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

                         TRANSITION REPORT ON FORM 20-F
                                  Annual Report

                       Pursuant to Section 13 or 15(d) of

                       The Securities Exchange Act of 1934

       For the Transition Period from May 1, 2003 until December 31, 2003

                         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 in 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:

           Title of each class         Name of each exchange on which
           to be so registered         each class is to be registered

           None                        N/A

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:

34,238,523 Common Shares as of December 31, 2003.
42,664,523 Common Shares as of May 31, 2004.


<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.


<PAGE>

                                TABLE OF CONTENTS

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..........................................11

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS........................45

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES..........................55

ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...................67

ITEM 8.   FINANCIAL INFORMATION...............................................69

ITEM 9.   THE OFFER AND LISTING...............................................69

ITEM 10.  ADDITIONAL INFORMATION..............................................71

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..........75

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES..............76

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.....................76

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
          USE OF PROCEEDS.....................................................76

ITEM 15.  CONTROL PROCEDURES..................................................76

ITEM 16.  [RESERVED]..........................................................77

ITEM 16A  AUDIT COMMITTEE FINANCIAL EXPERT....................................77

ITEM 16B  CODE OF ETHICS......................................................77

ITEM 16C  PRINCIPAL ACCOUNTANT................................................77

ITEM 16D  EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES..............77

<PAGE>
                                     - 2 -


ITEM 16E  PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
          PURCHASERS..........................................................78

ITEM 17.  FINANCIAL STATEMENTS................................................78

ITEM 18.  FINANCIAL STATEMENTS................................................78

ITEM 19.  EXHIBITS............................................................78

          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. AT DECEMBER 31, 2003,
          THE EXCHANGE RATE BETWEEN THE CANADIAN DOLLAR AND THE US DOLLAR WAS
          CDN $1.00 = US $1.2965.

EXPLANATORY NOTE

This Transition Report on Form 20-F for the eight-month fiscal period from May
1, 2003 through December 31, 2003 is being filed in connection with the change
of the Company's fiscal year from April 30, to December 31, that was effective
as of December 31, 2003.

<PAGE>
                                     - 3 -


                                  INTRODUCTION

ART Advanced Research Technologies Inc. ("ART" or the "Company") is engaged in
the research, design, development and commercialization of optical 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.

ART's mission is to be a market leader in the development and commercialization
of optical molecular imaging systems for the medical and pharmaceutical sectors.
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 improved efficiency and accuracy in drug
development. In June 2003, ART launched 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. GE
Healthcare is acting as exclusive worldwide distributor of eXplore Optix(TM).

<PAGE>
                                     - 4 -


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 data

The following table sets forth selected historical consolidated financial
information of the Company for each of the periods indicated. The information
under Consolidated Statement of Loss and Deficit Data and Consolidated Balance
Sheet Data is derived from the Consolidated 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 Consolidated
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 18
to the consolidated financial statements for a reconciliation to U.S. GAAP. The
following represents our selected financial data for the eight-month fiscal
period ended December 31, 2003 and each of the past four fiscal years ending
April 30th. The following data 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 "Consolidated Financial
Statements".

<PAGE>
                                     - 5 -


Consolidated Operations and Deficit
Amounts Under Canadian GAAP(a)

<TABLE>
<CAPTION>
                                                Eight-month fiscal
                                                   period ended                       Twelve-month fiscal year ended
                                                   ------------                       ------------------------------
                                                December 31, 2003  April 30,2003(b)  April 30,2002(b)  April 30, 2001  April 30,2000
                                                -----------------  ----------------  ----------------  --------------  -------------
<S>                                                <C>              <C>               <C>               <C>            <C>
Sales                                              $    681,875     $         --      $         --      $         --   $         --
Cost of sales                                           377,744               --                --                --             --
                                                   --------------------------------------------------------------------------------
Gross margin                                            304,131               --                --                --             --

Operating expenses
Research and development expenses                     3,491,641        5,734,470         6,284,211         4,637,301      2,330,679
Selling, general and administrative expenses          2,239,324        2,885,065         3,215,654         3,746,212      2,522,681
Amortization                                            136,643          138,173           201,328            93,430         54,155
                                                   ------------     ------------      ------------      ------------   ------------
                                                      5,867,608        8,757,708         9,701,193         8,476,943      4,907,515
                                                   ------------     ------------      ------------      ------------   ------------
Operating loss                                        5,563,477        8,757,708         9,701,193         8,476,943      4,907,515
Interest expense                                             --              393             3,278             7,695         16,576
Interest income                                         (63,384)         (99,674)         (183,826)         (295,215)       (52,789)
Foreign Exchange loss (gain)                            331,932          219,065          (175,162)               --             --
Other expenses                                               --        1,467,621                --                --             --
                                                   ------------     ------------      ------------      ------------   ------------
Loss from continuing operations before
income taxes                                          5,832,025       10,345,113         9,345,483         8,189,423      4,871,302
Current income taxes recovered                               --       (1,318,668)               --                --             --
                                                   ------------     ------------      ------------      ------------   ------------
Loss from continuing operations                       5,832,025        9,026,445         9,345,483         8,189,423      4,871,302
Loss (profit) from discontinued operations                   --       (2,479,841)        1,536,017         1,675,948      1,093,467
                                                   ------------     ------------      ------------      ------------   ------------
Net loss (Canadian GAAP)                           $  5,832,025     $  6,546,604      $ 10,881,500      $  9,865,371   $  5,964,769
                                                   ============     ============      ============      ============   ============
Basic and diluted loss per share - from
continuing operations (Canadian GAAP)              $       0.20     $       0.38      $       0.46      $       0.47   $       0.36
                                                   ============     ============      ============      ============   ============
Basic and  diluted  earnings  (loss) per share
from discontinued operations (Canadian GAAP)       $         --     $      (0.10)     $       0.08      $       0.09   $       0.08
                                                   ============     ============      ============      ============   ============
Basic and diluted net loss per share
(Canadian GAAP)                                    $       0.20     $       0.28      $       0.54      $       0.56   $       0.44
                                                   ============     ============      ============      ============   ============
Net Loss (U.S. GAAP)                               $  5,998,847     $  6,816,725      $ 12,049,632      $ 11,432,121   $  5,964,769
                                                   ============     ============      ============      ============   ============
Basic and diluted net loss per share - U.S. GAAP   $       0.20     $       0.29      $       0.60      $       0.65   $       0.44
                                                   ============     ============      ============      ============   ============
</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 18 to the Consolidated Financial Statements.

(b)   See Notes 10 of the Consolidated Financial Statements

<PAGE>
                                     - 6 -


Balance Sheet Data Amounts Under Canadian GAAP(a)

<TABLE>
<CAPTION>
                            December 31, 2003   April 30, 2003    April 30, 2002   April 30, 2001    April 30, 2000
                            -----------------   --------------    --------------   --------------    --------------
<S>                             <C>                <C>               <C>              <C>               <C>
Cash and Term Deposit            4,431,520         1,039,298           872,620           254,812         8,116,444
   Short-term investments        4,993,040         3,647,515         2,239,908         5,953,380                --
   Total assets                 13,704,796         8,032,130         6,115,134        10,498,989        11,198,402
   Bank loan                            --                --                --                --           688,720
   Shareholders' equity         11,412,392         6,212,899         4,613,936         7,353,947         7,980,327
 Other data
   Working capital               9,596,342         4,139,946         3,190,683         5,850,180         6,492,721
</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 18 to the Consolidated 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. There can be no
assurance that additional funding will be available or, if available, that it
will be available on acceptable terms. 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.

<PAGE>
                                     - 7 -


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(TM0 has now
entered the commercialization stage, SoftScan(R) is still undergoing clinical
development and trials, the riskiest stages for a company in the biomedical
sector. 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.

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 to
manufacture or market products, the commercial success of such products may be
outside of its control. If the Company relies on third parties 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.

<PAGE>
                                     - 8 -


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.

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
licences 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.

<PAGE>
                                     - 9 -


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 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

<PAGE>
                                     - 10 -


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.

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.

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.

<PAGE>
                                     - 11 -


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 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. (In September 1998, ART 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

<PAGE>
                                     - 12 -


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.

In March 2000, ART entered into a scientific collaboration agreement with GE
Medical Systems, 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 and a more comfortable procedure for the patient than X-ray
mammography.

<PAGE>
                                     - 13 -


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.

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 June 2002, ART signed a research agreement with the Center for Subsurface
Sensing and Imaging Systems ("CenSSIS") of Northeastern University in Boston,
giving ART complete access to core research results from CenSSIS.

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
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 OppenheimerFunds, Inc.,
US$2.0 million with former President and Chief Executive Officer Serge Huot and
US$3.0 million with General Electric Company).

<PAGE>
                                     - 14 -


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 SAMI(TM),
ART's pre-clinical molecular imager.

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 October 20, 2003, the day of ART's annual shareholders' meeting, ART and GE
Medical Systems announced the second sale of a SAMI(TM) pre-clinical optical
molecular imager to Novartis Pharma AG.

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 January 26, 2004, ART announced the engagement of Biosector 2, an integrated
healthcare communications agency, to lead ART's worldwide public and investor
relations programs in 2004.

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 the over-

<PAGE>
                                     - 15 -


allotment option on March 19, 2004, which resulted in the issuance of 920,000
additional Common Shares representing 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.
Furthermore, volumetric reconstruction of this time-domain data was also
achieved.

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 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.

<PAGE>
                                     - 16 -


      B.    Business Overview

Industry Overview

The Company's principal goal is to become a leading provider of optical imaging
solutions to the biomedical sector.

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 because age-related diseases are increasing.
According to the Frost & Sullivan market study "World Diagnostic Imaging
Equipment Markets", world-wide revenues for diagnostic imaging systems amounted
to US$10.1 billion in 1998 and are expected to reach US$14.7 billion in 2004,
representing a compound annual growth rate of 6.2%. Within this market, certain
segments are expected to grow much more rapidly than the overall market. For
example, Frost & Sullivan has estimated that the market for digital X-ray
devices that are able to detect and diagnose breast cancer is expected to reach
1,300 units in 2004, representing a compound annual growth rate of 79.4% over
five years or a compound annual growth rate in revenue of 60.7% over the same
period. This growth is expected to be fuelled by the need to replace outdated
detection systems and an increased emphasis on early detection of breast cancer
in order to avoid the significant costs associated with long-term treatment. 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. According to Frost &
Sullivan, the U.S. medical imaging market grew at an average annual growth rate
(AAGR) of 11.5% in 2003 to US$11.5 billion in revenues, with imaging modalities
representing 51% of total sales. In 2004, revenues are expected to double from
1998 market revenues and reach US$12.6 billion.

Cancer Facts and Figures

According to the National Cancer Institute of Canada ("NCIC"), an estimated
145,500 new cases of cancer and 68,300 deaths from cancer will occur in Canada
in 2004. 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") expects that about 1,368,030 new cancer cases will be diagnosed
in 2004. (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 563,700 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 2003 at
$189.5 billion: $64.2 billion for direct medical costs (total of all health
expenditures); $16.3 billion of indirect morbidity costs (costs of lost
productivity due to illness); and $109 billion for indirect mortality costs
(costs of lost productivity due to premature death).

In 2004 the most frequently diagnosed cancers in Canada will continue 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

<PAGE>
                                     - 17 -


accounts for 29.9% of all new cancer cases in Canadian women and 32.3% 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 215,990 new invasive cases
of breast cancer are expected to occur among women during 2004 and about 1,450
new cases are expected in men in 2004. An estimated 40,580 deaths (40,110 women,
470 men) are anticipated from breast cancer in 2004 in the U.S. In addition to
invasive breast cancer, 59,390 new cases of in situ breast cancer are expected
to occur among women during 2004. Likewise in Canada, an estimated 21,200 new
cases of breast cancer are expected to occur among women and about 145 new cases
are expected in men in 2004. The NCIC 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 over three decades, breast cancer
incidence among women levelled off in 1993 in Canada. Mortality rates for breast
cancer have declined steadily since 1990. 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 U.S. by the
National Cancer Institute ("NCI").

However, the NCI 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.
The report, "Annual Report to the Nation on the Status of Cancer, 1973-1999",
was 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. The
report concludes that the most important risk factor for cancer is age. 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% to 79% after the cancer has
spread to the lymph nodes, and to 23 % 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, 10-15% of breast cancers. 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

<PAGE>
                                     - 18 -


women over 20 (approximately 90 million women in the United States). For these
women, ACS has published guidelines for breast cancer screening including: (i)
monthly breast self-examinations for all women over 20; (ii) clinical breast
examination every three years for women 20-39, annually for women 40 and older;
and (iii) an annual mammogram for women age 40 or older. As a result of family
medical histories and other factors, certain women are considered at "high risk"
of developing breast cancer during their lifetimes. For these women, physicians
often recommend close monitoring, particularly if an abnormality involving an
increased risk of developing breast cancer has been detected.

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 six times between 1980 and
2002, increasing from US$245.8 billion to approximately US$1,55 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 radiodense 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 30 million screening
mammography procedures conducted annually, of which some three 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.

<PAGE>
                                     - 19 -


Some companies in the X-ray mammography field are developing digital X-ray
systems that are expected to 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 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 has the capacity to measure a
larger bandwidth 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.

<PAGE>
                                     - 20 -


                             BUSINESS OF THE COMPANY

Corporate Strategy

The Company's principal goal is to become a leading provider of optical imaging
solutions to the biomedical sector. In order to achieve this goal, the Company's
strategy is to:

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 Diagnostic 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.

<PAGE>
                                     - 21 -


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 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 optical molecular imaging systems for the medical 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.

The Company will continue its research and development program with the
long-term objective of developing 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 a critical and unmet need in breast tissue analysis:
the need for a device that provides functional information about a tumor.

<PAGE>
                                     - 22 -


Furthermore, SoftScan(R) is also expected to be effective for imaging and
diagnosing diseases in radiologically dense breasts, which represent a large
population, particularly of 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 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 simultaneously, such as angiogenesis and hypermetabolism. 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 have high metabolism and would require a high
level of tissue perfusion, which is an indicator of angiogenesis, to survive and
metastasize (spread).

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.

--------------------------------------------------------------------------------
GROUP                         ANTICIPATED ADVANTAGES
--------------------------------------------------------------------------------
Patients                      o     No painful compression of breast.

                              o     No harmful ionizing radiation.

                              o     Early detection of anomalies.

                              o     Improved diagnosis and quality of care; and

                              o     Reduction in need for painful biopsies.
--------------------------------------------------------------------------------
Medical Practitioners         o     Higher degree of precision in diagnosis and
                                    treatment.

                              o     Ability to image the breast and the axillary
                                    area (area between the breast and armpit).

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

                              o     Ability to image patients (i) with
                                    radio-dense breast tissue, (ii) who have had
                                    breast surgery, (iii) and who are on
                                    hormonal replacement therapy.

                              o     Ability to distinguish malignant tumors from
                                    benign tumors.

                              o     Ability to monitor breast cancer treatments;
                                    and

                              o     Ability to tailor treatment to individual
                                    needs.
--------------------------------------------------------------------------------
Health Care Providers         o     Increased overall productivity.

                              o     Decrease in treatment costs and operational
                                    costs; and

                              o     Low operating costs.
--------------------------------------------------------------------------------

<PAGE>
                                     - 23 -


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 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 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 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 CD-ROM and transferred to an inspection
station 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 tissue perfusion
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 coefficients
because it predominantly provides surface tissue information, as opposed to time
domain optical technology which obtains information from deeper tissue. 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 see two of the features which often accompany cancer:
increased tissue blood supply due to angiogenesis, which is the formation of new
small blood vessels; and the low oxygen saturation of this blood due to a
localized increase in metabolic activity generated by a cancer's rapid growth.
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.

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

<PAGE>
                                     - 24 -


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 diagnostic 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 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

<PAGE>
                                     - 25 -


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 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).

<PAGE>
                                     - 26 -


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.

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

<PAGE>
                                     - 27 -


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 Trial Results

In the first pilot trial 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>
                                     - 28 -


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>
                                     - 29 -


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.

Based on past industry experience, the Company expects that marketing clearance
may be granted in Canada and 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              CLINICAL          FDA/TPD/
                      2nd PILOT              ENGINEERING           CHARACTERIZATION)               PIVOTAL          EUROPEAN
                     (CONTROLLED)              STUDIES                 STUDIES                     TRIALS          AUTHORITIES
------------------------------------------------------------------------------------------------------------------------------------
<S>               <C>                      <C>                 <C>                              <C>               <C>
Purpose           Evaluate safety and      Validate design     Demonstrate clear diagnosis      Verify safety     Review process
                  effectiveness in         changes and         regardless of breast             and               and approval.
                  patient volunteers.      optimize            characteristics of various       effectiveness
                                           performance in      patient volunteers.              in patient
                                           order to improve                                     volunteers.
                                           data quality,
                                           reduce scan time
                                           and improve
                                           breast coverage.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                400-900 patient
Test Population   31 patient volunteers.   Ongoing studies.    Up to 600 patient volunteers.    volunteers.       n/a
------------------------------------------------------------------------------------------------------------------------------------
Time Frame        Completed in 2000.       Ongoing since May   Ongoing since June 2003.         Expected to       Approvals expected
                                           2002.                                                start in 2004.    in 2005.
------------------------------------------------------------------------------------------------------------------------------------
</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 expects to initiate its pivotal trial in 2004. Regulatory
applications will then be submitted in the United States, Canada and Europe. The
Company expects approvals for its SoftScan(R) optical breast imaging device in
most of these jurisdictions starting in 2005. 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.

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

<PAGE>
                                     - 30 -


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 over 211,000 women will be diagnosed with breast cancer this year. In the
United States, breast cancer kills nearly 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 over 5,300 women will die of breast cancer this year. 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% today. However, if the breast cancer has spread regionally, the survival
rate is 79% and if it has metastasized, the survival rate falls to 23%. 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. Currently, three major hospital GPOs account for
nearly 30% of hospital purchases of medical devices in the United States. The
Company believes that GPOs will dominate spending for medical equipment and
drugs. 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

<PAGE>
                                     - 31 -


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 multi-year strategic
manufacturing/commercial/R&D and financial alliance. 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.
Optical imaging devices are not yet on the market, and the Company believes that
SoftScan(R)'s 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

<PAGE>
                                     - 32 -


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. In addition to eXplore Optix(TM), ART's proprietary time
domain technology platform has a number of medical applications, including an
optical breast imaging device (SoftScan(R)) currently under development.
SoftScan(R) can provide functional information about tissue perfusion and blood
oxygenation levels. SoftScan(R) must still obtain regulatory approval before it
is available to the market. eXplore Optix(TM) does not face the same regulatory
hurdles as 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
more specific and earlier disease diagnosis as well as improved treatment and
monitoring.

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.

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-

<PAGE>
                                     - 33 -


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 could
also prevent drugs from 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.

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$30
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

SAMI(TM) eXplore Optix(TM) is based on ART's 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 accurate,
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 (nanomolar
concentrations at depths of 10-15 mm).

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;

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

      -     Quantitative localization of depth and concentration;

      -     Depth sensitivity for biodistribution and pharmacokinetics;

      -     Can image hairless, albino, and pigmented mice and rats;

      -     Simple and reproducible animal positioning;

<PAGE>
                                     - 34 -


      -     Combines high throughput with flexible scanning options and advanced
            image processing capabilities;

      -     Heated animal plate ensures the well being of anaesthetized animals.

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).

On June 18, 2003, ART announced the official commercial launch of SAMI(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 Optix(TM) units from ART and ART
retains manufacturing and sourcing for all eXplore Optix(TM) units sold through
GEHealthcare. 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 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.
Furthermore, volumetric reconstruction of this time-domain data was also
achieved.

<PAGE>
                                     - 35 -


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 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.

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.

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                             eXplore Optix(TM) Competition
-----------------------------------------------------------------------------------------------------------
                                                          User Requirements
-----------------------------------------------------------------------------------------------------------
                                                                     No ionizing
                                                                     radiation or              Fluorescence
     Modality                Functional  Targeted(1)   Anatomical   radioactivity(2)   Depth    Lifetime(3)
-----------------------------------------------------------------------------------------------------------
<S>                               <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>
----------------------------------------------------------------------------------------------------------------
                            eXplore Optix(TM) Competition
----------------------------------------------------------------------------------------------------------------
                                                             User Requirements
----------------------------------------------------------------------------------------------------------------

                                                            Real Time/      Cost           User-     Acquisition
     Modality               Quantitative  Pharmacokinetics   In vivo    Effectiveness  friendliness     time
----------------------------------------------------------------------------------------------------------------
<S>                               <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
----------------------------------------------------------------------------------------------------------------
Ultrasound Imaging                                              x             x                           x
----------------------------------------------------------------------------------------------------------------
Magnetic Resonance Imaging        x                                                         x
----------------------------------------------------------------------------------------------------------------
Computed tomography               x                                           x             x             x
----------------------------------------------------------------------------------------------------------------
</TABLE>

1:    targeted exogenous chromophores

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

3:    fluorescent lifetime characterizes physiological parameters

*:    Time Domain Technology

**:   Continuous Wave Technology

<PAGE>
                                     - 36 -


      Unique Benefits of the Time Domain Optical Imaging Strategy:

            o     Accurate surface information of the embedded fluorescent
                  material.

            o     Accurate 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.

            o     Accurate recovery of fluorophore concentration.

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

            o     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.

            o     Fluorescence lifetime.

This allows the distinction between different fluorescent materials.
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.

Revenues

The Company recorded sales of US$681,875 during the eight-month fiscal period
ended December 31, 2003, as compared to none in the fiscal years ended April 30,
2003 and 2002. These revenues came from the sales of eXplore Optix(TM) units to
clients from the biomedical research and pharmaceutical sectors.

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 May 31, 2004, the
Company had 47 employees directly engaged in research, development and
engineering work with respect to SoftScan(R) 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 the INO, which is working with the
Company on the SoftScan(R) project and other related projects, to support
research in areas of interest to the Company.

Since inception up to December 31, 2003, the Company has invested approximately
US$27.2 million into the development of its proprietary time domain optical
technology gross of investment tax credits (US$2.8 million). The Company has
been able to control its research and

<PAGE>
                                     - 37 -


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.

Quality Management

In order to achieve successful regulatory approval of its products, the Company
must undergo conformity assessment of its Quality Management System by most
countries, including the United States, Canada and countries in the European
Union.

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).

As part of an incremental approach to Quality System implementation and to
provide a strategic advantage for the commercialization of its eXplore Optix(TM)
product, the Company has implemented its Quality Management System in compliance
with ISO 9001: 2000 (Quality Management System - Requirements). This initial
implementation serves as a stepping-stone for the implementation of ISO 13485
Quality Standard and compliance with the FDA 21 CFR, Part 820.

The objective of the Company is to achieve regulatory compliance as well as
customer satisfaction by conducting its business with the objective of supplying
products, services and solutions that consistently meet requirements and exceed
expectations.

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,
SoftScan(R)'s ability to identify and differentiate between various anomalies
within human tissues has led the Company to look at other possible medical
applications. 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 that takes into account market
potential, technology and business factors.

<PAGE>
                                     - 38 -


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 Committee

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>
                                     - 39 -


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. Since then he has conducted research in
      laser physics, optics and applications at Los Alamos National Laboratory,
      New Mexico, acting as the Laser Science Program Manager and Leader of the
      Laser Science and Applications Group (1988-1994). Since 1986, he has
      focused his research on biomedical applications of lasers and optics. He
      holds several patents for biomedical optics instrumentation, and has
      received three R&D-100 Awards for the development of optical devices for
      biomedical applications, as well as the 1996 Federal Laboratory Consortium
      Award for Excellence in Technology Transfer. Dr. Bigio is currently a
      senior scientist in the Bioscience Division at Los Alamos, and is
      Professor of Biomedical Engineering and Electrical & Computer Engineering
      at Boston University.

      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 20 papers
      on this topic. He presently holds the positions of Assistant Professor at
      Harvard Medical School and Assistant Physicist at the Massachusetts
      General Hospital's Department of Radiology.

      Britton Chance -- Dr. Chance received two Ph.D.s -- the first in Physical
      Chemistry from the University of Pennsylvania in 1940, and the second in
      Biology from Cambridge University in 1942, as a Guggenheim Fellow. From
      1942 to 1946 he worked at the MIT Radiation Laboratory, where he helped
      develop advanced radar systems and the Norden Bomb Sight. From 1949 until
      1983 he headed the Johnson Research Foundation, as well as the Department
      of Biophysics and Physical Biochemistry at the University of
      Pennsylvania's School of Medicine, where he focused his work on the basic
      understanding of cell energetics. He published more than 600 refereed
      papers. He is founder and President of Non-Invasive Technology Inc., the
      holding company for his many optical imaging patents. Dr. Chance is
      Professor Emeritus in the Departments of Biochemistry/Biophysics at the
      University of Pennsylvania.

<PAGE>
                                     - 40 -


      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. Since 1999, Dr.
      Gandjbakhche holds the position of Investigator, Chief Unit on Biomedical
      Stochastic Physics at the Laboratory of Integrative and Medical
      Biophysics, NICHD. 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 is also 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 55 papers on Biophysics and Optical Imaging.

      Daniel Kopans -- 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 of Harvard University 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 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 160 peer-reviewed articles on breast cancer
      detection and diagnosis. He is the author of a textbook on breast imaging
      that is now in its second edition (Breast Imaging, Philadelphia:
      Lippincott-Raven Publishers, 1998) and is one of the standards in the
      field.

      Joseph Lakowicz -- Since 1988, Professor Lakowicz holds the position of
      Director, Center for Fluorescence Spectroscopy at the 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 teaches. 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

<PAGE>
                                     - 41 -


      breast cancer since the start of his career, and has been involved in many
      important initiatives intended to improve related technologies. Among
      other things, he is a member of the National Council on Radiation
      Protection (NCRP), Quality of Mammography Committee SC-72. 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.

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 Quebec Bank of Montreal Group of Companies. 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,
      and he has been a member of the Board of the Investment Dealers
      Association, Quebec since 1993.

      Monique Lefebvre -- Until January 2002, Ms. Lefebvre was President of the
      Montreal Transition Committee, in which capacity she was responsible for
      setting up the new City of Montreal comprised of 28 former municipalities
      in the Greater Montreal Area. From 1998 to 2000, Ms. Lefebvre was Vice
      President, Quebec and Atlantic Canada for

<PAGE>
                                     - 42 -


      Ericsson Canada Inc. From 1996 to 1998, she was President of Quebecor
      Multimedia, and, from 1991 to 1996, she held the position of President and
      Chief Executive Officer of the Centre de recherche informatique de
      Montreal ("CRIM"). Ms. Lefebvre is a director of Transcontinental G.T.C.
      Ltd. and BioSyntech. Until recently, she was also the Chair of the board
      of directors of Societe Innovatech du Grand Montreal, a capital venture
      fund, and acted as Vice Chair of the Montreal Board of Trade. She is a
      member of the Board of Trustees of the Canadian Foundation for Innovation.

      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 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.,
      Bell Globemedia Inc. and Domtar Inc. He holds degrees inf 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., Micrologix Biotech
      Inc., AnorMED Inc., Phytogen Life Sciences Inc., MethylGene Inc. and Prime
      Trials Inc. Mr. Mallet holds a B.A. in Economics (1965) from Cambridge
      University, United Kingdom. In 1983, he successfully 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
      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, Chief Executive Officer and
      Chairman of the board of directors of eXegenics, Inc, a pharmaceutical
      company dedicated to the acquisition, rapid development and
      commercialization of drug therapies for use by physician specialists. 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

<PAGE>
                                     - 43 -


      the company for sale to Solvay Et Cie, the Belgium-based conglomerate. He
      formed the consulting company Pharma-Links in 1999 with the mission of
      being the "link" between pharmaceutical companies to help them create
      alliances, form joint ventures and effect various transactions. Mr. Goode
      also serves on the board of directors of several not-for-profit
      organizations. He received his Ph.D. in Microbiology from the University
      of Georgia.

The member of the European BAC is the following:

      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 Director of Laboratories 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 six 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.

Six patents related to optical imaging and to the detection and diagnosis of
diseases have been granted to ART. The first US 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

<PAGE>
                                     - 44 -


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 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 detector over an opposite face from one respective spatial location to
another. The fifth 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 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.

In the biomedical field, ART also has seventeen patent applications pending in
the United States and Canada.

Furthermore, the Company also 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-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:

<PAGE>
                                     - 45 -


(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 SoftScan(R) is done
in the Company's main Saint-Laurent facility. These materials are assembled and
tested into the 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 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.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

      A.    Operating results

As at December 31, 2003

The following is a discussion and analysis of the consolidated financial
condition and operation results of the Company at and for the fiscal years
(periods) indicated and for 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
consolidated financial statements of the Company and the notes thereto for the
eight-month fiscal period ended December 31, 2003. Unless indicated otherwise,
all financial information is expressed in US 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

<PAGE>
                                     - 46 -


subject to known and unknown risks and uncertainties such as, but not limited
to, general economic and business conditions, products selling prices, raw
material and operating costs, changes in foreign currency exchange rates, our
ability to integrate acquired businesses into our existing operations, and other
factors referenced herein and in ART's continuous disclosure filings. Therefore,
ART's actual results may be materially different from those expressed or implied
by such forward-looking statements.

Overview

ART is committed to becoming a leading provider of optical molecular imaging
systems 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 marketing of
optical imaging products for the medical and pharmaceutical industries. The
Company invested approximately $27.2 million (gross of investment tax credits of
$2.8 million) into the development of its proprietary time domain optical
technology. The Company also has accumulated carried forward tax losses that
expire from 2004 to 2010 and an unrecorded tax asset of approximately $19.9
million, as well as other unused tax deductions.

ART possesses a powerful and unique multi product platform, a strong
intellectual property portfolio, strategic relationships with leading
organizations, a set of valuable core competencies, a strong management team to
build on its technology leadership position and finally, an adequate level of
funding to execute its business plan and achieve its next milestones.

ART evolved from a primarily technology-driven company to a market focused
organization as it now commercializes eXplore Optix(TM), its preclinical optical
molecular imager, through a worldwide distribution agreement with GE Healthcare
(previously known as GE Medical Systems). As a result, after the launch of
eXplore Optix(TM) in June 2003, the Company recorded its first sales during the
eight-month fiscal period ended December 31, 2003.

ART completed clinical trials for its SoftScan(R) time domain optical breast
imaging device, during which it has demonstrated it can discriminate between
normal and malignant tissue. Among many advantages shown by SoftScan(R), its
laser imaging, unlike X-ray mammography, does not expose patients to radiation
or painful compression of the breast. SoftScan(R) may also prove invaluable
during post-diagnosis, enabling the physician to monitor progress, adjust
treatment, and thereby reduce side effects and discomfort. Results of clinical
trials are positive and the Company anticipates the start of pivotal trials for
regulatory approval in the fourth quarter 2004.

In fiscal 2004, ART will operate in two sectors for financial reporting
purposes: the medical and the pharmaceutical. The medical sector includes the
research, design, development and marketing of the SoftScan(R) time domain
optical breast imaging system. The pharmaceutical sector includes the research,
design, development and commercialization of the eXplore Optix(TM) system. In
fiscal 2004, ART will increase its activity in both sectors. In the medical
sector, R & D expenses will increase as ART prepares to enter pivotal trials for
SoftScan(R). Since the Company expenses its development costs as incurred, the
cost of the clinical trials and the manufacturing of the clinical prototypes
will contribute to the increase. The increase in the activity in the
pharmaceutical sector will come primarily from the marketing and sales
activities required to pursue the market penetration of its emerging product
eXplore Optix(TM).

<PAGE>
                                     - 47 -


Overall Performance

During the eight-month fiscal period ended December 31, 2003, ART reported
revenues of $681,875 from the sales of its eXplore Optix(TM) product. These
revenues were generated through ART's distributor, GE Healthcare, with whom ART
has an exclusive worldwide distribution agreement.

During the eight-month fiscal period, ART reported a net loss of $5,832,025
($0.20 per share).

ART solidified its financial situation during the eight-month fiscal period by
completing private placements for a gross amount of $11.6 million. Consequently,
as of December 31, 2003, ART's working capital was $9,596,342.

Selected financial data

<TABLE>
<CAPTION>
                                                                  Eight-month        Twelve-month       Twelve-month
                                                              Fiscal period ended  fiscal year ended  fiscal year ended
                                                               December 31, 2003     April 30, 2003     April 30, 2002
<S>                                                                <C>                <C>                <C>
Sales                                                              $   681,875        $        --        $        --

Loss from continuing operations                                    $ 5,832,025        $ 9,026,445        $ 9,345,483
Net loss                                                           $ 5,832,025        $ 6,546,604        $10,881,500

Basic and diluted loss per share from continuing operations        $      0.20        $      0.38        $      0.46
Basic and diluted net loss per share                               $      0.20        $      0.28        $      0.54

Total assets                                                       $13,704,796        $ 8,032,130        $ 6,115,134
</TABLE>

To align reporting with most companies in the biomedical sector, ART changed its
fiscal year-end from April 30 to December 31, effective December 31, 2003.

The Company's focus on bio-optical imaging 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 Company sold
its ISIS thermal imaging division in July 2002 to Photon Dynamics, Inc. for $5.5
million.

The Company recorded sales of $681,875 during the eight-month fiscal period
ended December 31, 2003, as compared to none in the fiscal years ended April 30,
2003 and 2002. These revenues came from the sale of eXplore Optix(TM) units to
the biomedical sector.

Total assets increase come mainly from financing activities. During the
eight-month fiscal period ended December 31, 2003, ART closed private placements
for a gross amount of $11.6 million. Also, during the fiscal year ended April
30, 2003, ART closed private placements for a total of $7.5 million from GE,
OppenheimerFunds and Serge Huot.

<PAGE>
                                     - 48 -


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 investment tax credit receivable and evaluating long-lived
assets for impairment. These estimates were made using the historical
information available. 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.

Investment tax credit receivable

Investment tax credits, based on qualifying research and development expenses,
are applied against research and development expenses in the year in which the
expenses are incurred. They are calculated based on the Company's experience and
on the application of the investment tax credit program. The Company has always
been conservative while accounting for investment tax credit. It is possible
that after the review done by the government the receivable amount will change.

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 annually. Should this
review, for any reasons, 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.

Results of operations

Comparison of eight-month fiscal period ended December 31, 2003 and twelve-month
fiscal year ended April 30, 2003

To align reporting with most companies in our sector, ART changed its fiscal
year-end from April 30 to December 31, effective December 31, 2003.
Consequently, the quarter end dates differ for 2004 and 2003.

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

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

<PAGE>
                                     - 49 -


      Research and Development Expenditures: The Company's R&D expenditures for
the eight-month fiscal period ended December 31, 2003, net of investment tax
credits, amounted to $3,491,641, compared to $5,734,470 for the fiscal year
ended April 30, 2003. The investment tax credits represent $433,865 or 11% of
the overall expenditures in research and development for the eight-month fiscal
period ended December 31, 2003, compared to $570,792 or 9% of the overall
expenditures for the fiscal year ended April 30, 2003. Research and development
expenditures were engaged for the development of the current generation of
eXplore Optix(TM) units. Moreover, ART continued to develop its SoftScan(R)
system and pursued clinical trials with McGill University Health Centre,
Sunnybrook and Ottawa.

      Selling, general and administrative: Selling, general, and administrative
expenses for the eight-month fiscal period ended December 31, 2003 were
$2,239,324 compared to $2,885,065 for the fiscal year ended April 30, 2003.
Selling, general and administrative expenses were engaged to support commercial
activities of eXplore Optix(TM), increase the Company's visibility, as well as
support the Company's activities.

      Foreign Exchange Loss (gain): Foreign exchange loss (gain) for the
eight-month fiscal period ended December 31, 2003, increased $112,867, to a loss
of $331,932, compared to a loss of $219,065 for the fiscal year ended April 30,
2003. During the eight-month fiscal period ended December 31, 2003 and the
fiscal year ended April 30, 2003, the U.S. dollar depreciated compared to the CA
dollar which resulted in a loss of $331,932 and $219,065 respectively. In order
to protect itself against adverse exchange rate movements, the Company maintains
a U.S. dollar bank account to satisfy U.S. dollar payments.

      Other Expenses: Other expenses for the eight-month fiscal period ended
December 31, 2003 were nil compared to $1,467,621 for the fiscal year ended
April 30, 2003. During the fiscal 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 fiscal period ended December 31, 2003 were nil compared to
$1,318,668 for the fiscal year ended April 30, 2003. The current tax recovery in
fiscal year ended April 30, 2003 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.

      Net Loss: As a result, the net loss for the eight-month fiscal 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 Fiscal Years Ended April 30, 2003 and 2002

      Revenues: The Company recorded no revenues for the fiscal 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 fiscal year ended April 30, 2003, net of investment tax credits, amounted to
$5,734,470, down

<PAGE>
                                     - 50 -


$549,741, or 9%, from $6,284,211 in the previous fiscal 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 last fiscal year for the planning and
development of the clinical program and protocols were not repeated in the
fiscal 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 fiscal year ended April 30, 2003.

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

      Foreign Exchange Loss (gain): Foreign exchange loss (gain) for the fiscal
year ended April 30, 2003, declined $394,227, to a loss of $219,065, compared to
a gain of $175,162 for the fiscal year ended April 30, 2002. During fiscal year
ended April 30, 2003, the US dollar depreciated compared to the CA dollar which
resulted in a loss of $219,065. During fiscal 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 fiscal year ended April 30, 2003
were $1,467,621 compared to nil for the fiscal year ended April 30, 2002. During
the fiscal 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
fiscal year ended April 30, 2003 were $1,318,668 compared to nil for the fiscal
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 fiscal year ended April 30, 2003 was a profit of
$2,479,841 compared to a loss of $1,536,017 for the fiscal 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 fiscal 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.

<PAGE>
                                     - 51 -


Fiscal Year Ended April 30, 2002 Compared to Fiscal Year Ended April 30, 2001

      Revenues: The Company recorded no revenues from the bio-optical imaging
sector for the fiscal year 2002, therefore no variation between the fiscal years
ended April 30, 2002 and 2001. The products were under development during these
fiscal years.

      Operating Expenses: During the fiscal year ended April 30, 2002, the
Company had operating expenses of $9,701,193 compared to $8,476,943 in the
previous year, an increase of $1,224,250 or 14%. This increase is explained by
an increase in R&D expenditures of $1,646,910, or 36%, and a decrease in
selling, general and administrative expenses of $530,558, or 14%.

      Research and Development Expenditures: The Company's R&D expenditure for
fiscal 2002, net of investment tax credits, amounted to $6,284,211, up
$1,646,910, or 36%, from $4,637,301 in the previous fiscal year. The investment
tax credits represent $329,946, or 5% of overall R&D expenditures, compared to
$376,355, or 8% in 2001. The increase in R&D expenses is primarily due to the
costs incurred for several activities, including validation of changes to the
configuration, improvement in the effectiveness of SoftScan(R) (i.e.:
application of one to several wavelengths), positioning of the patient, noise
reduction and manufacturing prototypes.

      The Company also put effort in the development of the new molecular
imaging system. The decrease in the investment tax credits is mainly due to the
fact that less R&D activities were eligible under the tax credit program in
fiscal 2002.

      Selling, general and administrative: Selling, general, and administrative
expenses for the fiscal year ended April 30, 2002 declined $530,558, or 14%, to
$3,215,654, compared to $3,746,212 for the fiscal year ended April 30, 2001.

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

      Foreign Exchange Gain: Foreign exchange gain for the fiscal year ended
April 30, 2002 amounted to $175,162, compared to a gain of nil for the fiscal
year ended April 30, 2001. During the fiscal year ended April 30, 2002, the US
dollar appreciated compared to the Canadian dollar which resulted in a gain.
During fiscal year ended April 30, 2001, the US dollar compared to the Canadian
dollar experienced no significant variation. To protect itself against adverse
exchange rate movements, the Company maintains a US dollar bank account to
assume US dollar payments.

      Loss from Discontinued Operations: Loss from discontinued operations for
the fiscal year ended April 30, 2002 amounted to $1,536,017 compared to
$1,675,948 for the fiscal year ended April 30, 2001. 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 fiscal year ended April 30,
2002 was $10,881,500, compared to $9,865,371 for the year ended April 30, 2001.

<PAGE>
                                     - 52 -


Cash flows and financial resources

Cash flow from operating activities for the eight-month fiscal period ended
December 31, 2003 amounted to $6,420,619, while cash flow from operations used
during the fiscal year ended April 30, 2003 amounted to $10,533,669. The
decrease in cash flows from operating activities was due primarily to the
discontinued activities of $4,330,520 in fiscal year ended April 30, 2003. Cash
flow from investing activities for the eight-month fiscal period ended December
31, 2003 amounted to ($600,664), compared to $3,668,094 in the previous fiscal
year. During the eight-month fiscal period ended December 31, 2003, the Company
drew on its short-term investments to finance its operations, used its
liquidities to acquire fixed assets (computer equipment) and other assets
(patents). During the fiscal year ended April 30, 2003, the Company also
disposed of its ISIS thermal imaging division for $5.5 million. For the
eight-month fiscal period ended December 31, 2003, cash flow from financing
activities was $10,245,145, compared to $6,797,645 for the previous fiscal year.
During the eight-month fiscal period ended December 31, 2003, ART closed private
placements for a gross amount of $11.6 million.

On March 10, 2004, the Company closed a treasury offering of approximately $10.5
million, net of the estimated expenses of the offering, followed by the partial
exercise of the over-allotment option on March 19, 2004, which resulted in
additional proceeds of $1.4 million, gross of any related expenses. ART believes
that cash, cash equivalents and short-term investments, pro forma of March 2004
treasury offering, together with funds provided by its revenues, will be
sufficient to meet its operating cash requirements, including the development of
products through research and development activities and capital expenditures
for approximately 24 months.

Contractual Obligations

The following table discloses aggregate information about our contractual
obligations and periods in which payments are due as of December 31, 2003:

<TABLE>
<CAPTION>
                                                Payment Due by Period
                     ---------------------------------------------------------------------------
                                      Less Than                                         After
                         TOTAL         1 year         2-3 years       4-5 years        5 years
                     ---------------------------------------------------------------------------
<S>                  <C>             <C>             <C>             <C>             <C>
Operating Leases     $ 3,149,926     $   365,307     $ 1,063,503     $   717,059     $ 1,004,057
                     ---------------------------------------------------------------------------
                     $ 3,149,926     $   365,307     $ 1,063,503     $   717,059     $ 1,004,057
                     ===========================================================================
</TABLE>

Quarterly results from operations

Our business fluctuates according to our sales and development cycle and
addresses emerging markets. The following table presents our operating results
by quarter for each of the last 8 quarters. The information for each of these
quarters is unaudited and has been prepared on the same basis as the audited
consolidated financial statements for the eight-month fiscal period

<PAGE>
                                     - 53 -


ended December 31, 2003. This data should be read together with the consolidated
financial statements and the notes to such statements.

<TABLE>
<CAPTION>
                                                                  December 2003 Fiscal Period
                                                    --------------------------------------------------------
                                                         Q1             Q2             Q3            TOTAL
                                                                                   (2 months)
<S>                                                 <C>            <C>            <C>            <C>
Sales                                               $        --    $        --    $   681,875    $   681,875
Loss from continuing operations                     $ 2,103,534    $ 2,164,825    $ 1,563,667    $ 5,832,025
Net loss (gain)                                     $ 2,103,534    $ 2,164,825    $ 1,563,667    $ 5,832,025
Basic and diluted loss per share from continuing
  operations                                        $      0.08    $      0.07    $      0.05    $      0.20
Basic and diluted net loss per share                $      0.08    $      0.07    $      0.05    $      0.20

<CAPTION>
                                                                     April 30, 2003 FY
                                        -----------------------------------------------------------------------------
                                              Q1               Q2              Q3              Q4             TOTAL
<S>                                     <C>              <C>             <C>             <C>             <C>
Sales                                   $         --     $         --    $         --    $         --    $         --
Loss from continuing operations         $  1,040,067     $  1,960,621    $  3,740,271    $  2,285,486    $  9,026,445
Net loss (gain)                         $ (1,389,884)    $  1,948,373    $  3,716,906    $  2,271,209    $  6,546,604
Basic and diluted loss per share
  from continuing operations            $       0.05     $       0.09    $       0.14    $       0.09    $       0.38
Basic and diluted net loss per share    $      (0.08)    $       0.10    $       0.16    $       0.10    $       0.28
</TABLE>

                                                               April 30, 2002 FY
                                                               -----------------
                                                                       Q4

Sales                                                             $        --
Loss from continuing operations                                   $ 1,920,423
Net loss (gain)                                                   $ 2,244,592
Basic and diluted loss per share from continuing operations       $      0.09
Basic and diluted net loss per share                              $      0.11

Notes: Quarterly data have been converted from CA $ to U.S. $ using a yearly
average rate

Disclosure About Market Risks

ART is exposed to financial market risks, including changes in foreign currency
exchange rates and interest rates. ART does not use derivative financial
instruments for speculative or trading purposes. ART does not use off-balance
sheet financing or similar special purpose entities. Inflation has not had a
significant impact on ART'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>
                                     - 54 -


Interest Rate Sensitivity

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

      B.    Liquidity and Capital Resources

Until December 31, 2003, the Company financed its activities by issuing common
shares through private placements and an initial public offering. From its
creation in 1993 until December 31, 2003, the Company issued share and share
purchase warrants amounting to $67,870,684. As at December 31, 2003, the Company
had working capital of $9,596,342, compared to $4,139,946 as at April 30, 2003.
This working capital consisted mainly of cash and short-term investments for a
total of $9,424,560On March 10, 2004, the Company closed a treasury offering
followed by the partial exercise of the over-allotment option on March 19, 2004,
which resulted in proceeds in the amount of $11,368,413, net of related
expenses.

As at December 31, 2003, total assets increased $5,672,666 (70%) to $13,704,796
from $8,032,130 as at April 30, 2003. The increase in total assets comes from
the cash received following the closing of private placements for a gross amount
of $11.6 million

The Company also has a credit facility of CA$1,000,000 to cover fluctuations in
cash requirements. As at December 31, 2003, the credit facility was not
utilized. The Company also has a credit facility of CA$1,300,000 to finance
investment tax credits, which was not utilized as at December 31, 2003.

      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.

<PAGE>
                                     - 55 -


      F. Tabular Disclosure of Contractual Obligations

The following table discloses aggregate information about our contractual
obligations and periods in which payments are due as of December 31, 2003:

<TABLE>
<CAPTION>
                                             Payment Due by Period
                    -----------------------------------------------------------------------
                                    Less Than                                      After
                       TOTAL          1 year       2-3 years      4-5 years       5 years
                    -----------------------------------------------------------------------
<S>                 <C>            <C>            <C>            <C>            <C>
Operating Leases    $ 3,149,926    $   365,307    $ 1,063,503    $   717,059    $ 1,004,057
                    -----------------------------------------------------------------------
                    $ 3,149,926    $   365,307    $ 1,063,503    $   717,059    $ 1,004,057
                    =======================================================================
</TABLE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

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 May 31, 2004. The Board of Directors of the
Company is currently comprised of the five 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.

Directors

<TABLE>
<CAPTION>
                                                                             Year of Expiry
                                         Position with the      Director      of Term of
Name and Municipality of Residence           Company             Since          Office          Principal Occupation
----------------------------------           -------             -----          ------          --------------------
<S>                                       <C>                     <C>            <C>           <C>
MICHELINE BOUCHARD....................    Director                2002           2005          President and CEO of
Montreal, Quebec                                                                               ART Advanced Research
                                                                                               Technologies 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           2005          Former Vice
Baie d'Urfe, Quebec                                                                            President, Medical
                                                                                               Research, Merck
                                                                                               Frosst Canada Inc.

RAYMOND CYR(1)(2).....................    Director                1998           2005          Chairman of the Board,
Montreal, Quebec                                                                               Polyvalor Inc.

PIERRE DUTHEIL(2).....................    Director                2004           2005          Independent Corporate
Paris, France                                                                                  Advisor

BENOIT LA SALLE(1)(2) ................    Chairman of the         2003           2005          Founder and President
Outremont, Quebec                         Board and Director                                   & CEO of Semafo Inc.
</TABLE>

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

(2)   Member of the Audit & Environment Committee.

<PAGE>
                                     - 56 -


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

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

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

PIERRE COUTURE...........................  Vice President, Sales & Marketing                    2003
Beaconsfield, Quebec

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

JOSEPH G. KOZIKOWSKI.....................  Chief Medical Officer                                2004
Weston, Massachusetts
</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 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

<PAGE>
                                     - 57 -


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 Air Canada, Canadian National, G.T.C. Transcontinental Ltd.,
Cognicase 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 on cross border industrial and commercial
operations since 1992. From 1980 to 1992, he held various executive and
managerial positions at an international level, with Thomson-CSF (renamed Thales
in 2000), one of the world leaders in defence and civil electronics. Mr. Dutheil
sits on the board of directors of various companies including Acetex Corporation
and Acetex Chimie (Paris).

      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, Electromed Inc. 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.

      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).

<PAGE>
                                     - 58 -


      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 (subject to regulatory approval). 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 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

<PAGE>
                                     - 59 -

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.

<PAGE>
                                     - 60 -


      B.    Compensation

      The Corporation changed its financial year-end from April 30 to December
31 effective December 31, 2003. For reference purposes, the most recently
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 paid for the Fiscal Transition
2003 and the financial years ended April 30, 2003 and April 30, 2002, in respect
of the individuals who were, as at December 31, 2003, the Chief Executive
Officer and the four most highly compensated executive officers of the Company
who earned salary and bonus of more than Cdn$100,000 (the "Named Executive
Officers"). The Company had five (5) Named Executive Officers whose total annual
salary and bonus exceeded Cdn$100,000 for the financial year ended December 31,
2003.

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------
                                                                                             Long Term
                                                                                            Compensation      All Other
                                              Annual Compensation                              Awards        Compensation
-------------------------------------------------------------------------------------------------------------------------
                                                                                             Securities
                                                                            Other Annual       Under
                                                 Salary       Cash Bonus    Compensation      Options
Name and Principal Position         Year          Cdn$           Cdn$          Cdn$(1)        Granted #          Cdn$
---------------------------        ------        -------      ----------    ------------     -----------      ----------
<S>                               <C>            <C>            <C>              <C>       <C>                 <C>
Micheline Bouchard                Dec. 2003      212,500            --(2)        --            100,000             --
President & Chief                 Apr. 2003      212,500            --           --            275,000         51,250(3)
Executive Officer                 Apr. 2002           --            --           --                 --             --
-------------------------------------------------------------------------------------------------------------------------
Jacques Bedard                    Dec. 2003      125,865            --(4)        --                 --             --
Senior Vice President,            Apr. 2003      192,366        52,500           --             30,000             --
Finance & Administration          Apr. 2002      168,508        24,000           --             20,000
and Chief Financial Officer
-------------------------------------------------------------------------------------------------------------------------
Richard Boudreault                Dec. 2003      125,865(5)         --           --                 --             --
Vice President,                   Apr. 2003      192,250        68,000           --             30,000             --
Corporate Strategy and            Apr. 2002       77,633        40,000           --             20,000         87,150(6)
Chief Technology Officer
-------------------------------------------------------------------------------------------------------------------------
Pierre Couture                    Dec. 2003       43,275(7)         --           --              8,000         12,000(8)
Vice President,                   Apr. 2003           --            --           --                 --             --
Sales and Marketing               Apr. 2002           --            --           --                 --             --
-------------------------------------------------------------------------------------------------------------------------
Sebastien Gignac                  Dec. 2003       94,915            --(9)        --                 --             --
Vice President,                   Apr. 2003      126,411        54,500           --             20,000             --
Corporate Affairs,                Apr. 2002      109,954         7,442           --              5,000             --
Secretary & General Counsel
-------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                     - 61 -


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

(2)   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 Cdn$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 Cdn$3.23 which can
      be exercised immediately without being subject to any vesting period.

(3)   Represents consulting fees paid to Ms. Bouchard prior to becoming
      President and Chief Executive Officer.

(4)   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 Cdn$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 Cdn$3.23 which can
      be exercised immediately without being subject to any vesting period.

(5)   Mr. Boudreault's employment ended on December 5, 2003. He worked for a
      total of 7 months during Fiscal Transition 2003. Had Mr. Boudreault worked
      during the full Fiscal Transition 2003, he would have a received a total
      salary of Cdn$125,865.

(6)   Represents consulting fees paid to the Named Executive Officer.

(7)   Mr. Couture's employment began on September 8, 2003. He worked for a total
      of 4 months during Fiscal Transition 2003. Had Mr. Couture worked during
      the full Fiscal Transition 2003, he would have a received a total salary
      of Cdn$98,090.

(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 Cdn$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 Cdn$3.23 which can
      be exercised immediately without being subject to any vesting period.

Option Grants During the Fiscal Transition 2003 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) during the Fiscal Transition 2003.

<TABLE>
<CAPTION>
                                              % of Total     Market Price at
                              Number of     Options Granted      Closing
                            Common Shares   under the Plan   on Day Prior to
                            under Options       in the           Date of
         Name                  Granted      Fiscal Period         Grant       Exercise Price      Expiration Date
         ----                  -------      -------------         -----       --------------      ---------------
                                                                (Cdn$ per       (Cdn$ per
                                                              Common Share)     Share)(1)
<S>                             <C>              <C>              <C>             <C>           <C>
Micheline Bouchard ......       100,000          68.3%            $3.08           $3.51         September 10, 2013
Jacques Bedard ..........            --            --                --              --                         --
Richard Boudreault ......            --            --                --              --                         --
Pierre Couture ..........         8,000           5.5%            $3.08           $3.51         September 10, 2013
Sebastien Gignac ........            --            --                --              --                         --
</TABLE>

(1)   The amounts set forth in this column are determined by the Board of
      Directors based on the public market value of the Common Shares as
      indicated at the close of business on the trading day immediately
      preceding the date of grant.

<PAGE>
                                     - 62 -


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) during the Fiscal
Transition 2003.

<TABLE>
<CAPTION>
                                                                                    Value of Unexercised
                                                                Unexercised        in-the-money Options at
                                                                Options at           December 31, 2003
                         Common Shares                       December 31, 2003             (Cdn$)
                           Acquired      Aggregate Value     (#) Exercisable /         Exercisable /
         Name             on Exercise       Realized          Unexercisable(1)        Unexercisable(2)

<S>                            <C>              <C>            <C>                   <C>
Micheline Bouchard......       --               --             91,667/283,333        $106,334/$212,666
Jacques Bedard..........       --               --             114,334/26,666           $40,300/$9,800
Richard Boudreault......       --               --              35,334/26,666            $4,900/$9,800
Pierre Couture..........       --               --                  Nil/8,000                  Nil/Nil
Sebastien Gignac........       --               --              38,001/14,999            $3,267/$6,533
</TABLE>

(1)   Options granted under the Corporation's stock option plan generally vest
      in three equal installments over three years from the effective date of
      grant.

(2)   Market value of underlying Common Shares at December 31, 2003 minus the
      exercise price. The market value of the Common Shares at December 31, 2003
      was Cdn$2.88 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.

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 Cdn$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. 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

<PAGE>
                                     - 63 -


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.

Compensation of Directors

During the financial year ended December 31, 2003, 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. Other than being
compensated in options, directors received a fee for each Board and committee
meeting they attended during the financial year ended December 31, 2003. 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 Cdn$5,000,
as well as a fee of Cdn$1,000 per meeting of the Board attended in person and
Cdn$500 per phone meeting. The Corporation's fee structure for participation on
the committees of the Board of Directors is as follows: each member receives an
additional annual retainer fee of Cdn$2,500, as well as a fee of Cdn$1,000 per
meeting of any committee attended in person, and Cdn$500 per phone meeting. 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
Cdn$25,000. 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
financial year ended December 31, 2003.

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 financial year ended December 31, 2003.

Insurance and Indemnification of Directors and Officers

The Company maintains a directors' and officers' liability insurance policy for
Cdn$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 Cdn$61,873 is paid by the Company. This policy has a
corporate deductible of Cdn$25,000, per loss.

Stock Option Plan

As the cornerstone of its long-term compensation strategy for retaining the
services of key

<PAGE>
                                     - 64 -


people, the Company has instituted a stock option plan which was approved at a
special meeting of shareholders on June 14, 1996 and provides for the issuance
of options to purchase Common Shares (the "Employee Stock Option Plan").

Prior to completing its initial public offering of Common Shares (the
"Offering") on June 29, 2000, the Company, with the approval of its Board of
Directors, amended certain terms of the Employee Stock Option Plan in order to
ensure compliance with certain regulatory requirements applicable once the
Company became a listed company following completion of the Offering. This
amended plan (the "2000 Employee Stock Option Plan") was further amended and
restated in its entirety following the last annual and special meeting of
shareholders held on October 23, 2002. At this meeting, the shareholders adopted
resolution 2002-1, which amended the 2000 Employee Stock Option Plan so as to
increase the number of Common Shares available for issuance from 1,770,462 to
2,650,000 Common Shares. Under the current stock option plan (the "Amended and
Restated 2002 Stock Option Plan" or the "Plan"), 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. Options are
non-assignable except in the case of death or physical or mental disability.
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). Otherwise, options will
lapse upon termination of employment (or the end of the business relationship)
with the Company except that they may be exercised for 90 days after termination
(other than termination for just cause) or the end of the business relationship,
to the extent they will have vested on such date. Each option, unless sooner
terminated pursuant to the provisions of the Amended and Restated 2002 Stock
Option 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. In addition, each option
to be granted under the Plan will vest in installments from the effective date
of grant pursuant to the vesting schedule established by the Board of Directors
or the Corporate Governance, Human Resources & Compensation Committee.

The Plan also provides that 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). The exercise price of any options
granted will be determined by the Board of Directors of the Company, but shall
not be less than the latest closing price for the Common Shares on a stock
exchange on which the Common Shares are listed immediately prior to the date of
grant of such options.

The following table sets out the options to acquire Common Shares held by the
executive officers as a group, by directors who are not executive officers, by
all employees of the Company who are not executive officers and by any other
person, which were outstanding as at December 31, 2003.

<PAGE>
                                     - 65 -


<TABLE>
<CAPTION>
                                                                 Exercise Price
                                                      Number    (Cdn $ per Share)      Expiry Dates
                                                      ------    -----------------      ------------
<S>             <C>                                   <C>         <C>               <C>
Options held by 5 executive officers as a group       607,000     $ 1.70 - 7.50       August 20, 2006
                                                                                    -September 10, 2013

Options held by 5 directors who are not executive     310,000     $ 1.91 - 7.50       August 29, 2007 -
officers as a group                                                                   February 9, 2013

Options held by 32 employees                          139,200     $ 1.76 - 7.50       August 29, 2007
                                                                                     -November 12, 2013

Options held by others(1)                             102,000     $ 1.76 - 7.50     February 16, 2010 -
                                                                                        May 13, 2013
--------------------------------------------------------------------------------------------------------
</TABLE>

(1)   Dre Nathalie Duchesne, Pierre Dutheil, Toby Gilsig, William J. Webb,
      Ronald Lane Goode, Brian Levitt, Colin Mallet, Jean Marsac and Gerard
      Taillon.

      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 consolidated 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

<PAGE>
                                     - 66 -


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 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 three (3) 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

<PAGE>
                                     - 67 -


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 May 31, 2004, the Company employed 68 persons including 47 working in
research, development and engineering activities. Of these 68 employees, 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

As of May 31, 2004, none of the executive officers and directors of the Company
owned individually an amount of Common Shares equal to or greater than 1% of the
outstanding ordinary shares.

For the information concerning options granted to employees and officers see
Item B.- "Compensation - Stock Option" above.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

      A.    Major shareholders

As of May 31, 2004, 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 May 31, 2004, 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 May 31, 2004
      ---------------------------             --------------    -----------    ------------------
<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%

      OppenheimerFunds, Inc.                      Common         4,553,152            10.67%
      through Oppenheimer International
      Growth Funds, Massmutual
      International Equity Fund and another
      related fund)

      Directors and Officers as a group           Common           167,000             0.39%
</TABLE>

<PAGE>
                                     - 68 -


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 May 31, 2004, 6,505,535 Common Shares of the Company were held by 23
registered holders with United States addresses, representing 15.25% of our
outstanding Common Shares.

      B.    Related party transactions

During the fiscal year ended April 30, 2002, the Company acquired exclusive
worldwide patents from a member of its Scientific Advisory Board for an amount
of $60,000.

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

<TABLE>
<CAPTION>
                              Eight-month            Twelve-month           Twelve-month
                              fiscal period ended    fiscal year ended      fiscal year ended
                              December 31, 2003      April 30, 2003         April 30, 2002
                              ------------------     --------------         --------------
<S>                           <C>                    <C>                    <C>
Professional fees                      --            $    58,046            $   142,483

Share issue expenses and
capital transaction costs              --                     --            $   944,077
                              -----------            -----------            -----------
                              $        --            $    58,046            $ 1,086,560
                              ===========            ===========            ===========
</TABLE>

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

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, except as follows:

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 fiscal period ended December 31, 2003.

<PAGE>
                                     - 69 -


      C.    Interest of experts and counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

      A.    Consolidated 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 TSE on June 29, 2000. The Common
Shares are not listed on any other stock exchange and have not been publicly
traded outside Canada.

<PAGE>
                                     - 70 -


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

(i)   Annual high and low market prices for the last fiscal period:

                                                         Common Shares (in Cdn$)
                                                         -----------------------
                                                         High               Low
                                                         -----------------------
      Fiscal Period                                               (TSE)
      2003 (From May 1st, 2003 to
      December 31, 2003)                                 $4.23             $1.55
                                                         -----------------------

(ii)  High and low market prices for each full financial quarter for the most
      recent fiscal period:

                                                         Common Shares (in Cdn$)
                                                         -----------------------
                                                         High               Low
                                                         -----------------------
                                                                  (TSE)

                                                                            2003
      First Quarter
      (From May 1st, 2003 to July 31, 2003)              $3.45             $1.55

      Second Quarter
      (Ended October 31, 2003)                           $4.23             $2.41

      Third Quarter - 2 months
      (Ended December 31, 2003)                          $3.99             $2.76

(iii) High and low market prices each month for the most recent six months:

                                                         Common Shares (in Cdn$)
                                                         -----------------------
                                                         High               Low
                                                         -----------------------
                                                                  (TSE)
      Month
      December 2003                                      $3.40             $2.76
      January 2004                                       $3.70             $2.70
      February 2004                                      $3.03             $2.16
      March 2004                                         $2.72             $1.95
      April 2004                                         $2.70             $2.25
      May 2004                                           $2.49             $1.98

      B.    Plan of distribution

Not applicable.

      C.    Markets

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

<PAGE>
                                     - 71 -


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.

Description of Share Capital

The authorized share capital of the Company consists of an unlimited number of
Common Shares and Preferred Shares, all without par value, which have attached
thereto the following rights, privileges, conditions and restrictions.

1. Common Shares

The Common Shares are all without par value and entitle their holders to vote at
any meetings of the shareholders, on the basis of one vote per share, to receive
all dividends declared by the Company on such shares and to receive the
remaining property of the Company upon its dissolution.

2. Preferred Shares

The Preferred Shares are all without par value and have attached thereto the
following rights, privileges, conditions and restrictions:

2.1. Creation of one or more series of shares

The Preferred Shares may be issued from time to time in one or more series and,
subject to the following conditions and subject to obtaining a certificate of
amendment related thereto, the directors shall fix, at any moment before such a
share issuance, the number of, the designation of, and the rights, privileges,
conditions and restrictions attaching to the shares of each series.

2.2. Dividends

Holders of Preferred Shares of each series shall be entitled to receive for
every share of each series, as and when declared by the directors, cumulative or
non-cumulative dividends in the amount or at the rate to be determined by the
directors and in preference to the holders of Common Shares.

Holders of Preferred Shares shall not be entitled to any additional
participation.

2.3. Rank

Subject to the provisions of the Canada Business Corporations Act, the directors
may determine the priority rank of each series of Preferred Shares to be
created.

<PAGE>
                                     - 72 -


2.4. Redemption by the Company

The Company may redeem out of capital the whole or any part of the Preferred
Shares of each series on payment for each share to be redeemed of an amount (the
"Redemption Price") equal to the money consideration received by the Company for
the issuance of such shares or to the fair market value of the property or past
services consideration received by the Company for the issuance of such shares,
as the case may be.

The Company shall pay to the holders of the Preferred Shares of each series
called for redemption an amount equal to the Redemption Price together with all
declared and unpaid dividends thereon.

The fair market value of the consideration received shall be the amount
determined by the directors in accordance with generally accepted accounting and
valuation principles. However, in the event that a competent taxing authority
issues an income tax assessment and disputes the fair market value as determined
by the directors, the Redemption Price shall be increased or decreased
accordingly, as the case may be, subject however to any adjustment thereto
required pursuant to any final judgment rendered by any court of competent
jurisdiction. In the event of a variation in the assessments made by various
taxing authorities, the above-mentioned Redemption Price shall be fixed on the
basis of the lesser of such assessments.

In case a part only of the then outstanding Preferred Shares is to be redeemed,
the shares to be so redeemed shall be selected on a pro rata basis or in such
other manner as the holders of the Preferred Shares may unanimously agree upon.

Written notice of such redemption shall be given by post by the Company to all
registered holders of Preferred Shares of each series so redeemed, at least 30
days before the date specified for such redemption. The notice shall set out the
date and place fixed for such redemption and shall be sent to each such holder
to the last known address as it appears in the registers of the Company.
Accidental failure to give such notice to one or more holders shall not affect
the validity of such redemption. Provided that such notice has been given and
that the moneys required for such redemption are deposited with any trust
company or chartered bank or savings and credit union referred to in the notice,
at or prior to the date specified for redemption, dividends on redeemed
Preferred Shares of each series shall cease to accrue from the date of
redemption and holders thereof shall have no rights against the Company except
the right to receive, out of the moneys so deposited, payment of the Redemption
Price upon surrender of the

2.5. Restrictions on Dividend

Notwithstanding any provisions of the articles of incorporation of the Company,
no dividend shall be paid on shares of any other class, and no transaction that
may give rise to a deemed dividend within the meaning of this term in any tax
law shall be made if, after payment of such dividend or conclusion of such
transaction, the net realizable value of the Company's assets would not be
sufficient to provide for the redemption of all issued and outstanding Preferred
Shares.

2.6. Purchase by the Company

The Company shall be entitled at any time and from time to time to purchase all
or part of the then outstanding Preferred Shares by invitation to tender made to
all of the holders of Preferred Shares or, with the unanimous consent of such
holders, by mutual agreement, at the lowest price

<PAGE>
                                     - 73 -


at which, in the opinion of the directors, such shares can be obtained, but at a
price not exceeding the Redemption Price provided for in subsection 2.4. If, in
response to an invitation to tender, the number of shares tendered exceeds the
number of shares which the Company intends to purchase, the shares to be
purchased shall be selected by lot, in such manner as the directors shall
determine, or, if so determined by the directors, the shares shall be purchased
on a pro rata basis, in proportion to the number of shares offered by each
holder, disregarding fractions of shares.

2.7. Return of Capital

In the event of the dissolution, liquidation or winding-up of the Company,
whether voluntary or involuntary, holders of Preferred Shares of each series
shall be entitled to receive pari passu, before any distribution of any part of
the assets of the Company among the holders of Common Shares, an amount equal to
the Redemption Price, as defined at subsection 2.4, together with all declared
and unpaid dividends thereon, but they shall be entitled to no amount other
than, or in excess of, the amount hereinabove provided for.

2.8. Voting Rights

Holders of Preferred Shares of each series shall not, in such capacity, have any
voting rights for the purpose of electing directors or for any other purpose,
nor shall they be entitled to attend any meetings of the shareholders.

      C.    Material contracts

In April 2001, the Company acquired an exclusive worldwide license from 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, a unit of General Electric
Company, signed a multi-year agreement in which GE Medical Systems (now known as
GE Healthcare) will help 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 Medical Systems (now known as GE Healthcare)
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

<PAGE>
                                     - 74 -


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.

      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, does not otherwise take into account or anticipate any
changes in law, whether by judicial, governmental or legislative decision or
action nor does it take into account the tax laws of the various provinces or
territories of Canada or foreign jurisditions. 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.

<PAGE>
                                     - 75 -


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 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 CDN 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 CDN dollar and from changes in the foreign exchange rate
between the CDN 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>
                                     - 76 -


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 believe 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>
                                     - 77 -


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. Raymond Cyr is the "audit
committee financial expert" of the Company serving on the audit committee of the
board of directors. Mr. Cyr is 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 Corporation's home country-
do not require it to adopt one.

ITEM 16C. PRINCIPAL ACCOUNTANT

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 eight-month fiscal period ended December 31, 2003
and the twelve-month fiscal year ended April 30, 2003, the aggregate fees billed
by Raymond Chabot Grant Thornton General Partnership are as follows:

                                                 Dec. 31, 2003    April 30, 2003
                                                     (US $)           (US $)
                                                 -------------    --------------
Audit Fees(1)                                      $  43,944        $  32,679
Audit-related Fees(2)                                    Nil           11,673
Tax Fees(3)                                              Nil            5,080
All Other Fees                                           Nil              Nil
                                                   ---------        ---------
Total                                              $  43,944        $  49,432

----------
(1)   Audit Fees consist of fees billed for the annual audit of the Company's
      consolidated 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.

ITEM 16D. EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

<PAGE>
                                     - 78 -


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

Not Applicable.

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 consolidated financial statements are stated in U.S. dollars and are
prepared in accordance with Canadian GAAP. See note 18 to the consolidated
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.    Consolidated Financial Statements

Auditors' Report for the fiscal period ended December 31, 2003 and each of the
years in the two-year period ended April 30, 2003

Consolidated Balance Sheets as at December 31, 2003 and April 30, 2003

Consolidated Operations and Deficit for the fiscal period ended December 31,
2003 and for the fiscal years ended April 30, 2003, 2002.

Consolidated Cash Flows for the fiscal period ended December 31, 2003 and for
the fiscal years ended April 30, 2003, 2002.

Notes to Consolidated Financial Statements.

      B.    Exhibits

                Incorporate
Exhibit No.     By Ref. To      Description of Exhibit
-----------     ----------      ----------------------
    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         *               SoftScan(R) Commercial Alliance Agreement (+)


<PAGE>
                                     - 79 -


    4.6         *               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

----------
@     Incorporated by reference to the Company's Registration Statement on Form
      20-F.

(+)   The Registrant has applied for Confidential Treatment for a portion of
      this document.

@@    Incorporated by reference to the Company's Annual Report on Form 20-F for
      the fiscal year ended April 30, 2002.

(++)  The Registrant is applying for Confidential Treatment for a portion of
      this document.

*     Filed herewith.

<PAGE>
                                     - 80 -


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 Transition Report to be signed on its behalf by
the undersigned, thereto duly authorized.

                                          ART ADVANCED RESEARCH
                                          TECHNOLOGIES INC.

Date: June 28, 2004                  By:  (s) Micheline Bouchard
                                          --------------------------------------
                                          Micheline Bouchard
                                          President and Chief Executive Officer

<PAGE>
                                     - 81 -


                                    GLOSSARY

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

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
(time domain)                     infrared 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.

<PAGE>

                            ART Advanced Research
                              Technologies Inc.

                      Consolidated Financial Statements
                    for the eight-month fiscal year ended
                              December 31, 2003

          Auditors' Report                                       2

          Comments by Auditors on Canada-United
          States of America Reporting Difference                 3

          Financial Statements
             Consolidated Balance Sheets                         4
             Consolidated Operations and Deficit                 5
             Consolidated Cash Flows                             6
             Notes to Consolidated Financial
             Statements                                    7 to 28

<PAGE>

Auditors' Report

To the Shareholders of
ART Advanced Research Technologies Inc.

We have audited the consolidated balance sheets of ART Advanced Research
Technologies Inc. as at December 31, 2003 and April 30, 2003 and the
consolidated statements of operations and deficit and cash flows for the
eight-month fiscal year ended December 31, 2003 and the twelve-month fiscal
years ended April 30, 2003 and 2002. 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 auditing standards generally accepted in the United States of
America. 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.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2003
and April 30, 2003 and the results of its operations and its cash flows for the
eight-month fiscal year ended December 31, 2003 and the twelve-month fiscal
years ended April 30, 2003 and 2002 in accordance with Canadian generally
accepted accounting principles.

/s/ Raymond Chabot Grant Thornton

Chartered Accountants
General Partnership

Montreal, Canada
February 6, 2004, except as to Note 19 which is as of March 10, 2004

<PAGE>

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

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 consolidated financial statements. Although we
conducted our audits in accordance with both Canadian generally accepted
auditing standards and auditing standards generally accepted in the United
States of America, our report to the shareholders dated February 6, 2004, except
as to Note 19 which is as of March 10, 2004 is expressed in accordance with
Canadian reporting standards which do not require a reference to a change in
accounting principles in the auditors' report when the change is properly
accounted for and adequately disclosed in the consolidated financial statements.

/s/ Raymond Chabot Grant Thornton

Chartered Accountants
General Partnership

Montreal, Canada
February 6, 2004

<PAGE>
                                                                               4


ART Advanced Research Technologies Inc.
Consolidated Balance Sheets
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                        December 31,        April 30,
                                                                                2003             2003
                                                                        ------------     ------------
<S>                                                                     <C>              <C>
ASSETS
Current assets
     Cash                                                               $  4,200,128     $    830,005
     Term deposit, 2.65%, maturing in April 2004 (Note 16)                   231,392          209,293
     Commercial papers, 1.01% to 2.90%, maturing from June to August
     2003                                                                         --        3,647,515
     Commercial papers, 2.70% to 2.80%, maturing from April to June
     2004                                                                  4,993,040               --
     Accounts receivable (Note 4)                                            801,649          124,910
     Investment tax credit receivable                                      1,158,682          906,215
     Inventories                                                             336,042               --
     Prepaid expenses                                                        167,813          241,239
                                                                        ------------     ------------
                                                                          11,888,746        5,959,177
                                                                        ------------     ------------

Property and equipment (Note 5)                                              478,218          386,121
                                                                        ------------     ------------
Other assets
     Restricted cash (Note 10)                                                    --          555,697
     Deposit                                                                  15,648            4,507
     Patents (Note 3)                                                      1,322,184        1,126,628
                                                                        ------------     ------------
                                                                           1,337,832        1,686,832
                                                                        ------------     ------------
                                                                        $ 13,704,796     $  8,032,130
                                                                        ============     ============
LIABILITIES
Current liabilities
     Accounts payable and accrued liabilities (Note 7)                  $  2,292,404     $  1,819,231
                                                                        ------------     ------------
SHAREHOLDERS' EQUITY
Capital stock and share purchase warrants (Note 8)                        67,870,684       56,265,536
Contributed surplus (Note 9)                                                  18,206               --
Deficit                                                                  (56,753,062)     (49,561,034)
Cumulative translation adjustments                                           276,564         (491,603)
                                                                        ------------     ------------
                                                                          11,412,392        6,212,899
                                                                        ------------     ------------
                                                                        $ 13,704,796     $  8,032,130
                                                                        ============     ============
</TABLE>

Commitments and contingency (Notes 15 and 16)

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

On behalf of the Board,

       Benoit La Salle (signed)                  Raymond Cyr (signed)
       -------------------------------           -------------------------------
       Director                                  Director

<PAGE>
                                                                               5


ART Advanced Research Technologies Inc.
Consolidated Operations and Deficit
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                               Twelve-month       Twelve-month
                                                                                fiscal year        fiscal year
                                                        Eight-month fiscal            ended              ended
                                                                year ended   April 30, 2003     April 30, 2002
                                                         December 31, 2003        (Note 10)          (Note 10)
                                                        ------------------   --------------     --------------
<S>                                                         <C>                <C>                <C>
Sales                                                       $    681,875       $         --       $         --
Cost of sales                                                    377,744                 --                 --
                                                            ------------       ------------       ------------
Gross margin                                                     304,131                 --                 --
                                                            ------------       ------------       ------------
Operating expenses
     Research and development (Note 12)                        3,491,641          5,734,470          6,284,211
     Selling, general and administrative                       2,239,324          2,885,065          3,215,654
     Amortization                                                136,643            138,173            201,328
                                                            ------------       ------------       ------------
                                                               5,867,608          8,757,708          9,701,193
                                                            ------------       ------------       ------------
Operating loss                                                 5,563,477          8,757,708          9,701,193
Interest expense                                                      --                393              3,278
Interest income                                                  (63,384)           (99,674)          (183,826)
Foreign exchange loss (gain)                                     331,932            219,065           (175,162)
Other expenses (Note 8)                                               --          1,467,621                 --
                                                            ------------       ------------       ------------
Loss from continuing operations before income
taxes                                                          5,832,025         10,345,113          9,345,483
Current income taxes recovered (Note 13)                              --         (1,318,668)                --
                                                            ------------       ------------       ------------
Loss from continuing operations                                5,832,025          9,026,445          9,345,483
Loss (profit) from discontinued operations (Note 10)                  --         (2,479,841)         1,536,017
                                                            ------------       ------------       ------------
Net loss                                                       5,832,025          6,546,604         10,881,500
Deficit, beginning of year                                    49,561,034         42,309,220         30,405,058
Share and share purchase warrant issue expenses                1,360,003            705,210          1,022,662
                                                            ------------       ------------       ------------
Deficit, end of year                                        $ 56,753,062       $ 49,561,034       $ 42,309,220
                                                            ============       ============       ============

Basic and diluted loss per share from continuing
operations                                                  $       0.20       $       0.38       $       0.46
                                                            ============       ============       ============

Basic and diluted loss (earnings) per share from
discontinued operations                                     $         --       $      (0.10)      $       0.08
                                                            ============       ============       ============

Basic and diluted net loss per share (Note 3)               $       0.20       $       0.28       $       0.54
                                                            ============       ============       ============

Basic and diluted weighted average number of
common shares outstanding                                     29,456,248         23,493,351         20,161,734
                                                            ============       ============       ============
</TABLE>


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

<PAGE>
                                                                               6


ART Advanced Research Technologies Inc.
Consolidated Cash Flows
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                             Twelve-month       Twelve-month
                                                                              fiscal year        fiscal year
                                                     Eight-month fiscal             ended              ended
                                                             year ended    April 30, 2003     April 30, 2002
                                                      December 31, 2003         (Note 10)          (Note 10)
                                                     ------------------    --------------     --------------
<S>                                                      <C>                <C>                <C>
OPERATING ACTIVITIES
Net loss                                                 $ (5,832,025)      $ (6,546,604)      $(10,881,500)
Non-cash items
     Amortization expense                                     136,643            138,173            201,328
     Directors and employees stock options (Note 9)            18,206                 --                 --
     Other expenses (Note 8)                                       --            717,621                 --
     Extension of share purchase warrants (Note 8)                 --                 --             60,000
Decrease (increase) in current assets
     Accounts receivable                                     (635,388)            61,298            260,632
     Investment tax credit receivable                        (150,125)          (563,018)           401,563
     Inventories                                             (321,780)                --                 --
     Prepaid expenses                                          94,701           (175,242)            81,826
Increase (decrease) in current liabilities
     Accounts payable and accrued liabilities                 269,149            164,623           (639,556)
                                                         ------------       ------------       ------------
Cash flows from continuing operating activities            (6,420,619)        (6,203,149)       (10,515,707)
Cash flows from discontinued activities                            --         (4,330,520)          (377,582)
                                                         ------------       ------------       ------------
Cash flows from operating activities                       (6,420,619)       (10,533,669)       (10,893,289)
                                                         ------------       ------------       ------------
INVESTING ACTIVITIES
Decrease (increase) of short-term investments                (919,619)        (1,130,730)         3,419,294
Increase in property and equipment                           (166,078)           (53,408)           (52,441)
Decrease (increase) in other assets                           485,033           (647,768)          (219,890)
                                                         ------------       ------------       ------------
Cash flows from continuing investing activities              (600,664)        (1,831,906)         3,146,963
Cash flows from discontinued activities (Note 10)                  --          5,500,000            (64,175)
                                                         ------------       ------------       ------------
Cash flows from investing activities                         (600,664)         3,668,094          3,082,788
                                                         ------------       ------------       ------------
FINANCING ACTIVITIES
Decrease in deferred charges                                       --                 --             29,358
Share and share purchase warrant issue                     11,605,148          7,502,855          9,533,417
Share and share purchase warrant issue expenses            (1,360,003)          (705,210)        (1,022,662)
                                                         ------------       ------------       ------------
Cash flows from financing activities                       10,245,145          6,797,645          8,540,113
Effect of foreign currency translation adjustments            146,261            200,666           (287,155)
                                                         ------------       ------------       ------------
                                                           10,391,406          6,998,311          8,252,958
                                                         ------------       ------------       ------------
Net increase in cash and cash equivalents                   3,370,123            132,736            442,457
Cash and cash equivalents, beginning of year                  830,005            697,269            254,812
                                                         ------------       ------------       ------------
Cash and cash equivalents, end of year                   $  4,200,128       $    830,005       $    697,269
                                                         ============       ============       ============

CASH AND CASH EQUIVALENTS
Cash                                                     $  4,200,128       $    830,005       $    681,354
Commercial paper                                                   --                 --             15,915
                                                         ------------       ------------       ------------
                                                         $  4,200,128       $    830,005       $    697,269
                                                         ============       ============       ============

Supplemental disclosure of cash flow information
Interest paid                                            $         --       $       (393)      $     (3,278)
Interest received                                              47,753             90,366            183,826
</TABLE>

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

<PAGE>
                                                                               7


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

1 - GOVERNING STATUTES, NATURE OF OPERATIONS AND CHANGE IN FISCAL YEAR-END

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 estimates that there will be additional capital requirements
relating to its research and development activities and commercialization of its
products and that operating losses and negative cash flows will be incurred
prior to full commercialization. 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.

The Company has changed its fiscal year-end from April 30 to December 31.
Accordingly, the current financial statements are for a period of eight months.
During the year ended April 30, 2003, the Company had no commercial operations.

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 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
have been 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 before January 1, 2004. During the eight-month fiscal
year ended December 31, 2003, effective as of the beginning of the fiscal year,
the Company has chosen 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 consolidated
statement of operations and deficit for the eight-month fiscal year ended
December 31, 2003.

<PAGE>
                                                                               8


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

2 - CHANGES IN ACCOUNTING POLICIES (Continued)

The Company has examined the scope of the CICA Accounting Guideline AcG-14,
Disclosure of Guarantees, that was issued during the eight-month fiscal year
ended December 31, 2003. As the Company does not issue guarantees contemplated
by the Guideline, the implementation of this new guideline had no impact on the
financial statements.

On May 1, 2002, the Company adopted prospectively the recommendations of the
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.

On May 1, 2001, the Company adopted, on a retroactive basis, the recommendations
of the CICA Handbook Section 3500, Earnings per Share. Under the
recommendations, the treasury stock method is to be used, instead of the imputed
earnings approach, for determining the dilutive effect of warrants and options.
All prior diluted earnings per share amounts have been recalculated in
accordance with the new requirements. Since the Company has incurred losses,
such recalculations did not result in any change to the Company's previously
reported diluted loss per share for all periods presented.

3 - ACCOUNTING POLICIES

The consolidated financial statements are expressed in United States of America
dollar (U.S. dollar) 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. These
differences are described in Note 18.

Use of estimates

These financial statements have been prepared by management 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. Actual results could differ from those estimates.

Principles of consolidation

The consolidated 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. All
significant intercompany accounts and transactions have been eliminated.

<PAGE>
                                                                               9


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

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

Inventories are valued at the lower of cost and net realizable value. 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:

Computer equipment                                      3 years
Office furniture, tools and equipment                   5 years
Leasehold improvements                            Term of lease

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 annually. Should this
review 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,      April 30,
                                                                     2003           2003
                                                             ------------    -----------
<S>                                                           <C>            <C>
Gross carrying value                                          $ 1,342,771    $ 1,126,628
Accumulated amortization                                           20,587             --
                                                              -----------    -----------
Net carrying value                                            $ 1,322,184    $ 1,126,628
                                                              ===========    ===========

Patents maintenance cost since the beginning of the year      $    97,180    $   143,944
                                                              ===========    ===========
</TABLE>

<PAGE>
                                                                              10


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

3 - ACCOUNTING POLICIES (Continued)

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 not
deferred any such development costs to date.

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

Share and share purchase warrant issue expenses

Share and share purchase warrant issue expenses are accounted for as an increase
to the deficit.

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 basis and tax basis 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.

Cash equivalents

Cash equivalents are carried at cost, which approximates market value. Cash
equivalents are highly liquid investments, maturing within less than three
months from the date of acquisition.

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 sheets 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.

<PAGE>
                                                                              11


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

3 - ACCOUNTING POLICIES (Continued)

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

The Company uses the treasury stock method to determine the dilutive effect of
the share purchase warrants and the stock options. Per share amounts have been
computed based on the weighted average number of common shares outstanding for
all fiscal years presented. Diluted loss per share is calculated by adjusting
outstanding shares to take into account the dilutive effect of stock options and
share purchase warrants. For all of the fiscal years presented, the effect of
stock options and share purchase warrants 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 4,645,022,
3,946,437 and 2,782,070 common shares were outstanding at December 31, 2003,
April 30, 2003, and April 30, 2002, respectively, but were not included in the
calculation of the diluted loss per share.

4 - ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                               December 31,   April 30,
                                                                       2003        2003
                                                               ------------   ---------
<S>                                                              <C>          <C>
Trade accounts, net of allowance for doubtful accounts of nil    $ 681,875    $      --
Sales tax receivable                                                78,344      103,970
Other receivables                                                   41,430       20,940
                                                                 ---------    ---------
                                                                 $ 801,649    $ 124,910
                                                                 =========    =========
</TABLE>

Accounts receivable from one customer, who is a distributor of the eXplore Optix
product, represent 100% of the Company's trade accounts receivable and 82.4% of
the Company's total revenues for the eight-month fiscal year ended December 31,
2003.

5 - PROPERTY AND EQUIPMENT

                                                               December 31, 2003
                                       -----------------------------------------
                                                      Accumulated
                                              Cost   amortization            Net
                                       -----------   -------------   -----------
Computer equipment                     $   805,133    $   653,839    $   151,294
Office furniture                           216,144        188,658         27,486
Tools and equipment                        219,432        138,937         80,495
Leasehold improvements                     337,918        118,975        218,943
                                       -----------    -----------    -----------
                                       $ 1,578,627    $ 1,100,409    $   478,218
                                       ===========    ===========    ===========

<PAGE>
                                                                              12


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

5 - PROPERTY AND EQUIPMENT (Continued)

                                                                  April 30, 2003
                                       -----------------------------------------
                                                      Accumulated
                                              Cost   amortization            Net
                                       -----------   ------------    -----------
Computer equipment                     $   651,910    $   533,025    $   118,885
Office furniture                           193,237        157,192         36,045
Tools and equipment                        120,191        104,886         15,305
Leasehold improvements                     305,644         89,758        215,886
                                       -----------    -----------    -----------
                                       $ 1,270,982    $   884,861    $   386,121
                                       ===========    ===========    ===========

6 - BANK LOAN

As at December 31, 2003, the Company had available a credit facility of
$1,002,699 (CA$1,300,000) pursuant to the provisions of a qualifying investment
tax credits receivable program which was authorized by Investissement Quebec.
Under this program, Investissement Quebec can provide a 75% guarantee on bank
loans identified for the financing of research and development tax credits
receivable. Such loans are then repayable upon receipt of the tax credits. This
facility was available but not utilized as at December 31, 2003 and April 30,
2003 respectively.

As at December 31, 2003, a credit facility of $771,307 (CA$1,000,000), secured
by a pledge of accounts receivable and by a charge on all assets of the Company,
was available but not utilized. This facility bears interest at a rate which
varies between the base rate and the base rate plus 1.75%. The Company has to
comply with certain restrictive clauses which were all met at December 31, 2003.

7 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

                                                    December 31,       April 30,
                                                            2003            2003
                                                    ------------     -----------

Trade accounts                                       $ 1,101,257     $ 1,035,320
Employee related
     Salaries                                            578,835         333,116
     Bonus                                               334,447         233,013
Corporate transaction costs                               33,738              --
Others                                                   244,127         217,782
                                                     -----------     -----------
                                                     $ 2,292,404     $ 1,819,231
                                                     ===========     ===========

<PAGE>
                                                                              13


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

8 - CAPITAL STOCK 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 three fiscal years:

<TABLE>
<CAPTION>
                                                   December 31, 2003                April 30, 2003                April 30, 2002
                                         ---------------------------   ---------------------------   ---------------------------
                                                       Common shares                 Common shares                 Common shares
                                         ---------------------------   ---------------------------   ---------------------------
                                               Number          Value         Number          Value         Number          Value
                                         ------------   ------------   ------------   ------------   ------------   ------------
<S>                                        <C>          <C>              <C>          <C>              <C>          <C>
Issued and fully paid
Balance, beginning of year                 26,673,341   $ 55,487,915     20,523,591   $ 47,985,060     18,014,166   $ 38,451,643
Issue of shares for cash                    7,564,782     10,467,294      6,142,680      7,500,000      2,408,425      9,500,000
Issue of shares for cash following the
exercise of stock options                         400            729          7,070          2,855        101,000         33,417
                                         ------------   ------------   ------------   ------------   ------------   ------------
Balance, end of year                       34,238,523   $ 65,955,938     26,673,341   $ 55,487,915     20,523,591   $ 47,985,060
                                         ============   ============   ============   ============   ============   ============
</TABLE>

<PAGE>
                                                                              14


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

8 - CAPITAL STOCK AND SHARE PURCHASE WARRANTS (Continued)

The following tables present the changes in the number of share purchase
warrants outstanding in the last three fiscal years:

                                                               December 31, 2003
                                   ---------------------------------------------
                                                                        Weighted
                                                                         average
                                                                  exercise price
                                        Number           Value               CA$
                                   -----------     -----------    --------------
Balance, beginning of year           2,465,237     $   777,621       $      5.66
Issue of share purchase warrants       743,185       1,137,125(a)           2.11
                                   -----------     -----------       -----------
Balance, end of year                 3,208,422     $ 1,914,746       $      4.84
                                   ===========     ===========       ===========

                                                                  April 30, 2003
                                   ---------------------------------------------
                                                                        Weighted
                                                                         average
                                                                  exercise price
                                        Number           Value               CA$
                                   -----------     -----------    --------------
Balance, beginning of year           1,560,000     $    60,000       $      7.50
Issue of share purchase warrants       905,237         717,621(b)           2.50
                                   -----------     -----------       -----------
Balance, end of year                 2,465,237     $   777,621       $      5.66
                                   ===========     ===========       ===========

                                                                  April 30, 2002
                                   ---------------------------------------------
                                                                        Weighted
                                                                         average
                                                                  exercise price
                                        Number           Value               CA$
                                   -----------     -----------    --------------
Balance, beginning of year                  --     $        --       $        --
Issue of share purchase warrants     1,560,000          60,000(c)           7.50
                                   -----------     -----------       -----------
Balance, end of year                 1,560,000     $    60,000       $      7.50
                                   ===========     ===========       ===========

(a)   During the eight-month fiscal year 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 a gross proceed 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 for the
      financing to Synerglobe Capital Ltd. and Kingsdale Capital Partners Inc.,
      were evaluated at $1,137,125, following the assumptions listed below and
      were presented in the section "Capital stock and share purchase warrants"
      of the shareholders' equity.

<PAGE>
                                                                              15


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

8 - CAPITAL STOCK AND SHARE PURCHASE WARRANTS (Continued)

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

      -     Synerglobe Capital Ltd. received 630,154 share purchase warrants
            entitling it to buy 630,154 common shares of the Company at an
            exercise price of CA$2.08;

      -     Kingsdale Capital Partners Inc. received 94,742 share purchase
            warrants entitling it to buy 94,742 common shares of the Company at
            an exercise price of CA$2.08 and 18,289 share purchase warrants
            entitling it to buy 18,289 common shares of the Company at an
            exercise price of CA$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%

(b)   During the fiscal 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 General Electric Company ("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 Synerglobe Capital
      Ltd. for services rendered in the negotiation and ratification of the
      strategic agreements. These fees were expensed and presented in the "other
      expenses" of the consolidated operations and deficit statement and
      "operating activities" of the consolidated 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 CA$2.50. These share purchase warrants became
            exercisable as of November 15, 2002 and expire on November 15, 2007;

<PAGE>
                                                                              16


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

8 - CAPITAL STOCK AND SHARE PURCHASE WARRANTS (Continued)

      -     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 CA$2.75. These warrants will be exercisable
            when GE Medical Systems, a division of GE, earn 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%

      -     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 consolidated operations
      and deficit statement while the consideration was recorded under "capital
      stock 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.

(c)   In the fourth quarter of the fiscal year of April 2002, following
      regulatory approval, the Company extended the exercise period of 1,560,000
      common share purchase warrants held by a company whose president was a
      director of the Company. The remaining term of such warrants, which had
      been originally granted in 2000 and which were to expire in April 2002,
      was extended to April 2004. The exercise price of CA$7.50 per warrant
      remained unchanged.

      The extension was granted in compensation for services provided to the
      Company. Accordingly, in the fiscal year of April 2002, the Company
      recorded a non-cash expense of $60,000 in its consolidated statement of
      operations and deficit, representing the estimated value of services
      obtained.

9 - STOCK-BASED COMPENSATION PLAN

Under the Company's stock option plan (the "Amended and Restated 2002 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 ten 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 or such options.

As at December 31, 2003 and April 30, 2003, 2,650,000 common shares (1,770,642
common shares as at April 30, 2002) were authorized for issuance. Since its
inception, 693,840 common shares have been issued under this plan.

<PAGE>
                                                                              17


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

9 - STOCK-BASED COMPENSATION PLAN (Continued)

The following table presents the changes in the number of options outstanding in
the last three fiscal years:

<TABLE>
<CAPTION>
                                             December 31, 2003                   April 30, 2003                   April 30, 2002
                                   ---------------------------      ---------------------------      ---------------------------
                                       Directors, officers and          Directors, officers and          Directors, officers and
                                                     employees                        employees                        employees
                                   ---------------------------      ---------------------------      ---------------------------
                                                      Weighted                         Weighted                         Weighted
                                                       average                          average                          average
                                    Number of   exercise price       Number of   exercise price       Number of   exercise price
                                      options              CA$         options              CA$         options              CA$
                                   ----------   --------------      ----------   --------------      ----------   --------------
<S>                                 <C>             <C>              <C>             <C>              <C>             <C>
Balance, beginning of year          1,476,200       $     4.06       1,207,070       $     6.01       1,374,630       $     5.94
Options granted                       142,400             3.21         658,900             2.04         207,000             4.33
Options exercised                        (400)            2.39          (7,070)            0.63        (101,000)            0.52
Options cancelled                    (186,600)            5.42        (382,700)            6.81        (273,560)            6.40
                                   ----------       ----------      ----------       ----------      ----------       ----------
Balance, end of year                1,431,600       $     3.79       1,476,200       $     4.06       1,207,070       $     6.01
                                   ==========       ==========      ==========       ==========      ==========       ==========

Options exercisable, end of year      846,400       $     4.81         739,565       $     5.81         978,570       $     6.35
                                   ==========       ==========      ==========       ==========      ==========       ==========
</TABLE>

As at December 31, 2003, a total of 519,560 common shares remained available for
granting of options.

<PAGE>
                                                                              18


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

9 - STOCK-BASED COMPENSATION PLAN (Continued)

The following table presents the details of director, officer and employee
options:

<TABLE>
<CAPTION>
                                                                         December 31, 2003  April 30, 2003  April 30, 2002
                                                                         -----------------  --------------  --------------
                                                              Number of          Number of       Number of       Number of  Exercise
                                                                options            options         options         options     price
Date granted                                 Expiry date(a)     granted        outstanding     outstanding     outstanding       CA$
-------------------------------------------  --------------  ----------       ------------    ------------    ------------  --------
<S>                                              <C>            <C>                <C>             <C>             <C>      <C>
1996-04-26                                       2006-04-25     683,000                 --              --           7,070  $   0.52
1996-06-21                                       2006-06-20       4,000                 --              --              --      0.63
1996-08-21                                       2006-08-20      30,000             30,000          30,000          30,000      1.70
1997-08-29                                       2007-08-28     230,000            137,000         192,000         194,000      4.60
1998-02-09                                       2008-02-08      40,000                 --              --              --      6.25
1998-03-10                                       2008-03-09      14,000              2,000           2,000           3,000      7.50
1999-02-15                                       2009-02-14     221,000            118,000         169,000         204,000      6.00
1999-10-08                                       2009-10-07      30,000                 --              --              --      6.00
2000-02-17                                       2010-02-16     125,000             27,000          27,000          87,000      7.50
2000-03-20                                       2010-03-19     531,000            180,000         232,000         429,000      7.50
2000-09-11                                       2010-09-10      11,000                 --           1,000           1,000      7.40
2000-12-05                                       2010-12-04       8,000              5,500           5,500           8,000      5.95
2001-01-30                                       2011-01-29      40,000                 --              --          40,000      6.25
2001-08-24                                       2011-08-23      20,000                 --              --          20,000      4.85
2001-09-05                                       2011-09-04      90,000             90,000          90,000          90,000      4.75
2001-12-14                                       2011-12-13      91,500             68,000          68,500          88,500      3.85
2002-04-11                                       2012-04-10       5,500              5,500           5,500           5,500      3.58
2002-06-19                                       2012-06-18     216,400            204,200         211,200              --      2.39
2002-08-16                                       2012-08-15     275,000            275,000         275,000              --      1.72
2002-09-05                                       2012-09-04       2,000              2,000           2,000              --      2.50
2002-11-14                                       2012-11-13      80,000             80,000          80,000              --      2.35
2002-11-28                                       2012-11-27       3,000                  -           3,000              --      2.87
</TABLE>

<PAGE>
                                                                              19


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

9 - STOCK-BASED COMPENSATION PLAN (Continued)

<TABLE>
<CAPTION>
                                                                         December 31, 2003  April 30, 2003  April 30, 2002
                                                                         -----------------  --------------  --------------
                                                              Number of          Number of       Number of       Number of  Exercise
                                                                options            options         options         options     price
Date granted                                 Expiry date(a)     granted        outstanding     outstanding     outstanding       CA$
-------------------------------------------  --------------  ----------       ------------    ------------    ------------  --------
<S>                                              <C>          <C>                <C>             <C>             <C>            <C>
2003-02-10                                       2013-02-09      50,000             50,000          50,000              --      1.91
2003-02-27                                       2013-02-26      32,500             15,000          32,500              --      1.81
2003-05-14                                       2013-05-13      25,900             25,900              --              --      1.80
2003-09-10                                       2013-09-09     111,000            111,000              --              --      3.51
2003-11-12                                       2013-11-11       5,500              5,500              --              --      3.82
                                                             -----------      -------------   -------------   ------------
                                                              2,975,300          1,431,600       1,476,200       1,207,070
                                                             ===========      =============   =============   ============

Weighted-average remaining contractual life                                      7.0 years       7.2 years       7.6 years
                                                                              =============   =============   ============
</TABLE>

(a)   During the fiscal year ended April 30, 2003, the Board of Directors of the
      Company agreed to extend the duration of certain options granted to a
      former director. Under the conditions of grant governed by the stock
      option plan, 250,000 options granted to this director were to expire
      beginning on August 28, 2007. Unless the Board of Directors directs
      otherwise, the Company's stock option plan stipulates that such options be
      exercised within ninety (90) days following the director's resignation,
      failing which the options will expire. Following the resignation of the
      director, the Board of Directors chose to extend the exercise period of
      the options in recognition of past services rendered to the Company. The
      exercise period of the options was extended until February 2006 and the
      exercise price remained the same.

<PAGE>
                                                                              20


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

9 - STOCK-BASED COMPENSATION PLAN (Continued)

The fair value of stock options granted during the eight-month fiscal year ended
December 31, 2003 was estimated on the grant date using the Black & Scholes
option-pricing model with the following assumptions for the stock options
granted since the beginning of the fiscal year:

-     Expected life: 4.5 years

-     Expected volatility: 70%

-     Weighted average risk-free interest rate: 3.84%

-     Dividend rate: 0%

The weighted average fair value of stock options granted during the eight-month
fiscal year ended December 31, 2003 was $1.36.

As a result of the revision of the transitional provisions of Handbook Section
3870, Stock-based Compensation and Other Stock-based Payments, the Company
recorded an expense of $18,206 using the fair value method in its consolidated
operations and deficit statement for stock options granted to employees in the
eight-month fiscal year ended December 31, 2003.

During the fiscal 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      Twelve-month
                                                                         fiscal year       fiscal year
                                                                               ended             ended
                                                                        December 31,         April 30,
                                                                                2003              2003
                                                                        ------------      ------------
<S>                                                                      <C>               <C>
Net loss as reported                                                     $ 5,832,025       $ 6,546,604
Less: compensation expense recognized in the consolidated statement
of operations and deficit                                                    (18,206)               --
Plus: total compensation expense                                             153,296           134,959
                                                                         -----------       -----------
Pro forma net loss                                                       $ 5,967,115       $ 6,681,563
                                                                         ===========       ===========

Basic and diluted loss per share
     As reported                                                         $     (0.20)      $     (0.28)
     Pro forma                                                           $     (0.20)      $     (0.28)
</TABLE>

In January 2004, the Company has granted, subject to regulatory approval,
478,740 stock options to employees and officers of the Company with exercise
prices ranging from CA$3.00 to CA$3.23.

<PAGE>
                                                                              21


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

9 - STOCK-BASED COMPENSATION PLAN (Continued)

Other stock options

During the fiscal year ended April 30, 2001, the Company granted 10,000 and
5,000 common stock options to consultants as partial compensation for services
rendered to the Company. The options are exercisable at CA$6.25 and CA$4.80
respectively. During the fiscal year ended April 30, 2003, 10,000 common stock
options expired without being exercised. The 5,000 common stock options
outstanding on April 30, 2003, expire on March 19, 2011.

10 - DISCONTINUED OPERATIONS

The Company's bio-optical imaging led it to reconsider its involvement in the
industrial sector. Due to economic downturn affecting the electronics market and
the lack of sales and distribution infrastructure, the ISIS thermal imaging
division has 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 and
2002 were reclassified under "discontinued operation loss". Results are detailed
as follows:

                                                 Twelve-month fiscal years ended
                                                 -------------------------------
                                                 April 30, 2003   April 30, 2002
                                                 --------------   --------------
Revenues                                          $         --     $    539,499
                                                  ============     ============

Operating loss                                    $    516,281     $  1,536,017
                                                  ============     ============

Gain on disposal of the industrial division,
net of current taxes of $1,318,668                $  2,996,122     $         --
                                                  ============     ============

Discontinued operation loss (profit)              $ (2,479,841)    $  1,536,017
                                                  ============     ============

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.

11 - RELATED PARTY TRANSACTIONS

During the fiscal year ended April 30, 2002, the Company acquired exclusive
worldwide patents from a member of its Scientific Advisory Board for an amount
of $60,000.

<PAGE>
                                                                              22


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

11 - RELATED PARTY TRANSACTIONS (Continued)

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

<TABLE>
<CAPTION>
                                                       Eight-month    Twelve-month    Twelve-month
                                                       fiscal year     fiscal year     fiscal year
                                                             ended           ended           ended
                                                      December 31,       April 30,       April 30,
                                                              2003            2003            2002
                                                     -------------    ------------    ------------
<S>                                                     <C>             <C>             <C>
Professional fees                                       $       --      $   58,046      $  142,483
Share issue expenses and capital transaction costs              --              --         944,077
                                                        ----------      ----------      ----------
                                                        $       --      $   58,046      $1,086,560
                                                        ==========      ==========      ==========
</TABLE>

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

12 - RESEARCH AND DEVELOPMENT EXPENSES

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

<TABLE>
<CAPTION>
                                       Eight-month      Twelve-month      Twelve-month
                                       fiscal year       fiscal year       fiscal year
                                             ended             ended             ended
                                      December 31,         April 30,         April 30,
                                              2003              2003              2002
                                      ------------      ------------      ------------
<S>                                    <C>               <C>               <C>
Research and development expenses      $ 3,925,506       $ 6,305,262       $ 6,614,157
Investment tax credits                    (433,865)         (570,792)         (329,946)
                                       -----------       -----------       -----------
                                       $ 3,491,641       $ 5,734,470       $ 6,284,211
                                       ===========       ===========       ===========
</TABLE>

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.

13 - INCOME TAXES

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

The variance between the statutory income tax rate (31.05% for December 31,
2003, 34.48% for April 30, 2003 and 36.50% for April 30, 2002) and the Company's
effective income tax rate (nil for December 31, 2003, 12.7% for April 30, 2003
and nil for April 30, 2002) for all the fiscal years presented is mainly
attributable to the valuation allowance related to future income tax assets.

<PAGE>
                                                                              23


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

13 - INCOME TAXES (Continued)

Future income tax assets of approximately $19,944,704 as at December 31, 2003
($15,057,000 as at April 30, 2003) 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 fiscal years. They are summarized as follows:

<TABLE>
<CAPTION>
                                                                       Eight-month      Twelve-month
                                                                       fiscal year       fiscal year
                                                                             ended             ended
                                                                      December 31,         April 30,
                                                                              2003              2003
                                                                     -------------      ------------
<S>                                                                   <C>               <C>
Future income tax assets resulting from
     Tax losses                                                       $ 16,483,069      $ 11,562,000
     Research and development expenses                                   2,656,248         2,906,000
     Excess of tax basis over carrying value of assets                     805,387           589,000
                                                                      ------------      ------------
                                                                        19,944,704        15,057,000
Valuation allowance                                                    (19,944,704)      (15,057,000)
                                                                      ------------      ------------
Net future income tax assets recorded                                 $         --      $         --
                                                                      ============      ============
</TABLE>

As at December 31, 2003, the losses and unused income tax deductions are
available as follows:

<TABLE>
<CAPTION>
                                                                           Federal        Provincial
                                                                      ------------      ------------
<S>                                                                   <C>               <C>
Non-capital losses expiring in
     2004                                                             $  2,938,000      $  2,573,000
     2005                                                                4,037,000         4,192,000
     2006                                                                3,824,000         3,908,000
     2007                                                               10,636,000        10,669,000
     2008                                                               13,206,000        13,203,000
     2009                                                                8,670,000         8,633,000
     2010                                                                6,571,000         6,620,000
                                                                      ------------      ------------
                                                                        49,882,000        49,798,000
Unused income tax deductions
     Research and development expenses which can be deferred over
     an indefinite period                                                7,824,914        12,254,912
                                                                      ------------      ------------
                                                                      $ 57,706,914      $ 62,052,912
                                                                      ============      ============
</TABLE>

14 - SEGMENT INFORMATION

Following the disposal of the industrial division (Note 10) during the first
quarter of the twelve-month fiscal year ended April 30, 2003, only the optical
molecular imaging segment remains for decision making and performance assessment
purposes.

<PAGE>
                                                                              24


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

15 - CONTRACTUAL COMMITMENTS

The Company is committed under operating leases expiring between 2004 and 2012
to pay a total amount of $3,179,925 principally for its premises.

The annual commitments for the next five years are as follows:

                                                                    December 31,
                                                                            2003
                                                                    ------------

2004                                                                  $  395,307
2005                                                                     358,768
2006                                                                     351,999
2007                                                                     352,736
2008                                                                     358,363

16 - CONTINGENCY

Letters of credit

As at December 31, 2003, letters of credit of $154,262 (CA$200,000) and $77,130
(CA$100,000) have been issued in favour of a lessor with respect to the rental
of certain premises by the Company. A term deposit maturing in April 2004 has
been provided as security for these letters of credit.

17 - 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.

<PAGE>
                                                                              25


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

18 - 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 consolidated statements of loss and comprehensive loss

<TABLE>
<CAPTION>
                                                 Eight-month     Twelve-month     Twelve-month
                                                 fiscal year      fiscal year      fiscal year
                                                       ended            ended            ended
                                                December 31,        April 30,        April 30,
                                                        2003             2003             2002
                                                ------------     ------------     ------------
<S>                                              <C>              <C>              <C>
Net loss under Canadian and U.S. GAAP            $ 5,832,025      $ 6,546,604      $10,881,500
Change in cumulative translation adjustments
account(a)                                          (768,167)        (630,301)         429,266
                                                 -----------      -----------      -----------
Comprehensive loss under U.S. GAAP               $ 5,063,858      $ 5,916,303      $11,310,766
                                                 ===========      ===========      ===========
</TABLE>

Differences in reported amounts on consolidated balance sheets

<TABLE>
<CAPTION>
                                                        Canadian
                                                            GAAP       Adjustments         U.S. GAAP
                                                    ------------      ------------      ------------
<S>                                                 <C>               <C>               <C>
December 31, 2003
     Capital stock, stock purchase warrants and
     contributed surplus(b)(c)                      $ 67,888,890      $ (6,959,591)     $ 60,929,299
     Deficit(b)(c)                                   (56,753,062)        7,300,392       (49,452,670)
     Cumulative translation adjustments(c)               276,564          (340,801)          (64,237)

April 30, 2003
     Capital stock, stock purchase warrants and
     contributed surplus(b)(c)                      $ 56,265,536      $ (5,599,588)     $ 50,665,948
     Deficit(b)(c)                                   (49,561,034)        5,940,389       (43,620,645)
     Cumulative translation adjustments(c)              (491,603)         (340,801)         (832,404)

April 30, 2002
     Capital stock, stock purchase warrants and
     contributed surplus(b)(c)                      $ 48,045,060      $ (4,894,378)     $ 43,150,682
     Deficit(b)(c)                                   (42,309,220)        5,235,179       (37,074,041)
     Cumulative translation adjustments(c)            (1,121,904)         (340,801)       (1,462,705)
</TABLE>

(a)   Comprehensive income

      Under U.S. GAAP, Statement of Financial Accounting Standard SFAS No. 130,
      Reporting Comprehensive Income, requires that changes during the fiscal
      year in the cumulative translation adjustments account are to be included
      in the computation of comprehensive income (loss).

<PAGE>
                                                                              26


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

18 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

(b)   Share and share purchase warrant issue expenses

      U.S. GAAP require that share and share purchase warrant issue expenses of
      $1,360,003 for the eight-month fiscal year ended December 31, 2003
      ($705,210 and $1,022,662 for the twelve-month fiscal year ended April 30,
      2003, and 2002, respectively) 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.

Other information

Prior year information comparable to the transition period :

<TABLE>
<CAPTION>
                                             Eight-month     Eight-month      Eight-month
                                             fiscal year    period ended     period ended
                                                   ended    December 31,     December 31,
                                            December 31,            2002             2001
                                                    2003     (unaudited)      (unaudited)
                                            ------------   -------------     ------------
<S>                                          <C>             <C>              <C>
Operating loss                               $ 5,563,477     $ 5,148,797      $ 7,159,949
Loss from continuing operations                5,832,025       4,194,265        6,728,088
Loss (gain) from discontinued operations              --      (2,521,018)       1,084,770
Net loss                                       5,832,025       1,673,247        7,812,858
</TABLE>

Classification of "other expenses"

Under U.S. GAAP, the item "other expenses" must be classified as an operating
expense.

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 fiscal years
ended December 31, 2003, April 30, 2003, and April 30, 2002, was estimated using
the Black & Scholes option-pricing model, taking into account an expected life
of 4.5 years for December 31, 2003, seven years for April 30, 2003 and 2002.
Other assumptions used for purposes of valuation include expected volatility of
70% for December 31, 2003 (70% for April 30, 2003 and 60% for April 30, 2002),
the weighted average risk-free interest rate of 3.84% for December 31, 2003
(4.72% for April 30, 2003, and 4.98% for April 30, 2002), and 0% dividend
policy. A compensation expense is recorded over the vesting periods.

<PAGE>
                                                                              27


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

18 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

If the fair value method of accounting had been applied, the Company's net loss
and net loss per share for the fiscal years ended December 31, 2003, April 30,
2003, and April 30, 2002, would have been, on a pro forma basis:

<TABLE>
<CAPTION>
                                                      Eight-month     Twelve-month     Twelve-month
                                                      fiscal year      fiscal year      fiscal year
                                                            ended            ended            ended
                                                     December 31,        April 30,        April 30,
                                                             2003             2003             2002
                                                     ------------     ------------     ------------
<S>                                                  <C>              <C>              <C>
Net loss as reported                                 $  5,832,025     $  6,546,604     $ 10,881,500
Less: compensation expense recognized in the
consolidated statement of operations and deficit          (18,206)              --               --
Plus: total compensation expense under the
fair value based method                                   185,028          270,121        1,168,132
                                                     ------------     ------------     ------------
Pro forma net loss                                   $  5,998,847     $  6,816,725     $ 12,049,632
                                                     ============     ============     ============
Basic and diluted net loss per share as reported     $      (0.20)    $      (0.28)    $      (0.54)
Basic and diluted net loss per share, pro forma      $      (0.20)    $      (0.29)    $      (0.60)
</TABLE>

The weighted average fair value of options granted for the eight-month fiscal
year ended December 31, 2003 was $1.36 ($0.92 and $1.55 for the twelve-month
fiscal years ended April 30, 2003 and 2002, respectively).

Accounting changes

Guarantor's Accounting and Disclosure Requirements for Guarantees

During the eight-month fiscal year ended December 31, 2003, the Company adopted
FASB Interpretation ("FIN") 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others: an interpretation of FASB Statements No. 5, 57 and 107 and rescission of
FASB No. 34. FIN 45 requires guarantors to recognize a liability at the
inception of the guarantee and record it at its fair value. Required disclosures
for guarantees include the nature of the guarantee, the maximum potential
undiscounted amount of future payments the guarantor could be required to make
under the guarantee and the current carrying amount of the liability, if any,
for the guarantor's obligations under the guarantee. Guarantees contemplated by
the disclosure requirements of FIN 45 include product warranties, provisions in
a business combination to pay contingent consideration and guarantees issued
between related parties.

The Company estimates its warranty costs at the time of revenue recognition,
based on historical warranty claims experience, and records the expense in "cost
of sales". The warranty accrual balance is reviewed quarterly to establish that
it materially reflects the remaining obligation, based on the anticipated future
expenditures over the balance of the obligation period. Adjustments are made
when the actual warranty claim experience differs from estimates.

<TABLE>
<S>                                                                                <C>
The change in the Company's accrued warranty obligations was as follows:
2003 warranty provision and accrued warranty obligations at December 31, 2003      $  14,877
                                                                                   =========
</TABLE>

<PAGE>
                                                                              28


ART Advanced Research Technologies Inc.
Notes to Consolidated Financial Statements
(In U.S. dollars)

18 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (Continued)

Consolidation of Variable Interest Entities

In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities: an interpretation of ARB No. 151. Variable interest entities are
required to be consolidated by their primary beneficiary. The primary
beneficiary is the party that absorbs a majority of the entity's expected
losses, receives a majority of its expected returns, or both. The FASB issued
staff positions in July, October and December 2003 to give further
implementation guidance. There are no material variable interest entities which
will be required to be consolidated under the provisions of FIN 46.

Accounting for Certain Financial Instruments

The FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity, on May 15, 2003. Namely, SFAS
No. 150 changes the classification in the balance sheet of certain common
financial instruments, such as mandatory redeemable preferred and common shares,
from equity presentation to liabilities and require an issuer of those financial
instruments to recognize changes in fair value or redemption amount, as
applicable, in earnings. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003 and at the beginning of the first
interim period beginning after July 1, 2003 for financial instruments issued
before June 30, 2003. The adoption of SFAS No. 150 did not have a material
impact on the consolidated financial statements.

19 - SUBSEQUENT EVENTS

On March 2, 2004, the Company signed an underwriting agreement with a syndicate
of underwriters. Simultaneously, the Company filed a final prospectus with
securities regulatory authorities in each of the provinces of Canada for the
offering of 7,500,000 common shares of the Company at an issue price of CA$2.00
per share, for a total of CA$15,000,000. The underwriters also have an option,
exercisable within 30 days of the closing date, to purchase up to a maximum of
1,125,000 additional common shares at the same issue price of CA$2.00 per share.
The closing of the offering took place on March 10, 2004 at which date the
Company received total proceeds of approximately $10,500,000 (CA$13,650,000) net
of the underwriters' fee and other related expenses amounting to aproxomately
$1,000,000 (CA$1,350,000) which were not tax affected and were recorded as a
charge to the deficit account.


<PAGE>

                                                                             101

ART Advanced Research Technologies Inc.
Matching figures in the financial statements

<TABLE>
<CAPTION>
                                                                             December 31, 2003
                                                         -------------------------------------
<S>                                                             <C>                <C>
                                                                 Variance               Amount
Balance sheets

Assets                                                                              13,704,796
Liabilities and Equity                                                              13,704,796

Accounts receivable
     Balance sheets                                                                    801,649
     Note                                                                              801,649

Equipment
     Balance sheets                                                                    478,218
     Note                                                                              478,218

Patents
     Balance sheets                                                                  1,322,184
     Notes                                                                           1,322,184

Accounts payable and accrued liabilities
     Balance sheets                                                                  2,292,404
     Note                                                                            2,292,404

Capital stock and share purchase warrants (Note 8)
     Balance sheets                                                                 67,870,684
     Notes
         Shares                                                                     65,955,938
         Share purchase warrants                                                     1,914,746
         Total                                                                      67,870,684

<CAPTION>
                                                                               April 30, 2003                         April 30, 2002
                                                         ------------------------------------    -----------------------------------
<S>                                                          <C>                     <C>             <C>                    <C>
                                                                  Amount             Variance             Amount            Variance
Balance sheets

Assets                                                         8,032,130
Liabilities and Equity                                         8,032,130

Accounts receivable
     Balance sheets                                              124,910
     Note                                                        124,910

Equipment
     Balance sheets                                              386,121
     Note                                                        386,121

Patents
     Balance sheets                                            1,126,628
     Notes                                                     1,126,628

Accounts payable and accrued liabilities
     Balance sheets                                            1,819,231
     Note                                                      1,819,231

Capital stock and share purchase warrants (Note 8)
     Balance sheets                                           56,265,536
     Notes
         Shares                                               55,487,915
         Share purchase warrants                                 777,621
         Total                                                56,265,536
</TABLE>

<PAGE>

                                                                             102

ART Advanced Research Technologies Inc.
Matching figures in the financial statements

<TABLE>
<CAPTION>
                                                                             December 31, 2003
                                                         -------------------------------------
<S>                                                             <C>                <C>
                                                                 Variance               Amount
Capital stock, share purchase warrants and c.surplus
     Balance sheets                                                                 67,888,890
     Note on US GAAP                                                                67,888,890

Cumulative translation adjustments
     Balance sheets                                                                    276,564
     Note on US GAAP                                                                   276,564

Operations and Deficit

Research and development expenses
     Operations and Deficit                                                          3,491,641
     Note                                                                            3,491,641

Discontinued operation loss (profit)
     Operations and Deficit
     Note                                                              --

Net loss
     Operations and Deficit                                                         (5,832,025)
     Cash flows                                                                     (5,832,025)

Deficit
     Beginning 2003 vs end 2002                                                     49,561,034
     Beginning 2002 vs end 2001

Deficit, end of year
     Deficit                                                                       (56,753,062)
     Balance sheets                                                                (56,753,062)
     Note on US GAAP ( Differences in...)                                          (56,753,062)

<CAPTION>
                                                                               April 30, 2003                         April 30, 2002
                                                         ------------------------------------    -----------------------------------
<S>                                                          <C>                     <C>             <C>                    <C>
                                                                  Amount             Variance             Amount            Variance
Capital stock, share purchase warrants and c.surplus
     Balance sheets                                           56,265,536
     Note on US GAAP                                          56,265,536

Cumulative translation adjustments
     Balance sheets                                             (491,603)
     Note on US GAAP                                            (491,603)

Operations and Deficit

Research and development expenses
     Operations and Deficit                                    5,734,470                               6,284,211
     Note                                                      5,734,470                               6,284,211

Discontinued operation loss (profit)
     Operations and Deficit                                   (2,479,841)                              1,536,017
     Note                                                     (2,479,841)                              1,536,017

Net loss
     Operations and Deficit                                   (6,546,604)                            (10,881,500)
     Cash flows                                               (6,546,604)                            (10,881,500)

Deficit
     Beginning 2003 vs end 2002                               49,561,034
     Beginning 2002 vs end 2001                               42,309,220                              42,309,220

Deficit, end of year
     Deficit                                                 (49,561,034)
     Balance sheets                                          (49,561,034)
     Note on US GAAP ( Differences in...)                    (49,561,034)
</TABLE>

<PAGE>

                                                                             103

ART Advanced Research Technologies Inc.
Matching figures in the financial statements

<TABLE>
<CAPTION>
                                                                             December 31, 2003
                                                         -------------------------------------
<S>                                                             <C>                <C>
                                                                 Variance               Amount

Cash flows

Amortization expenses
     Cash flows                                                                        136,643
     Operations and Deficit                                                            136,643

Share issue expenses
     Cash flows                                                                     (1,360,003)
     Operations and Deficit                                                         (1,360,003)

Cash and cash equivalents (CCE)
     Balance sheets
         Cash                                                                        4,200,128
         Commercial paper                                                            4,993,040
         Total                                                                       9,193,168
     Cash and cash equivalents, end of year                     4,993,040            4,200,128
     Total of CCE (detailed)                                  OK, ca                 4,200,128
     Beginning 2003 vs end 2002                                                        830,005
     Beginning 2002 vs end 2001
     Detail:
     Cash
         Bsheets                                                                     4,200,128
         Cash flows                                                                  4,200,128
     Commercial paper
         Bsheets                                                                     4,993,040
         Cash flows                                             4,993,040                   --
                                                              OK, ca

<CAPTION>
                                                                               April 30, 2003                         April 30, 2002
                                                         ------------------------------------    -----------------------------------
<S>                                                          <C>                     <C>             <C>                    <C>
                                                                  Amount             Variance             Amount            Variance
Cash flows

Amortization expenses
     Cash flows                                                  138,173                                 201,328
     Operations and Deficit                                      138,173                                 201,328

Share issue expenses
     Cash flows                                                 (705,210)                             (1,022,662)
     Operations and Deficit                                     (705,210)                             (1,022,662)

Cash and cash equivalents (CCE)
     Balance sheets
         Cash                                                    830,005
         Commercial paper                                             --
         Total                                                   830,005
     Cash and cash equivalents, end of year                      830,005
     Total of CCE (detailed)                                     830,005
     Beginning 2003 vs end 2002                                  830,005
     Beginning 2002 vs end 2001                                  697,269                                 697,269
     Detail:
     Cash
         Bsheets                                                 830,005
         Cash flows                                              830,005
     Commercial paper
         Bsheets                                                      --
         Cash flows                                                   --

</TABLE>

<PAGE>

                                                                             104

ART Advanced Research Technologies Inc.
Matching figures in the financial statements

<TABLE>
<CAPTION>
                                                                             December 31, 2003
                                                         -------------------------------------
<S>                                                             <C>                <C>
                                                                 Variance               Amount

Note -CAPITAL STOCK AND SHARE PURCHASE WARRANTS

Number of common shares - beginning 2003 vs end 2002                                26,673,341
Number of common shares - beginning 2002 vs end 2001

Value of common shares - beginning 2003 vs end 2002                                 55,487,915
Value of common shares - beginning 2002 vs end 2001


Number of share purchase warrants
     Number
         Beginning vs end                                                            2,465,237
         Beginning vs end
     Value
         Beginning vs end                                                              777,621
         Beginning vs end
     Exercise price CA$
         Beginning vs end                                                                 5.66
         Beginning vs end

Note - STOCK-BASED COMPENSATION PLAN

Number of options
     Beginning vs end                                                                1,476,200
     Beginning vs end

Weighted average exercise price
     Beginning vs end                                                                     4.06
     Beginning vs end

<CAPTION>
                                                                               April 30, 2003                         April 30, 2002
                                                         ------------------------------------    -----------------------------------
<S>                                                          <C>                     <C>             <C>                    <C>
                                                                  Amount             Variance             Amount            Variance

Note -CAPITAL STOCK AND SHARE PURCHASE WARRANTS

Number of common shares - beginning 2003 vs end 2002          26,673,341
Number of common shares - beginning 2002 vs end 2001          20,523,591                              20,523,591

Value of common shares - beginning 2003 vs end 2002           55,487,915
Value of common shares - beginning 2002 vs end 2001           47,985,060                              47,985,060


Number of share purchase warrants
     Number
         Beginning vs end                                      2,465,237
         Beginning vs end                                      1,560,000                               1,560,000
     Value
         Beginning vs end                                        777,621
         Beginning vs end                                         60,000                                  60,000
     Exercise price CA$
         Beginning vs end                                           5.66
         Beginning vs end                                           7.50                                    7.50

Note - STOCK-BASED COMPENSATION PLAN

Number of options
     Beginning vs end                                          1,476,200
     Beginning vs end                                          1,207,070                               1,207,070

Weighted average exercise price
     Beginning vs end                                               4.06
     Beginning vs end                                               6.01                                    6.01
</TABLE>

<PAGE>

                                                                             105

ART Advanced Research Technologies Inc.
Matching figures in the financial statements

<TABLE>
<CAPTION>
                                                                             December 31, 2003
                                                         -------------------------------------
<S>                                                             <C>                <C>
                                                                 Variance               Amount
Note  - US GAAP

Net loss
     Note                                                                            5,832,025
     Loss and deficit                                                                5,832,025
     Note (Same - Other info)                                                        5,832,025
     Note (Same - Accounting for sbcompensation)                                     5,832,025

Basic and diluted net loss per share as reported ($)
     Note                                                                                 0.20
     Loss and deficit                                                                     0.20

                                                         --------------------------------------
TOTAL :                                                         9,986,080
                                                         ======================================

<CAPTION>
                                                                               April 30, 2003                         April 30, 2002
                                                         ------------------------------------    -----------------------------------
<S>                                                          <C>                     <C>             <C>                    <C>
                                                                  Amount             Variance             Amount            Variance

Note  - US GAAP

Net loss
     Note                                                      6,546,604                              10,881,500
     Loss and deficit                                          6,546,604                              10,881,500
     Note (Same - Other info)
     Note (Same - Accounting for sbcompensation)               6,546,604                              10,881,500

Basic and diluted net loss per share as reported ($)
     Note                                                           0.28                                    0.54
     Loss and deficit                                               0.28                                    0.54

                                                         ---------------------------------------------------------------------------
TOTAL :
                                                         ===========================================================================
</TABLE>