ITEM 4. INFORMATION ON THE COMPANY

A. History and development of the company

ART Advanced Research Technologies Inc. ("ART" or the "Company") was incorporated under the Canada Business Corporations Act on July 13, 1993 under the name ART Aerospace Research Technologies Inc. On June 22, 1999, the Company's articles were amended to change the name of the Company to its current name, ART Advanced Research Technologies Inc./ART Recherches et Technologies Avancees Inc. The Company has two wholly-owned subsidiaries: SAMI System Inc., which was incorporated under the Canada Business Corporations Act on March 30, 1998, and ART Aerospace Research Technologies U.S., Inc., a Delaware corporation incorporated on July 2, 1997.

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

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

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

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

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

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

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

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

In March 1999, a share exchange took place with the former shareholders of SPEQ Aerospace Research Technologies Inc. ("SPEQ") whereby 3,748,060 shares of the Company were issued to former shareholders of SPEQ in exchange for the shares of SPEQ held by such shareholders. As

a result of this corporate reorganization, the Company became the sole shareholder of SPEQ and SPEQ was subsequently liquidated and dissolved.

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

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

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

In April 2000, ART established a Scientific Advisory Board composed of leading members of the medical and scientific community. The Scientific Advisory Board provides advice and scientific expertise to the Company on an ongoing basis. ART currently has eight (8) members on its Scientific Advisory Board.

Also in April 2000, ART completed an additional series of private placements, which resulted in gross proceeds of approximately US$11.4 million to the Company.

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

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

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

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

On November 9, 2000, the results of the second pilot study of the SoftScan(R) optical breast imaging device were announced. The results confirmed the technological potential for SoftScan(R) as a breast cancer detection device. The study also revealed that SoftScan(R) is a safe and non-invasive technology, which involves and a more comfortable procedure for the patient than X-ray mammography.

On April 11, 2001, ART acquired an exclusive worldwide licence with respect to an important patent portfolio developed by Emeritus Professor Dr. Britton Chance and owned by Non-Invasive Technology Inc., which pertains to the imaging of tissue using time domain technology.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On March 10, 2004, the Company closed a treasury offering of 7,500,000 Common Shares representing gross proceeds of US$11.3 million, followed by the partial exercise of the over-

allotment option on March 19, 2004, which resulted in the issuance of 920,000 additional Common Shares representing gross proceeds of US$1.4 million.

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

On March 29, 2004, ART presented at the Annual Meeting of the Academy of Molecular Imaging the results of a study demonstrating the high quantitation, precise three-dimensional localization, and fluorescence lifetime in vivo capabilities of the eXplore Optix(TM) system in the murine animal model. The results of a second study were also presented which demonstrated the system's abilities to localize and discriminate between multiple endogenous and exogenous molecules. Time-domain resolution of fluorescent lifetimes as small as 0.2 nanoseconds was achieved.

On April 29, 2004, ART received the Health Technology Entrepreneurship Award at the 4th edition of the Genesis Awards during the Biomedex conference-exhibition, in Montreal, Canada.

On April 30, 2004, ART announced positive clinical study results from product research and development with ART's SoftScan(R) breast imaging system. Those results confirmed SoftScan(R)'s ability to discriminate between normal and malignant tissue.

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

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

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

B. Business Overview

Industry Overview

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

Medical Diagnostic Imaging Devices

Diagnostic imaging devices create images of body organs and tissues, in order to assist in the detection and diagnosis of diseases and injuries. These devices represent an important component of health care expenditures and are encountering solid market growth because age-related diseases are increasing. According to the Frost & Sullivan market study "World Diagnostic Imaging Equipment Markets", world-wide revenues for diagnostic imaging systems amounted to US$10.1 billion in 1998 and are expected to reach US$14.7 billion in 2004, representing a compound annual growth rate of 6.2%. Within this market, certain segments are expected to grow much more rapidly than the overall market. For example, Frost & Sullivan has estimated that the market for digital X-ray devices that are able to detect and diagnose breast cancer is expected to reach 1,300 units in 2004, representing a compound annual growth rate of 79.4% over five years or a compound annual growth rate in revenue of 60.7% over the same period. This growth is expected to be fuelled by the need to replace outdated detection systems and an increased emphasis on early detection of breast cancer in order to avoid the significant costs associated with long-term treatment. As imaging is still primarily used to diagnose, the technology is also increasingly being deployed for early detection, and for intermittent use between treatments to make sure a specific treatment plan is efficacious. According to Frost & Sullivan, the U.S. medical imaging market grew at an average annual growth rate (AAGR) of 11.5% in 2003 to US$11.5 billion in revenues, with imaging modalities representing 51% of total sales. In 2004, revenues are expected to double from 1998 market revenues and reach US$12.6 billion.

Cancer Facts and Figures

According to the National Cancer Institute of Canada ("NCIC"), an estimated 145,500 new cases of cancer and 68,300 deaths from cancer will occur in Canada in 2004. Cancer is the leading cause of premature death in Canada, being responsible of almost 31% of all potential years of life lost. Comparable statistics can be found with respect to the United States. The American Cancer Society ("ACS") expects that about 1,368,030 new cancer cases will be diagnosed in 2004. (These estimates do not include carcinoma in situ - non-invasive cancer
- of any site except urinary bladder, and do not include basal and squamous cell skin cancers.) This year about 563,700 Americans are expected to die of cancer, which represents more than 1,500 people a day. Cancer is the second leading cause of death in the U.S., exceeded only by heart disease. The National Institutes of Health in the U.S. estimates overall costs for cancer in 2003 at $189.5 billion: $64.2 billion for direct medical costs (total of all health expenditures); $16.3 billion of indirect morbidity costs (costs of lost productivity due to illness); and $109 billion for indirect mortality costs (costs of lost productivity due to premature death).

In 2004 the most frequently diagnosed cancers in Canada will continue to be breast cancer for women and prostate cancer for men. According to the World Health Organization ("WHO"), breast cancer is the most common form of cancer among women worldwide. Breast cancer

accounts for 29.9% of all new cancer cases in Canadian women and 32.3% in American women and ranks second among cancer deaths in women in Canada and ranks third in the U.S. In the United States, an estimated 215,990 new invasive cases of breast cancer are expected to occur among women during 2004 and about 1,450 new cases are expected in men in 2004. An estimated 40,580 deaths (40,110 women, 470 men) are anticipated from breast cancer in 2004 in the U.S. In addition to invasive breast cancer, 59,390 new cases of in situ breast cancer are expected to occur among women during 2004. Likewise in Canada, an estimated 21,200 new cases of breast cancer are expected to occur among women and about 145 new cases are expected in men in 2004. The NCIC estimates that during their lifetimes, 1 in 9 women are expected to develop breast cancer and 1 in 27 women are expected to die from it.

Following a small but steady annual increase over three decades, breast cancer incidence among women levelled off in 1993 in Canada. Mortality rates for breast cancer have declined steadily since 1990. This pattern of divergent trends is consistent with the benefits being achieved through screening programs and improved treatments. Similar trends have also been reported in the U.S. by the National Cancer Institute ("NCI").

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

Such findings - combined with pressure from a variety of sources including women's action groups - have led health care systems across the globe to put more emphasis on early detection and screening. A woman's chances of surviving breast cancer improve tremendously with early diagnosis. According to the ACS, the five-year survival rate decreases from 97% to 79% after the cancer has spread to the lymph nodes, and to 23 % after it has spread to other organs such as the lung, liver, or brain. As well, early detection can reduce the need for biopsies and surgery, reduce the debilitating effects of therapy and reduce the cost of treatment. However, according to the ACS, traditional mammography devices do not detect, on an average, 10-15% of breast cancers. Therefore, the demand for more effective diagnostic devices, as well as for more screening is expected to grow. The WHO states that if facilities are available, screening by mammography alone - with or without physical examination of the breasts, plus follow-up of individuals with positive or suspicious findings - will reduce mortality from breast cancer by up to one-third among women aged 50-69 years.

Breast cancer screening is generally recommended as a routine part of preventive healthcare for

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

Spending in the health care sector has risen dramatically in recent years. According to the U.S. Centers for Medicare & Medicaid Services, health care expenditures in the United States increased more than six times between 1980 and 2002, increasing from US$245.8 billion to approximately US$1,55 trillion. The United States and Canada are estimated to be among the world's top five per capita spenders on health care. As a result, purchasers of medical diagnostic imaging devices in North America, which include hospitals, group purchasing organizations, specialized imaging centers, research institutes and medical clinics, are striving to reduce costs while offering superior service to patients. They are demanding devices that provide the most complete information possible, that are reliable and that are safe for both patient and doctor.

Diagnostic Mammography Devices

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

If a radiologist cannot reach a conclusion on the nature of the lesion or tumor, an ultrasound exam is often required. To determine if a lesion is malignant or benign, a breast biopsy will typically be performed on the potentially malignant tissue. In the United States there are approximately 30 million screening mammography procedures conducted annually, of which some three million require additional testing and 8% to 10% of these will require a biopsy. A biopsy involves the use of a needle or surgery in order to remove fluid or fragments of tissue. Patients who are referred to biopsy are usually required to schedule the procedure in advance and generally must wait up to 48 hours for their biopsy results. Only one fifth of biopsies reveal cancer. This means that in a majority of cases a patient without cancer has undergone an expensive procedure, which is often painful, can result in scarring and gives rise to considerable anxiety. Moreover, X-ray mammography exposes patients to potentially harmful ionizing radiation and requires painful procedures designed to compress the breast in order to produce a clearer image.

Some companies in the X-ray mammography field are developing digital X-ray systems that are expected to overcome some of the limitations inherent in conventional X-ray technology. Digital X-ray does not print images on photographic film. Instead, images are captured electronically and viewed on a computer monitor. This permits the radiologist to change magnification, brightness and contrast after the image is produced in order to show cancers more clearly. It also means that the image can be transmitted electronically and does not require costly processing associated with film. While digital X-ray systems represent an improvement over conventional X-ray and are therefore likely to gain market acceptance, they will not eliminate all of the limitations associated with X-ray technology. For example, digital X-ray still requires ionizing radiation and painful compression, and has a limited ability to image dense breast tissue. This is because digital X-ray systems are only an enhanced version of the existing conventional X-ray technology. In order to reduce costs and the pain and suffering of patients along with improving the early detection of cancer, a new technology is needed. The Company believes that its time domain based imaging solution, SoftScan(R), offers an improved solution that will address the limitations of both conventional and digital X-ray systems.

New Technologies

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

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

Since time domain optical imaging technology has the capacity to measure a larger bandwidth than either frequency domain or continuous wave optical imaging technologies, it is fully expected that the additional information will result in the superior performance of time domain optical imaging for the diagnosis and detection of breast cancer.

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

BUSINESS OF THE COMPANY

Corporate Strategy

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

Maintain and Extend its Technology Leadership Position

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

Pursue High Growth Segments within the Diagnostic Imaging Market

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

Leverage its Technology to Develop New Products

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

Expand Strategic Relationships and Alliances with Industry Leaders

To facilitate early entry into its target markets, ART is actively pursuing strategic relationships with leading organizations. This is particularly important in the biomedical sector because strategic relationships can prove instrumental in ensuring that a new product gains broad market acceptance, bringing a company's product to market through a well-developed and extensive service and distribution network. Developing strategic relationships can also help ensure that the Company complements its in-house research and development with knowledge gained from leading research organizations working in the same field. The Company will also continue to expand other relationships in order to secure market acceptance of its products, including relationships with hospitals, group purchasing organizations, imaging centres, research institutes and medical clinics, while maintaining and developing relationships with other biomedical technology industry leaders.

Corporate Objectives

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

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

The Company's Products

SoftScan(R)

Overview

ART has developed SoftScan(R), a device used for detecting, characterizing and diagnosing breast diseases. SoftScan(R) uses time domain optical imaging technology, which the Company believes is the most promising technology for purposes of detecting, characterizing and diagnosing breast cancer. SoftScan(R) is designed to help address a critical and unmet need in breast tissue analysis:
the need for a device that provides functional information about a tumor.

Furthermore, SoftScan(R) is also expected to be effective for imaging and diagnosing diseases in radiologically dense breasts, which represent a large population, particularly of young women, which also comprises a large proportion of pre-menopausal women. It is essential to be able to provide an effective imaging solution for this segment of the population since the younger a woman, the more devastating breast cancer will be if undetected.

Using SoftScan(R), the Company believes that medical practitioners will be able to obtain data about key aspects of breast cancer which were not previously available simultaneously, such as angiogenesis and hypermetabolism. Time domain optical imaging technology provides a more realistic description of the tissue being imaged by allowing the separation of light which is scattered in the tissue from light that is absorbed. This approach should lead to a more accurate measure of blood volume and oxygen saturation levels within the breast. For example, an active tumor would have high metabolism and would require a high level of tissue perfusion, which is an indicator of angiogenesis, to survive and metastasize (spread).

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

Some of the key anticipated advantages are set out below.

Patients                      o     No painful compression of breast.

                              o     No harmful ionizing radiation.

                              o     Early detection of anomalies.

                              o     Improved diagnosis and quality of care; and

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

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

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

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

                              o     Ability to distinguish malignant tumors from
                                    benign tumors.

                              o     Ability to monitor breast cancer treatments;
                                    and

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

                              o     Decrease in treatment costs and operational
                                    costs; and

                              o     Low operating costs.
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Technology

SoftScan(R), which is based on time domain optical imaging technology, represents the first generation of a computerized time-resolved optical breast imaging system. This system measures photon migration through the breast at many optical wavelengths, selected to be sensitive to clinically significant physiological parameters in breast tissue. The technique consists of launching brief pulses of near-infrared energy into the breast and measuring the temporal distribution of the emerging photons on the far side of the breast. The temporal point spread function ("TPSF") of the photons is used to mathematically derive the absorption and scattering coefficients for the pixel or scanner position imaged.

The SoftScan(R) system is comprised of an optical acquisition unit, a patient table, scanning accessories and a processing and display workstation installed on a separate mobile table. In a clinical setting, the SoftScan(R) system can be located and installed in any type of space similar in size to an X-ray mammography suite. The laser emitter and the detectors of the SoftScan(R) system are located opposite each other, on the outside of the stabilizing plates. These two components travel together in a raster pattern over the breast.

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

The result is a functional map that provides information about tissue perfusion and blood oxygen content that traditional anatomical imaging modalities do not generate. Moreover SoftScan(R)'s time domain optical technology captures a greater amount and quality of data than other optical imaging technologies, including those based on continuous wave technology. Continuous wave optical technology is not able to separate light scattering and absorption coefficients because it predominantly provides surface tissue information, as opposed to time domain optical technology which obtains information from deeper tissue. The Company believes that SoftScan(R)'s ability to determine whether lesions are malignant or benign at an earlier stage through functional imaging will offer a solution to the limitations inherent in other technologies.

The addition of functional information in the clinical process is an important development. This is because functional data provided by SoftScan(R) enables a medical practitioner to see two of the features which often accompany cancer:
increased tissue blood supply due to angiogenesis, which is the formation of new small blood vessels; and the low oxygen saturation of this blood due to a localized increase in metabolic activity generated by a cancer's rapid growth. SoftScan(R) will therefore enable practitioners to identify key aspects of breast cancer simultaneously, thereby facilitating the determination of whether a tumor is malignant or benign.

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

The Company believes that this technology will improve diagnostic and treatment practices, thereby helping to save lives and, in turn, saving the medical system millions of dollars in patient

work-up, treatment and post-treatment costs. Due to its functional imaging capability, the Company believes that SoftScan(R) has the potential to assist the medical community at two levels: (i) by being a significantly different option chosen by practitioners to assist in diagnosis and treatment decision making; and (ii) by permitting monitoring and repeated follow-up imaging (due to the absence of ionizing radiation) that will assist in monitoring the success of the selected treatment.

Strategic Alliances

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

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

Regulatory Process

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

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

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

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

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

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

The Company has selected a U.S. based contract research organization ("CRO") with considerable experience in clinical programs in the field of imaging, to help formulate its regulatory strategy and clinical plans in the United States and Canada. The Company is also in the process of selecting its Notified Body for Europe. A Notified Body is a certification body from the private sector, which is authorized to assess a manufacturer's compliance with the MDD. Such compliance will enable the Company to affix a CE mark on SoftScan(R).

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

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

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

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

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

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

The same pre-clinical and clinical data relating to SoftScan(R) will be used for regulatory applications in the United States, Canada and Europe. Laboratory studies and initial studies have

already been concluded. Pre-clinical trials have been successful in verifying a methodology for constructing an image, which includes a method for acquiring data and tools for composing an image with that data. In addition, all relevant theoretical and simulation work was validated through the use of a simulated biological system.

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

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

Pilot Trial Results

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

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

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.

Ongoing Studies

In June 2003, a multi-centre clinical study was initiated in collaboration with Sunnybrook and Women's College Health Sciences Centre, and with Ottawa Regional Women's Breast Health Centre.

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

------------------------------------------------------------------------------------------------------------------------------------
                                                                       CLINICAL
                                                                  VALIDATION (TISSUE              CLINICAL          FDA/TPD/
                      2nd PILOT              ENGINEERING           CHARACTERIZATION)               PIVOTAL          EUROPEAN
                     (CONTROLLED)              STUDIES                 STUDIES                     TRIALS          AUTHORITIES
------------------------------------------------------------------------------------------------------------------------------------
Purpose           Evaluate safety and      Validate design     Demonstrate clear diagnosis      Verify safety     Review process
                  effectiveness in         changes and         regardless of breast             and               and approval.
                  patient volunteers.      optimize            characteristics of various       effectiveness
                                           performance in      patient volunteers.              in patient
                                           order to improve                                     volunteers.
                                           data quality,
                                           reduce scan time
                                           and improve
                                           breast coverage.
------------------------------------------------------------------------------------------------------------------------------------
                                                                                                400-900 patient
Test Population   31 patient volunteers.   Ongoing studies.    Up to 600 patient volunteers.    volunteers.       n/a
------------------------------------------------------------------------------------------------------------------------------------
Time Frame        Completed in 2000.       Ongoing since May   Ongoing since June 2003.         Expected to       Approvals expected
                                           2002.                                                start in 2004.    in 2005.
------------------------------------------------------------------------------------------------------------------------------------

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

Timing of Regulatory Approval Basis

The Company expects to initiate its pivotal trial in 2004. Regulatory applications will then be submitted in the United States, Canada and Europe. The Company expects approvals for its SoftScan(R) optical breast imaging device in most of these jurisdictions starting in 2005. While the Company believes that this is a reasonable timeframe, there can be no assurance that the Company will successfully adhere to this schedule due to the unforseeability of the regulatory approval process. Among other matters, regulatory authorities may require additional pre-clinical and clinical data than what is initially submitted by the Company and may reject or disallow the Company's claims and conclusions.

Third Party Reimbursement Criteria

In the United States, most physicians prescribe the diagnostic imaging procedures with approved payment codes and third-party reimbursement coverage. The Centers for Medicare and Medicaid Services ("CMS") formerly known as the Health Care Finance Administration ("HCFA") is the agency in the United States that establishes, for Medicare, coverage for certain diagnostic imaging procedures. Generally, CMS does not cover new diagnostic imaging procedures before

the technology has obtained FDA marketing clearance. Most insurance companies' reimbursement plans establish coverage for their clients based upon the companies' own experience, and, for new procedures, based upon CMS's coverage decisions. The Company believes that diagnostic imaging procedures with SoftScan(R) will be covered after FDA marketing clearance is granted.

Target Market

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

According to the American Cancer Society, it is estimated that in the United States over 211,000 women will be diagnosed with breast cancer this year. In the United States, breast cancer kills nearly 40,000 women every year. In Canada, it is estimated that more than 21,000 women per year will be diagnosed with breast cancer and that over 5,300 women will die of breast cancer this year. Over the years, the ability to treat breast cancer has improved; the five-year survival rate for localized breast cancer has increased from 72% in the 1940s to nearly 97% today. However, if the breast cancer has spread regionally, the survival rate is 79% and if it has metastasized, the survival rate falls to 23%. In other words, survival is ultimately dependent on when the cancer is first diagnosed:
the earlier it is diagnosed, the better the chances that a woman will have a longer life. Furthermore, the more accurately tumors can be targeted and characterized and the more efficiently the effects of treatment can be determined, the more effectively breast cancer can be treated. The Company believes that functional imaging can play a new and important role in detecting, diagnosing and characterizing tumors and in characterizing the course of cancer treatment.

In recent years there has been significant consolidation in the U.S. health care sector. In particular, distribution channels have seen hospitals join together to form integrated health networks and have also seen the growth of major group purchasing organizations ("GPOs") that purchase medical devices and other medical equipment and drugs. Currently, three major hospital GPOs account for nearly 30% of hospital purchases of medical devices in the United States. The Company believes that GPOs will dominate spending for medical equipment and drugs. Furthermore, the Company believes that because GPOs have very large budgets that cover expenditures ranging from devices designed to detect cancer to devices and drugs designed to treat cancer, they are prepared to make additional investments in devices designed to detect, diagnose and characterize cancer more effectively if it means that the cost of doing so will be more than offset by a reduction in expenditure on devices and drugs used to treat cancer. The Company believes that SoftScan(R)'s ability to detect, diagnose and characterize cancer more

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

Marketing and Distribution

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

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

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

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

Competition

The breast cancer field has many devices that provide good anatomical information. However, safe functional imaging devices are not as prevalent. Optical imaging devices are not yet on the market, and the Company believes that SoftScan(R)'s ability to identify early stage tumors and to determine whether they are malignant or benign through functional imaging will offer a solution to the limitations inherent in the other technologies which provide anatomical information.

The Company also believes that because the regulatory process and the need for major strategic alliances pose significant barriers to entry for new players in the medical diagnostic imaging market, the Company has or will have a significant competitive advantage. To the Company's

knowledge, no company other than ART has publicly acknowledged that it is currently working with time domain based optical imaging technology.

eXplore Optix(TM)

Molecular Imaging Overview

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

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

The Company believes that optical imaging techniques are particularly suited for molecular imaging. In addition to eXplore Optix(TM), ART's proprietary time domain technology platform has a number of medical applications, including an optical breast imaging device (SoftScan(R)) currently under development. SoftScan(R) can provide functional information about tissue perfusion and blood oxygenation levels. SoftScan(R) must still obtain regulatory approval before it is available to the market. eXplore Optix(TM) does not face the same regulatory hurdles as SoftScan(R).

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

Market Overview

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

In particular, the Company believes that eXplore Optix(TM) can significantly improve research practices and that the advantages to the pharmaceutical industry are important. Specifically, this small animal imaging device can obtain important pharmacokinetic data from small animal pre-

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

According to the Pharmaceutical Research and Manufacturers of America (PhRMA), it takes between 10 to 15 years to bring a drug from concept to market, which reflects the greater complexity of target diseases, the longer and larger clinical trials required by the FDA, and the medical system's growing demand for more complex data about new drugs. The cost of developing a new, novel drug is about US$802 million per drug - almost 6 times greater than what it was in 1975. The number of new drugs produced by the pharmaceutical industry has risen only modestly despite a six-fold increase in research spending to more than US$30 billion annually. The FDA has publicly stated, among its concerns, the need to speed and improve development and approval of new genetic and traditional drugs and medical devices.

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

Technology

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

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

- In vivo visualization of fluorescence intensity and lifetime;

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

- Quantitative localization of depth and concentration;

- Depth sensitivity for biodistribution and pharmacokinetics;

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

- Simple and reproducible animal positioning;

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

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

Regulatory Process

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

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

Marketing and Distribution

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

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

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

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

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

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

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

On March 29, 2004, ART presented at the Annual Meeting of the Academy of Molecular Imaging the results of a study demonstrating the high quantitation, precise three-dimensional localization, and fluorescence lifetime in vivo capabilities of the eXplore Optix(TM) system in the murine animal model. The results of a second study were also presented which demonstrated the system's abilities to localize and discriminate between multiple endogenous and exogenous molecules. Time-domain resolution of fluorescent lifetimes as small as 0.2 nanoseconds was achieved.

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

-----------------------------------------------------------------------------------------------------------
                             eXplore Optix(TM) Competition
-----------------------------------------------------------------------------------------------------------
                                                          User Requirements
-----------------------------------------------------------------------------------------------------------
                                                                     No ionizing
                                                                     radiation or              Fluorescence
     Modality                Functional  Targeted(1)   Anatomical   radioactivity(2)   Depth    Lifetime(3)
-----------------------------------------------------------------------------------------------------------
Optical        TD*                x           x                            x             x            x
Imaging
-----------------------------------------------------------------------------------------------------------
               CW**               x           x                            x             ~
-----------------------------------------------------------------------------------------------------------
Nuclear Imaging                   x           x                                          x
-----------------------------------------------------------------------------------------------------------
Ultrasound Imaging                ~                        x               x             x
-----------------------------------------------------------------------------------------------------------
Magnetic Resonance Imaging        ~                        x               x             x
-----------------------------------------------------------------------------------------------------------
Computed tomography               ~                        x                             x
-----------------------------------------------------------------------------------------------------------

----------------------------------------------------------------------------------------------------------------
                            eXplore Optix(TM) Competition
----------------------------------------------------------------------------------------------------------------
                                                             User Requirements
----------------------------------------------------------------------------------------------------------------

                                                            Real Time/      Cost           User-     Acquisition
     Modality               Quantitative  Pharmacokinetics   In vivo    Effectiveness  friendliness     time
----------------------------------------------------------------------------------------------------------------
Optical        TD*                x              x              x             x             x             x
Imaging
----------------------------------------------------------------------------------------------------------------
               CW**                              x              x             x             x             x
----------------------------------------------------------------------------------------------------------------
Nuclear Imaging                   x              x                                          x             x
----------------------------------------------------------------------------------------------------------------
Ultrasound Imaging                                              x             x                           x
----------------------------------------------------------------------------------------------------------------
Magnetic Resonance Imaging        x                                                         x
----------------------------------------------------------------------------------------------------------------
Computed tomography               x                                           x             x             x
----------------------------------------------------------------------------------------------------------------

1: targeted exogenous chromophores

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

3: fluorescent lifetime characterizes physiological parameters

*: Time Domain Technology

**: Continuous Wave Technology

Unique Benefits of the Time Domain Optical Imaging Strategy:

o Accurate surface information of the embedded fluorescent material.

o Accurate depth information of the embedded fluorescent material.

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

o Accurate recovery of fluorophore concentration.

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

o 3D localization.

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

o Fluorescence lifetime.

This allows the distinction between different fluorescent materials. Furthermore, with an appropriately designed probe, changes in fluorescence lifetime occur with varying tissue properties such as pH, oxygenation level and calcium levels, and can thus be used to establish those properties.

Revenues

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

Research and development

The Company conducts the majority of its research and development activities in-house. The Company has assembled a core team of high-level scientists, most of whom hold specialized doctorates in the fields of biomedical imaging, medical engineering, electro-optics, spectroscopy and modelling. As of May 31, 2004, the Company had 47 employees directly engaged in research, development and engineering work with respect to SoftScan(R) and molecular imaging related products. The Company's in-house research and development efforts are focused primarily on completing the development of SoftScan(R) and researching new applications for its proprietary technology.

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

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

development costs as a result of the following factors: (i) extensive in-house expertise; (ii) strong collaboration agreements with leading research institutions; and (iii) its ability to leverage effectively its knowledge of applications of optical imaging technologies.

Quality Management

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

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

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

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

Product Development

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

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

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

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

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

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

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

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

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

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

Scientific Advisory Committee

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

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.

Amir H. Gandjbakhche -- Dr. Amir H. Gandjbakhche received his Ph.D. in Physics from the University Denis Diderot (Paris 7) in 1989. From 1990 to 1995, he was Visiting Fellow, and, from 1995 to 1996, Visiting Associate at the Physical Sciences Laboratory of the Division of Computer Research & Technology (DCRT), which was part of the National Institutes of Health (NIH). In 1995, Dr. Gandjbakhche also received the NIH Fellows Award for Research Excellence. In 1997, he became a Senior Staff Fellow of the Laboratory of Integrative and Medical Biophysics at the National Institute of Child Health and Human Development (NICHD), NIH. Since 1999, Dr. Gandjbakhche holds the position of Investigator, Chief Unit on Biomedical Stochastic Physics at the Laboratory of Integrative and Medical Biophysics, NICHD. Dr. Gandjbakhche is an active member of the scientific community. He is namely a member of the Optical Society of America Bio-Optics Advisory Committee and a member of the Program Committee of the Optical Society of America Conferences on Advances in Optical Imaging, Photon Migration and Tissue Optics. He is also Chair of the Biomedical Optical Imaging Technical Committee of the Optical Society of America. Since the beginning of his career, Dr. Gandjbakhche has published more than 55 papers on Biophysics and Optical Imaging.

Daniel Kopans -- Dr. Kopans is an honors graduate from Harvard College and he received his M.D. from the Harvard Medical School, where he graduated as a member of the Alpha Omega Alpha honors society. He is Professor of Radiology at the Harvard Medical School of Harvard University and has been the Director of the Breast Imaging Division at the Massachusetts General Hospital (MGH) since 1978, soon after completing his residency training in Diagnostic Radiology at MGH. Dr. Kopans has taught and written widely on all facets of breast imaging and is an expert in all aspects of breast cancer detection and diagnosis. He leads efforts in the investigation of methods for improving breast cancer detection and diagnosis including digital mammography, magnetic resonance imaging (MRI) of the breast, ultrasound, and nuclear medicine. He is a leading authority on breast cancer screening. Inventor, author, investigator, and educator, Dr. Kopans has authored more than 160 peer-reviewed articles on breast cancer detection and diagnosis. He is the author of a textbook on breast imaging that is now in its second edition (Breast Imaging, Philadelphia:
Lippincott-Raven Publishers, 1998) and is one of the standards in the field.

Joseph Lakowicz -- Since 1988, Professor Lakowicz holds the position of Director, Center for Fluorescence Spectroscopy at the University of Maryland, School of Medicine. His work has focused on advancing the field of fluorescence spectroscopy. This involves chemical synthesis of new fluorophores, development of novel fluorescence measurements, development of instrumentation for time-resolved fluorescence, and the chemical applications of fluorescence sensing. Much of this work has resulted in inventions, patents and licensing. His laboratory is also involved in the more advanced topics of multi-photon excitation, in which molecules are excited by the simultaneous absorption of two or more long wavelength photons.

Martin Yaffe (Chairman) -- Dr. Yaffe holds a doctorate in Medical Biophysics from the University of Toronto, where he teaches. He is a renowned specialist in medical imaging, more specifically in the early detection of breast cancer and chairs the Committee on Mammographic Image Quality for the International Commission on Radiological Units (ICRU). Dr. Yaffe has been working toward advancing research in the early detection of

breast cancer since the start of his career, and has been involved in many important initiatives intended to improve related technologies. Among other things, he is a member of the National Council on Radiation Protection (NCRP), Quality of Mammography Committee SC-72. He also serves on several committees of the American College of Radiology. Professor and researcher in Medical Biophysics at the University of Toronto, Dr. Yaffe is currently Senior Scientist in Imaging/Bioengineering Research at the Sunnybrook & Women's College Health Sciences Centre in Toronto and a Consultant Physicist for the Ontario Breast Screening Program. Dr. Yaffe has authored many scientific communications and conferences and acts as reviewer for numerous scientific publications, including Medical Physics and the International Journal of Radiation Oncology.

Business Advisory Council

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

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

The members of the Canadian BAC are the following:

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

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

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

Brian Levitt -- Mr. Levitt is Partner and Co-Chair of Osler, Hoskin & Harcourt LLP, one of Canada's leading law firms specializing in business law, tax, litigation, competition and antitrust. Mr. Levitt was President of Imasco Limited from 1991 to 2000. From 1976 to 1991, he was successively Associate and Partner at Osler, Hoskin & Harcourt LLP. Mr. Levitt is a director of a number of Canadian companies such as BCE Inc., Bell Globemedia Inc. and Domtar Inc. He holds degrees inf Applied Science (B.A.Sc.) and in Law (LL.B.) from the University of Toronto. Mr. Levitt was called to the Ontario Bar in 1975 and the Quebec Bar in 2001.

Colin Mallet -- During the course of his career, Mr. Mallet held several senior positions in the pharmaceutical industry in Canada, United Kingdom, Switzerland, Sweden and South East Asia. From 1987 to 1995, he was President and Chief Executive Officer of Sandoz Canada Inc. (renamed Novartis Pharmaceuticals Canada Inc. in 1996). Mr. Mallet was Chair of the Canadian Health Research Foundation from 1989 to 1991. From 1990 to 1993, he was also the Founding Chair of the Institute for Industrial Pharmacy Research. From 1991 to 1993, he was Vice Chair, and, from 1993 to 1994, Chair, of Canada's Research-Based Pharmaceutical Companies (Rx&D). Mr. Mallet is currently a director of Axcan Pharma Inc., Micrologix Biotech Inc., AnorMED Inc., Phytogen Life Sciences Inc., MethylGene Inc. and Prime Trials Inc. Mr. Mallet holds a B.A. in Economics (1965) from Cambridge University, United Kingdom. In 1983, he successfully completed the Advanced Management Program at Harvard University.

The members of the American BAC are the following:

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

Ronald Lane Goode -- Mr. Goode is President, Chief Executive Officer and Chairman of the board of directors of eXegenics, Inc, a pharmaceutical company dedicated to the acquisition, rapid development and commercialization of drug therapies for use by physician specialists. From 1976 to 1986, Mr. Goode has held key management positions at Pfizer Pharmaceuticals, and, from 1986 to 1997, at G. D. Searle & Co. From 1997 to 1999, Mr. Goode was President and CEO of Unimed Pharmaceuticals, Inc., positioning

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

The member of the European BAC is the following:

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

Intellectual Property

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

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

Six patents related to optical imaging and to the detection and diagnosis of diseases have been granted to ART. The first US patent entitled "Method and Apparatus for Detecting Malignancies in Living Tissue" (Number: 5,808,304) filed on November 18, 1996, was granted on September 15, 1998 and expires on November 18, 2016. The invention relates to a method and an apparatus for detecting malignancies in living, biological tissue, and in particular to a method and apparatus for detecting breast cancer. The second U.S. Patent entitled "Optical Imaging through Scattering Media: Fit to an Inhomogeneous Diffusion Model for Differentiation" (Number: 6,148,226) filed on February 13, 1998, was granted on November 14, 2000 and expires on February 13, 2018. The invention relates to an optical method for imaging through a scattering medium in which a fit is made to an inhomogeneous diffusion model. The method provides a simple means to separate the

absorption and scattering contributions of inhomogeneities. The third U.S. patent entitled "Scanning Module for Imaging through Scattering Media" (Number:
6,332,093) filed on August 6, 1998, was granted on December 18, 2001 and expires on August 6, 2018. The invention relates to a scanning module image through scattering media while alleviating adverse effects on the weak transmission through highly scattering media. The fourth patent entitled "Optical Imaging of Turbid Media with Depth-Related Discrimination" (Number: 6,415,172) filed on January 21, 2000, was granted on July 2, 2002 and expires on January 21, 2020. The invention relates to a method for scanning a turbid medium and displacing an optical signal source over a first face of the medium and a corresponding optical detector over an opposite face from one respective spatial location to another. The fifth patent entitled "Optical Imaging of Turbid Media with Depth-Related Discrimination" (Number: 6,678,049) filed on January 25, 2002, was granted on January 30, 2004 and expires on January 30, 2024. The invention relates to an optical imaging system for detecting light from an excitation source through a scattering medium. The system includes a photo detector for receiving light from the scattering medium, an amplification circuit coupled from the photo-detector, an electro-optical source coupled from the amplification circuit for providing a secondary light signal, and a streak camera receiving the secondary light signal and providing an image of the scattering medium. The sixth patent entitled "Choice of Wavelengths for Multiwavelength Optical Imaging" (Number: 6,694,159) filed on November 2, 2001, was granted on February 17, 2004 and expires on November 2, 2021. The invention relates to a method for wavelength selection in a multi-wavelength TPSF-based optical imaging system.

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

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

The ownership of any intellectual property is protected through employment agreements with ART's employees. These agreements contain clauses that assign patent and invention ownership rights to ART and require confidentiality, non-disclosure and non-competition. ART also seeks to protect the use and application of its developed technology by securing its technical know-how and trade secrets and by copyright, patent and trade-mark filings in the United States, Canada and, in certain cases, other countries.

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

Production and Operations

ART's optical imaging products are currently assembled at its main facility in Saint-Laurent, Quebec, Canada. The Company's production and manufacturing operations consist primarily of:

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

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

C. Organizational structure

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

D. Property, plants and equipment

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