translated from the currency
of measurement, the Canadian dollar, into the reporting currency using the
current rate method. All cumulative translation gains or losses have been
included as a separate component of shareholders equity.

     Transactions concluded in currencies other than the currency of measurement
have been translated as follows: monetary assets and liabilities have been
translated at the exchange rates in effect at the balance sheet dates,
non-monetary assets and liabilities are translated at rates in effect at
transaction dates and revenues and expenses have been translated at the weighted
average exchange rates for the fiscal years. Exchange gains and losses arising
from such transactions have been included in income.

Dividends

The Company has never paid a cash dividend on its common shares. In the future,
any dividends declared will be in Canadian dollars. For shareholders who are
residents of the United States of America, dividends will be translated and paid
in U.S. dollars at the rate of exchange prevailing on the declaration date.

Basic and diluted net loss per common share and information pertaining to number
of shares

The Company uses the treasury stock method to determine the dilutive effect of
share purchase warrants and stock options and the if converted method to
determine the dilutive effect of the conversion feature of the preferred shares
and the convertible debentures. Per share amounts have been computed based on
the weighted average number of common shares outstanding for all years or
periods presented. The diluted loss per share is calculated by adjusting
outstanding shares to take into account the dilutive effect of stock options,
share purchase warrants and the conversion feature of the preferred shares and
the convertible debentures. For all of the years or periods presented, the
effect of stock options, share purchase warrants and the conversion feature of
the preferred shares and the convertible debentures was not included as the
effect would be anti-dilutive. Consequently, there is no difference between the
basic and diluted net loss per share.

     Stock options and share purchase warrants for the purchase of 6,507,296,
4,666,796, 4,645,022 and 3,946,437 common shares were outstanding at December
31, 2005, December 31, 2004, December 31, 2003, and April 30, 2003,
respectively, but were not included in the calculation of the diluted loss per
share.

Note 4. Accounts receivable

<TABLE>
<CAPTION>
                                                                December 31, 2005   December 31, 2004
                                                                -----------------   -----------------
<S>                                                             <C>                 <C>
Trade accounts, net of allowance for doubtful accounts of nil      $1,042,077            $647,583
Sales tax receivable                                                   34,469             134,949
Interest and other receivables                                         25,578             101,072
                                                                   ----------            --------
                                                                   $1,102,124            $883,604
                                                                   ==========            ========
</TABLE>

Accounts receivable from one customer, who is a distributor of the eXplore Optix
product, represent 100% of the Company's trade accounts receivable (100% in
2004). 100% of the Company's sales in 2005 and 2004 (82.4% in 2003) were made to
this same customer.

Note 5. Inventories

<TABLE>
<CAPTION>
                  December 31, 2005   December 31, 2004
                  -----------------   -----------------
<S>               <C>                 <C>
Raw materials         $  792,594          $  475,549
Work in process          157,812             178,765
Finished goods           276,406             360,237
                      ----------          ----------
                      $1,226,812          $1,014,551
                      ==========          ==========
</TABLE>


32

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 6. Property and equipment

<TABLE>
<CAPTION>
                                   December 31, 2005
                         ------------------------------------
                                      Accumulated
                            Cost      amortization      Net
                         ----------   ------------   --------
<S>                      <C>          <C>            <C>
Computer equipment       $1,067,100    $  935,753    $131,347
Office furniture            245,444       240,855       4,589
Tools and equipment         511,005       320,237     190,768
Leasehold improvements      432,152       203,927     228,225
                         ----------    ----------    --------
                         $2,255,701    $1,700,772    $554,929
                         ==========    ==========    ========
</TABLE>

<TABLE>
<CAPTION>
                                   December 31, 2004
                         ------------------------------------
                                      Accumulated
                            Cost      amortization      Net
                         ----------   ------------   --------
<S>                      <C>          <C>            <C>
Computer equipment       $1,002,742    $  801,896    $200,846
Office furniture            236,369       224,660      11,709
Tools and equipment         291,845       221,541      70,304
Leasehold improvements      424,814       160,267     264,547
                         ----------    ----------    --------
                         $1,955,770    $1,408,364    $547,406
                         ==========    ==========    ========
</TABLE>

Note 7. Deferred costs

<TABLE>
<CAPTION>
                                           December 31, 2005   December 31, 2004
                                           -----------------   -----------------
<S>                                        <C>                 <C>
Deferred development costs                    $423,146 a)             $--
Deferred financing costs                       281,467 b)              --
Amortization of deferred financing costs       (92,736)                --
                                              --------                ---
                                              $611,877                $--
                                              ========                ===
</TABLE>

a)   Deferred development costs include costs related to the development of
     eXplore Optix.

b)   The deferred financing costs relate to the liability component of the $5
     million private placement of senior secured convertible debentures (Note
     10).

Note 8. Credit facilities

Following the closing of the $5 million private placement of senior secured
convertible debentures in July 2005, the Company terminated its credit facility
of C$1,000,000 to cover fluctuations in cash, as well as its C$1,300,000
facility to finance investment tax credits. As a result, as at December 31,
2005, the Company had no available credit facility.

Note 9. Accounts payable and accrued liabilities

<TABLE>
<CAPTION>
                   December 31, 2005   December 31, 2004
                   -----------------   -----------------
<S>                <C>                 <C>
Trade accounts         $1,223,812          $  919,658
Employee-related
   Salaries               628,779             560,918
   Bonus                       --             540,578
Other                     199,790             133,919
                       ----------          ----------
                       $2,052,381          $2,155,073
                       ==========          ==========
</TABLE>


                                                                              33

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 10. Convertible debentures

In July 2005, the Company closed a $5 million private placement of senior
secured convertible debentures with a limited number of U.S. institutional
investors. The debentures are secured by a perfected security interest and
hypothec on all assets of the Company. The debentures mature on January 28, 2008
and bear interest at a rate of 9% per annum, payable quarterly, subject to
certain quarterly adjustments. The debentures are convertible at the investor's
option at any time into common shares at a fixed conversion price of C$0.99 per
share.

     The agreement provides that, at the Company's option, any cash payments
contemplated under the debentures may be made in freely tradable common shares
issued at a 10% discount to market. In addition, if after November 28, 2006, the
trading price of the Company's stock exceeds 225% of the conversion price for 20
consecutive trading days (equivalent to C$2.23 per share), the Company may
require the investors to convert the debentures into common shares at the fixed
conversion price of C$0.99 per share. The debentures have certain covenants
relating to the achievement of specific quarterly and annual revenue levels,
quarterly gross margins, and the maintenance of minimum cash and cash
equivalents thresholds. These covenants also provide that the Company shall file
a submission for regulatory approval for SoftScan by June 30, 2006. The
debentures also have certain customary covenants regarding, among other things,
the debt that the Company may incur. In an event of default under the
debentures, the Company may be required to repay any outstanding amounts plus
accrued and unpaid interest, plus a 20% premium.

     Also, the Company issued to the investors 5-year warrants to purchase
1,110,139 common shares at an exercise price of C$1.16 per share and 5-year
warrants to purchase 123,349 common shares at an exercise price of C$1.39 per
share. Finally, for a period of twelve (12) months commencing from the closing
date, the investors shall have the option of purchasing additional senior
convertible debentures for a total investment of $2.0 million; and for a period
of twelve (12) months following shareholder approval the investors shall have
the option of purchasing additional senior convertible debentures for a total
investment of US$500,000. These options had not been exercised as at December
31, 2005. The agreement also provides that the Company may force this additional
investment to be made if the Company's stock price closes above 150% of the
conversion price for 20 consecutive trading days (equivalent to C$1.49 per
share). The Company has to comply with certain restrictive clauses which were
all met at December 31, 2005.

     For accounting purposes, the debentures contain both a liability component
and an equity component, which represent the holder's conversion option and the
warrants. The liability component's carrying amount has been determined at
$3,129,305, the conversion option has been valued at $1,510,467 and the warrants
have been valued at $360,228. Interest expense on the liability component is
charged to operations, based on the effective interest rate of 38%. The above
values were determined by using a combination of the Black-Scholes model (for
the conversion option and the warrants) and a discounted cash flow (for the
liability component) of future capital and interest payments until their
maturity dates, at a discount rate which represented the borrowing rate
available to the Company for similar debentures having no conversion rights. The
valuation assumptions are listed below:

Future cash flow discount rate: 25%

<TABLE>
<CAPTION>
                                            Conversion option   Warrants
                                            -----------------   --------
<S>                                         <C>                 <C>
Expected life:                                  2.5 years       5 years
Expected volatility:                                   70%           70%
Weighted average risk-free interest rate:            3.13%         3.33%
Dividend rate:                                          0%            0%
</TABLE>

Also, in conjunction with the transaction, the Company issued to an agent share
purchase warrants to purchase 308,372 common shares at an exercise price of
C$1.21 per share. The Company evaluated the fair value of the share purchase
warrants at $89,428 using the Black-Scholes model. The valuation assumptions are
listed below:

     -    Expected life: 3 years

     -    Expected volatility: 70%

     -    Weighted average risk-free interest rate: 3.13%

     -    Dividend rate: 0%

The Company shall reimburse the debentures over eight consecutive quarters with
equal payments of $625,000 ending on January 28, 2008.

Instalments on the convertible debentures are as follows:

<TABLE>
<CAPTION>
                                             2006         2007
                                          ----------   ----------
<S>                                       <C>          <C>
Obligation under convertible debentures   $2,500,000   $2,500,000
</TABLE>


34

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 11. Share capital and share purchase warrants

Authorized

Unlimited number of shares without par value

     Common shares

     Preferred shares, issuable in series, having such attributes as the Board
of Directors may determine

The following table presents the changes in the number of outstanding common
shares in the last four periods:

<TABLE>
<CAPTION>
                              December 31, 2005       December 31, 2004          December 31, 2003           April 30, 2003
                                Common shares           Common shares              Common shares              Common shares
                           ----------------------  ----------------------     ----------------------     ----------------------
                             Number     Value ($)    Number     Value ($)      Number      Value ($)       Number     Value ($)
                           ----------  ----------  ----------  ----------     ----------  ----------     ----------  ----------
<S>                        <C>         <C>         <C>         <C>            <C>         <C>            <C>         <C>
Issued and fully paid
Balance, beginning
   of period               42,664,523  78,678,625  34,238,523  65,955,938     26,673,341  55,487,915     20,523,591  47,985,060
Issue of shares for cash           --          --   8,420,000  12,714,401 a)   7,564,782  10,467,294 b)   6,142,680   7,500,000 c)
Issue of shares for cash
   following the exercise
   of stock options                --          --       6,000       8,286            400         729          7,070       2,855
                           ----------  ----------  ----------  ----------     ----------  ----------     ----------  ----------
Balance, end of period     42,664,523  78,678,625  42,664,523  78,678,625     34,238,523  65,955,938     26,673,341  55,487,915
                           ==========  ==========  ==========  ==========     ==========  ==========     ==========  ==========
</TABLE>

The following table presents the changes in the number of outstanding preferred
shares in the last four periods:

<TABLE>
<CAPTION>
                            December 31, 2005       December 31, 2004  December 31, 2003    April 30, 2003
                            Preferred shares        Preferred  shares   Preferred shares   Preferred shares
                          --------------------     ------------------  -----------------  -----------------
                            Number   Value ($)     Number   Value ($)  Number  Value ($)  Number  Value ($)
                          ---------  ---------     ------  ----------  ------  ---------  ------  ---------
<S>                       <C>        <C>           <C>     <C>         <C>     <C>        <C>     <C>
Issued and fully paid
Balance, beginning
   of period                     --         --        --        --        --       --        --       --
Issue of shares for cash  6,341,982  5,900,000 d)     --        --        --       --        --       --
                          ---------  ---------       ---       ---       ---      ---       ---      ---
Balance, end of period    6,341,982  5,900,000        --        --        --       --        --       --
                          =========  =========       ===       ===       ===      ===       ===      ===
</TABLE>


                                                                              35

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. Dollars)

Note 11. Share capital and share purchase warrants (continued)

The following tables present the changes in the number of share purchase
warrants outstanding in the last four periods:

<TABLE>
<CAPTION>
                                                        December 31, 2005
                                   ----------------------------------------------------------
                                                                             Weighted Average
                                     Number    Value ($)                    Exercise Price C$
                                   ---------   ---------                    -----------------
<S>                                <C>         <C>                          <C>
Balance, beginning of period       2,194,422   2,017,482                           2.28
Issue of share purchase warrants   1,828,395     535,617 Notes 10 and 11 d)        1.19
                                   ---------   ---------                           ----
Balance, end of period             4,022,817   2,553,099                           1.78
                                   =========   =========                           ====
</TABLE>

<TABLE>
<CAPTION>
                                                  December 31, 2004
                                    --------------------------------------------
                                                                Weighted average
                                      Number     Value ($)     exercise price c$
                                    ----------   ---------     -----------------
<S>                                 <C>          <C>           <C>
Balance, beginning of period         3,208,422   1,914,746            4.84
Issue of share purchase warrants       546,000     162,736 a)         2.15
Expiry of share purchase warrants   (1,560,000)    (60,000) e)        7.50
                                    ----------   ---------            ----
Balance, end of period               2,194,422   2,017,482            2.28
                                    ==========   =========            ====
</TABLE>

<TABLE>
<CAPTION>
                                                December 31, 2003
                                   ------------------------------------------
                                                             Weighted average
                                     Number    Value ($)    exercise price c$
                                   ---------   ---------    -----------------
<S>                                <C>         <C>          <C>
Balance, beginning of period       2,465,237     777,621           5.66
Issue of share purchase warrants     743,185   1,137,125 b)        2.11
                                   ---------   ---------           ----
Balance, end of period             3,208,422   1,914,746           4.84
                                   =========   =========           ====
</TABLE>

<TABLE>
<CAPTION>
                                                 April 30, 2003
                                   -----------------------------------------
                                                            Weighted average
                                     Number    Value ($)   exercise price c$
                                   ---------   ---------   -----------------
<S>                                <C>         <C>         <C>
Balance, beginning of period       1,560,000    60,000            7.50
Issue of share purchase warrants     905,237   717,621 c)         2.50
                                   ---------   -------            ----
Balance, end of period             2,465,237   777,621            5.66
                                   =========   =======            ====
</TABLE>

a)   In March 2004, the Company issued 8,420,000 common shares through a public
     offering for gross cash proceeds of $12,714,401. Commission and other
     transaction costs amounting to $1,440,576 were incurred and included in the
     deficit.

          In December 2004, the Company issued to an agent 546,000 share
     purchase warrants at an exercise price of C$2.15 By way of private
     placement, and received, in consideration, aggregate proceeds of $241,904.
     This private placement of share purchase warrants was coincident with, and
     set as a condition for, the payment of a sum of $241,904 to the agent in
     consideration for the settlement of all claims and disputes between the
     agent and the company. With respect to the share purchase warrants issue,
     50% of the share purchase warrants are exercisable immediately and the
     balance beginning December 2005. The share purchase warrants will expire
     five years from the date of issue. The Company evaluated the fair value of
     the share purchase warrants at $162,736 using the black-scholes model. The
     valuation assumptions are listed below:

     -    Expected life: 5 years

     -    Expected volatility: 70%

     -    Weighted average risk-free interest rate: 3.71%

     -    Dividend rate: 0%

b)   During the eight-month period ended December 31, 2003, the Company
     completed a series of financing rounds through private placements.

          According to financing agreements closed on September 22, 2003,
     December 12, 2003 and December 22, 2003, the Company issued 7,564,782
     common shares and 743,185 share purchase warrants for gross cash proceeds
     of $11.6 Million. Commissions related to the financing rounds, amounting to
     $1,162,666, were incurred and included in the deficit as share and share
     purchase warrant issue expenses. The 743,185 share purchase warrants issued
     to two agents for the financing were evaluated at $1,137,125 following the
     assumptions listed below and were presented in the section "share capital
     and share purchase warrants" of the shareholders' equity.

     Information relating to the share purchase warrants is detailed as follows:

     -    The first agent received 630,154 share purchase warrants entitling it
          to buy 630,154 common shares of the Company at an exercise price
          of C$2.08;


36

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 11. Share capital and share purchase warrants (continued)

     -    The second agent received 94,742 share purchase warrants entitling it
          to buy 94,742 common shares of the Company at an exercise price of
          C$2.08 and 18,289 share purchase warrants entitling it to buy 18,289
          common shares of the Company at an exercise price of C$3.23.

     These share purchase warrants are exercisable beginning on the grant date
     and expire three years after. The Company evaluated the fair value of share
     purchase warrants using the Black-Scholes model. The valuation assumptions
     are listed below:

     -    Expected life: 3 years

     -    Expected volatility: 70%

     -    Weighted average risk-free interest rate: 3.71%

     -    Dividend rate: 0%

c)   During the year ended April 30, 2003, the Company completed a series of
     equity financing rounds through private investments and concluded strategic
     agreements with one of the investors.

          Pursuant to the financing agreements closed on November 8 and 15,
     2002, the Company issued 6,142,680 common shares for gross cash proceeds of
     $7.5 million. Commissions and other transaction costs amounting to $705,210
     were incurred and included in the deficit.

          On November 15, 2002, in conjunction with the closing of one of the
     financing rounds, the Company concluded two strategic alliance agreements
     with GE. The first agreement, known as the "Master Research and Development
     Alliance Agreement", establishes mutual responsibilities of the Company and
     GE in research and development activities for the commercialization of new
     technologies, mainly for the molecular imaging sector. The second
     agreement, the "SoftScan Commercial Alliance Agreement", defines mutual
     responsibilities of the Company and GE concerning the development,
     promotion and manufacturing program for SoftScan.

          The Company paid management fees of $750,000 in cash to an agent for
     services rendered in the negotiation and ratification of the strategic
     agreements. These fees were expensed and presented in the "other expenses"
     of the operations and deficit statement and "operating activities" of the
     cash flow statement for the period.

          The Company also granted the following share purchase warrants to GE
     for the acquisition of common shares of the Company, in connection with the
     closing of the financing agreement, and of the two strategic alliance
     agreements:

     -    Share purchase warrants No. 1: 905,237 share purchase warrants
          entitling the holder to buy 905,237 common shares of the Company at an
          exercise price of C$2.50. These share purchase warrants became
          exercisable as of November 15, 2002 and expire on November 15, 2007;
     -    Share purchase warrants No. 2: 775,918 share purchase warrants
          entitling the holder to buy 775,918 common shares of the Company at an
          exercise price of C$2.75. These warrants will be exercisable when GE
          Medical Systems, a division of GE, earns income from the signature of
          a firm purchase order for SoftScan. These warrants expire on November
          15, 2007.

          The Company evaluated the fair value of share purchase warrants No. 1
     using the Black-Scholes model. The valuation assumptions are listed below:

     -    Expected life: 5 years

     -    Expected volatility: 70%

     -    Weighted average risk-free interest rate: 4.3%

     -    Dividend rate: 0%

     Using these assumptions, a total of $717,621 was charged to expenses and
     included in the section "Other expenses" of the Operations and Deficit
     statement while the consideration was recorded under "Share capital and
     share purchase warrants" in shareholders' equity.

          In the case of share purchase warrants No. 2, the Company will record
     the underlying cost when specific criteria for exercising the warrants will
     be achieved. The fair market value will be evaluated at that time.

d)   In July 2005, the Company closed a $5.9 million private placement of
     convertible preferred shares with an existing institutional investor. The
     private placement of 6,341,982 preferred shares was made at a subscription
     price of C$1.14 per preferred share. The preferred shares are entitled to a
     cumulative dividend of 7%, payable in cash or common shares at the
     Company's option. The cumulative dividend has a value of $200,277 on
     December 31, 2005. The preferred shares are convertible at the investor's
     option at any time into common shares at a fixed conversion price of C$1.26
     per share (being an effective conversion rate of 0.9036 common share for
     each Series 1 preferred share).

          The agreement also provides that, if on the first anniversary of the
     closing of the transaction the weighted average trading price of the common
     shares for the previous ten (10) days does not exceed C$1.20 per share, the
     investor will have the option to convert some or all of the preferred
     shares at a conversion price of 112.5% of the weighted average trading
     price for the ten (10) trading days prior to the date of conversion. The
     right to convert at the adjusted conversion price shall only be available
     for a period ending on the third anniversary of the closing of the
     transaction.

          The agreement also provides that the Company may force the conversion
     of the preferred shares into common shares at the conversion price of
     C$1.26 per share upon the occurrence of certain events or the achievement
     of certain milestones. For a period of twelve (12) months commencing from
     the closing date, the investor shall have the option to purchase an
     additional 2,000,000 preferred shares at a price of C$1.14 per additional
     preferred share, for a total potential additional investment of
     C$2,280,000. Each such additional preferred share shall be convertible into
     common shares at a fixed conversion price of C$1.08 per share (being an
     effective conversion rate of 1.0556 common share for each Series 2
     preferred share). This option had not been exercised as at December 31,
     2005.


                                                                              37

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 11. Share capital and share purchase warrants (continued)

     In conjunction with this transaction, the Company issued to an agent share
purchase warrants to purchase 286,535 common shares at an exercise price of
C$1.18 per share. The Company evaluated the fair value of such share purchase
warrants at $85,961 using the Black-Scholes model.

The valuation assumptions are listed below:

-    Expected life: 3 years

-    Expected volatility: 70%

-    Weighted average risk-free interest rate: 3.19%

-    Dividend rate: 0%

e)   Upon the expiry of the share purchase warrants, an amount of $60,000 was
     transferred to contributed surplus.

Note 12. Stock-based Compensation Plan

Under the Company's stock option plan (the "Amended and Restated 2005 Stock
Option Plan" or the "Plan"), options to purchase common shares may be granted to
employees, directors, officers or consultants of the Company. Each option will
normally expire 10 years from the date of issuance. In addition, each option to
be granted under the Plan will vest in instalments from the effective date of
grant pursuant to a pre-established vesting schedule. The exercise price of any
option granted will be determined by the Board of Directors of the Company, but
shall not be less than the latest closing price of the common shares on a stock
exchange on which the common shares are listed immediately prior to the date of
grant of such options.

     As at December 31, 2005, 4,563,486 common shares (2,650,000 for December
31, 2004, December 31, 2003 and April 30, 2003) were authorized for issuance.
Since its inception, 699,840 common shares have been issued under the Plan.

The following table presents the changes in the number of options outstanding in
the last four periods:

<TABLE>
<CAPTION>
                           December 31, 2005       December 31, 2004       December 31, 2003       April 30, 2003
                          Directors, officers     Directors, officers     Directors, officers    Directors, officers
                             and employees           and employees           and employees          and employees
                         --------------------   ----------------------   --------------------   --------------------
                                     Weighted                 Weighted               Weighted               Weighted
                                      average                  average                average                average
                         Number of   exercise   Number of     exercise   Number of   exercise   Number of   exercise
                          Options    price C$    options      price C$    options    price C$    options    price C$
                         ---------   --------   ---------     --------   ---------   --------   ---------   --------
<S>                      <C>         <C>        <C>           <C>        <C>         <C>        <C>         <C>
Balance, beginning
   of period             2,467,374     2.81     1,431,600       3.79     1,476,200     4.06     1,207,070     6.01

Options granted            119,500     0.74     1,282,574 a)    1.96       142,400     3.21       658,900     2.04

Options exercised               --       --        (6,000)      1.91          (400)    2.39        (7,070)    0.63

Options cancelled         (107,395)    3.57      (240,800)      4.18      (186,600)    5.42      (382,700)    6.81
                         ---------     ----     ---------       ----     ---------     ----     ---------     ----
Balance, end of period   2,479,479     2.68     2,467,374       2.81     1,431,600     3.79     1,476,200     4.06
                         =========     ====     =========       ====     =========     ====     =========     ====
Options exercisable,
   end of period         1,659,957     3.25     1,222,898       3.63       846,400     4.81       739,565     5.81
                         =========     ====     =========       ====     =========     ====     =========     ====
</TABLE>

a)   On January 27, 2004, in consideration for renouncing the cash payment of
     the prior year's bonuses, certain officers and employees were granted a
     total of 288,740 options to buy common shares at an exercise price of
     C$3.23. The expense related to the bonuses had been accrued in the
     eight-month period ended December 31, 2003. Upon issuance of the options,
     the bonus accrual was reversed and an amount of $253,976, representing the
     fair value of the options, was credited to contributed surplus.


38

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 12. Stock-based compensation plan (continued)

The following table provides information on options outstanding and exercisable
as of December 31, 2005:

<TABLE>
<CAPTION>
                        Options outstanding            Options exercisable
               ------------------------------------   ----------------------
                                          Weighted
                                          average
                             Weighted    remaining                  Weighted
                              average   contractual                  average
  Exercise        Number     exercise       life          Number    exercise
  price C$     outstanding   price C$     (years)     exercisable   price C$
  --------     -----------   --------   -----------   -----------   --------
<S>            <C>           <C>        <C>           <C>           <C>
0.68 to 0.99      117,500      0.74         9.78              --        --
1.00 to 1.99    1,074,400      1.34         7.98         589,100      1.49
2.00 to 2.99      259,134      2.27         7.48         180,245      2.32
3.00 to 3.99      617,445      3.24         7.89         479,612      3.27
4.00 to 4.99      137,000      4.60         1.66         137,000      4.60
5.00 to 5.99           --        --           --              --        --
6.00 to 6.99      111,000      6.00         3.13         111,000      6.00
7.00 to 7.50      163,000      7.50         4.19         163,000      7.50
                ---------      ----         ----       ---------      ----
                2,479,479      2.68         7.18       1,659,957      3.25
                =========      ====         ====       =========      ====
</TABLE>

As at December 31, 2005, a total of 1,379,167 common share purchase options
remained available for granting.

The fair value of stock options granted during the years ended December 31,
2005, December 31, 2004, the eight-month period ended December 31, 2003 and the
year ended April 30, 2003 was estimated on the grant date using the
Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                           December 31,   December 31,   December 31,   April 30,
                                               2005           2004           2003          2003
                                           ------------   ------------   ------------   ---------
<S>                                        <C>            <C>            <C>            <C>
Weighted average expected life (years)         4.50           4.33           4.50         7.00
Expected volatility                              70%            70%            70%          70%
Weighted average risk-free interest rate       3.67%          3.46%          3.84%        4.72%
Dividend rate                                    --             --             --           --
</TABLE>

The weighted average fair value of each stock option granted during the year
ended December 31, 2005 was $0.32 ($0.68 in 2004, $1.36 in 2003 and $0.92 in the
year ended April 30, 2003).

     The Company recorded an expense of $246,353 ($142,516 in 2004 and $18,206
for the eight-month period ended December 31, 2003), using the fair value
method, in its operations and deficit statement for stock options granted to
employees in the year ended December 31, 2005.

     During the year ended April 30, 2003, the Company did not record any
compensation cost related to stock options granted to employees. If the
compensation cost had been determined using the fair-value-based method at the
grant date of stock options awarded to employees, the net loss and loss per
share would have been adjusted to the pro forma amounts indicated in the
following table:

<TABLE>
<CAPTION>
                                                                               Eight-month
                                                 Year ended     Year ended    period ended   Year ended
                                                December 31,   December 31,   December 31,    April 30,
                                                    2005           2004           2003          2003
                                                ------------   ------------   ------------   ----------
<S>                                             <C>            <C>            <C>            <C>
Net loss as reported                            $13,129,184    $ 9,928,603     $5,832,025    $6,546,604

Less: compensation expense recognized
   in the statement of operations and deficit      (246,353)      (142,516)       (18,206)           --

Plus: total compensation expense                    375,363        344,324        153,296       134,959
                                                -----------    -----------     ----------    ----------
Pro forma net loss                              $13,258,194    $10,130,411     $5,967,115    $6,681,563
                                                ===========    ===========     ==========    ==========
Basic and diluted net loss per share
   As reported                                  $      0.31    $      0.24     $     0.20    $     0.28
   Pro forma                                    $      0.31    $      0.25     $     0.20    $     0.28
                                                ===========    ===========     ==========    ==========
</TABLE>

Other stock options

During the fiscal year ended April 30, 2001, the Company granted 5,000 common
stock options to a consultant as partial compensation for services rendered to
the Company. The options are exercisable at C$4.80 and expire on March 19, 2011.


                                                                              39

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 13. Discontinued operations

The Company's bio-optical imaging activities led it to reconsider its
involvement in the industrial sector. Due to an economic downturn affecting the
electronics market and the lack of sales and distribution infrastructure, the
ISIS thermal imaging division had not been able to reach an acceptable level of
profitability. Consequently, with the Board's approval, the Company decided to
sell the division during the month of July 2002 to Photon Dynamics, Inc. for
$5.5 million.

     The operations of the industrial division presented as at April 30, 2003
were reclassified under "Profit from discontinued operations". Results are
detailed as follows:

<TABLE>
<CAPTION>
                                                 Year ended
                                               April 30, 2003
                                               --------------
<S>                                            <C>
Revenues                                        $        --
Operating loss                                  $   516,281
Gain on disposal of the industrial division,
   net of current taxes of $1,318,668           $ 2,996,122
Profit from discontinued operations             $(2,479,841)
</TABLE>

As at April 30, 2003, an amount of $550,000 received from Photon Dynamics, Inc.
was deposited in trust. This amount bore interest at 1.05% and was converted to
cash in July 2003.

Note 14. Related party transactions

In the normal course of business, the Company carried out the following
transactions with certain directors, officers and companies related to these
directors and officers:

<TABLE>
<CAPTION>
                                                                          Eight-month
                                   Year ended          Year ended         period ended       Year ended
                               December 31, 2005   December 31, 2004   December 31, 2003   April 30, 2003
                               -----------------   -----------------   -----------------   --------------
<S>                            <C>                 <C>                 <C>                 <C>
Directors
   Professional fees               $       --          $       --             $--              $58,046
Officers
   Clinical research fees a)        2,340,026           1,952,581              --                   --
                                   ----------          ----------             ---              -------
                                   $2,340,026          $1,952,581             $--              $58,046
                                   ==========          ==========             ===              =======
</TABLE>

a)   In the normal course of its business, the Company has entered into an
     agreement with Clinivation Inc. (Clinivation), a company controlled by one
     of its officers. Clinivation acts as the Company's Contract Research
     Organization (CRO) and provides management services and contract research
     services related to the clinical development, regulatory approval, and
     commercialization of SoftScan as follows:

          Management services: Clinivation provides the management and
          professional services of Joseph Kozikowski, MD, who serves as the
          Company's Chief Medical Officers (CMO);

          Contract research services: Clinivation works toward the clinical
          development and approvals of SoftScan.

     During the year ended December 31, 2005, the Company paid $165,771 for
     management services as CMO and $2,174,255 for contract research services.

     These transactions were recorded at their exchange value, which is the
     consideration established and agreed-upon by the related parties. The
     transactions were settled in cash.

     The Company had an account payable of $243,180 to Clinivation as at
     December 31, 2005 ($168,822 as at December 31, 2004).


40

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 15. Research and development expenses

The research and development expenses and the related investment tax credits
included in the statement of operations and deficit are as follows:

<TABLE>
<CAPTION>
                                                                               Eight-month
                                        Year ended          Year ended         period ended       Year ended
                                    December 31, 2005   December 31, 2004   December 31, 2003   April 30, 2003
                                    -----------------   -----------------   -----------------   --------------
<S>                                 <C>                 <C>                 <C>                 <C>
Research and development expenses      $9,453,640          $ 8,776,341         $3,925,506         $6,305,262
Investment tax credits                   (298,680)          (1,264,856)          (433,865)          (570,792)
                                       ----------          -----------         ----------         ----------
                                       $9,154,960          $ 7,511,485         $3,491,641         $5,734,470
                                       ==========          ===========         ==========         ==========
</TABLE>

The Company's investment tax credit claims previously submitted for the fiscal
years ended April 30, 2002 and April 30, 2003 were reviewed by the tax
authorities in 2004. Following a positive review, the Company collected $593,584
more than what had been originally recorded. The Company applied this excess
against research and development expenses incurred in the fiscal year ended
December 31, 2004.

     The investment tax credits recorded by the Company are subject to review
and approval by tax authorities and it is possible that the amounts granted will
be different from the amounts accounted for.

Note 16. Income taxes

The current tax recovery presented in the operations and deficit statement for
the year ended April 30, 2003 represents the utilization of tax losses to
recover current income tax resulting from the gain related to the discontinued
operations.

     The variance between the statutory income tax rate (31.02% for December 31,
2005 and 2004, 31.05% for December 31, 2003 and 34.48% for April 30, 2003) and
the Company's effective income tax rate (nil for December 31, 2005, 2004 and
2003 and 12.7% for April 30, 2003) for all the periods presented is mainly
attributable to the valuation allowance related to future income tax assets.

     Future income tax assets of $32,010,000 as at December 31, 2005
($27,402,160 as at December 31, 2004) have not been reflected in these financial
statements. These assets result primarily from non-capital losses and unused
income tax deductions resulting from expenses recognized for accounting purposes
but not deducted for income tax purposes. These losses and unused income tax
deductions could allow the Company to reduce its current income taxes in
subsequent years. They are summarized as follows:

<TABLE>
<CAPTION>
                                                                 December 31, 2005   December 31, 2004
                                                                 -----------------   -----------------
<S>                                                              <C>                 <C>
Future income tax assets resulting from
   Tax losses                                                      $ 23,683,000        $ 19,877,131
   Research and development expenses                                  4,008,000           3,732,794
   Excess of tax basis over carrying value of assets                  1,031,000             908,151
   Federal non-refundable research and development tax credits        3,288,000           2,884,084
                                                                   ------------        ------------
                                                                     32,010,000          27,402,160
Valuation allowance                                                 (32,010,000)        (27,402,160)
                                                                   ------------        ------------
Net future income tax assets recorded                              $         --        $         --
                                                                   ============        ============
</TABLE>

As at December 31, 2005, the non-capital tax losses and unused income tax
deductions are available as follows:

<TABLE>
<CAPTION>
                                                               Federal      Provincial
                                                             -----------   -----------
<S>                                                          <C>           <C>
Non-capital tax losses expiring in
   2006                                                      $ 7,227,000   $ 4,355,000
   2007                                                       12,530,000    11,506,000
   2008                                                       14,806,000    14,718,000
   2009                                                        9,779,000     9,624,000
   2010                                                        6,425,000     6,351,000
   2014                                                       12,101,000    12,101,000
   2015                                                       14,617,000    15,050,000
                                                             -----------   -----------
                                                              77,485,000    73,705,000
Unused income tax deductions
   Research and development expenses which can be deferred
      over an indefinite period                               11,507,000    17,976,000
                                                             -----------   -----------
                                                             $88,992,000   $91,681,000
                                                             ===========   ===========
</TABLE>


                                                                              41

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 17. Segment Information

Beginning January 2004, the Company operates in two sectors for financial
reporting purposes: the medical sector and the pharmaceutical sector. The
medical sector includes the research, design, development and marketing of the
SoftScan time-domain optical breast imaging device. The pharmaceutical sector
includes the research, design, development and commercialization of the eXplore
Optix product. The accounting policies for both segments are the same and are
described in Note 3.

The information pertaining to the two operating segments is summarized as
follows:

<TABLE>
<CAPTION>
                                                    Year ended December 31, 2005
                                             ------------------------------------------
                                             Pharmaceutical     Medical        Total
                                             --------------   -----------   -----------
<S>                                          <C>              <C>           <C>
Sales
   Product                                     $3,626,100     $        --   $ 3,626,100
   Maintenance                                    499,450              --       499,450
                                               ----------     -----------   -----------
                                                4,125,550              --     4,125,550

Cost of sales
   Product                                      2,379,802              --     2,379,802
   Maintenance                                    409,783              --       409,783
                                               ----------     -----------   -----------
                                                2,789,585              --     2,789,585
                                               ----------     -----------   -----------
Gross margin                                    1,335,965              --     1,335,965
                                               ----------     -----------   -----------
Operating expenses
   Research and development                     1,748,506       7,406,454     9,154,960
   Selling, general and administrative          1,498,073       2,420,163     3,918,236
   Amortization                                   162,828         122,978       285,806
                                               ----------     -----------   -----------
                                                3,409,407       9,949,595    13,359,002
                                               ----------     -----------   -----------
Operating loss                                  2,073,442       9,949,595    12,023,037
Interest expense on convertible debentures        258,537         625,654       884,191
Interest income                                   (70,675)       (171,033)     (241,708)
Foreign exchange loss                             135,575         328,089       463,664
                                               ----------     -----------   -----------
Net Loss                                       $2,396,879     $10,732,305   $13,129,184
                                               ==========     ===========   ===========
</TABLE>


42

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 17. Segment information (continued)

<TABLE>
<CAPTION>
                                                Year ended December 31, 2004
                                         -----------------------------------------
                                         Pharmaceutical     Medical       Total
                                         --------------   ----------   -----------
<S>                                      <C>              <C>          <C>
Sales
   Product                                 $1,935,000     $       --   $ 1,935,000
   Maintenance                                     --             --            --
                                           ----------     ----------   -----------
                                            1,935,000             --     1,935,000
Cost of sales
   Product                                    915,087             --       915,087
   Maintenance                                     --             --            --
                                           ----------     ----------   -----------
                                              915,087             --       915,087
                                           ----------     ----------   -----------
Gross margin                                1,019,913             --     1,019,913
                                           ----------     ----------   -----------
Operating expenses
   Research and development                 1,944,023      5,567,462     7,511,485
   Selling, general and administrative      1,314,888      2,159,558     3,474,446
   Amortization                               153,895         95,732       249,627
                                           ----------     ----------   -----------
                                            3,412,806      7,822,752    11,235,558
                                           ----------     ----------   -----------
Operating loss                              2,392,893      7,822,752    10,215,645
Interest income                               (84,182)      (216,039)     (300,221)
Foreign exchange loss                           3,695          9,484        13,179
                                           ----------     ----------   -----------
Net loss                                   $2,312,406     $7,616,197   $ 9,928,603
                                           ==========     ==========   ===========
</TABLE>

As at December 31, 2005 and December 31, 2004, the majority of identifiable
assets consisted of cash, short-term investments and property and equipment used
for corporate head office purposes. Identifiable assets by segment are
summarized as follows:

<TABLE>
<CAPTION>
Identifiable assets        Corporate    Pharmaceutical     Medical       Total
-------------------       -----------   --------------   ----------   -----------
<S>                       <C>           <C>              <C>          <C>
As at December 31, 2005   $10,253,077     $3,162,239     $1,816,893   $15,232,209
As at December 31, 2004   $12,897,559     $2,132,979     $1,734,349   $16,764,887
</TABLE>


                                                                              43

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 18. Contractual commitments

The Company is committed under operating leases expiring between 2006 and 2012
to pay a total amount of $2,932,392 principally for its premises.

The annual commitments for the next five years are as follows:

<TABLE>
<S>    <C>
2006   $546,179
2007    409,472
2008    419,963
2009    416,723
2010    412,294
</TABLE>

Note 19. Contingency

Letters of credit

As at December 31, 2005, the Company had no outstanding letters of credit.

Note 20. Financial instruments

The Financial statements include only primary financial instruments.

The fair value of short-term financial assets and liabilities is equivalent to
their carrying amount given that they will mature shortly.

The fair value of the convertible debentures could not be readily determined due
to the specific characteristics of these financial instruments.

Except for accounts receivable of $1,042,077 ($647,583 in 2004), cash of
$4,366,822 ($28,189 in 2004) and commercial paper of $4,000,496 (nil in 2004),
all other financial instruments are denominated in Canadian dollars.

Note 21. Comparative figures

Certain comparative figures have been reclassified to conform with the
presentation adopted in the current year.


44

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 22. United states generally accepted accounting principles

The amounts reported in the financial statements of the Company, prepared under
Canadian GAAP, conform in all material respects to the amounts that would have
been reported if the financial statements had been prepared under U.S. GAAP,
except for the following:

Reconciliation of statements of loss and comprehensive loss

<TABLE>
<CAPTION>
                                                                                Eight-month
                                                  Year ended     Year ended    period ended   Year ended
                                                 December 31,   December 31,   December 31,    April 30,
                                                     2005           2004           2003          2003
                                                 ------------   ------------   ------------   ----------
<S>                                              <C>            <C>            <C>            <C>
Net loss under Canadian GAAP                     $13,129,184    $ 9,928,603     $5,832,025    $6,546,604
   Deferred development costs d)                     423,146             --             --            --
   Interest expense on convertible
      debentures e)                                 (458,061)            --             --            --
                                                 -----------    -----------     ----------    ----------
Net loss under U.S. GAAP                          13,094,269      9,928,603      5,832,025     6,546,604
   Change in cumulative translation
      adjustment account a)                         (477,878)    (1,284,686)      (768,167)     (630,301)
                                                 -----------    -----------     ----------    ----------
Comprehensive loss under U.S. GAAP               $12,616,391    $ 8,643,917     $5,063,858    $5,916,303
                                                 ===========    ===========     ==========    ==========
</TABLE>

Differences in reported amounts on balance sheets

<TABLE>
<CAPTION>
                                                           December 31, 2005                         December 31, 2004
                                               ----------------------------------------  ----------------------------------------
                                               Canadian GAAP  Adjustments    U.S. GAAP   Canadian GAAP  Adjustments    U.S. GAAP
                                               -------------  -----------  ------------  -------------  -----------  ------------
<S>                                            <C>            <C>          <C>           <C>            <C>          <C>
ASSETS
Deferred development costs a)                  $    423,146   $  (423,146) $         --  $         --   $        --  $         --
LIABILITIES
Current portion of convertible debentures e)      2,054,600       232,583     2,287,183            --            --            --
Convertible debentures e)                         1,666,543       819,823     2,486,366            --            --            --
SHAREHOLDERS  EQUITY
Share capital, share purchase warrants
   and contributed surplus b) c)                 87,852,775    (9,182,299)   78,670,476    81,170,805    (8,400,167)   72,770,638
Equity component of convertible
   debentures e)                                  1,510,467    (1,510,467)           --            --            --            --
Deficit b) c) d)                                (82,033,557)    9,558,015   (72,475,542)  (68,122,241)    8,740,968   (59,381,273)

Cumulative translation adjustment c)           $  2,039,128   $  (340,801) $  1,698,327  $  1,561,250   $  (340,801) $  1,220,449
                                               ============   ===========  ============  ============   ===========  ============
</TABLE>

a)   Comprehensive income

     Statement of Financial Accounting Standard SFAS No. 130, Reporting
     Comprehensive Income, requires that changes during the year in the
     cumulative translation adjustment account be included in the computation of
     comprehensive income (loss).

b)   Share and share purchase warrant issue expenses

     U.S. GAAP require that share and share purchase warrant issue expenses of
     $782,132 for the year ended December 31, 2005 ($1,440,576 for the year
     ended December 31, 2004, $1,360,003 for the eight-month period ended
     December 31, 2003 and $705,210 for the year ended April 30, 2003) be
     recorded as a reduction of proceeds of issuance instead of a charge to the
     deficit account as done under Canadian GAAP.

c)   Reporting currency

     The Company adopted the U.S. dollar as its reporting currency effective May
     1, 1999. Under U.S. GAAP, the translation of the Company's prior fiscal
     years' financial statements must be carried out using the current rate
     method, applied on a retroactive basis.

d)   Deferred costs

     U.S. GAAP require that development costs be expensed in the year they are
     incurred.

e)   Conversion rights

     U.S. GAAP require that the conversion rights of the convertible debentures
     be valued at their intrinsic value. The conversion rights of the
     convertible debentures issued during the period did not have any intrinsic
     value at the date of issue and, therefore, the equity component of the
     convertible debentures was nil under U.S. GAAP.


                                                                              45

                                                      2005 | ANNUAL REPORT | ART

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 22. United States generally accepted accounting principles (continued)

Other information

U.S. GAAP require the presentation of information in the event of a change in
fiscal year-end.

Information comparable to the transition period:

<TABLE>
<CAPTION>
                                                                                 Year ended         Year ended
                                          Year ended          Year ended        December 31,       December 31,
                                      December 31, 2005   December 31, 2004   2003 (unaudited)   2002 (unaudited)
                                      -----------------   -----------------   ----------------   ----------------
<S>                                   <C>                 <C>                 <C>                <C>
Operating loss                           $12,023,037         $10,215,645         $ 9,211,400       $ 7,619,954
Loss from continuing operations           13,129,184           9,928,603          10,580,413         6,749,060
Profit from discontinued operations               --                  --                  --        (1,941,052)

Net loss                                  13,129,184           9,928,603           5,832,025         4,808,008
                                         ===========          ==========         ===========       ===========
</TABLE>

Classification of "Other expenses"

Under U.S. GAAP, the item "Other expenses" must be classified as an operating
expense.

Classification of research and development investment tax credits

Under U.S. GAAP, R&D investment tax credits (see Note 15) would be classified
as a reduction of the income tax expense instead of a reduction of the related
R&D expenses.

Accounting for stock-based compensation

As of May 1, 2003, the Company has chosen to measure compensation costs related
to awards of stock options using the fair-value-based method of accounting as
required by U.S. GAAP. The fair value of options granted for the years ended
December 31, 2005 and 2004, the eight-month period ended December 31, 2003 and
the year ended April 30, 2003, was estimated using the Black-Scholes
option-pricing model taking into account a weighted average expected life of 4.5
years for the year ended December 31, 2005, 4.33 years for the year ended
December 31, 2004, an expected life of 4.5 years for the eight-month period
ended December 31, 2003 and seven years for the year ended April 30, 2003. Other
assumptions used for purposes of valuation include expected volatility of 70%
for December 31, 2005 (70% for December 31, 2004 and 2003 and for April 30,
2003), a weighted average risk-free interest rate of 3.67 for December 31, 2005,
(3.46% for December 31, 2004, 3.84% for December 31, 2003 and 4.72% for April
30, 2003) and a 0% dividend policy. A compensation expense is recorded over the
vesting periods.

     If the fair value method of accounting had been applied for periods prior
to May 1, 2003, the Company's net loss and net loss per share for the years
ended December 31, 2005 and 2004, the eight-month period ended December 31, 2003
and the year ended April 30, 2003 would have been, on a pro forma basis:

<TABLE>
<CAPTION>
                                                                                              Eight-month
                                                       Year ended         Year ended          period ended       Year ended
                                                   December 31, 2005   December 31, 2004   December 31, 2003   April 30, 2003
                                                   -----------------   -----------------   -----------------   --------------
<S>                                                <C>                 <C>                 <C>                 <C>
Net loss under U.S. GAAP                              $13,094,269         $ 9,928,603         $5,832,025         $6,546,604
Less: compensation expense recognized
   in the statement of operations and deficit            (246,353)           (142,516)           (18,206)                --
Plus: total compensation expense
   under the fair-value-based method                      363,127             340,013            185,028            270,121
                                                      -----------         -----------         ----------         ----------
Pro forma net loss                                    $13,211,043         $10,126,100         $5,998,847         $6,816,725
                                                      -----------         -----------         ----------         ----------
Basic and diluted net loss per share as reported      $      0.31         $      0.24         $     0.20         $     0.28
                                                      -----------         -----------         ----------         ----------
Basic and diluted net loss per share, pro forma       $      0.31         $      0.25         $     0.20         $     0.29
                                                      ===========         ===========         ==========         ==========
</TABLE>

The weighted average fair value of options granted for the year ended December
31, 2005 was $0.32 ($0.68 for the year ended December 31, 2004, $1.36 for the
eight-month period ended December 31, 2003 and $0.92 for the year ended April
30, 2003).


46

ART | ANNUAL REPORT | 2005

<PAGE>

Notes to Financial Statements
(In U.S. dollars)

Note 22. United States generally accepted accounting principles (continued)

Accounting changes

A)   INVENTORY COSTS

     In November 2004, the FASB issued SFAS 151, Inventory Costs-An Amendment of
     ARB 43, Chapter 4 (SFAS 151). SFAS 151 amends the guidance in ARB 43,
     Chapter 4, Inventory Pricing, to clarify the accounting for certain
     abnormal amounts in establishing inventory valuation. The proposed
     statement would:

     -    recognize as current-period charges, idle facility expenses, excessive
          spoilage, double freight, and rehandling costs regardless of whether
          they meet the criterion of "so abnormal" as stated in ARB 43;

     -    require that the allocation of fixed production overheads to the costs
          of conversion be based on the normal capacity of the production
          facilities.

     SFAS 151 is effective for fiscal years beginning after June 15, 2005. The
     Company is currently evaluating the effect that the adoption of SFAS 151
     will have on its results of operations and financial condition.

B)   EXCHANGES OF NON-MONETARY ASSETS

     In December 2004, the FASB issued SFAS 153, Exchanges of Non-monetary
     Assets-An Amendment of APB Opinion 29. SFAS 153 eliminates the exception
     from fair value measurement for non-monetary exchanges of similar
     productive assets in paragraph 21(b) of APB Opinion 29, Accounting for
     Non-monetary Transactions, and replaces it with an exception for exchanges
     that do not have commercial substance. SFAS 153 is effective for the fiscal
     periods beginning after June 15, 2005. The Company is currently evaluating
     the effect that the adoption of SFAS 153 will have on its results of
     operations and financial condition.

C)   ACCOUNTING CHANGES AND ERROR CORRECTIONS

     In May 2005, the FASB issued SFAS 154, Accounting Changes and Error
     Corrections-A Replacement of APB Opinion No. 20 and FASB Statement No. 3
     which is effective for fiscal years ending after December 31, 2005. SFAS
     154 requires that changes in accounting policy be accounted for on a
     retroactive basis. The Company does not expect this standard to have a
     material impact on its financial statements.


                                                                              47

                                                      2005 | ANNUAL REPORT | ART