<PAGE>



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

                           ANNUAL REPORT ON FORM 20-F
                                  Annual Report

                       Pursuant to Section 13 or 15(d) of

                       The Securities Exchange Act of 1934

                  For the Fiscal Year ended December 31, 2004

                         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:

42,664,523 Common Shares as of December 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


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

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS............   4

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE..........................   4

ITEM 3.  KEY INFORMATION..................................................   4

ITEM 4.  INFORMATION ON THE COMPANY.......................................  11

ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS.....................  48

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.......................  61

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS................  76

ITEM 8.  FINANCIAL INFORMATION............................................  77

ITEM 9.  THE OFFER AND LISTING............................................  78

ITEM 10. ADDITIONAL INFORMATION...........................................  79

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.......  83

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES...........  83

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES..................  83

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
         AND USE OF PROCEEDS..............................................  83

ITEM 15. CONTROL AND PROCEDURES...........................................  84

ITEM 16. [RESERVED].......................................................  84

ITEM 16A AUDIT COMMITTEE FINANCIAL EXPERT.................................  84

ITEM 16B CODE OF ETHICS...................................................  84

ITEM 16C PRINCIPAL ACCOUNTANT.............................................  84

ITEM 16D EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES...........  85
</TABLE>

<PAGE>

                                     - 2 -


<TABLE>
<S>                                                                         <C>
ITEM 16E PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
         PURCHASERS........................................................  85

ITEM 17. FINANCIAL STATEMENTS..............................................  85

ITEM 18. FINANCIAL STATEMENTS..............................................  85

ITEM 19. EXHIBITS..........................................................  86
</TABLE>

         UNLESS OTHERWISE INDICATED ALL FIGURES SET FORTH IN THIS ANNUAL REPORT
         ARE IN UNITED STATES DOLLARS. CERTAIN FINANCIAL INFORMATION SET FORTH
         HEREIN HAS BEEN PROVIDED IN CANADIAN DOLLARS. AT DECEMBER 31, 2004,
         THE EXCHANGE RATE BETWEEN THE CANADIAN DOLLAR AND THE US DOLLAR WAS CA
         $1.00 = US $0.8319.



<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 imaging systems for the medical and pharmaceutical industries. ART is
in the process of bringing to market SoftScan(R), an optical imaging device,
which uses the Company's time domain technology to detect, diagnose and
characterize breast cancer. This product represents a new imaging solution for
the detection, diagnosis and characterization of breast cancer without the
adverse consequences associated with more invasive technology. The Company
believes that SoftScan(R) also offers a solution to issues relating to quality
of care and treatment costs that the medical sector is facing. In order to gain
rapid entry into the market for breast cancer detection, diagnostic and
characterization devices, SoftScan(R) is initially being introduced as a
diagnostic device able to complement other screening and diagnostic
technologies, such as digital X-ray, that are designed to detect breast cancer.
The Company is also actively pursuing strategic relationships with leading
organizations in order to facilitate SoftScan(R)'s early market entry. To date,
the Company has entered into strategic alliances or relationships with
Massachusetts General Hospital ("MGH") and with the National Optics Institute
("INO"). The Company and GE Healthcare (formerly known as "GE Medical Systems")
have also concluded a strategic alliance consisting of an equity investment, an
agreement for the development of new optical molecular imaging applications as
well as an agreement for the marketing, manufacture and distribution of
SoftScan(R). Under the terms of the agreement, ART retains full ownership and
control of all of ART's intellectual property and of its technology platform.
The Company's imaging technologies are also capable of being leveraged for
various applications. The potential demonstrated by time domain optical imaging
opened the door to a new and promising field of biomedical applications:
molecular imaging. ART has applied this technology to the imaging of small
laboratory animals used in the pharmaceutical industry, in order to determine
the toxicity of new drugs and to identify their pathways in the bodies of
animals, thus providing a tool for improved efficiency and accuracy in drug
development. Originally known as "SAMI(TM)", and now known and distributed by GE
Healthcare under the name "eXplore Optix(TM)", this new proprietary molecular
imaging product was launched in 2003 and was specifically designed to
characterize, visualize and measure cellular and molecular processes and
pathways in small animals.

<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 information

The following table sets forth selected historical financial information of the
Company for the year ended December 31, 2004, the eight-month period ended
December 31, 2003 and each of the previous three years ending April 30th. The
information under Statement of Operations and Deficit Data and Balance Sheets
Data is derived from the Financial Statements of the Company contained elsewhere
in this Annual Report. The information set forth under Other Data is derived
from financial information used to prepare the Financial Statements of the
Company. The Company's Financial Statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") in Canada and using the
U.S. dollar as reporting currency. See note 19 to the financial statements for a
reconciliation to U.S. GAAP. The following information should be read in
conjunction with, and is qualified in its entirety by "Management's Discussion
and Analysis of Results of Operations and Financial Condition" and the Company's
"Financial Statements".

<PAGE>
                                     - 5 -


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

<TABLE>
<CAPTION>
                                                                       Eight-month
                                                                          period                        Year ended
                                                        Year ended        ended        --------------------------------------------
                                                       December 31,    December 31,      April 30,       April 30,      April 30,
                                                            2004           2003           2003(b)         2002(b)         2001(b)
                                                       ------------    ------------    ------------    ------------    ------------
<S>                                                    <C>             <C>             <C>             <C>             <C>
SALES                                                  $  1,935,000    $    681,875    $         --    $         --    $         --

Cost of sales                                               915,087         377,744              --              --              --
                                                       ------------    ------------    ------------    ------------    ------------
GROSS MARGIN                                              1,019,913         304,131              --              --              --
OPERATING EXPENSES
Research and development                                  7,511,485       3,491,641       5,734,470       6,284,211       4,637,301
Selling, general and administrative                       3,474,446       2,239,324       2,885,065       3,215,654       3,746,212
Amortization                                                249,627         136,643         138,173         210,328          93,430
                                                       ------------    ------------    ------------    ------------    ------------
                                                         11,235,558       5,867,608       8,757,708       9,701,193       8,476,943
                                                       ------------    ------------    ------------    ------------    ------------
Operating loss                                           10,215,645       5,563,477       8,757,708       9,701,193       8,476,943
Interest expense                                                 --              --             393           3,278           7,695
Interest income                                            (300,221)        (63,384)        (99,674)       (183,826)       (295,215)
Foreign Exchange loss (gain)                                 13,179         331,932         219,065        (175,162)             --
Other expenses                                                   --              --       1,467,621              --              --
                                                       ------------    ------------    ------------    ------------    ------------
Loss from continuing operations before income taxes       9,928,603       5,832,025      10,345,113       9,345,483       8,189,423
Current income taxes recovered                                   --              --      (1,318,668)             --              --
                                                       ------------    ------------    ------------    ------------    ------------
Loss from continuing operations                           9,928,603       5,832,025       9,026,445       9,345,483       8,189,423
Loss (profit) from discontinued operations                       --              --      (2,479,841)      1,536,017       1,675,948
                                                       ------------    ------------    ------------    ------------    ------------
NET LOSS (CANADIAN GAAP)                               $  9,928,603    $  5,832,025    $  6,546,604    $ 10,881,500    $  9,865,371
                                                       ============    ============    ============    ============    ============
Basic and diluted loss per share - from continuing
operations (Canadian GAAP)                             $       0.24    $       0.20    $       0.38    $       0.46    $       0.47
                                                       ============    ============    ============    ============    ============
Basic and diluted earnings (loss) per share from
discontinued operations (Canadian GAAP)                $         --    $         --    $      (0.10)   $       0.08    $       0.09
                                                       ============    ============    ============    ============    ============
Basic and diluted net loss per share (Canadian GAAP)
                                                       $       0.24    $       0.20    $       0.28    $       0.54    $       0.56
                                                       ============    ============    ============    ============    ============

NET LOSS (U.S. GAAP)                                   $ 10,126,100    $  5,998,847    $  6,816,725    $ 12,049,632    $ 11,432,121
                                                       ============    ============    ============    ============    ============
Basic and diluted net loss per share - U.S. GAAP       $       0.25    $       0.20    $       0.29    $       0.60    $       0.65
                                                       ============    ============    ============    ============    ============
</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 19 to the Financial Statements.

(b)  See Notes 11 of the Financial Statements


<PAGE>
                                     - 6 -


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

---------------------------

(a)  In certain respects, Canadian GAAP differs from U.S. GAAP. For a more
     extensive discussion of the differences between Canadian GAAP and U.S.
     GAAP, see note 19 to the Financial Statements.

     B.   Capitalization and Indebtedness

Not applicable.

     C.   Reasons for the Offer and Use of Proceeds

Not applicable.

     D.   Risk Factors

ABSENCE OF PROFITABILITY

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


UNCERTAINTY OF LIQUIDITY AND CAPITAL REQUIREMENTS

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

<PAGE>
                                     - 7 -


favorable terms. The availability of financing will be affected by the results
of our scientific and clinical research, our ability to attain regulatory
approvals, the market acceptance of our products, the state of the capital
markets generally (with particular reference to biotechnology and medical device
companies), the status of strategic alliance agreements, and other relevant
commercial considerations. If adequate funds are not available, the Company may
have to substantially reduce or eliminate expenditures for research and
development, testing, production and marketing of its products, or obtain funds
through arrangements with corporate partners that may require the Company to
relinquish rights to certain of its technologies or products. There can be no
assurance that the Company will be able to raise additional capital if its
capital resources are exhausted.

NO ASSURANCE OF SUCCESSFUL DEVELOPMENT

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

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

<PAGE>
                                     - 8 -


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

NO ASSURANCE OF SUCCESSFUL COMMERCIAL ACCEPTANCE

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

DEPENDENCE ON THIRD PARTY RELATIONSHIPS

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

<PAGE>
                                     - 9 -


PATENTS AND PROPRIETARY TECHNOLOGY

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

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

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

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


COMPETITION

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

<PAGE>
                                     - 10 -


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 of development objectives. The loss of key employees may affect the
speed and success of product development.

RAPID TECHNOLOGICAL CHANGES

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

<PAGE>
                                     - 11 -


MANAGEMENT OF GROWTH

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

VOLATILITY OF SHARE PRICE

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

POTENTIAL FLUCTUATIONS IN FINANCIAL RESULTS AND FORECASTING

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

FOREIGN CURRENCIES

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

INTEREST RATE SENSITIVITY

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



ITEM 4.  INFORMATION ON THE COMPANY

A. History and development of the company

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

<PAGE>
                                     - 12 -


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

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

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

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

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

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

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

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

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

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

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

<PAGE>
                                     - 13 -


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

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

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

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

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

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

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

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

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

<PAGE>
                                     - 14 -


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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>
                                     - 15 -


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

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

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

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

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

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

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

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

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


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

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

On March 29, 2004, ART presented at the Annual Meeting of the Academy of
Molecular Imaging the results of a study demonstrating the high quantitation,
precise three-dimensional

<PAGE>
                                     - 16 -


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.

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

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

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

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

On October 19, 2004, ART announced the appointment of an outstanding group of
clinical physicians and scientists, considered to be leading experts in the
field of breast imaging and radiology, to its Clinical Advisory Board. On
November 16, 2004, ART announced the appointment of Mr. George N. Fugelsang to
its Board of Directors.

<PAGE>
                                     - 17 -


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

B.  Business Overview

INDUSTRY OVERVIEW

The Company's principal goal is to become a leading provider of optical imaging
products for the healthcare and pharmaceutical industries.

Medical Diagnostic Imaging Devices

Diagnostic imaging devices create images of body organs and tissues, in order to
assist in the detection and diagnosis of diseases and injuries. These devices
represent an important component of health care expenditures and are
encountering solid market growth. According to the Frost and Sullivan market
study "U.S. Medical Imaging Industry Outlook", the primary factors driving
strong growth for the medical imaging industry include greater imaging needs of
the aging population, advanced technologies that allow imaging to replace
invasive procedures, the introduction of products with increased functionality
that draw interest from groups outside of the radiology department, increased
digitization, and a movement towards molecular imaging. Worldwide revenues for
medical imaging market is expected to grow from US$28.7 billion in 2004
(including US$18.1 billion for imaging equipment alone) to more than US$38
billion in 2008, representing a compound annual growth rate (CAGR) of 7.7%.
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 revenues of more than US$337 million in 2007, representing a
compound annual growth rate of 56.5% from 2004 to 2007. 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. By 2007, the digital x-ray
mammography market is expected to have completely overtaken analog mammography
revenues. As imaging is still primarily used to diagnose, the technology is also
increasingly being deployed for early detection, and for intermittent use
between treatments to make sure a specific treatment plan is efficacious. Frost
& Sullivan confirms that as much as molecular imaging is important today, it
will become even more important in the years to come.

Cancer Facts and Figures

According to the National Cancer Institute of Canada ("NCIC"), an estimated
145,500 new cases of cancer and 68,300 deaths from cancer occurred 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 1,372,910 new cancer cases will be diagnosed
in 2005. (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 570,280 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

<PAGE>
                                     - 18 -


National Institutes of Health in the U.S. estimates overall costs for cancer in
2004 at $189.8 billion: $69.4 billion for direct medical costs (total of all
health expenditures); $16.9 billion of indirect morbidity costs (costs of lost
productivity due to illness); and $103.5 billion for indirect mortality costs
(costs of lost productivity due to premature death).

In 2004 the most frequently diagnosed cancers in Canada were expected to be
breast cancer for women and prostate cancer for men. According to the World
Health Organization ("WHO"), breast cancer is the most common form of cancer
among women worldwide. Breast cancer accounts for 29.9% of all new cancer cases
in Canadian women and 31.9% 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 211,240 new invasive cases of breast cancer are expected to occur
among women during 2005 and about 1,690 new cases are expected in men in 2005.
An estimated 40,870 deaths (40,410 women, 460 men) are anticipated from breast
cancer in 2005 in the U.S. In addition to invasive breast cancer, 58,490 new
cases of in situ breast cancer are expected to occur among women during 2005.
Likewise in Canada, an estimated 21,200 new cases of breast cancer were expected
to occur among women and about 145 new cases were 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.

Breast cancer death rates have declined steadily since 1986. In fact, the most
recent data shows the breast cancer death rate to be at its lowest since 1950 in
Canada. Following a small but steady annual increase over three decades, breast
cancer incidence among women levelled off in 1993 in Canada. 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 97.5% to 80.4% after the cancer has
spread to the lymph nodes, and to 25.5% 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

<PAGE>
                                     - 19 -


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 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 should increase more than seven times between
1980 and 2004, increasing from US$245.8 billion to approximately US$1.79
trillion. The United States and Canada are estimated to be among the world's top
five per capita spenders on health care. As a result, purchasers of medical
diagnostic imaging devices in North America, which include hospitals, group
purchasing organizations, specialized imaging centers, research institutes and
medical clinics, are striving to reduce costs while offering superior service to
patients. They are demanding devices that provide the most complete information
possible, that are reliable and that are safe for both patient and doctor.

Diagnostic Mammography Devices

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

If a radiologist cannot reach a conclusion on the nature of the lesion or tumor,
an ultrasound exam is often required. To determine if a lesion is malignant or
benign, a breast biopsy will typically be performed on the potentially malignant
tissue. In the United States there are approximately 33 million screening
mammography procedures conducted annually, of which some 3.3 million require
additional testing and 8% to 10% of these will require a biopsy. A biopsy
involves the use of a needle or surgery in order to remove fluid or fragments of
tissue.

<PAGE>
                                     - 20 -


Patients who are referred to biopsy are usually required to schedule the
procedure in advance and generally must wait up to 48 hours for their biopsy
results. Only one fifth of biopsies reveal cancer. This means that in a majority
of cases a patient without cancer has undergone an expensive procedure, which is
often painful, can result in scarring and gives rise to considerable anxiety.
Moreover, X-ray mammography exposes patients to potentially harmful ionizing
radiation and requires painful procedures designed to compress the breast in
order to produce a clearer image.

Some companies in the X-ray mammography field are developing or offering 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.







<PAGE>


                                     - 21 -

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


                             BUSINESS OF THE COMPANY
Corporate Strategy

The Company's principal goal is to become a leading provider of optical imaging
products for the healthcare and pharmaceutical industries. 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 BIOMEDICAL IMAGING MARKET

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

LEVERAGE ITS TECHNOLOGY TO DEVELOP NEW PRODUCTS

By leveraging its knowledge and expertise with respect to medical and
bio-optical applications for its technology, the Company will continue to
develop new applications, which complement or add to its existing product line.
ART may also acquire technologies that will allow the Company to complement or
expand its existing product line. At the same time, the Company will exploit
opportunities to develop applications of its proprietary technology to the small
animal molecular imaging sector, which will not require regulatory approval from
the health authorities thus allowing a faster time-to-market. In the longer
term, the Company intends to pursue opportunities to apply its optical imaging
technology to challenges beyond breast cancer and

<PAGE>


                                     - 22 -


drug development. These challenges include new possible applications of the
SoftScan(R) technology to the fields of neurology and cardiology, and with
respect to prostate cancer. Through continuous market data gathering and
analysis, ART will ensure that its "quick to market" capability is focused on
products with identified needs in market segments which are attractive to the
Company.

EXPAND STRATEGIC RELATIONSHIPS AND ALLIANCES WITH INDUSTRY LEADERS

To facilitate early entry into its target markets, ART is actively pursuing
strategic relationships with leading organizations. This is particularly
important in the biomedical sector because strategic relationships can prove
instrumental in ensuring that a new product gains broad market acceptance,
bringing a company's product to market through a well-developed and extensive
service and distribution network. Developing strategic relationships can also
help ensure that the Company complements its in-house research and development
with knowledge gained from 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 imaging systems for the healthcare and
pharmaceutical sectors. The Company has set short, medium and long-term
objectives in order to reach its goal of becoming a leading provider of optical
imaging solutions to the biomedical sector. In the short-term, the Company
intends to complete clinical trials for SoftScan(R) in accordance with its
regulatory strategy which seeks to obtain approval for SoftScan(R) as an adjunct
diagnostic device to X-ray mammography as a first clinical indication. At the
same time, the Company will pursue the commercialization of its eXplore
Optix(TM) device through its exclusive worldwide distributor, GE Healthcare. Its
pre-clinical optical imaging technology has been brought to market quickly
because it is not used on humans and did not require regulatory approvals by
health authorities. The Company anticipates that revenues generated from this
first commercial application for small animals could assist in funding further
research to adapt optical molecular imaging for human applications. In the
medium-term, the Company plans to secure regulatory approval for SoftScan(R) in
Canada and in the United States, and thereafter in Europe. The Company will
proceed to commercialize SoftScan(R) as soon as it has obtained approval for its
first indication.

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.


<PAGE>

                                     - 23 -


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 and
physiological information about a tumor. Furthermore, SoftScan(R) is also
expected to be effective for imaging and diagnosing diseases in radiologically
dense breasts, which represent a large 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 hyper metabolism.

Time domain optical imaging technology provides a more realistic description of
the tissue being imaged by allowing the separation of light which is scattered
in the tissue from light that is absorbed. This approach should lead to a more
accurate measure of blood volume and oxygen saturation levels within the breast.
For example, an active tumor would 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.

<TABLE>
<CAPTION>
GROUP                            ANTICIPATED ADVANTAGES
----------------------------     ----------------------------------------------------------
<S>                              <C>
Patients                         o   No painful compression of breast.
                                 o   No harmful ionizing radiation.
                                 o   Early characterization of anomalies.
                                 o   Improved diagnosis.
                                 o   Improved 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 part of the axillary
                                     area (area between the breast and armpit).
                                 o   Ability to image patients as many times as needed,
                                     without ionization.
</TABLE>

<PAGE>

                                     - 24 -

<TABLE>
<CAPTION>
GROUP                            ANTICIPATED ADVANTAGES
----------------------------     ----------------------------------------------------------
<S>                              <C>
                                 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 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.
</TABLE>


Technology

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

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

The data collected by the detection module during the sweep is channelled to the
computer for processing by SoftScan(R) proprietary algorithms. Once the scan is
complete, the raw data are saved on 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 blood volume and
blood oxygen content that traditional anatomical imaging modalities do not
generate. Moreover SoftScan(R)'s time domain optical technology captures a
greater amount and quality of data than other optical imaging technologies,
including those based on continuous wave technology. Continuous wave optical
technology is not able to separate light scattering and absorption 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.

<PAGE>

                                     - 25 -


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

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

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

Strategic Alliances

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

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

Regulatory Process

Most countries, including the United States, Canada and countries in the
European Union, require regulatory approval prior to the commercial distribution
of medical devices. Sales of medical devices in Canada are subject to regulation
principally by Health Canada's Therapeutics Products Directorate (TPD). To
secure TPD approval, the Company must demonstrate that: (i) as a diagnostic
device, the device provides information that measurably contributes to a
diagnosis


<PAGE>
                                     - 26 -

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 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.

<PAGE>
                                     - 27 -


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).

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:

<PAGE>
                                     - 28 -


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 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.


<PAGE>
                                     - 29 -


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.

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>
                                     - 30 -


Ongoing Studies

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

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



<TABLE>
<CAPTION>
                                                                                                             FDA/TPD/
                    PILOT STUDY          ENGINEERING      CLINICAL VALIDATION (TISSUE      CLINICAL          EUROPEAN
                    (CONTROLLED)           STUDIES         CHARACTERIZATION) STUDIES    PIVOTAL STUDIES     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.
--------------- --------------------- ------------------- ----------------------------- ---------------- ------------------
                                                                                        Expected to
TIME FRAME       Completed in 2000.    Completed in 2004.  Ongoing since 2003.          start in 2005.   Expected in 2006.
--------------- --------------------- ------------------- ----------------------------- ---------------- ------------------
</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 2005. Regulatory
applications will then be submitted in the United States, Canada and Europe. The
Company expects to file for regulatory approval for its SoftScan(R) optical
breast imaging device in most of these jurisdictions starting in late 2005 or
early 2006. While the Company believes that this is a reasonable timeframe,
there can be no assurance that the Company will successfully adhere to this
schedule due to the unforseeability of the regulatory approval process. Among
other matters, regulatory authorities may require additional pre-clinical and
clinical data than what is initially submitted by the Company and may reject or
disallow the Company's claims and conclusions.

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>
                                     - 31 -

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 more than 40,000 women every year. In Canada,
it is estimated that more than 21,000 women per year will be diagnosed with
breast cancer and that over 5,200 women died of breast cancer in 2004. 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
97.5% today. However, if the breast cancer has spread regionally, the survival
rate is 80.4% and if it has metastasized, the survival rate falls to 25.5%. In
other words, survival is ultimately dependent on when the cancer is first
diagnosed: the earlier it is diagnosed, the better the chances that a woman will
have a longer life. Furthermore, the more accurately tumors can be targeted and
characterized and the more efficiently the effects of treatment can be
determined, the more effectively breast cancer can be treated. The Company
believes that functional imaging can play a new and important role in detecting,
diagnosing and characterizing tumors and in characterizing the course of cancer
treatment.

In recent years there has been significant consolidation in the U.S. health care
sector. In particular, distribution channels have seen hospitals join together
to form integrated health networks and have also seen the growth of major group
purchasing organizations ("GPOs") that purchase medical devices and other
medical equipment and drugs. Overall, about 72 % of purchases that hospitals in
the United States make are done using GPO contracts. The Company believes that
GPOs will continue to dominate spending for medical equipment and drugs.
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>
                                     - 32 -


effectively than other technologies will provide compelling economic and
clinical logic for GPOs and other purchasers to invest in this technology.

Marketing and Distribution

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

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

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

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

Competition

The breast cancer field has many devices that provide good anatomical
information. However, safe functional imaging devices are not as prevalent. The
Company believes that SoftScan(R)'s 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>
                                     - 33 -


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. Since eXplore Optix(TM) is classified as laboratory
equipment, it does not face the same regulatory hurdles as its human
counterpart, SoftScan(R).

The Company believes that there is an important need in the drug development
process for longitudinal in vivo information from animal models regarding drug
targets, pharmacokinetics (drug absorption, distribution, metabolism and
excretion), efficacy, toxicity and side effects. This information ultimately
provides critical pre-clinical information. Standard practice is to sacrifice
animals for tissue analysis or to take blood or urine at regular time points.
This requires time-consuming analysis and extrapolation of in vitro data to make
the data applicable to the in vivo situation. Since optical imaging is
non-invasive, molecular events can be detected and characterized in real-time,
and perhaps more importantly, over time, in the same animal. Following a single
animal over time allows researchers to accurately monitor the effects of
interventions on disease progression and outcome. This ultimately results in
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>
                                     - 34 -


clinical trials. ART believes that eXplore Optix(TM) can diminish the costs
relating to the testing of small animals, as an animal can be scanned by eXplore
Optix(TM) several times a day without being harmed. This in turn permits the
analysis of a greater number of different drug targets subjected to different
drug candidates. Perhaps most importantly, the use of eXplore Optix(TM) can
improve the quality of small animal pre-clinical trials. These factors all speed
the time to market for drugs. The information from small animal trials will
accelerate the screening of new drugs entering human trials, thus potentially
saving millions for the pharmaceutical industry, especially in the United States
where the FDA is requiring more extensive safety data sets for new drug
applications, rising clinical development costs. The information can be used to
further knowledge about the drugs that fail, and thus prevent even more flawed
drugs from entering expensive animal or human trials.

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


eXplore Optix(TM) is based on ART's optical imaging platform and enables an
extensive characterization of fluorescent material embedded in organic tissue.
The innovative design uses the dynamics of time domain light detection to
extract a wealth of data from each set of measurements providing quantitative
information. eXplore Optix(TM) does not use ionizing radiation or radioactive
probes. Instead, eXplore Optix(TM) relies on the injection of fluorescent
probes, which are safe, sensitive, and can be specifically conjugated to small
molecules, antibodies, and proteins. In addition, eXplore Optix(TM) provides the
potential for very high sensitivity (for example, nanomolar concentrations at
depths of 10-15 mm in tissue with similar optical properties as breast).

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.

<PAGE>

                                     - 35 -


In addition to the eXplore Optix(TM) device, which has a single wavelength
excitation capability, the Company spent development efforts in 2004 on two
other products. The first is a next generation eXplore Optix(TM) device, which
incorporates multiple excitation wavelengths (up to four (4) lasers), thereby
expanding the number of fluorescent agents and applications that can be studied.
A product transition to the multiwavelength configuration is planned for early
2005. The second product under development is a software product that will offer
expanded data processing capabilities and 3D (tomography) visualization
capabilities from raw data collected on eXplore Optix(TM) devices.


Regulatory Process

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

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

Marketing and Distribution

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

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

In August 2003, the Company concluded an agreement under which GE Medical
Systems (now known as GE Healthcare) acts as exclusive worldwide distributor for
ART's eXplore Optix(TM) pre-clinical molecular imaging device. Under this
agreement, GE Healthcare purchases eXplore Optix(TM) units from ART and ART
retains manufacturing and sourcing for all eXplore Optix(TM) units sold through
GE Healthcare. ART also retains all rights to the technology and intellectual
property. GE Healthcare is responsible for sales, distribution, training,
marketing and after-sales service.

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

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

<PAGE>
                                     - 36 -


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

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

On March 30, 2004, ART presented at the Annual Meeting of the Academy of
Molecular Imaging the results of a study demonstrating 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.

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

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

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



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.



<PAGE>
                                     - 37 -



<TABLE>
<CAPTION>
                      eXplore Optix(TM) Competition
                      -----------------------------------------------------------------------------------------------------------
                                                                USER REQUIREMENTS
                      -----------------------------------------------------------------------------------------------------------
                                                  No
                                              ionizing             Fluore-                     Real/
                                               radiation           scence                      Time   Cost       User-    Acquisi-
                      Funct-  Target-  Anato-  or radio-            Life-   Quanti  Pharmaco-   In    Effec-    friend-    tion
MODALITY              ional    ed(1)   mical  activity(2)  Depth    time    tative  kinetics   vivo  tiveness   liness     time
---------------------------------------------------------------------------------------------------------------------------------
<S>                   <C>     <C>      <C>      <C>        <C>      <C>       <C>      <C>      <C>     <C>      <C>        <C>
OPTICAL      TD*        x        x                 x         x        x        x        x        x       x        x          x
IMAGING     ---------------------------------------------------------------------------------------------------------------------
             CW**       x        x                 x         ~                          x        x       x        x          x
---------------------------------------------------------------------------------------------------------------------------------
NUCLEAR IMAGING         x        x                           x                 x        x        x                x          x
---------------------------------------------------------------------------------------------------------------------------------
ULTRASOUND IMAGING      ~                 x        x         x                                   x       x                   x
---------------------------------------------------------------------------------------------------------------------------------
MAGNETIC RESONANCE
IMAGING                 ~                 x        x         x                 x                 x                x
---------------------------------------------------------------------------------------------------------------------------------
COMPUTED
TOMOGRAPHY              ~                 x                  x                 x                 x       x        x          x
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>

1:   targeted exogenous chromophores

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

*:   Time Domain Technology

**:  Continuous Wave Technology

Unique Benefits of the Time Domain Optical Imaging Strategy:

o    Surface information of the embedded fluorescent material.

o    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    Recovery of fluorophore relative concentration.

     Depth information leads to recovery of fluorophore relative 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.

<PAGE>
                                     - 38 -


     This can allow 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$1,935,000 during the year ended December 31,
2004, as compared to US$681,875 during the eight-month period ended December 31,
2003 and as compared to none in the year ended April 30, 2003. These revenues
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 December 31,
2004, the Company had 49 employees directly engaged in research, development,
production, customer support 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, 2004, the Company has invested approximately
US$35.9 million into the development of its proprietary time domain optical
technology gross of investment tax credits (US$3.8 million). The Company has
been able to control its research and development costs as a result of the
following factors: (i) extensive in-house expertise; (ii) strong collaboration
agreements with leading research institutions; and (iii) its ability to leverage
effectively its knowledge of applications of optical imaging technologies (iv)
its utilization of an ISO compliant Quality Management System.



QUALITY MANAGEMENT

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

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

o    Achieving compliance to recognized quality management standards and
     regulations.

To support the commercial introduction and sale of its small animal molecular
imager (eXplore Optix(TM)), ART has successfully achieved ISO 9001:2000 (Quality
Management System - Requirements) certification of its Quality Management System
(QMS). This certification is part of an incremental approach to ART's QMS
implementation. It serves as a stepping-stone for the continued implementation
of new management standards and regulations

<PAGE>
                                     - 39 -


in order to achieve regulatory compliance and market approval for ART's medical
device (SoftScan(R)).

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

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



PRODUCT DEVELOPMENT

The Company continually evaluates the likelihood and ease with which
complementary products, derived from its core technology or from existing
products, can be identified, developed and introduced. For instance,
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, which it has expanded into a
full Product Life Cycle process that takes into account market potential,
technology and business factors.


<PAGE>
                                     - 40 -


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

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

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

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



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

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

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

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

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

SCIENTIFIC ADVISORY BOARD

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

<PAGE>
                                     - 41 -


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>
                                     - 42 -


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

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

<PAGE>
                                     - 43 -



CLINICAL ADVISORY BOARD


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

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

         Daniel Kopans (Chairman) -- Dr. Kopans is an honors graduate from
         Harvard College and he received his M.D. from the Harvard Medical
         School, where he graduated as a member of the Alpha Omega Alpha honors
         society. He is Professor of Radiology at the Harvard Medical School 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.

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

         Lawrence W. Margolis -- MD, FACR, Clinical Professor Emeritus,
         Department of Radiation Oncology and Dermatology, University of
         California, San Francisco, USA. Dr. Margolis has received the honor of
         "Best Doctor in America" four times and his research experience
         includes evaluation of biomarkers in DCIS (Ductal carcinoma in situ)
         and the use of MRI after neoadjuvant clinical therapy. He is an active
         member of numerous societies including the ACS and NIH.

         Mark D. Novick -- MD, has broad clinical and business experience in
         breast imaging modalities including MRI, digital mammography,
         ultrasound, and breast biopsy. He is the

<PAGE>
                                     - 44 -


         medical director, lead interpreting radiologist, and owner and
         operator of five outpatient breast imaging centers in New York City,
         USA, and the surrounding areas.

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

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



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

<PAGE>
                                     - 45 -


         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
         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 in
         Applied Science (B.A.Sc.) and in Law (LL.B.) from the University of
         Toronto. Mr. Levitt was called to the Ontario Bar in 1975 and the
         Quebec Bar in 2001.

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

<PAGE>
                                     - 46 -


         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 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

<PAGE>
                                     - 47 -


detecting malignancies in living, biological tissue, and in particular to a
method and apparatus for detecting breast cancer. The second U.S. Patent
entitled " Optical Imaging through Scattering Media: Fit to an Inhomogeneous
Diffusion Model for Differentiation" (Number: 6,148,226) filed on February 13,
1998, was granted on November 14, 2000 and expires on February 13, 2018. The
invention relates to an optical method for imaging through a scattering medium
in which a fit is made to an inhomogeneous diffusion model. The method provides
a simple means to separate the absorption and scattering contributions of
inhomogeneities. The third U.S. patent entitled "Scanning Module for Imaging
through Scattering Media" (Number: 6,332,093) filed on August 6, 1998, was
granted on December 18, 2001 and expires on August 6, 2018. The invention
relates to a scanning module image through scattering media while alleviating
adverse effects on the weak transmission through highly scattering media. The
fourth 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 twenty-two patent applications pending in
the United States and Canada.

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

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

<PAGE>
                                     - 48 -



PRODUCTION AND OPERATIONS

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

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



C.  Organizational structure

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

D.  Property, plants and equipment

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



ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     A.   Operating results


The following is a discussion and analysis of the financial condition and
operating results of ART Advanced Research Technologies Inc. ("ART" or the
"Company") at and for the periods indicated and of certain factors that the
Company believes may affect its prospective financial condition, cash flows and
results of operations. This discussion and analysis should be read in
conjunction with the audited financial statements of the Company and the notes
thereto for the year ended December 31, 2004. Unless indicated otherwise, all
financial information is expressed

<PAGE>
                                     - 49 -


in U.S. dollars and has been prepared in accordance with Canadian generally
accepted accounting principles (GAAP). The following contains statements that
are forward-looking in nature. Statements preceded by the words "believe,"
"expect," "anticipate," "aim," "target," "plan," "intend," "continue,"
"estimate," "may," "will," "should" and similar expressions are forward-looking
statements. Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by management, are
inherently subject to known and unknown risks and uncertainties such as, but not
limited to, the availability of financing, uncertainties involved in clinical
testing, acceptance of eXplore Optix(TM) by the pharmaceutical and medical
sectors, successful development or regulatory approval of SoftScan(R), reliance
on third parties to manufacture or market products, competition from
pharmaceutical and biotechnology companies, impact of general economic
conditions, general conditions in the healthcare and pharmaceutical industries,
changes in the regulatory environment in the jurisdictions in which ART does
business, stock market volatility, fluctuations in costs, changes to the
competitive environment due to consolidation, and other factors referenced
herein and in ART's public filings with the securities regulators in Canada and
the United States. Therefore, ART's actual results may be materially different
from those expressed or implied by such forward-looking statements. Investors
are cautioned not to place undue reliance on these forward-looking statements.
The statements are made as of the date hereof and ART does not undertake to
update such statements to reflect new or subsequent information, events,
circumstances or developments. Additional information relating to ART, including
its Annual Information Form, is available online at www.sedar.com or at
www.art.ca.

OVERVIEW

ART is committed to be a market leader in the development and commercialization
of optical molecular imaging products for the medical and pharmaceutical
sectors, with the goal of bringing to market quality products that will
accelerate the delivery of better therapies and cures. ART is engaged in the
research, design, development and commercialization of optical imaging products
for the medical and pharmaceutical industries.

ART possesses a powerful and unique multiproduct platform, a strong intellectual
property portfolio, strategic relationships with leading organizations, a set of
valuable core competencies and a strong management team to build on its
technology leadership position. ART evolved from a primarily technology-driven
company to a market-focused organization as it now commercializes eXplore Optix,
its preclinical optical molecular imager, through a worldwide distribution
agreement with GE Healthcare. As a result, following the launch of eXplore Optix
in June 2003, the Company generated sales of over $2.5 million since it placed
its first order 15 months ago. The preclinical market accounts for approximately
between 6,000 to 7,000 possible placements worldwide.

SoftScan, ART's time domain optical breast imaging device, is now undergoing
clinical trials and has demonstrated that it can safely characterize normal and
malignant tissue. Among many advantages shown by SoftScan, its laser imaging,
unlike X-ray mammography, does not expose patients to radiation or painful
compression of the breast. SoftScan may also prove invaluable during
post-diagnosis, enabling the physician to monitor progress, adjust treatment and
thereby reduce side effects and discomfort. Interim results of clinical trials
are positive and the Company expects to complete pivotal trials for SoftScan and
file for regulatory approval in 2005.


<PAGE>
                                     - 50 -


ART operates in two sectors for financial reporting purposes: the medical sector
and the pharmaceutical sector. The medical sector includes the research, design,
development and marketing of the SoftScan time domain optical breast imaging
device. The pharmaceutical sector includes the research, design, development and
commercialization of the eXplore Optix product. ART's revenues from the sales of
its eXplore Optix product for the year ended December 31, 2004, were $1,935,000
compared to $681,875 for the eight-month period ended December 31, 2003. These
revenues originated from customers in North America, Europe and Asia. These
revenues were generated through ART's distributor GE Healthcare, with whom ART
has an exclusive worldwide distribution agreement.

As of December 31, 2004, ART's working capital was $12.5 million, including
$11.8 million in cash and short-term investments. ART believes that cash, cash
equivalents and short-term investments will be sufficient to meet its operating
cash requirements, including the development of products through research and
development activities and capital expenditures, up to early 2006.

ART's expenses include primarily the cost of sales (including the royalty
payment), the operating expenses that comprise research and development costs
(including the cost of clinical trials) and selling, general and administrative
expenses (including marketing activities).

OUTLOOK

In 2005, ART expects to incur continued losses from operations. During the 2005
fiscal year, the Company expects that the revenues and expenses of the
pharmaceutical sector will come primarily from the marketing and sales
activities of eXplore Optix, as ART pursues its market penetration of the
preclinical optical imaging. ART expects that its pharmaceutical business will
benefit from the following positive factors: first, by quickly upgrading its
base product offering to respond to market needs, ART expects during the first
half of 2005, to receive orders for its multiwavelength base system which will
offer more capability to customers; second, now that GE Healthcare has completed
the integration of the business of Amersham, ART can count on a strong and
well-trained worldwide sales force going forward; third, ART pursued its
development of eXplore Optix product extensions, such as the world's first 3D
time domain optical image reconstruction software for preclinical research which
was presented in September 2004 at the SMI Conference and is expected to be
launched in early 2005. Taking into account these factors, ART believes it is
poised to achieve significant growth of its revenues from the sales of its
eXplore Optix system and related product extensions and upgrades in year 2005.

In 2005, ART expects to increase its activities in the medical sector as its
SoftScan device undergoes pivotal trials with a view to file for regulatory
approval. As a cornerstone of its regulatory strategy to obtain market clearance
for its SoftScan device, ART will use the multijurisdictional STED program
adopted by the United States Food and Drug Administration (FDA) as well as the
Canadian and European health regulatory agencies. Since ART records all of its
development expenditures as they are incurred, the cost of the clinical trials
and the manufacturing of the clinical prototypes will result in an increase in
R&D expenses.

<PAGE>
                                     - 51 -



CRITICAL ACCOUNTING ESTIMATES

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


DEVELOPMENT EXPENDITURES EXPENSED AS OPPOSED TO CAPITALIZED

The Company expense research costs as they are incurred. Development costs are
expensed as incurred unless they meet the criteria under Canadian generally
accepted accounting principles for deferral and amortization. The Company has
not capitalized any such development costs to date. Over the last fifteen
months, the Company has undertaken successfully the commercialization of its
eXplore Optix product contributing to the fact that the expectation of future
benefits arising from continued development is now reasonably certain.
Therefore, the Company expects to be in a position to capitalize these
development costs going forward.



FAIR VALUE OF OPTIONS AND COMMON SHARE PURCHASE WARRANTS

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

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

<PAGE>
                                     - 52 -


recommendations resulted in a charge of $18,206 in the statement of operations
and deficit for the eight-month period ended December 31, 2003.

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

INCOME TAX VALUATION ALLOWANCE

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


INVESTMENT TAX CREDIT RECEIVABLE

Investment tax credits, based on qualifying research and development expenses,
are applied against research and development expenses 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 credits. It is possible
that subsequent to government audits the receivable amount will change.


IMPAIRMENT OF PATENTS

Patents are recorded at cost and are amortized according to the straight-line
method over a five-year period commencing in the year the related products are
marketed. The carrying value is tested for impairment whenever events or changes
in circumstances indicate that their carrying amount may not be recoverable.
Should this test, for any 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.

SELECTED FINANCIAL DATA

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

Loss from continuing operations                      $ 9,928,603     $ 5,832,025     $ 9,026,445

Net loss                                             $ 9,928,603     $ 5,832,025     $ 6,546,604

Basic and diluted loss per share from continuing
operations                                           $      0.24     $      0.20     $      0.38

Basic and diluted net loss per share                 $      0.24     $      0.20     $      0.28


Total assets                                         $16,764,887     $13,704,796     $ 8,032,130
</TABLE>

<PAGE>
                                     - 53 -



RESULTS OF OPERATIONS

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

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


         REVENUES: Revenues for the year ended December 31, 2004 were
$1,935,000, compared to $681,875 for the eight-month period ended December 31,
2003.

         COST OF SALES: For the year ended December 31, 2004, the cost of sales
was $915,087 compared to $377,744 in the eight-month period ended December 31,
2003. Cost of sales consisted principally of raw materials, royalties and
manufacturing costs. As a result, ART generated a gross margin of 53% from its
eXplore Optix products in 2004 and 45% in the preceding period. As the Company
transitions to the new multiwavelength base system and product extensions, and
plans to offer upgrades to its customer base in 2005, it is expected that the
gross margin will fluctuate in the coming year.

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

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

         SELLING, GENERAL AND ADMINISTRATIVE EXPENDITURES: Selling, general, and
administrative ("SG&A") expenses for the year ended December 31, 2004, totalled
$3,474,446, compared to $2,239,324 for the eight-month period ended December 31,
2003. Selling, general and

<PAGE>
                                     - 54 -


administrative expenses were principally engaged to support commercial
activities related to the eXplore Optix product and raise funds to strengthen
the Company's financial position as well as support its overall activities.
During the year ended December 31, 2004, 62% of the SG&A expenditures were
dedicated to the medical sector and 38% to the pharmaceutical sector. (Before
2004, the Company was not operating in two separate sectors.)

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

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


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


         NET LOSS: Net loss for the year ended December 31, 2004 was $9,928,603
or $0.24 per share, compared to $5,832,025 or $0.20 per share for the
eight-month period ended December 31, 2003.


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

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


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


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


<PAGE>

                                     - 55 -


        RESEARCH AND DEVELOPMENT EXPENDITURES: The Company's R&D expenditures
for the eight-month period ended December 31, 2003, net of investment tax
credits, amounted to $3,491,641, compared to $5,734,470 for the year ended April
30, 2003. The investment tax credits represent $433,865, or 11% of the overall
expenditures in R&D, for the eight-month period ended December 31, 2003,
compared to $570,792, or 9% of the overall expenditures, for the year ended
April 30, 2003. R&D expenditures were engaged for the development of the current
generation of eXplore Optix units. Moreover, ART continued to develop its
SoftScan system and pursued clinical trials with the McGill University Health
Centre, the Sunnybrook and Women's College Health Sciences Centre and the Ottawa
Regional Women's Breast Health Centre at the Civic Campus of The Ottawa
Hospital.

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


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


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


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

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


<PAGE>
                                     - 56 -


COMPARISON OF YEARS ENDED APRIL 30, 2003 AND 2002

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

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

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

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

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

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

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

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

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

<PAGE>
                                     - 57 -



COMMITMENTS

The following table discloses aggregate information about our contractual
obligations and periods in which payments are due as of December 31, 2004:


<TABLE>
<CAPTION>
                                                                    Payment Due by Period
                             -----------------------------------------------------------------------------------------------
                                                      Less Than                                                     After
                                TOTAL                  1 year           1-3 years             4-5 years            5 years
                             -----------              ---------        -----------           -----------          ----------
<S>                          <C>                      <C>              <C>                   <C>                  <C>
Operating Leases             $ 3,141,477              $ 437,984        $ 1,197,226            $  802,119          $ 704,148
                             -----------              ---------        -----------           -----------          ----------
</TABLE>



RELATED PARTY TRANSACTION

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

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

Contract Research Services: Clinivation works toward the clinical development
and approvals of SoftScan. During the year ended December 31, 2004, the Company
paid $198,946 for management services as CMO and $1,753,635 for contract
research services.



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 eight quarters. The information for each of
these quarters is un-audited and has been prepared on the same basis as the
audited financial statements for the year ended December 31, 2004. This data
should be read together with the financial statements and the notes to such
statements.


<PAGE>
                                     - 58 -



<TABLE>
<CAPTION>
                                                                                            NET LOSS PER SHARE
                                                                                     ------------------------------
                                                                                          BASIC AND
                                                         LOSS FROM                      DILUTED FROM      BASIC
                                                        CONTINUING                       CONTINUING        AND
                                           SALES        OPERATIONS      NET LOSS         OPERATIONS      DILUTED
-------------------------------------- ------------- --------------- --------------- ----------------- ------------
<S>                                        <C>           <C>             <C>                   <C>          <C>
DEC. 2004 FY
December 31                                $599,000      $2,714,207      $2,714,207            $ 0.06       $ 0.06
September 30                                760,000       2,438,606       2,438,606              0.06         0.06
June 30                                     190,000       2,694,042       2,694,042              0.06         0.06
March 31                                    386,000       2,081,748       2,081,748              0.06         0.06
-------------------------------------- ------------- --------------- --------------- ----------------- ------------
DEC. 2003 FY
December 31 (2 months)                      681,875       1,563,667       1,563,667              0.05         0.05
October 31                                     -          2,164,825       2,164,825              0.07         0.07
July 31                                        -          2,103,533       2,103,533              0.08         0.08
-------------------------------------- ------------- --------------- --------------- ----------------- ------------
APRIL 2003 FY
April 30                                       -          2,285,486       2,271,209              0.10         0.10
-------------------------------------- ------------- --------------- --------------- ----------------- ------------
</TABLE>


Notes: Quarterly data for the years ended December 31, 2003 and April 31, 2003
have been converted from CA$ to US$ 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.

INTEREST RATE SENSITIVITY

ART's investment policy is made of high-grade government, bank and corporate
securities with varying maturities usually less than 180 days. ART does not have
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 the Canadian dollar prime rate.


RISK AND UNCERTAINTIES

The Company's future capital requirements will depend on many factors, including
progress in both the commercialization of eXplore Optix and in the clinical
development and trials of SoftScan. To the extent that the Company relies on
third parties such as GE Healthcare to manufacture or market its products, the
commercial success of such products may be outside of its control. While eXplore
Optix has entered the commercialization stage, there can be no assurance that
the Company's products will be accepted by the pharmaceutical and medical
sectors. Moreover, SoftScan is still in development, has not yet been approved
by regulatory authorities in the jurisdictions targeted by ART for SoftScan
commercialization and has not yet been marketed commercially. ART's business
entails significant risks, including the costs and

<PAGE>
                                     - 59 -


time involved in obtaining the required regulatory approvals, its current
reliance on primarily one product, the adequacy of its patent protection, the
uncertainties involved in clinical testing, the availability of capital to
continue development and commercialization of its products, and competition from
pharmaceutical and biotechnology companies. There can be no assurance that the
Company's ongoing preclinical and clinical research activities will provide
positive outcomes or that the results of clinical trials will meet the desired
clinical endpoints established in the clinical study protocols. Even if the
clinical studies are successful, there can be no assurance that the Company will
be successful in obtaining the necessary regulatory approvals or, once obtained,
in maintaining these approvals. There can also be no assurance that the Company
will be successful in marketing and distributing its products, or achieve
reimbursement from government or private health authorities.

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

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

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

<PAGE>
                                     - 60 -


     B.  Liquidity and Capital Resources

The Company has financed its activities by issuing common shares through private
placements, an initial public offering and a follow-up public offering. Since
its creation in 1993 until December 31, 2004, the Company has issued 42,664,523
shares and 2,194,422 share purchase warrants amounting to $80,696,107.

The Company's working capital increased by $2,922,885, or 30%, to $12,534,875 as
of December 31, 2004, from $9,611,990 as of December 31, 2003. This working
capital consisted mainly of cash and short-term investments for a total of
$11,831,151. This increase resulted principally from a treasury offering which
closed on March 10, 2004, followed by the partial exercise of an over-allotment
option on March 19, 2004, which resulted in proceeds in the amount of
$11,300,825, net of related expenses.

Cash flows used for operating activities for the year ended December 31, 2004
increased by $3,369,654, or 52%, to $9,805,257 from $6,435,603 for the
eight-month period ended December 31, 2003. The increase in cash flows used for
operating activities primarily results from the difference in length of the two
fiscal years, i.e. twelve months compared to eight months.

Cash flows used in investing activities for the year ended December 31, 2004
increased by $4,175,828 or 713% to $4,761,508 from $585,680 for the eight-month
period ended December 31, 2003. During the year ended December 31, 2004, the
Company invested its available cash in short-term investments.

Cash flows from financing activities increased by $1,202,606, or 12%, to
$11,447,751 for the year ended December 31, 2004, from $10,245,145 for the
eight-month period ended December 31, 2003.

As at December 31, 2004, total assets increased $3,060,091, or 22%, to
$16,764,887, from $13,704,796 as at December 31, 2003. The increase in total
assets comes principally from the cash received following the treasury offering
closed in March 2004. The Company has a credit facility of CA$1,000,000 to cover
fluctuations in cash requirements. As of December 31, 2004, 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 of December 31, 2004.

ART believes that cash, cash equivalents and short-term investments will be
sufficient to meet its operating cash requirements, including the development of
products through R&D activities and capital expenditures up to early 2006.



     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".


<PAGE>

                                     - 61 -

     E.  Off-balance Sheet Arrangements

The Company does not use off-balance sheet arrangements.


     F.  Tabular Disclosure of Contractual Obligations

The following table discloses aggregate information about our contractual
obligations and periods in which payments are due as of December 31, 2004:


<TABLE>
<CAPTION>
                                                              Payment Due by Period
                             ---------------------------------------------------------------------------------------
                                                      Less Than                                              After
                                 TOTAL                 1 year           1-3 years        4-5 years          5 years
                             -----------              ---------       ------------       ---------         ---------
<S>                          <C>                      <C>             <C>                <C>               <C>
Operating Leases             $ 3,141,477              $ 437,984       $ 1,197,226        $ 802,119         $ 704,148
                             -----------              ---------       -----------        ---------         ---------
</TABLE>


ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     A.  Directors & Senior Management

     The following tables set forth the name, municipality of residence,
position with the Company and principal occupation of each of the directors and
executive officers of the Company as at February 28, 2005. The Board of
Directors of the Company is currently comprised of the six individuals mentioned
below. Directors are elected until the next annual meeting of shareholders or,
in the case of a vacancy or resignation, until a successor is elected or
appointed.


DIRECTORS

<TABLE>
<CAPTION>
                                                                                     YEAR OF
                                                                                    EXPIRY OF
                                              POSITION WITH THE     DIRECTOR         TERM OF
NAME AND MUNICIPALITY OF RESIDENCE                 COMPANY           SINCE           OFFICE      PRINCIPAL OCCUPATION
-----------------------------------          ------------------     --------        ---------    --------------------
<S>                                          <C>                       <C>            <C>        <C>
MICHELINE BOUCHARD.....................      President, Chief          2002           2005       President and CEO of
(Montreal, Quebec, Canada)                   Executive Officer                                   ART Advanced Research
                                             and Director                                        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
(Montreal, Quebec, Canada)                                                                       President, Medical
                                                                                                 Research, Merck
                                                                                                 Frosst Canada Inc.

RAYMOND CYR(1)(2)......................      Director                  1998           2005       Chairman of the Board,
(Montreal, Quebec, Canada)                                                                       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
(Montreal, Quebec, Canada)                   Board and Director                                  & CEO of Semafo Inc.

</TABLE>


<PAGE>
                                     - 62 -



<TABLE>
<CAPTION>
                                                                                     YEAR OF
                                                                                    EXPIRY OF
                                              POSITION WITH THE     DIRECTOR         TERM OF
NAME AND MUNICIPALITY OF RESIDENCE                 COMPANY           SINCE           OFFICE      PRINCIPAL OCCUPATION
-----------------------------------          ------------------     --------        ---------    --------------------
<S>                                          <C>                       <C>            <C>        <C>

GEORGE N. FUGELSANG ...................      Director                  2004           2005       Former Chief
(Greenwich, Connecticut, United States of                                                        Executive Officer of
America)                                                                                         Dresdner Kleinwort
                                                                                                 Benson North America.
</TABLE>


---------------
(1)  Member of the Corporate Governance, Human Resources & Compensation
     Committee.
(2)  Member of the Audit & Environment Committee.


MANAGEMENT

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

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

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

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

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

JOSEPH G. KOZIKOWSKI........................      Chief Medical Officer                            2004
Weston, Massachusetts, Canada

JACQUES RAYMOND.............................      Vice President, Business Development             2005
Saint-Bruno, Quebec, Canada
</TABLE>



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


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

         Jacques Courville -- Mr. Courville recently retired from Merck Frosst
Canada Inc. where he was Vice President, Medical Research from 1998 until 2002.
He joined Merck Frosst


<PAGE>
                                     - 63 -


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 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,


<PAGE>
                                     - 64 -

he was President & CEO and co-founder of Pacific Northwest Networks, a premier
solution developer for global Corporations needing to manage and secure
enterprise production environments. From 1985 to 1996 he was worldwide marketing
manager and alliances, merger and acquisitions program manager for
Hewlett-Packard's diagnostic cardiology business in which capacity he managed,
among other things, the global market development for all of HP's diagnostic
cardiology products. He was also responsible for the development of strategic
product plans and distribution to meet the needs of the global cardiology
market. Mr. Baker holds a B.S. in Biology and Biochemistry from Illinois College
(1975) and has completed an AEA Executive MBA program from Stanford University
(1989).

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

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

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

<PAGE>
                                     - 65 -

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

         Jacques Raymond -- Mr. Raymond was appointed Vice President, Business
Development of ART on January 31, 2005 (subject to regulatory approval). Prior
to his engagement with ART, Mr. Raymond was Director of Investors Relations at
AEterna Zentaris Inc., an oncology and endocrine therapy focused company with
proven expertise in drug discovery, development and commercialization. From 1999
to 2001, Mr. Raymond was a financial advisor in portfolio management at National
Bank Financial, one of the top six securities brokers in Canada. During his
career, Mr. Raymond has also been involved in sales and marketing management.
Mr. Raymond spent the greater part of his career at GE and more specifically at
Camco Inc., a division of GE Canada Inc. specialized in household appliances:
from 1979 to 1981, he was Assistant Director, Marketing (Products); from 1981 to
1985, he was Director, Marketing and Exportation (Products); from 1985 to 1986,
he was Vice President, Sales, Eastern Region; from 1986 to 1987, he was Vice
President, Marketing (Trademarks); from 1987 to 1989, he was Vice President,
Sales and Operations; from 1989 to 1990, he was Vice President, Projects. From
1990 to 1991, Mr. Raymond held the position of Vice President, Distribution at
BNI International Inc. (Canada and U.S.). From 1991 to 1999, he was President
and Managing Director of Mega Group, Canada's largest member owned group serving
independent retailers in the Furniture, Major Appliance, and Electronics
Industry. Mr. Raymond also successfully completed a Master's degree in Marketing
and Commerce at Sherbrooke University (1973).




<PAGE>
                                     - 66 -


     B.  Compensation

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


Compensation of Named Executive Officers

The following table sets forth all compensation for the year ended December 31,
2004, the Fiscal Transition 2003 and the year ended April 30, 2003, in respect
of the individuals who were, as at December 31, 2004, the Chief Executive
Officer, the Chief Financial Officer and the three (3) most highly compensated
executive officers of the Company who earned salary and bonus of more than
CA$150,000 (the "Named Executive Officers"). The Company had five (5) Named
Executive Officers whose total annual salary and bonus exceeded CA$150,000 for
the year ended December 31, 2004.





<TABLE>
<CAPTION>



                                                                                     LONG TERM
                                                                                     COMPENSATION     ALL OTHER
                                             ANNUAL COMPENSATION                     AWARDS           COMPENSATION
                             ----------------------------------------------------    ---------------  ------------
                                                                                       SECURITIES
                                                                     OTHER ANNUAL        UNDER
                                            SALARY       CASH BONUS  COMPENSATION    OPTIONS GRANTED
NAME AND PRINCIPAL POSITION    YEAR          CA$            CA$        CA$(1)              #              CA$
---------------------------  ---------  -----------     -----------  ------------    ---------------  ------------
<S>                          <C>          <C>              <C>         <C>               <C>             <C>
Micheline Bouchard           Dec. 2004     325,000         90,187(2)     --              247,713            --
President & Chief            Dec. 2003     212,500            -- (3)     --              100,000            --
Executive Officer            Apr. 2003     212,500            --         --              275,000         51,250(4)
                             ---------     -------         ------       ----             -------         ------
Jacques Bedard               Dec. 2004     192,500         51,253(2)     --              157,000            --
Chief Financial Officer      Dec. 2003     125,865            -- (5)     --                  --             --
                             Apr. 2003     192,366         52,500        --               30,000            --
                             ---------     -------         ------       ----             -------         ------
Warren Baker                 Dec. 2004     176,923         40,426(2)     --              200,000         12,000(6)
Chief Operating Officer      Dec. 2003         --             --         --                  --          35,250(7)
                             Apr. 2003         --             --         --                  --             --
                             ---------     -------         ------       ----             -------         ------
Pierre Couture               Dec. 2004     150,020         25,653(2)     --              142,000            --
Vice President,              Dec. 2003      43,275            --         --                8,000         12,000(8)
Sales and Marketing          Apr. 2003         --             --         --                  --             --
                             ---------     -------         ------       ----             -------         ------

</TABLE>

<PAGE>
                                     - 67 -

<TABLE>
<CAPTION>



                                                                                     LONG TERM
                                                                                     COMPENSATION     ALL OTHER
                                              ANNUAL COMPENSATION                    AWARDS           COMPENSATION
                             -----------------------------------------------------   ---------------  ---------------
                                                                                       SECURITIES
                                                                     OTHER ANNUAL        UNDER
                                          SALARY       CASH BONUS   COMPENSATION     OPTIONS GRANTED
NAME AND PRINCIPAL POSITION    YEAR         CA$            CA$        CA$(1)                #              CA$
---------------------------  ---------  ----------     ----------   -------------    ---------------  ---------------
<S>                          <C>          <C>              <C>         <C>               <C>             <C>



Sebastien Gignac             Dec. 2004     145,500         35,574(2)     --              164,156            --
Corporate Secretary &        Dec. 2003      94,915             --(9)     --                   --            --
General Counsel              Apr. 2003     126,411         54,500        --               20,000            --
                             ---------     -------         ------       ----             -------         ------
</TABLE>


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

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

(3) 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 CA$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 CA$3.23 which are exercisable
    immediately without being subject to any vesting period.

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

(5) Based on his annual performance, the Board of Directors has determined that
    Mr. Bedard was entitled to a total cash bonus for the Fiscal Period ended
    December 31, 2003 of CA$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 CA$3.23 which are exercisable immediately
    without being subject to any vesting period.

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

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

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

(9) Based on his annual performance, the Board of Directors has determined that
    Mr. Gignac was entitled to a total cash bonus for the Fiscal Period ended
    December 31, 2003 of CA$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 CA$3.23 which are exercisable immediately
    without being subject to any vesting period.


Option Grants During the the year ended December 31, 2004 to Named Executive
Officers

The following table sets forth the options granted under the Corporation's stock
option plan to the Corporation's Named Executive Officers (including the Chief
Executive Officer and the Chief Financial Officer) during the year ended
December 31, 2004.


<PAGE>
                                     - 68 -



<TABLE>
<CAPTION>

                                                 % OF TOTAL       MARKET PRICE AT
                               NUMBER OF       OPTIONS GRANTED       CLOSING
                              COMMON SHARE     UNDER THE PLAN     ON DAY PRIOR TO
                              UNDER OPTION         IN THE             DATE OF       EXERCISE
       NAME                     GRANTED          FISCAL YEAR          GRANT          PRICE       EXPIRATION DATE
       ----                   ------------     ---------------    ---------------   --------     ---------------
                                                                 (CA$ PER COMMON    (CA$ PER
                                                                     SHARE)         SHARE)(1)
<S>                               <C>              <C>                 <C>            <C>       <C>
Micheline Bouchard                147,713          11.5%               $ 2.85         $ 3.23    January 26, 2014
                                  100,000           7.8%               $ 0.90         $ 1.10    December 8, 2014

Warren Baker......                100,000           7.8%               $ 2.96         $ 3.00     January 8, 2014
                                  100,000           7.8%               $ 0.90         $ 1.10    December 8, 2014

Jacques Bedard....                 57,000           4.4%               $ 2.85         $ 3.23    January 26, 2014
                                  100,000           7.8%               $ 0.90         $ 1.10    December 8, 2014

Pierre Couture....                 12,000           0.9%               $ 2.85         $ 3.04    January 26, 2014
                                   30,000           2.3%               $ 2.13         $ 2.14       June 20, 2014
                                  100,000           7.8%               $ 0.90         $ 1.10    December 8, 2014

Sebastien Gignac..                 34,156           2.7%               $ 2.85         $ 3.23    January 26, 2014
                                   30,000           2.3%               $ 2.13         $ 2.14       June 20, 2014
                                  100,000           7.8%               $ 0.90         $ 1.10    December 8, 2014

</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.


Aggregated Options Exercised and Option Values

The following table sets forth the options exercised by the Corporation's Named
Executive Officers (including the Chief Executive Officer and the Chief
Financial Officer) during the year ended December 31, 2004.

<TABLE>
<CAPTION>

                                                               UNEXERCISED       VALUE OF UNEXERCISED
                                                                    OPTIONS AT     IN-THE-MONEY OPTIONS AT
                                                                   DECEMBER 31,       DECEMBER 31, 2004
                           COMMON SHARES                               2004                 (CA$)
                             ACQUIRED           AGGREGATE VALUE  (#) EXERCISABLE/        EXERCISABLE/
       NAME                 ON EXERCISE            REALIZED       UNEXERCISABLE(1)       UNEXERCISABLE(2)
       ----                -------------        ---------------   ----------------  ----------------------
<S>                            <C>                   <C>          <C>                      <C>
Micheline Bouchard             --                    --           364,381/258,332          Nil/Nil
Warren Baker..............                                            Nil/200,000          Nil/Nil
Jacques Bedard............     --                    --           188,000/110,000          Nil/Nil
Pierre Couture............     --                    --             2,667/147,333          Nil/Nil
Sebastien Gignac..........     --                    --            80,490/136,666          Nil/Nil
</TABLE>

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

(2) Market value of underlying Common Shares at December 31, 2004 minus the
    exercise price. The market value of the Common Shares at December 31, 2004
    was CA$1.05 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

<PAGE>
                                     - 69 -


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

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

On January 9, 2004, the Chief Operating Officer, Warren Baker, and the
Corporation entered into an executive employment agreement for an initial
one-year term commencing on January 12, 2004. This agreement is automatically
renewed for successive and continuing one-year periods, unless Mr. Baker or the
Corporation decides to terminate the agreement by providing a notice at least 3
months prior to the expiration of the initial term or the term of any one-year
renewal period thereof. The agreement provides for the employment of Mr. Baker
at annual base salary originally set at $200,000 and readjusted on the
recommendation of the Corporate Governance, Human Resources & Compensation
Committee of the Board of Directors on December 9, 2004 at $225,000 effective
January 9, 2005. This agreement also provides that Mr. Baker is eligible to an
annual cash bonus of up to 30 % of its base salary depending on the achievement
of business goals and overall Corporation performance. Under the agreement,

<PAGE>
                                     - 70 -



Mr. Baker was granted, effective January 9, 2004, options to purchase 100,000
Common Shares at an exercise price of $3.00 per Common Shares. The Corporation's
Board of Directors at its sole discretion may determine any additional options
issued to Mr. Baker. Mr. Baker was granted, effective December 9, 2004, options
to purchase 100,000 Common Shares at an exercise price based on the average
trading price on the TSX of such shares for the thirty trading days preceding
the grant date. The agreement includes specific provisions regarding Mr. Baker's
non-solicitation and non-competition obligations, as well as the protection of
the Corporation's interests, such as intellectual property and confidential
information. This agreement also sets out Mr. Baker's entitlement under the
Corporation's incentive program and other customary perquisites.

No notice or further compensation or benefits is required where the Corporation
terminates employment for just cause, or the occurrence of Mr. Baker's death,
retirement or incapacity, or his voluntary resignation. Upon Mr. Baker's
termination of employment or resignation for any reason, the options will lapse
on the date of termination of employment with the Corporation except that they
may be exercised for 90 days after the date of termination, to the extent they
will have vested on such date.

Compensation of Directors

During the year ended December 31, 2004, 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. During the year ended December 31, 2004,
the Corporation established a new compensation policy, which entitles each
director to receive 10,000 options per year for their participation on the
Corporation's Board of Directors. Consequently, each director was granted,
effective May 1, 2004, options to purchase 10,000 Common Shares. Other than
being compensated in options, directors received a fee for each Board and
committee meeting they attended during the year ended December 31, 2004. 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 CA$7,500,
as well as a fee of CA$1,000 per meeting of the Board attended in person or by
phone. The Corporation's fee structure for participation on the committees of
the Board of Directors is as follows: with the exception of each committee's
president who receives a higher annual retainer fee, each member receives an
additional annual retainer fee of CA$2,500, as well as a fee of CA$1,000 per
meeting of any committee attended in person or by phone. Each committee's
president receives an annual retainer fee of $5,000. In addition to the fees
payable for attending the meeting of the Board and its committees, the Chairman
of the Board is paid an annual retainer fee of CA$35,000. Directors who are
employees or executive officers of the Corporation do not receive any additional
compensation for their services as directors of the Corporation. Reasonable
expenses incurred by directors in connection with attendance at meetings,
including out-of-pocket travel, lodging and related expenses, are also
reimbursed. The Corporation has no further arrangements, standard or otherwise,
pursuant to which directors were compensated by the Corporation for their
services in their capacity as directors during the year ended December 31, 2004.

<PAGE>

                                     - 71 -


Indebtedness of Directors, Executive Officers and Employees

None of the directors, executive officers or employees of the Company was
indebted to the Company during the year ended December 31, 2004.

Insurance and Indemnification of Directors and Officers

The Company maintains a directors' and officers' liability insurance policy for
CA$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 CA$71,908 is paid by the Company. This policy is for a
term from August 31, 2004 to August 31, 2005. This policy has a corporate
deductible of CA$100,000, per loss.

Equity Compensation Plan Information

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

<TABLE>
<CAPTION>
                         NUMBER OF           WEIGHTED         NUMBER OF COMMON
                       COMMON SHARES         AVERAGE          SHARES REMAINING
                        TO BE ISSUED      EXERCISE PRICE    AVAILABLE FOR FUTURE
                       UPON EXERCISE      OF OUTSTANDING       ISSUANCE UNDER
                       OF OUTSTANDING        OPTIONS,        EQUITY COMPENSATION
                          OPTIONS,         WARRANTS AND             PLANS
                        WARRANTS AND          RIGHTS           (EXCLUDING (a))
                           RIGHTS              CA$
   PLAN CATEGORY            (a)                (b)                   (c)
   -------------       --------------     --------------     -------------------
<S>                      <C>                   <C>                  <C>
EQUITY COMPENSATION
PLANS APPROVED BY
SECURITYHOLDERS (1)      4,666,796             2,56                 0 (2)

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

TOTAL                    4,666,796             2,56                 0 (2)
</TABLE>


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

(2)  As of December 31, 2004, a total of 522,214 common shares were granted
     above the maximum number of shares of ART reserved for issuance under ART's
     Stock Option Plan. The issuance of such options is subject to shareholders'
     approval of an increase in the maximum number of common shares issuable
     under ART's Stock Option Plan.


Stock Option Plan

As the cornerstone of its long-term compensation strategy for retaining the
services of key people, the Company has instituted a stock option plan which 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.

<PAGE>
                                     - 72 -


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.




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

<PAGE>
                                     - 73 -


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

The Audit & Environment Committee

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

<PAGE>
                                     - 74 -


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 shareholders at the end of each
annual meeting is intended to allow shareholders to ask questions or address
their comments directly to the President and Chief Executive Officer.

     D.  Employees

As of December 31, 2004, the Company employed 73 persons including 49 working in
research, development, production, customer support and engineering activities.
Of these 73 employees, 23 hold a Ph.D., M.Sc., M.B.A. and/or other Master's
degree. The Company maintains affiliations with research centres including MGH
and INO.

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

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

     E.  Share ownership

The following table sets forth, as of December 31, 2004, the number of the
Company's Common beneficially owned by (a) the directors and members of senior
management of the Company, individually, and as a group, and (b) the percentage
ownership of the outstanding Common Shares represented by such shares.


<PAGE>
                                     - 75 -


<TABLE>
<CAPTION>
                                                        COMMON SHARES BENEFICIALLY OWNED (1)
                                                        ------------------------------------
NAME                                                       NUMBER                PERCENT
----                                                       ------                -------
<S>                                                         <C>                   <C>
Micheline Bouchard                                          66,000                  *
Jacques Courville                                            6,000                  *
Raymond Cyr                                                 42,500                  *
Pierre Dutheil                                              30,200                  *
Benoit La Salle                                                  0                  *
George N. Fugelsang                                              0                  *
Jacques Bedard                                              61,000                  *
Warren G. Baker                                             14,000                  *
Pierre Couture                                               5,000                  *
Sebastien Gignac                                            27,200                  *
Joseph G. Kozikowski                                        14,000                  *
--------------------------------------------------------------------------------------------
TOTAL                                                      265,900                0.62 %
--------------------------------------------------------------------------------------------
</TABLE>

* Less than 1 %.


The following table sets forth, as of December 31, 2004, the number of options
to acquire Common Shares, which were issued to the directors and members of
senior management of the Company:

<TABLE>
<CAPTION>
                                         -----------------------------------------------------------------
                                          SECURITIES UNDER       EXERCISE PRICE (1)
NAME                                     OPTIONS GRANTED (#)       (CA$ PER SHARE)      EXPIRATION DATE
----------------------------------------------------------------------------------------------------------
<S>                                             <C>                      <C>            <C>
Micheline Bouchard                              275,000                  $ 1.72           August 15, 2012
                                                100,000                  $ 3.51          September 9, 2013
                                                147,713                  $ 3.23          January 26, 2014
                                                100,000                  $ 1.10          December 8, 2014
----------------------------------------------------------------------------------------------------------
Jacques Courville                                20,000                  $ 1.91          February 9, 2013
                                                  9,167(2)               $ 2.14            June 20, 2014
----------------------------------------------------------------------------------------------------------
Raymond Cyr                                      20,000                  $ 6.00          February 14, 2009
                                                 20,000                  $ 7.50           March 19, 2010
                                                 20,000                  $ 2.35          November 13, 2012
                                                 10,000                  $ 2.14            June 20, 2014
----------------------------------------------------------------------------------------------------------
Pierre Dutheil                                    7,500                  $ 1.81          February 26, 2013
                                                 20,000                  $ 2.14            June 20, 2014
----------------------------------------------------------------------------------------------------------
Benoit La Salle                                  20,000                  $ 1.91          February 9, 2013
                                                 10,000                  $ 1.91          February 9, 2013
                                                  9,167                  $ 2.14            June 20, 2014
----------------------------------------------------------------------------------------------------------
George N. Fugelsang                              20,000                  $ 1.28          November 15, 2014
----------------------------------------------------------------------------------------------------------
Jacques Bedard                                   30,000                  $ 1.70           August 20, 2006
                                                 16,000                  $ 4.60           August 28, 2007
                                                 15,000                  $ 6.00          February 14, 2009
                                                 30,000                  $ 7.50           March 19, 2010
                                                 20,000                  $ 3.85          December 13, 2011
                                                 30,000                  $ 2.39            June 18, 2012
                                                 57,000                  $ 3.23          January 26, 2014
                                                100,000                  $ 1.10          December 8, 2014
----------------------------------------------------------------------------------------------------------
Warren G. Baker                                 100,000                  $ 3.00           January 8, 2014
                                                100,000                  $ 1.10          December 8, 2014
----------------------------------------------------------------------------------------------------------
</TABLE>


<PAGE>
                                     - 76 -


<TABLE>
<CAPTION>
                                         -----------------------------------------------------------------
                                          SECURITIES UNDER       EXERCISE PRICE (1)
NAME                                     OPTIONS GRANTED (#)       (CA$ PER SHARE)      EXPIRATION DATE
----------------------------------------------------------------------------------------------------------
<S>                                             <C>                      <C>            <C>
Pierre Couture                                    8,000                  $ 3.51          September 9, 2013
                                                 12,000                  $ 3.04          January 26, 2014
                                                 30,000                  $ 2.14            June 20, 2014
                                                100,000                  $ 1.10          December 8, 2014
----------------------------------------------------------------------------------------------------------
Sebastien Gignac                                 10,000                  $ 6.00          February 14, 2009
                                                 18,000                  $ 7.50           March 19, 2010
                                                  5,000                  $ 3.85          December 13, 2011
                                                 20,000                  $ 2.39            June 18, 2012
                                                 34,156                  $ 3.23          January 26, 2014
                                                 30,000                  $ 2.14            June 20, 2014
                                                100,000                  $ 1.10          December 8, 2014
----------------------------------------------------------------------------------------------------------
Joseph G. Kozikowski                             50,000                  $ 3.00           January 8, 2014
----------------------------------------------------------------------------------------------------------
</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.

(2) Of these 9,167 options, Mr. Jacques Courville has exercised 6,000 options to
    acquire Common Shares on May 1, 2014.



ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     A.  Major shareholders

As of February 28, 2005, there were 42,664,523 issued and outstanding Common
Shares. To the knowledge of the Company's directors and executive officers, the
following table sets forth the names of the shareholders owning on record or
beneficially, directly or indirectly, more than 5% of the Common Shares of the
Company as at February 28, 2005, as well as the total amount of voting
securities owned by the directors and officers as a group:

<TABLE>
<CAPTION>
                                    TITLE OF       NUMBER OF       PERCENTAGE OF CLASS
IDENTITY OF PERSON OR GROUP           CLASS       SHARES HELD     AS OF FEBRUARY 28, 2005
---------------------------         ---------     -----------     -----------------------
<S>                                  <C>           <C>                      <C>
Capital Technologies CDPQ Inc.        Common       2,678,572                 6.28%
(formerly Sofinov, Societe
Financiere d'Innovation Inc.)

General Electric Company              Common       2,586,392                 6.06%

Oppenheimer Funds, Inc.               Common       4,990,000                11.70%
(through Oppenheimer
International Growth Fund,
Massmutual International Equity
Fund and another related fund)

Directors and Officers as a group     Common         275,900                 0.65%
</TABLE>

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

As of February 28, 2005, 6,501,048 Common Shares of the Company were held by 21
registered holders with United States addresses, representing 15.24% of our
outstanding Common Shares.


<PAGE>
                                     - 77 -

     B.  Related party transactions

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


<TABLE>
<CAPTION>
                                                        Eight-month
                               Year ended              period ended              Year ended
                           December 31, 2004         December 31, 2003         April 30, 2003
                           ------------------        -----------------         --------------
<S>                            <C>                        <C>                     <C>
Professional fees              $ 1,952,581                $    -                  $ 58,046
                               ===========                ======                  ========
</TABLE>


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


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



     C.  Interest of experts and counsel

Not applicable.

ITEM 8.  FINANCIAL INFORMATION

     A.  Financial Statements

See "Item 19 - Exhibits".

Legal Proceedings

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

Dividend Distribution Policy

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

<PAGE>
                                     - 78 -


     B.   Significant Changes

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


ITEM 9.  THE OFFER AND LISTING

     A.  Offer and listing details

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

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

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

<TABLE>
<CAPTION>
                                                      COMMON SHARES (IN CA$)
                                                 ------------------------------
                                                   HIGH                LOW
                                                 ------------------------------
                                                             (TSX)
     <S>                                           <C>                <C>
     FISCAL PERIOD
     2004 (From January 1st, 2004 to
     December 31, 2004)                            $3.70              $0.82
</TABLE>

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

<TABLE>
<CAPTION>
                                                       COMMON SHARES (IN CA$)
                                                -------------------------------
                                                    HIGH                LOW
                                                -------------------------------
                                                             (TSX)
     <S>                                            <C>                <C>
     2004
     First Quarter
     (From January 1st, 2004 to March 31, 2004)     $3.70              $1.95

     Second Quarter
     (Ended June 30, 2004)                          $2.70              $1.98

     Third Quarter
     (Ended September 30, 2004)                     $2.10              $1.40

     Fourth Quarter
     (Ended December 31, 2004)                      $1.64              $0.82
</TABLE>

<PAGE>
                                     - 79 -


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

<TABLE>
<CAPTION>
                                                    COMMON SHARES (IN CA$)
                                                -----------------------------
                                                   HIGH               LOW
                                                -----------------------------
                                                            (TSX)
     <S>                                           <C>               <C>
     MONTH
     September 2004                                $1.99             $1.40
     October 2004                                  $1.64             $1.06
     November 2004                                 $1.42             $0.98
     December 2005                                 $1.09             $0.82
     January 2005                                  $1.29             $1.05
     February 2005                                 $1.19             $0.88
</TABLE>

     B.  Plan of distribution

Not applicable.

     C.  Markets

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

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.

<PAGE>
                                     - 80 -


     C.  Material contracts

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

<PAGE>
                                     - 81 -


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


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


     D.  Exchange controls

Not applicable.

     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

<PAGE>
                                     - 82 -


exhaustive of all potential Canadian tax consequences to a U.S. Holder and,
except for the Proposals, nor does it otherwise take into account or anticipate
any changes in law, whether by judicial, governmental or legislative decision or
action. The discussion does not take into account the tax laws of the various
provinces or territories of Canada or foreign jurisdictions. It is intended to
be a general description of the Canadian federal income tax considerations and
does not take into account the individual circumstances of any particular
shareholder.

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

Taxation of Dividends

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

Disposition of Common Shares

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

<PAGE>
                                     - 83 -


     H.  Documents on display

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

     I.  Subsidiary information

Not applicable.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Foreign Currency Exchange Risks

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

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.

<PAGE>
                                     - 84 -


     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.



ITEM 16.  [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16B. CODE OF ETHICS

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

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The Audit Committee establishes the independent auditors' compensation,
determines which non-audit services the independent auditors are prohibited from
providing and authorizes permitted non-audit services to be performed by the
independent auditors to the extent those services are permitted by the
Sarbanes-Oxley Act. For the year ended December 31, 2004 and

<PAGE>
                                     - 85 -


for the eight-month period ended December 31, 2003, the aggregate fees billed by
Raymond Chabot Grant Thornton, LLP, are as follows:

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

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

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

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

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


ITEM 16D.  EXEMPTIONS FROM LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.


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

During the year ended December 31, 2004, no purchase of equity securities were
made by or on behalf of the issuer or any "affiliated purchaser", as defined in
subparagraph (a)(3)(i) of the Rule 10b-18 under the Exchange Act.



ITEM 17.   FINANCIAL STATEMENTS

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

Our financial statements are stated in U.S. dollars and are prepared in
accordance with Canadian GAAP. See note 19 to the financial statements for a
reconciliation to U.S. GAAP.


ITEM 18.   FINANCIAL STATEMENTS

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


<PAGE>
                                      -86-


ITEM 19. EXHIBITS

     A.   Financial Statements

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

Balance Sheets as at December 31, 2004 and December 31, 2003

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

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

Notes to Financial Statements.

     B.   Exhibits

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

------------
+    Incorporated by reference to the Company's Registration Statement on Form
     20-F.
(+)  Pursuant to a Confidential Treatment Application filed with the SEC,
     certain confidential information has been redacted from this document and
     filed separately with the SEC.
++   Incorporated by reference to the Company's Annual Report on Form 20-F for
     the year ended April 30, 2002.
+++  Incorporated by reference to the Company's Annual Report on Form 20-F for
     the year ended April 30, 2003.
++++ Incorporated by reference to the Company's Annual Report on Form 20-F for
     the eight-month period ended December 31, 2004.

<PAGE>

                                      -87-

SIGNATURE

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


                                     ART ADVANCED RESEARCH
                                     TECHNOLOGIES INC.



Date: March 31, 2005                 By: (s) Micheline Bouchard
                                         ---------------------------------------
                                         Micheline Bouchard
                                         President and Chief Executive Officer
<PAGE>

                                      -88-


                                    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 infrared
(TIME DOMAIN)                   laser to produce high peak energy pulses of
                                very short duration and very high repetition
                                rate and a detector to monitor signal strength
                                over time.

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

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

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

X-RAY MAMMOGRAPHY               A technology which uses X-rays to produce an
                                image of breast tissue.
<PAGE>
                              ART ADVANCED RESEARCH
                               TECHNOLOGIES INC.

                          FINANCIAL STATEMENTS FOR THE
                          YEAR ENDED DECEMBER 31, 2004





Auditors' Report                                                              2
Comments by Auditors on Canada-United
States of America Reporting Differences                                       3
Financial Statements
   Balance Sheets                                                             4
   Operations and Deficit                                                     5
   Cash Flows                                                                 6
   Notes to Financial Statements                                        7 to 31

<PAGE>

                                     Raymond Chabot Grant Thornton LLP (GRAPHIC)

Raymond Chabot Grant Thornton LLP
Chartered Accountants



AUDITORS' REPORT


To the Shareholders of
ART Advanced Research Technologies Inc.

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

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

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


/s/ Raymond Chabot Grant Thornton  LLP
-------------------------------------------
Chartered Accountants

Montreal, Canada
February 4, 2005


Suite 1900
National Bank Tower
600 De La Gauchetiere Street West
Montreal, Quebec H3B 4L8
Telephone: (514) 878-2691
Fax: (514) 878-2127
www.rcgt.com

MEMBER OF GRANT THORNTON INTERNATIONAL
<PAGE>

                                     Raymond Chabot Grant Thornton LLP (GRAPHIC)

Raymond Chabot Grant Thornton LLP
Chartered Accountants


COMMENTS BY AUDITORS ON CANADA-UNITED STATES
OF AMERICA REPORTING DIFFERENCES

In the United States of America, reporting standards for auditors require the
addition of an explanatory paragraph (following the opinion paragraph) when
there is a change in accounting principles that has a material effect on the
comparability of the Company's financial statements, such as the changes
described in Note 2 to the financial statements. Our report to the shareholders
dated February 4, 2005 is expressed in accordance with Canadian reporting
standards which do not require a reference to such changes in accounting
principles in the auditors' report when the change is properly accounted for and
adequately disclosed in the financial statements.

/s/ Raymond Chabot Grant Thornton LLP
-------------------------------------------
Chartered Accountants

Montreal, Canada
February 4, 2005


Suite 1900
National Bank Tower
600 De La Gauchetiere Street West
Montreal, Quebec H3B 4L8
Telephone: (514) 878-2691
Fax: (514) 878-2127
www.rcgt.com

MEMBER OF GRANT THORNTON INTERNATIONAL
<PAGE>
                                                                               4

ART ADVANCED RESEARCH TECHNOLOGIES INC.
BALANCE SHEETS
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                 December 31,    December 31,
                                                                         2004            2003
                                                                 ------------    ------------
<S>                                                              <C>             <C>
ASSETS
Current assets
   Cash                                                          $    631,164    $  4,200,128
   Term deposit, 1.45% (2.65% in 2003), maturing in April 2005
   (Note 17)                                                          249,584         231,392
   Commercial papers, 2.24% to 2.51% (2.70% to 2.80% in 2003),
   maturing from January to March 2005                             10,950,403       4,993,040
   Accounts receivable (Note 4)                                       883,604         801,649
   Investment tax credits receivable                                  815,760       1,158,682
   Inventories (Note 5)                                             1,014,551         336,042
   Prepaid expenses                                                   144,882         183,461
                                                                 ------------    ------------
                                                                   14,689,948      11,904,394
Property and equipment (Note 6)                                       547,406         478,218
Patents (Note 3)                                                    1,527,533       1,322,184
                                                                 ------------    ------------
                                                                 $ 16,764,887    $ 13,704,796
                                                                 ============    ============
LIABILITIES
Current liabilities
   Accounts payable and accrued liabilities (Note 8)             $  2,155,073    $  2,292,404
                                                                 ------------    ------------
SHAREHOLDERS' EQUITY
Share capital and share purchase warrants (Note 9)                 80,696,107      67,870,684
Contributed surplus (Notes 9(d) and 10)                               474,698          18,206
Deficit                                                           (68,122,241)    (56,753,062)
Cumulative translation adjustment                                   1,561,250         276,564
                                                                 ------------    ------------
                                                                   14,609,814      11,412,392
                                                                 ------------    ------------
                                                                 $ 16,764,887    $ 13,704,796
                                                                 ============    ============

Commitments and contingency (Notes 16 and 17)

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

On behalf of the Board,

/s/ Benoit La Salle                        /s/ Raymond Cyr
-------------------------------------      -------------------------------------
Director                                   Director
</TABLE>

<PAGE>
                                                                               5

ART ADVANCED RESEARCH TECHNOLOGIES INC.
OPERATIONS AND DEFICIT
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                    Eight-month
                                                     Year ended    period ended        Year ended
                                                   December 31,    December 31,    April 30, 2003
                                                           2004            2003         (Note 11)
                                                   ------------    ------------    --------------
<S>                                                 <C>             <C>               <C>
SALES                                               $ 1,935,000     $   681,875       $        --
Cost of sales                                           915,087         377,744                --
                                                    -----------     -----------       -----------
GROSS MARGIN                                          1,019,913         304,131                --
                                                    -----------     -----------       -----------
Operating expenses
   Research and development (Note 13)                 7,511,485       3,491,641         5,734,470
   Selling, general and administrative                3,474,446       2,239,324         2,885,065
   Amortization                                         249,627         136,643           138,173
                                                    -----------     -----------       -----------
                                                     11,235,558       5,867,608         8,757,708
                                                    -----------     -----------       -----------
Operating loss                                       10,215,645       5,563,477         8,757,708
Interest expense                                             --              --               393
Interest income                                        (300,221)        (63,384)          (99,674)
Foreign exchange loss                                    13,179         331,932           219,065
Other expenses (Note 9)                                      --              --         1,467,621
                                                    -----------     -----------       -----------
Loss from continuing operations before income
taxes                                                 9,928,603       5,832,025        10,345,113
Current income taxes recovered (Note 14)                     --              --        (1,318,668)
                                                    -----------     -----------       -----------
Loss from continuing operations                       9,928,603       5,832,025         9,026,445
Profit from discontinued operations (Note 11)                --              --        (2,479,841)
                                                    -----------     -----------       -----------
NET LOSS                                              9,928,603       5,832,025         6,546,604
Deficit, beginning of year                           56,753,062      49,561,034        42,309,220
Share and share purchase warrant issue expenses       1,440,576       1,360,003           705,210
                                                    -----------     -----------       -----------
Deficit, end of year                                $68,122,241     $56,753,062       $49,561,034
                                                    ===========     ===========       ===========
Basic and diluted loss per share from continuing
operations                                          $      0.24     $      0.20       $      0.38
                                                    ===========     ===========       ===========
Basic and diluted earnings per share from
discontinued operations                             $        --     $        --       $     (0.10)
                                                    ===========     ===========       ===========
Basic and diluted net loss per share (Note 3)       $      0.24     $      0.20       $      0.28
                                                    ===========     ===========       ===========
Basic and diluted weighted average number of
common shares outstanding                            41,220,856      29,456,248        23,493,351
                                                    ===========     ===========       ===========
</TABLE>

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


                                                                               6
ART ADVANCED RESEARCH TECHNOLOGIES INC.
CASH FLOWS
(In U.S. dollars)

<TABLE>
<CAPTION>
                                                                        Eight-month
                                                         Year ended    period ended        Year ended
                                                       December 31,    December 31,    April 30, 2003
                                                               2004            2003         (Note 11)
                                                       ------------    ------------    --------------
<S>                                                    <C>             <C>               <C>
OPERATING ACTIVITIES
Net loss                                               $ (9,928,603)   $ (5,832,025)     $ (6,546,604)
Items not affecting cash
   Amortization                                             249,627         136,643           138,173
   Stock-based compensation (Note 10)                       142,516          18,206                --
   Other expenses (Note 9(c))                                    --              --           717,621
Net change in working capital items
   Accounts receivable                                      (18,427)       (635,388)           61,298
   Investment tax credits receivable                        382,500        (150,125)         (563,018)
   Inventories                                             (584,827)       (321,780)               --
   Prepaid expenses                                          26,492          79,717          (175,242)
   Accounts payable and accrued liabilities                 (74,535)        269,149           164,623
                                                       ------------    ------------      ------------
Cash flows from continuing operating activities          (9,805,257)     (6,435,603)       (6,203,149)
Cash flows from discontinued activities                          --              --        (4,330,520)
                                                       ------------    ------------      ------------
Cash flows from operating activities                     (9,805,257)     (6,435,603)      (10,533,669)
                                                       ------------    ------------      ------------
INVESTING ACTIVITIES
Short-term investments                                   (4,402,764)       (919,619)       (1,130,730)
Property and equipment                                     (234,972)       (166,078)          (53,408)
Other assets                                               (123,772)        500,017          (647,768)
                                                       ------------    ------------      ------------
Cash flows from continuing investing activities          (4,761,508)       (585,680)       (1,831,906)
Cash flows from discontinued activities (Note 11)                --              --         5,500,000
                                                       ------------    ------------      ------------
Cash flows from investing activities                     (4,761,508)       (585,680)        3,668,094
                                                       ------------    ------------      ------------
FINANCING ACTIVITIES
Shares and share purchase warrants                       12,888,327      11,605,148         7,502,855
Share and share purchase warrant issue expenses          (1,440,576)     (1,360,003)         (705,210)
                                                       ------------    ------------      ------------
Cash flows from financing activities                     11,447,751      10,245,145         6,797,645
Effect of foreign currency translation adjustments          551,957         146,261           200,666
                                                       ------------    ------------      ------------
                                                         11,999,708      10,391,406         6,998,311
                                                       ------------    ------------      ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (2,567,057)      3,370,123           132,736
Cash and cash equivalents, beginning of year              4,200,128         830,005           697,269
                                                       ------------    ------------      ------------
Cash and cash equivalents, end of year                 $  1,633,071    $  4,200,128      $    830,005
                                                       ============    ============      ============
CASH AND CASH EQUIVALENTS
Cash                                                   $    631,164    $  4,200,128      $    830,005
Commercial paper                                          1,001,907              --                --
                                                       ------------    ------------      ------------
                                                       $  1,633,071    $  4,200,128      $    830,005
                                                       ============    ============      ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid                                          $         --    $         --      $       (393)
Interest received                                           246,680          47,753            90,366
</TABLE>

The accompanying notes are an integral part of the financial statements.
<PAGE>
                                                                               7


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

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

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


2 - CHANGES IN ACCOUNTING POLICIES

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

<PAGE>
                                                                               8

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)



2 - CHANGES IN ACCOUNTING POLICIES (CONTINUED)

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

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


3 - ACCOUNTING POLICIES

The financial statements are expressed in United States of America dollars (U.S.
dollars) and have been prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP). These financial statements differ in
certain respects from those prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP), and are not
intended to provide certain disclosures which would typically be found in
financial statements prepared in accordance with U.S. GAAP. The principal
differences between Canadian and U.S. GAAP are described in Note 19.

USE OF ESTIMATES

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

PRINCIPLES OF CONSOLIDATION

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

<PAGE>
                                                                               9

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO 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

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

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

AMORTIZATION

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

Computer equipment                                           3 years
Office furniture, tools and equipment                        5 years
Leasehold improvements                                 Term of lease
<PAGE>
                                                                              10

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

3 - ACCOUNTING POLICIES (CONTINUED)

PATENTS

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

<TABLE>
<CAPTION>
                                                                               December 31,   December 31,
                                                                                       2004           2003
                                                                               ------------   ------------
<S>                                                                            <C>            <C>
Gross carrying value                                                           $  1,598,926   $  1,342,771
Accumulated amortization                                                             71,393         20,587
                                                                               ------------   ------------
Net carrying value                                                             $  1,527,533   $  1,322,184
                                                                               ============   ============
Patents acquired during the period                                             $    150,588   $     97,180
                                                                               ============   ============
</TABLE>

RESEARCH AND DEVELOPMENT EXPENSES

Research expenses are charged against income in the year in which they are
incurred. Development expenses, including the costs of preparing prototypes, are
charged against income in the year in which they are incurred, unless the
criteria for capitalization under Canadian GAAP are met. The Company has not
deferred any 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 AND CASH EQUIVALENTS

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

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

<PAGE>

                                                                              11

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

3 - ACCOUNTING POLICIES (CONTINUED)

REPORTING CURRENCY AND TRANSLATION OF FOREIGN CURRENCIES

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

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

DIVIDENDS

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

BASIC AND DILUTED LOSS PER COMMON SHARE AND INFORMATION PERTAINING TO NUMBER OF
SHARES

The Company uses the treasury stock method to determine the dilutive effect of
share purchase warrants and stock options. Per share amounts have been computed
based on the weighted average number of common shares outstanding for all years
or periods presented. The diluted loss per share is calculated by adjusting
outstanding shares to take into account the dilutive effect of stock options and
share purchase warrants. For all of the years or periods 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 4,666,796,
4,645,022 and 3,946,437 common shares were outstanding at December 31, 2004,
December 31, 2003, and April 30, 2003, respectively, but were not included in
the calculation of the diluted loss per share.

DISCLOSURE OF GUARANTEES

In February 2003, the CICA issued Accounting Guideline No. 14
(AcG-14), Disclosure of Guarantees, that provides guidance on the determination
of guarantees and requires that the guarantor disclose the important details
related to a guarantee, even though the likelihood of the guarantor having to
make any payments under the guarantee is slight.

The implementation of AcG-14 did not have any significant impact on the
financial position of the Company or on the results of its operations.


<PAGE>

                                                                              12

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

4 - ACCOUNTS RECEIVABLE

<TABLE>
<CAPTION>
                                                                               December 31,   December 31,
                                                                                       2004           2003
                                                                               ------------   ------------
<S>                                                                            <C>            <C>
Trade accounts, net of allowance for doubtful accounts of nil                  $    647,583   $    681,875
Sales tax receivable                                                                134,949         78,344
Interest and other receivables                                                      101,072         41,430
                                                                               ------------   ------------
                                                                               $    883,604   $    801,649
                                                                               ============   ============
</TABLE>

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

5 - INVENTORIES

<TABLE>
<CAPTION>
                                                                               December 31,   December 31,
                                                                                       2004           2003
                                                                               ------------   ------------
<S>                                                                            <C>            <C>
Raw materials                                                                  $    475,549   $    336,042
Work in process                                                                     178,765
Finished goods                                                                      360,237
                                                                               ------------   ------------
                                                                               $  1,014,551   $    336,042
                                                                               ============   ============
</TABLE>

6 - PROPERTY AND EQUIPMENT

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



<PAGE>

                                                                              13

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

6 - PROPERTY AND EQUIPMENT (CONTINUED)

<TABLE>
<CAPTION>
                                                                                         December 31, 2003
                                                                 -----------------------------------------
                                                                                Accumulated
                                                                       Cost    amortization            Net
                                                                 ----------    ------------      ---------
<S>                                                              <C>             <C>             <C>
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
                                                                 ==========      ==========      =========
</TABLE>

7 - CREDIT FACILITIES

As at December 31, 2004, the Company had available a credit facility of
$1,081,531 (CA$1,300,000) pursuant to the provisions of a qualifying investment
tax credit receivable program. Such loans are repayable upon receipt of the tax
credits. This facility was available but not utilized as at December 31, 2004
and December 31, 2003 respectively. This facility bears interest at the base
rate plus 1.5% and is renewable on an annual basis.

As at December 31, 2004, a credit facility of $831,947 (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 the base rate
plus 1.75% and is renewable on an annual basis. The Company has to comply with
certain restrictive clauses which were all met at December 31, 2004.

8 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

<TABLE>
<CAPTION>
                                                                             December 31,   December 31,
                                                                                    2004           2003
                                                                             ------------   ------------
<S>                                                                          <C>            <C>
Trade accounts                                                               $  919,658     $1,101,257
Employee related
    Salaries                                                                    560,918        578,835
    Bonus                                                                       540,578        334,447
Corporate transaction costs                                                     -               33,738
Other                                                                           133,919        244,127
                                                                             ----------     ----------
                                                                             $2,155,073     $2,292,404
                                                                             ==========     ==========
</TABLE>


<PAGE>

                                                                              14

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

9 - SHARE CAPITAL AND SHARE PURCHASE WARRANTS

AUTHORIZED

Unlimited number of shares without par value
 Common shares
 Preferred shares, issuable in series, having such attributes as the Board of
 Directors may determine

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

<TABLE>
<CAPTION>

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


<PAGE>

                                                                              15

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

9 - SHARE CAPITAL AND SHARE PURCHASE WARRANTS (CONTINUED)

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

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

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

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



<PAGE>

                                                                              16

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

 9 - SHARE CAPITAL AND SHARE PURCHASE WARRANTS (CONTINUED)

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

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

         -        Expected life: 5 years;

         -        Expected volatility: 70%;

         -        Weighted average risk-free interest rate: 3.71%;

         -        Dividend rate: 0%.

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

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

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

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

         -        The second agent received 94,742 share purchase warrants
                  entitling it to buy 94,742 common shares of the Company at an
                  exercise price of 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.


<PAGE>

                                                                              17

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

9 - SHARE CAPITAL AND SHARE PURCHASE WARRANTS (CONTINUED)

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

         -        Expected life: 3 years;

         -        Expected volatility: 70%;

         -        Weighted average risk-free interest rate: 3.71%;

         -        Dividend rate: 0%.

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

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

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

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

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

         -        Share purchase warrants No. 1: 905,237 share purchase warrants
                  entitling the holder to buy 905,237 common shares of the
                  Company at an exercise price of CA$2.50. These share purchase
                  warrants became exercisable as of November 15, 2002 and expire
                  on November 15, 2007;

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


<PAGE>

                                                                              18

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

9 - SHARE CAPITAL AND SHARE PURCHASE WARRANTS (CONTINUED)

         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 operations and
         deficit statement while the consideration was recorded under "share
         capital and share purchase warrants" in shareholders' equity.

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

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

10 - 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 of such options.

As at December 31, 2004, December 31, 2003 and April 30, 2003, 2,650,000 common
shares were authorized for issuance. Since its inception, 699,840 common shares
have been issued under this plan.



<PAGE>

                                                                              19

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

10 - STOCK-BASED COMPENSATION PLAN (CONTINUED)

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

<TABLE>
<CAPTION>

                                              December 31, 2004     December 31, 2003       April 30, 2003
                                        -----------------------   -------------------  -------------------
                                            Directors, officers   Directors, officers  Directors, officers
                                                            and                   and                  and
                                                      employees             employees            employees
                                        -----------------------   -------------------  -------------------
                                                       Weighted              Weighted             Weighted
                                                        average               average              average
                                                       exercise              exercise             exercise
                                          Number of       price  Number of      price  Number of     price
                                            options         CA$   options         CA$    options       CA$
                                        -----------    -------- ----------   --------  ---------  --------
<S>                                      <C>           <C>      <C>          <C>       <C>        <C>
Balance, beginning of year                1,431,600        3.79 1,476,200        4.06  1,207,070      6.01
Options granted                           1,282,574(a)     1.96   142,400        3.21    658,900      2.04
Options exercised                            (6,000)       1.91      (400)       2.39     (7,070)     0.63
Options cancelled                          (240,800)       4.18  (186,600)       5.42   (382,700)     6.81
                                          ---------             ---------              ---------
Balance, end of year                      2,467,374        2.81 1,431,600        3.79  1,476,200      4.06
                                          =========             =========              =========
Options exercisable, end of year          1,222,898        3.63   846,400        4.81    739,565      5.81
                                          =========             =========              =========
</TABLE>

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

As at December 31, 2004, a total of 522,214 common share purchase options had
been granted over the available limit and are pending the shareholders'
approval.

<PAGE>
                                                                              20

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

10 - STOCK-BASED COMPENSATION PLAN (CONTINUED)

The following table presents the details of directors, officers and employees
options:

<TABLE>
<CAPTION>
                                                            December 31,    December 31,       April 30,
                                                                   2004            2003            2003
                                                            -----------     -----------     -----------
                                             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                -              -              -          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        137,000        192,000          4.60
1998-02-09                    2008-02-08        40,000                -              -              -          6.25
1998-03-10                    2008-03-09        14,000            2,000          2,000          2,000          7.50
1999-02-15                    2009-02-14       221,000          111,000        118,000        169,000          6.00
1999-10-08                    2009-10-07        30,000                -              -              -          6.00
2000-02-17                    2010-02-16       125,000           10,000         27,000         27,000          7.50
2000-03-20                    2010-03-19       531,000          165,000        180,000        232,000          7.50
2000-09-11                    2010-09-10        11,000                -              -          1,000          7.40
2000-12-05                    2010-12-04         8,000            5,000          5,500          5,500          5.95
2001-01-30                    2011-01-29        40,000                -              -              -          6.25
2001-08-24                    2011-08-23        20,000                -              -              -          4.85
2001-09-05                    2011-09-04        90,000                -         90,000         90,000          4.75
2001-12-14                    2011-12-13        91,500           53,000         68,000         68,500          3.85
2002-04-11                    2012-04-10         5,500            3,000          5,500          5,500          3.58
2002-06-19                    2012-06-18       216,400          133,400        204,200        211,200          2.39
2002-08-16                    2012-08-15       275,000          275,000        275,000        275,000          1.72
2002-09-05                    2012-09-04         2,000            2,000          2,000          2,000          2.50
2002-11-14                    2012-11-13        80,000           60,000         80,000         80,000          2.35
2002-11-28                    2012-11-27         3,000                -              -          3,000          2.87
</TABLE>

<PAGE>

                                                                              21

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

10 - STOCK-BASED COMPENSATION PLAN (CONTINUED)

<TABLE>
<CAPTION>
                                                            December 31,    December 31,       April 30,
                                                                   2004            2003            2003
                                                            -----------     -----------     -----------
                                             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           44,000          50,000          50,000        1.91
2003-02-27                     2013-02-26       32,500           15,000          15,000          32,500        1.81
2003-05-14                     2013-05-13       25,900           25,900          25,900               -        1.80
2003-09-10                     2013-09-09      111,000          111,000         111,000               -        3.51
2003-11-12                     2013-11-11        5,500            2,500           5,500               -        3.82
2004-01-09                     2014-01-08      150,000          150,000               -               -        3.00
2004-01-27                     2014-01-26      288,740          288,740               -               -        3.23
2004-01-27                     2014-01-26       40,000           40,000               -               -        3.04
2004-06-21                     2014-06-20      118,334          118,334               -               -        2.14
2004-11-16                     2014-11-15       20,000           20,000               -               -        1.28
2004-12-09                     2014-12-08      665,500          665,500               -               -        1.10
                                             ---------        ---------       ---------       ---------
                                             4,257,874        2,467,374       1,431,600       1,476,200
                                             =========        =========       =========       =========
Weighted-average remaining
contractual life                                              8.0 years       7.0 years       7.2 years
                                                              =========       =========       =========
</TABLE>

(a)      During the 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>

                                                                              22

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

10 - STOCK-BASED COMPENSATION PLAN (CONTINUED)

The fair value of stock options granted during the year ended December 31, 2004
and the eight-month period 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:

-    Weighted average expected life: 4.33 years (4.5 years in 2003);

-    Expected volatility: 70% (70% in 2003);

-    Weighted average risk-free interest rate: 3.46% (3.84% in 2003);

-    Dividend rate: 0% (0% in 2003).

The weighted average fair value of stock options granted during the year ended
December 31, 2004 was $0.68 ($1.36 in 2003).

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

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

<TABLE>
<CAPTION>
                                                                    Eight-month
                                                  Year ended       period ended        Year ended
                                                 December 31,      December 31,         April 30,
                                                        2004               2003              2003
                                                 ------------      ------------      ------------
<S>                                              <C>               <C>               <C>
Net loss as reported                             $  9,928,603      $  5,832,025      $  6,546,604
Less: compensation expense recognized in the
statement of operations and deficit                  (142,516)          (18,206)               --
Plus: total compensation expense                      344,324           153,296           134,959
                                                 ------------      ------------      ------------
Pro forma net loss                               $ 10,130,411      $  5,967,115      $  6,681,563
                                                 ============      ============      ============
Basic and diluted loss per share
    As reported                                  $      (0.24)     $      (0.20)     $      (0.28)
    Pro forma                                    $      (0.25)     $      (0.20)     $      (0.28)
</TABLE>

OTHER STOCK OPTIONS

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

<PAGE>

                                                                              23

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

11 - DISCONTINUED OPERATIONS

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

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

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

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

12 - RELATED PARTY TRANSACTIONS

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

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

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

<PAGE>

                                                                              24

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

13 - RESEARCH AND DEVELOPMENT EXPENSES

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

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

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

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

14 - INCOME TAXES

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

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

<PAGE>

                                                                              25

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

14 - INCOME TAXES (CONTINUED)

Future income tax assets of $27,402,160 as at December 31, 2004 ($22,239,492 as
at December 31, 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 years.
They are summarized as follows:

<TABLE>
<CAPTION>
                                                                     December 31,       December 31,
                                                                             2004               2003
                                                                     ------------       ------------
<S>                                                                  <C>                <C>
Future income tax assets resulting from
    Tax losses                                                       $ 19,877,131       $ 16,483,069
    Research and development expenses                                   3,732,794          2,656,248
    Excess of tax basis over carrying value of assets                     908,151            805,387
    Federal non-refundable research and development tax credits         2,884,084          2,294,788
                                                                       27,402,160         22,239,492
Valuation allowance                                                   (27,402,160)       (22,239,492)
                                                                     ------------       ------------
Net future income tax assets recorded                                $         --       $         --
                                                                     ============       ============
</TABLE>

As at December 31, 2004, the non-capital tax losses and unused income tax
deductions are available as follows:

<TABLE>
<CAPTION>
                                                                                     Federal     Provincial
                                                                                 -----------    -----------
<S>                                                                              <C>            <C>
Non-capital losses expiring in
    2005                                                                         $ 4,349,241    $ 4,516,114
    2006                                                                           6,983,305      4,209,815
    2007                                                                          12,108,274     11,492,989
    2008                                                                          14,310,463     14,222,579
    2009                                                                           9,450,038      9,299,722
    2010                                                                           6,181,226      6,109,774
    2014                                                                          11,709,132     11,709,132
                                                                                 -----------    -----------
                                                                                  65,091,679     61,560,125
Unused income tax deductions
    Research and development expenses which can be deferred over
    an indefinite period                                                          10,372,259     16,162,365
                                                                                 -----------    -----------
                                                                                 $75,463,938    $77,722,490
                                                                                 ===========    ===========
</TABLE>

15 - SEGMENT INFORMATION

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


<PAGE>

                                                                              26

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

15 - SEGMENT INFORMATION (CONTINUED)

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

<TABLE>
<CAPTION>
                                                        Year ended December 31, 2004
                                             ---------------------------------------------------
                                             Pharmaceutical         Medical            Total
                                             --------------      ------------       ------------
<S>                                           <C>                <C>                <C>
SALES                                         $  1,935,000       $         --       $  1,935,000
Cost of sales                                      915,087                 --            915,087
                                              ------------       ------------       ------------
GROSS MARGIN                                     1,019,913                 --          1,019,913
                                              ------------       ------------       ------------
Operating expenses
    Research and development                     1,944,023          5,567,462          7,511,485
    Selling, general and administrative          1,314,888          2,159,558          3,474,446
    Amortization                                   153,895             95,732            249,627
                                              ------------       ------------       ------------
                                                 3,412,806          7,822,752         11,235,558
                                              ------------       ------------       ------------
Operating loss                                   2,392,893          7,822,752         10,215,645
Interest income                                    (84,182)          (216,039)          (300,221)
Foreign exchange loss                                3,695              9,484             13,179
                                              ------------       ------------       ------------
NET LOSS                                      $  2,312,406       $  7,616,197       $  9,928,603
                                              ============       ============       ============
</TABLE>

As at December 31, 2004, the majority of identifiable assets consisted of cash,
short-term investments and property and equipment used for corporate head office
purposes. Identifiable assets by segment are summarized as follows:

<TABLE>
<CAPTION>
                                 Corporate    Pharmaceutical      Medical          Total
                                -----------   --------------    ----------      -----------
<S>                             <C>             <C>             <C>             <C>
Identifiable assets             $12,897,559     $2,132,979      $1,734,349      $16,764,887
</TABLE>

16 - CONTRACTUAL COMMITMENTS

The Company is committed under operating leases expiring between 2005 and 2012
to pay a total amount of $3,141,477 principally for its premises.

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

<TABLE>
<S>                                               <C>
2005                                              $ 437,984
2006                                                394,703
2007                                                396,186
2008                                                406,337
2009                                                403,202
</TABLE>



<PAGE>

                                                                              27

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

17 - CONTINGENCY

LETTERS OF CREDIT

As at December 31, 2004, letters of credit of $166,389 (CA$200,000) and $83,195
(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 2005 has
been provided as security for these letters of credit.

18 - 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.

Except for accounts receivable of $647,583 ($681,875 in 2003) and cash of
$28,189 ($2,411,483 in 2003), all other financial instruments are denominated in
Canadian dollars.

19 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

The amounts reported in the financial statements of the Company, prepared under
Canadian GAAP, conform in all material respects to the amounts that would have
been reported if the financial statements had been prepared under U.S. GAAP,
except for the following:

RECONCILIATION OF STATEMENTS OF LOSS AND COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                                                     Eight-month
                                                   Year ended       period ended      Year ended
                                                  December 31,       December 31,       April 30,
                                                         2004               2003            2003
                                                  -----------       ------------      -----------
<S>                                               <C>               <C>               <C>
Net loss under Canadian and U.S. GAAP             $ 9,928,603       $ 5,832,025       $ 6,546,604
Change in cumulative translation adjustments
account(a)                                         (1,284,686)         (768,167)         (630,301)
                                                  -----------       -----------       -----------
Comprehensive loss under U.S. GAAP                $ 8,643,917       $ 5,063,858       $ 5,916,303
                                                  ===========       ===========       ===========
</TABLE>

<PAGE>
                                                                              28

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

19 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

DIFFERENCES IN REPORTED AMOUNTS ON BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              Canadian
                                                                  GAAP      Adjustments        U.S. GAAP
                                                         -------------   --------------   --------------
<S>                                                      <C>             <C>              <C>
December 31, 2004
    Share capital, share purchase warrants and
    contributed surplus(b) (c)                           $  81,170,805   $   (8,400,167)  $   72,770,638
    Deficit(b) (c)                                         (68,122,241)       8,740,968      (59,381,273)
    Cumulative translation adjustments(c)                    1,561,250         (340,801)       1,220,449
December 31, 2003
    Share capital, share 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
    Share capital, share 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)
</TABLE>

(a)  Comprehensive income

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

(b)  Share and share purchase warrant issue expenses

     U.S. GAAP requires that share and share purchase warrant issue expenses of
     $1,440,576 for the year ended December 2004 ($1,360,003 for the eight-month
     period ended December 31, 2003 and $705,210 for the year ended April 30,
     2003) be recorded as a reduction of proceeds of issuance instead of a
     charge to the deficit account as done under Canadian GAAP.

(c)  Reporting currency

     The Company adopted the U.S. dollar as its reporting currency effective May
     1, 1999. Under U.S. GAAP, the translation of the Company's prior fiscal
     years' financial statements must be carried out using the current rate
     method, applied on a retroactive basis.

<PAGE>

                                                                              29

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

19 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

OTHER INFORMATION

U.S. GAAP requires the presentation of information in the event of a change in
fiscal year-end.

Information comparable to the transition period:

<TABLE>
<CAPTION>
                                                            Year ended       Year ended
                                           Year ended     December 31,     December 31,
                                         December 31,             2003             2002
                                                2004       (unaudited)      (unaudited)
                                         ------------     ------------     ------------
<S>                                      <C>              <C>              <C>
Operating loss                           $10,215,645      $ 9,211,400      $ 7,619,954
Loss from continuing operations            9,928,603       10,580,413        6,749,060
Profit from discontinued operations               --               --       (1,941,052)
Net loss                                   9,928,603        5,832,025        4,808,008
</TABLE>

Classification of "other expenses"

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

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 year ended
December 31, 2004, the eight-month period ended December 31, 2003 and the year
ended April 30, 2003, was estimated using the Black & Scholes option-pricing
model, taking into account a weighted average expected life of 4.33 years for
the year ended December 31, 2004, an expected life of 4.5 years for the
eight-month period ended December 31, 2003 and seven years for the year ended
April 30, 2003. Other assumptions used for purposes of valuation include
expected volatility of 70% for December 31, 2004 (70% for December 31, 2003 and
for April 30, 2003), the weighted average risk-free interest rate of 3.46% for
December 31, 2004 (3.84% for December 31, 2003 and 4.72% for April 30, 2003),
and 0% dividend policy. A compensation expense is recorded over the vesting
periods.

If the fair value method of accounting had been applied, the Company's net loss
and net loss per share for the year ended December 31, 2004, the eight-month
period ended December 31, 2003, and the year ended April 30, 2003, would have
been, on a pro forma basis:

<TABLE>
<CAPTION>
                                                                      Eight-month
                                                    Year ended       period ended         Year ended
                                                  December 31,       December 31,          April 30,
                                                          2004               2003               2003
                                                  ------------       ------------       ------------
<S>                                               <C>                <C>                <C>
Net loss as reported                              $  9,928,603       $  5,832,025       $  6,546,604
Less: compensation expense recognized in the
statement of operations and deficit                   (142,516)           (18,206)                --
Plus: total compensation expense under the
fair value-based method                                340,013            185,028            270,121
                                                  ------------       ------------       ------------
Pro forma net loss                                $ 10,126,100       $  5,998,847       $  6,816,725
                                                  ============       ============       ============
</TABLE>

<PAGE>

                                                                              30

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

19 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

<TABLE>
<CAPTION>
                                                                    Eight-month
                                                      Year ended   period ended   Year ended
                                                     December 31,   December 31,    April 30,
                                                            2004           2003         2003
                                                     -----------   ------------   ----------
<S>                                                   <C>           <C>           <C>
Basic and diluted net loss per share as reported      $  (0.24)     $  (0.20)     $  (0.28)
Basic and diluted net loss per share, pro forma       $  (0.25)     $  (0.20)     $  (0.29)
</TABLE>

The weighted average fair value of options granted for the year ended December
31, 2004 was $0.68 ($1.36 for the eight-month period ended December 31, 2003 and
$0.92 for the year ended April 30, 2003).

ACCOUNTING CHANGES

A)   CONSOLIDATION OF VARIABLE INTEREST ENTITIES

     In January 2003, the FASB issued FIN No. 46, Consolidation of Variable
     Interest Entities, an interpretation for Accounting Research Bulletin No.
     51 FIN No. 46 requires certain variable interest entities, or VIEs, to be
     consolidated by the primary beneficiary of the entity if the equity
     investors in the entity do not have the characteristics of a controlling
     financial interest or do not have sufficient equity at risk for the entity
     to finance its activities without additional subordinated financial support
     from other parties. In December 2003, the FASB issued a revision to FIN No.
     46 (FIN 46R) to clarify some of the provisions of FIN 46, and to exempt
     certain entities from its requirements. The provisions of FIN 46R must be
     applied for the first interim or annual period beginning after December 15,
     2003. The Company currently has no contractual relationship or other
     business relationship with a variable interest entity and therefore the
     adoption of FIN 46R did not have an effect on the Company's consolidated
     balance sheets or statements of operations, shareholders' equity and cash
     flows.

B) INVENTORY COSTS

     In November 2004, the FASB issued SFAS 151, Inventory Costs - An Amendment
     of ARB 43 Chapter 4 (SFAS 151). SFAS 151 amends the guidance in ARB 43,
     Chapter 4, Inventory Pricing, to clarify the accounting for certain
     abnormal amounts in establishing inventory valuation. The proposed
     statement would:

     -  Recognize as current-period charges, idle facility expenses, excessive
        spoilage, double freight, and rehandling costs regardless of whether
        they meet the criterion of "so abnormal" as stated in ARB 43;

     -  Require that the allocation of fixed production overheads to the costs
        of conversion be based on the normal capacity of the production
        facilities.

     SFAS 151 is effective for fiscal years beginning after June 15, 2005. The
     Company is currently evaluating the effect that the adoption of SFAS 151
     will have on its results of operations and financial condition.

<PAGE>

                                                                              31

ART ADVANCED RESEARCH TECHNOLOGIES INC.
NOTES TO FINANCIAL STATEMENTS
(In U.S. dollars)

19 - UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED)

C)   EXCHANGES OF NON-MONETARY ASSETS

     In December 2004, the FASB issued SFAS 153, Exchanges of Non-monetary
     Assets - An Amendment of APB Opinion 29. SFAS 153 eliminates the exception
     from fair value measurement for non-monetary exchanges of similar
     productive assets in paragraph 21(b) of APB Opinion 29, Accounting for
     Non-monetary Transactions, and replaces it with an exception for exchanges
     that do not have commercial substance. SFAS 153 is effective for the fiscal
     periods beginning after June 15, 2005. The Company is currently evaluating
     the effect that the adoption of SFAS 153 will have on its results of
     operations and financial condition.