ART Advanced Research Technologies Inc.
TSX : ARA

ART Advanced Research Technologies Inc.

August 04, 2005 07:17 ET

ART Advanced Research Technologies Announces 2005 Second Quarter Financial Results

MONTREAL, QUEBEC--(CCNMatthews - Aug. 4, 2005) - ART Advanced Research Technologies Inc. (ART) (TSX:ARA), a Canadian medical device company and a leader in optical molecular imaging products for the healthcare and pharmaceutical industries, announces its financial results for the second quarter ended June 30, 2005, reporting a sales increase of $562,500 to $752,500, up from $190,000 for the same quarter a year ago. The company posted a net loss of $2,701,883 ($0.06 per share) for the quarter ended June 30, 2005, compared to $2,694,042 ($0.06 per share) for the three-month period ended June 30, 2004.

For the six-month period ended June 30, 2005 revenues from sales were $1,763,850 compared to $576,000 for the same period in 2004, an increase of $1,187,850. The net loss was $5,945,577 ($0.14 per share) for the six-month period ended June 30, 2005, compared to $4,775,790 ($0.12 per share) for the six-month period ended June 30, 2004.

"This first half of the year has been marked by good progress on our objectives for 2005," reported President and CEO Micheline Bouchard. "Backed by the global presence of GE Healthcare in key regions such as Asia and Europe, we are starting to see a greater demand in both pharmaceutical and academia markets for our eXplore Optix product. We are happy to report that we presently have 5 units in backlog, which will positively impact our third quarter sales.

The eXplore Optix™ system has been gaining wider acceptance with significant scientific results being obtained from research teams across the world. As for SoftScan®, enrolment is ongoing for its clinical validation studies, including the SoftScan tissue characterization study at the Centre Hospitalier de l'Universite de Montreal (CHUM). Presently, we are actively involved in formalizing the agreements with sites to conduct pivotal studies with the SoftScan device, following the Health Canada authorization we obtained earlier this year." added Ms. Bouchard.

Following the close of the second quarter, ART announced that it has solidified its financial position through a US$10.9 million financing round with options that could provide an additional US$4.3 million or a total of US$15.2 million. With over US$15 million in cash on a pro-forma basis and considering the expected revenues from its products, ART has cash and cash-equivalents to fund its existing development of products through R&D and capital expenditures into 2007.

Financial Highlights (in US dollars)

Sales for the three-month period ended June 30, 2005 were $752,500, compared to $190,000 for the three-month period ended June 30, 2004. Sales resulting from products amounted to $ 511,550 compared to $ 190,000 for the same quarter of last year. Sales resulting from maintenance totaled $ 240,950 compared to nil in the quarter ended June 30, 2004. For the six-month period ended June 30, 2005 revenues were $1,763,850, compared to $576,000 for the six-month period ended June 30, 2004. Sales resulting from products for the six-month period ended June 30, 2005 amounted to $ 1,264,400 compared to $ 576,000 for the same period of last year. Sales resulting from maintenance totaled $ 499,450 compared to nil in the six-month period ended June 30, 2004. Sales from products include new multi-wavelength system as well as add-ons that include diodes purchased by existing customers offering broader capability compared to the single-wavelength system. Sales resulting from maintenance include upgrades of the single-wavelength system to the new multiwavelength system and the sale of demonstration units. As of today, ART has a backlog of 5 units thus providing visibility and confirming expected revenues for the third quarter.

During the three and six-month periods ended June 30, 2005, ART generated a gross margin of 38% and 36% respectively from the sales of its products and a gross margin of 34% and 18% respectively from sales resulting from maintenance. The combined gross margin decrease during the six-month period compared to the same period of last year, was principally due to the fact that ART transitioned to the new multiwavelength base system which is a more costly system and offered the possibility to its customer base to upgrade their base system to the new system at a preferential price.

The Company's research and development ("R&D") expenditures for the three-month period ended June 30, 2005, net of investment tax credits amounted to $1,999,239 compared to $1,941,295 for the three-month period ended June 30, 2004. For the six-month period ended June 30, 2005, R&D expenditures, net of investment tax credits, were $4,669,283 compared to $3,447,427 for the six-month period ended June 30, 2004. The R&D expenditures consist principally of the salaries and benefits paid to its personnel involved in R&D projects, of consultation fees paid for clinical studies, the cost associated with the preparation and conduct of the clinical studies, and of the cost to build prototypes. The increase in R&D expenditures for the six-month period compared to last year relates to the medical sector and is mainly due to the cost associated with the preparation and conduct of the clinical studies, which include the manufacturing of the SoftScan clinical prototypes, the negotiation of the protocols with the selected sites and the cost related to site selection both in Canada and in the US. During the three-month and the six-month periods ended June 30, 2005, the manufacturing cost to build the Softscan clinical prototypes were $305,061 and $773,324 respectively.

In the pharmaceutical sector, ART pursued the development of eXplore Optix product extensions, such as its new eXplore Optix multiwavelength system. During the second quarter of 2005, ART capitalized $107,309 of development costs that met generally accepted criteria which were related to the explore Optix. As a result, during the three and six-month periods ended June 30, 2005, 82% and 84% respectively of the R&D expenditures were dedicated to the medical sector and 18% and 16 % respectively to the pharmaceutical sector.

Selling, general, and administrative ("SG&A") expenses for the three-month period ended June 30, 2005, totaled $971,275, compared to $912,189 for the three-month period ended June 30, 2004. For the six-month period ended June 30, 2005, SG&A expenses were $1,843,358 compared to $1,719,540 for the six-month period ended June 30, 2004. SG&A expenses consist principally of salaries, professional fees and other costs associated with marketing activities. SG&A expenses were principally engaged to support commercial activities related to the eXplore Optix product as well as support its overall activities. During the three and the six-month periods ended June 30, 2005, 62% of the SG&A expenditures were dedicated to the medical sector and 38% to the pharmaceutical sector.

Net loss for the three-month period ended June 30, 2005 was $2,701,883 or $0.06 per share, compared to $2,694,042 or $0.06 per share for the three-month period ended June 30, 2004. For the six-month period ended June 30, 2005, the net loss was $5,945,577 or $0.14 per share, compared to $4,775,790 or $0.12 per share, for the six-month period ended June 30, 2004. The increase in net loss resulted mainly from higher R&D expenditures related to clinical trial preparation.

The financial statements, accompanying notes to the financial statements, and Management's Discussion and Analysis for three-month period ended June 30, 2005, will be available online at www.sedar.com or at www.art.ca. Summary financial tables are provided below.

Conference Call

ART will host a conference call today at 8:30 AM (EDT). The telephone number to access the conference call is (866) 898-9626 (U.S. and Canada). Outside of North America, please dial (416) 340-2216. A replay of the call will be available until August 11, 2005. When dialing in for the replay from North America, please dial (800) 408-3053 or from outside of North America, please dial (416) 695-5800. The access code for the replay is 3158540#.

A detailed list of the risks and uncertainties affecting the Company can be found in its Annual Report in Form 20-F.

This press release may contain forward-looking statements subject to risks and uncertainties that would cause actual events to differ materially from expectations. These risks and uncertainties are described in ART Advanced Research Technologies Inc.'s regulatory filings with Canadian Securities Commissions and with the Securities and Exchange Commission in the United States.

About ART

ART Advanced Research Technologies Inc. is a leader in optical molecular imaging products for the healthcare and pharmaceutical industries. ART has developed two products based on its innovative technology. The first is eXplore Optix™, a molecular imaging device designed for monitoring physiological changes in living systems at the preclinical study phases of new drugs. eXplore Optix™ is distributed by GE Healthcare and is used by industry and academic leaders worldwide to bring new and better treatments to patients faster. The second is SoftScan®, a medical imaging device designed to improve the diagnosis and treatment of breast cancer. ART is commercializing its products in a global strategic alliance with GE Healthcare, a world leader in mammography and imaging. ART's shares are listed on the TSX under the ticker symbol ARA. Visit ART online at www.art.ca



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

---------------------------------------------------------------------
---------------------------------------------------------------------
June 30, 2005 December 31, 2004
---------------------------------------------------------------------

ASSETS
Current assets
Cash $513,438 $631,164
Term deposit, 2.00%, maturing
in April 2006 244,818 249,584
Commercial papers and bank acceptance,
2.45% to 2.49% (2.24% to 2.51% in
2004), maturing in August 2005 4,239,700 10,950,403
Accounts receivable 970,079 883,604
Investment tax credits receivable 509,811 815,760
Inventories 1,387,665 1,014,551
Prepaid expenses 262,803 144,882
---------------------------------------------------------------------
8,128,314 14,689,948
---------------------------------------------------------------------

Property and equipment 637,788 547,406
Patents 1,477,471 1,527,533
Deferred development costs 202,387 -
---------------------------------------------------------------------
$10,445,960 $16,764,887
---------------------------------------------------------------------
---------------------------------------------------------------------

LIABILITIES
Current liabilities
Accounts payable and accrued
liabilities $1,905,065 $2,155,073
Deferred grant 87,235 -
---------------------------------------------------------------------
1,992,300 2,155,073
---------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital and share purchase
warrants (Note 3) 80,696,107 80,696,107
Contributed surplus (Note 4) 533,486 474,698
Deficit (74,067,818) (68,122,241)
Cumulative translation adjustment 1,291,885 1,561,250
---------------------------------------------------------------------
8,453,660 14,609,814
---------------------------------------------------------------------
$10,445,960 $16,764,887
---------------------------------------------------------------------
---------------------------------------------------------------------

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

The unaudited quarterly financial statements have not been reviewed
by external auditors.



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

---------------------------------------------------------------------
---------------------------------------------------------------------
Three-month periods ended Six-month periods ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------

Sales
Product $511,550 $190,000 $1,264,400 $576,000
Maintenance 240,950 - 499,450 -
---------------------------------------------------------------------
752,500 190,000 1,763,850 576,000
---------------------------------------------------------------------

Cost of sales
Product 318,012 85,185 806,659 268,424
Maintenance 159,109 - 409,783 -
---------------------------------------------------------------------
477,121 85,185 1,216,442 268,424
---------------------------------------------------------------------
Gross margin 275,379 104,815 547,408 307,576
---------------------------------------------------------------------

Operating expenses
Research and
development, net
of investment
tax credits 1,999,239 1,941,295 4,669,283 3,447,427
Selling, general
and administrative 971,275 912,189 1,843,358 1,719,540
Amortization 88,811 61,795 145,291 125,301
---------------------------------------------------------------------
3,059,325 2,915,279 6,657,932 5,292,268
---------------------------------------------------------------------
Operating loss 2,783,946 2,810,464 6,110,524 4,984,692
Interest income (39,557) (78,206) (95,868) (132,366)
Foreign exchange
gain (42,506) (38,216) (69,079) (76,536)
---------------------------------------------------------------------
Net loss $2,701,883 $2,694,042 5,945,577 4,775,790
---------------------------------------------------------------------
---------------------------------------------------------------------
Deficit, beginning
of year 68,122,241 56,753,062
Share and share
purchase warrant
issue expenses - 1,402,266
---------------------------------------------------------------------
Deficit, end of
period $74,067,818 $62,931,118
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic and diluted net
loss per share
(Note 2) $0.06 $0.06 $0.14 $0.12
---------------------------------------------------------------------
---------------------------------------------------------------------
Basic and diluted
weighted average
number of common
shares outstanding 42,664,523 42,662,523 42,664,523 39,777,190
---------------------------------------------------------------------
---------------------------------------------------------------------

Number of common
shares
outstanding, end
of period 42,664,523 42,664,523 42,664,523 42,664,523
---------------------------------------------------------------------
---------------------------------------------------------------------

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

The unaudited quarterly financial statements have not been reviewed
by external auditors.



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

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---------------------------------------------------------------------
Three-month periods ended Six-month periods ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------

OPERATING
ACTIVITIES
Net loss $(2,701,883) $(2,694,042) $(5,945,577)$(4,775,790)
Items not
affecting cash
Amortization 88,811 61,795 145,291 125,301
Stock-based
compensation
(Note 4) 58,788 33,881 116,143 61,646
Net change in
working capital
items
Accounts
receivable 106,312 (40,025) (104,772) 189,347
Investment tax
credits receivable (102,963) (127,180) 291,576 (276,857)
Inventories (600,077) (260,821) (383,547) (366,510)
Prepaid expenses (48,240) 28,596 (119,887) 77,478
Accounts payable
and accrued
liabilities (551,069) (147,416) (200,785) 121,435
Deferred grant (527) - 89,534 -
---------------------------------------------------------------------
Cash flows from
operating
activities (3,750,848) (3,145,212) (6,112,024) (4,843,950)
---------------------------------------------------------------------
INVESTING ACTIVITIES
Short-term
investments - 944,152 9,749,504 (6,662,830)
Property and
equipment (2,452) (61,410) (223,350) (87,409)
Patents (5,339) (16,883) (5,339) (101,693)
Deferred development
costs (107,313) - (200,666) -
---------------------------------------------------------------------
Cash flows from
investing activities (115,104) 865,859 9,320,149 (6,851,932)
---------------------------------------------------------------------
FINANCING ACTIVITIES
Shares and share
purchase warrants - 8,431 - 12,722,832
Share and share
purchase warrant
issue expenses - (56,278) - (1,402,266)
---------------------------------------------------------------------
Cash flows from
financing activities - (47,847) - 11,320,566
Effect of foreign
currency translation
adjustments (175,033) (150,043) (88,058) (122,550)
---------------------------------------------------------------------
(175,033) (197,890) (88,058) 11,198,016
---------------------------------------------------------------------
Net increase
(decrease) in cash
and cash
equivalents (4,040,985) (2,477,243) 3,120,067 (497,866)
Cash and cash
equivalents,
beginning of year 8,794,123 6,179,505 1,633,071 4,200,128
---------------------------------------------------------------------
Cash and cash
equivalents, end
of period $4,753,138 $3,702,262 $4,753,138 $3,702,262
---------------------------------------------------------------------
---------------------------------------------------------------------

CASH AND CASH
EQUIVALENTS
Cash $513,438 $2,696,982 $513,438 $2,696,982
Commercial papers 4,239,700 1,005,280 4,239,700 1,005,280
---------------------------------------------------------------------
$4,753,138 $3,702,262 $4,753,138 $3,702,262
---------------------------------------------------------------------
---------------------------------------------------------------------
Supplemental
disclosure of cash
flow information
Interest received $32,274 $33,349 $88,585 $87,509

The accompanying notes are an integral part of the financial
statements

The unaudited quarterly financial statements have not been reviewed
by external auditors.



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

1- BASIS OF PRESENTATION

These interim financial statements as at June 30, 2005 are unaudited.
They have been prepared by the Company in accordance with Canadian
generally accepted accounting principles. In the opinion of
management, they contain all adjustments necessary to present fairly
the Company's financial position as at June 30, 2005 and December 31,
2004 and its results of operations and its cash flows for the three-
month periods and the six-month periods ended June 30, 2005 and June
30, 2004.

The accounting policies and methods of computation adopted in these
financial statements are the same as those used in the preparation of
the Company's most recent annual financial statements. All
disclosures required for annual financial statements have not been
included in these financial statements. These financial statements
should be read in conjunction with the Company's most recent annual
financial statements.

2- ACCOUNTING POLICIES

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

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

3- SHARE CAPITAL AND SHARE PURCHASE WARRANTS

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

June 30, 2005 December 31, 2004
---------------------------------------------------------------------
Common shares Common shares
---------------------------------------------------------------------
Number Value Number Value
---------------------------------------------------------------------

Issued and fully
paid
Balance, beginning
of year 42,664,523 $78,678,625 34,238,523 $65,955,938
Issue of shares
for cash - - 8,420,000 12,714,401(a)
Issue of shares for
cash following the
exercise of stock
options - - 6,000 8,286
---------------------------------------------------------------------
Balance, end of
period 42,664,523 $78,678,625 42,664,523 $78,678,625
---------------------------------------------------------------------
---------------------------------------------------------------------

The following table presents the changes in the number of share
purchase warrants outstanding:

June 30, 2005
---------------------------------------------------------------------
Weighted
average
exercise price
Number Value CA$
---------------------------------------------------------------------

Balance, beginning of year 2,194,422 $2,017,482 2.28
Issue of share purchase
warrants - -
Expiry of share purchase
warrants - -
---------------------------------------------------------------------
Balance, end of period 2,194,422 $2,017,482 2.28
---------------------------------------------------------------------
---------------------------------------------------------------------

December 31, 2004
---------------------------------------------------------------------
Weighted
average
exercise price
Number Value CA$
---------------------------------------------------------------------

Balance, beginning of year 3,208,422 $1,914,746 4.84
Issue of share purchase
warrants 546,000 162,736(b) 2.15
Expiry of share purchase
warrants (1,560,000) (60,000)(d) 7.50
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Balance, end of period 2,194,422 $2,017,482 2.28
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---------------------------------------------------------------------

(a) In March 2004, the Company issued 8.420.000 common shares through
a public offering for gross cash proceeds of $12.714.401.
Commission and other transaction costs amounting to $1.440.576
were incurred and included in the deficit.

(b) In December 2004, the Company issued to an agent 546.000 share
purchase warrants at an exercise price of CA$2.15, by way of
private placement, and received, in consideration, aggregate
proceeds of $241.904. This private placement of share purchase
warrants was coincident with, and set as a condition for, the
payment of a sum of $241.904 to the agent in consideration for
the settlement of all claims and disputes between the agent and
ART. With respect to the share purchase warrants issue, 50% of
the share purchase warrants are exercisable immediately and the
balance beginning December 2005. The share purchase warrants will
expire five years from the date of issue. The Company evaluated
the fair value of the share purchase warrants at $162.736 using
the Black & Scholes model. The valuation assumptions are listed
below:

- Expected life: 5 years;
- Expected volatility: 70%;
- Weighted average risk-free interest rate: 3.71%;
- Dividend rate: 0%.

(d) Upon the expiry of the share purchase warrants, an amount of
$60.000 was transferred to contributed surplus.

4- STOCK-BASED COMPENSATION PLAN

As at June 30, 2005, the Company offered a compensation plan to
employees, which is described in its most recent annual financial
statements.

The following table presents the changes in the number of stock
options outstanding:

June 30, 2005 December 31, 2004
---------------------------------------------------------------------
Weighted Weighted
average average
exercise exercise
Number price Number price
of options CA$ of options CA$
---------------------------------------------------------------------

Balance, beginning
of year 2,467,374 2.81 1,431,600 3.79
Options granted 2,000 1.04 1,282,574 1.96
Options exercised - - (6,000) 1.91
Options cancelled (94,000) 3.59 (240,800) 4.18
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Balance, end of
period 2,375,374 2.78 2,467,374 2.81
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---------------------------------------------------------------------
Options exercisable
end of period 1,294,685 3.74 1,222,898 3.63
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---------------------------------------------------------------------

The following table provides information on options outstanding and
exercisable as of June 30, 2005:

Options outstanding
---------------------------------------------------------------------
Weighted
Weighted average
average remaining
Exercice price Number exercice price contractual life
CA$ outstanding CA$ (years)
---------------------------------------------------------------------

1.04 @ 1.99 1,075,400 1.34 8.48
2.00 @ 2.99 263,734 2.27 7.97
3.00 @ 3.99 623,240 3.24 8.40
4.00 @ 4.99 137,000 4.60 2.16
5.00 @ 5.99 - - -
6.00 @ 6.99 111,000 6.00 3.63
7.00 @ 7.50 165,000 7.50 4.70
---------------------------------------------------------------------
2,375,374 2.78 7.55
---------------------------------------------------------------------
---------------------------------------------------------------------

Options exercisable
---------------------------------------------------------------------
Weighted
average
Exercice price Number exercice price
CA$ exercisable CA$
---------------------------------------------------------------------

1.04 @ 1.99 269,933 1.75
2.00 @ 2.99 164,178 2.32
3.00 @ 3.99 447,573 3.25
4.00 @ 4.99 137,000 4.60
5.00 @ 5.99 - -
6.00 @ 6.99 111,000 6.00
7.00 @ 7.50 165,000 7.50
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1,294,684 3.74
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---------------------------------------------------------------------

The fair value of stock options granted during the six-month period
ended June 30, 2005 and 2004 was estimated on the grant date using
the Black & Scholes option-pricing model with the following
assumptions for the stock options granted since the beginning of the
fiscal year:

- Weighted average expected life: 4.5 years (3.3 years in 2004);
- Expected volatility : 70% (70% in 2004);
- Weighted average risk-free interest rate: 3.70% (2.95% in 2004);
- Dividend rate: 0% (0% in 2004).

The weighted average fair value of stock options granted during the
three-month period and the six-month period ended June 30, 2005 was
respectively zero and $0.50. For 2004 it was $0.91 and $1.00
respectively.

The Company recorded an expense of $58.788 and $116.143, using the
fair value method in its operations and deficit statement for stock
options granted to employees in the three-month period and in the
six-month period ended June 30, 2005. For 2004 it was $33.881 and
$61.646 respectively .

The fair value of stock options outstanding as at June 30, 2005 was
CA$1.59, and was estimated on the grant date using the Black &
Scholes option-pricing model.

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

---------------------------------------------------------------------
---------------------------------------------------------------------
Three-month periods ended Six-month periods ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
---------------------------------------------------------------------
Net loss as
reported $2,701,883 $2,694,042 $5,945,577 $4,775,790
Less: compensation
expense recognized
in the statement
of operations and
deficit (58,788) (33,881) (116,143) (61,646)
Plus: total
compensation
expenses 100,768 84,057 201,619 161,999
---------------------------------------------------------------------
Pro forma net loss $2,743,863 $2,744,218 $6,031,053 $4,876,143
---------------------------------------------------------------------
---------------------------------------------------------------------

Basic and diluted
loss per share
As reported $(0.06) $(0.06) $(0.14) $(0.12)
Pro forma $(0.06) $(0.06) $(0.14) $(0.12)

5- SEGMENT INFORMATION

The Company operates in two sectors for financial reporting purposes;
the medical sector and the pharmaceutical sector. The medical sector
includes the research, design, development and marketing of
SoftScan® time domain optical breast imaging device. The
pharmaceutical sector includes the research, design, development and
commercialization of eXplore Optix™ product.

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

---------------------------------------------------------------------
---------------------------------------------------------------------
Three-month period ended
June 30, 2005
---------------------------------------------------------------------
Pharmaceutical Medical Total
Sales
Product $511,550 $- $511,550
Maintenance 240,950 - 240,950
---------------------------------------------------------------------
752,500 - 752,500
---------------------------------------------------------------------

Cost of sales
Product 318,012 - 318,012
Maintenance 159,109 - 159,109
---------------------------------------------------------------------
477,121 - 477,121
---------------------------------------------------------------------
Gross margin 275,379 - 275,379
---------------------------------------------------------------------

Operating expenses
Research and development
expenses, net of investment
tax credits 364,122 1,635,117 1,999,239
Selling, general and
administrative 372,472 598,803 971,275
Amortization 58,884 29,927 88,811
---------------------------------------------------------------------
795,478 2,263,847 3,059,325
---------------------------------------------------------------------
Operating loss 520,099 2,263,847 2,783,946
Interest income (11,566) (27,991) (39,557)
Foreign exchange gain (12,429) (30,077) (42,506)
---------------------------------------------------------------------
Net loss $496,104 $2,205,779 $2,701,883
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
Six-month period ended
June 30, 2005
---------------------------------------------------------------------
Pharmaceutical Medical Total
Sales
Product $1,264,400 $- $1,264,400
Maintenance 499,450 - 499,450
---------------------------------------------------------------------
1,763,850 - 1,763,850
---------------------------------------------------------------------
Cost of sales
Product 806,659 - 806,659
Maintenance 409,783 - 409,783
---------------------------------------------------------------------
1,216,442 - 1,216,442
---------------------------------------------------------------------
Gross margin 547,408 - 547,408
---------------------------------------------------------------------

Operating expenses
Research and development
expenses, net of investment
tax credits 754,751 3,914,532 4,669,283
Selling, general and
administrative 705,491 1,137,867 1,843,358
Amortization 86,343 58,948 145,291
---------------------------------------------------------------------
1,546,585 5,111,347 6,657,932
---------------------------------------------------------------------
Operating loss 999,177 5,111,347 6,110,524
Interest income (28,031) (67,837) (95,868)
Foreign exchange gain (20,199) (48,880) (69,079)
---------------------------------------------------------------------
Net loss $950,947 $4,994,630 $5,945,577
---------------------------------------------------------------------
---------------------------------------------------------------------



---------------------------------------------------------------------
---------------------------------------------------------------------
Three-month period ended
June 30, 2004
---------------------------------------------------------------------
Pharmaceutical Medical Total
Sales
Product $190,000 $- $190,000
Maintenance - - -
---------------------------------------------------------------------
190,000 - 190,000
---------------------------------------------------------------------
Cost of sales
Product 85,185 - 85,185
Maintenance - - -
---------------------------------------------------------------------
85,185 - 85,185
---------------------------------------------------------------------
Gross margin 104,815 - 104,815
---------------------------------------------------------------------

Operating expenses
Research and development
expenses, net of investment
tax credits 495,619 1,445,676 1,941,295
Selling, general and
administrative 318,485 593,704 912,189
Amortization 40,163 21,632 61,795
---------------------------------------------------------------------
854,267 2,061,012 2,915,279
---------------------------------------------------------------------
Operating loss 749,452 2,061,012 2,810,464
Interest income (21,929) (56,277) (78,206)
Foreign exchange gain (10,716) (27,500) (38,216)
---------------------------------------------------------------------
Net loss $716,807 $1,977,235 $2,694,042
---------------------------------------------------------------------
---------------------------------------------------------------------


---------------------------------------------------------------------
---------------------------------------------------------------------
Six-month period ended
June 30, 2004
---------------------------------------------------------------------
Pharmaceutical Medical Total
Sales
Product $576,000 $- $576,000
Maintenance - - -
---------------------------------------------------------------------
576,000 - 576,000
---------------------------------------------------------------------
Cost of sales
Product 268,424 - 268,424
Maintenance - - -
---------------------------------------------------------------------
268,424 - 268,424
---------------------------------------------------------------------
Gross margin 307,576 - 307,576
---------------------------------------------------------------------

Operating expenses
Research and development
expenses, net of investment
tax credits 1,003,320 2,444,107 3,447,427
Selling, general and
administrative 605,017 1,114,523 1,719,540
Amortization 82,296 43,005 125,301
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1,690,633 3,601,635 5,292,268
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Operating loss 1,383,057 3,601,635 4,984,692
Interest income (37,115) (95,251) (132,366)
Foreign exchange gain (21,461) (55,075) (76,536)
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Net loss $1,324,481 $3,451,309 $4,775,790
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As at June 30, 2005 and December 31, 2004, the majority of
identifiable assets consisted of cash, short-term investments and
property and equipment used for corporate head office purposes.
Identifiable assets by segment are summarized as follows:

---------------------------------------------------------------------
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June 30, December 31,
2005 2004
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Pharmaceutical $2,778,803 $2,132,979
Medical 1,633,379 1,734,349
Corporate 6,033,778 12,897,559
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$10,445,960 $16,764,887
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6- SUBSEQUENTS EVENTS

A) On July 14, 2005, ART announced that it has closed a $5.9 million
private placement of convertible preferred shares with an existing
institutional investor. The private placement of 6.341.982 preferred
shares was made at a subscription price of CA$1.14 per preferred
share. The preferred shares are entitled to a cumulative dividend of
7%, payable in cash or common shares at the Company's option. The
preferred shares are convertible at the investor's option at any time
into common shares at a fixed conversion price of CA$1.26 per share
(being an effective conversion rate of 0.9036 common share for each
Series 1 preferred share). The definitive agreement also provides
that, if on the first anniversary of closing of the transaction, the
weighted average trading price of the common shares for the previous
ten (10) days does not exceed C$1.20 per share, the investor will
have the option to convert some or all the preferred shares at a
conversion price of 112.5% of the weighted average trading price for
the ten (10) trading days prior to date of conversion. The right to
convert at the adjusted conversion price shall only be available for
a period ending on the third anniversary of the closing of the
transaction. The definitive agreement also provides that the Company
may force the conversion of the preferred shares into common shares
at the conversion price of C$1.26 per share upon the occurrence of
certain events or the achievement of certain milestones. For a period
of twelve (12) months commencing from the closing date, the investor
shall have the option to purchase an additional 2.000.000 preferred
shares at a price of CA$1.14 per additional preferred share, for a
total potential additional investment of CA$2.280.000. Each such
additional preferred share shall be convertible into common shares at
a fixed conversion price of CA$1.08 per share (being an effective
conversion rate of 1.0556 common share for each Series 2 preferred
share).

B) On July 28, 2005 , ART announced that it has closed a $5 million
private placement of senior secured convertible debentures with a
limited number of U.S. institutional investors. The debentures mature
on January 28, 2008 and bear interest at a rate of 9% per annum,
payable quarterly, subject to certain quarterly adjustments. The
debentures are convertible at the investor's option at any time into
common shares at a fixed conversion price of CA$0.99 per share. The
definitive agreement provides that, at ART's option, any cash
payments contemplated under the debentures may be made in freely
tradable common shares issued at a 10% percent discount to market. In
addition, if after November 28.2006, the trading price of ART's stock
exceeds 225% of the conversion price for 20 consecutive trading days
(equivalent to CA$2.23 per share), ART may require the investors to
convert the debentures into common shares at the fixed conversion
price of CA$0.99 per share. The debentures have certain covenants
relating to the achievement of specific quarterly and annual revenue
levels, quarterly gross margins, and the maintenance of minimum cash
and cash equivalents thresholds. These covenants also provide that
the Company shall file a submission for regulatory approval for
SoftScan by June 30, 2006. The debentures also have certain customary
covenants regarding, among other things, the debt that ART may incur.
In an event of default under the debentures, ART may be required to
repay any outstanding amounts plus accrued and unpaid interest, plus
a 20% premium. Also, ART issued to the investors 5-year warrants to
purchase 1.110.139 common shares at an exercise price of CA$1.16 per
share and 5-year warrants to purchase 123.349 common shares at an
exercise price of CA$1.39 per share. Finally, for a period of twelve
(12) months commencing from the closing date, the investors shall
have the option of purchasing additional senior convertible
debentures for a total investment of $2.0 million ; and for a period
of twelve months (12) months following shareholder approval the
investors shall have the option of purchasing additional senior
convertible debentures for a total investment of US$500.000. The
definitive agreement also provides that ART may force this additional
investment to be made if ART's stock price closes above 150% of the
conversion price for 20 consecutive trading days (equivalent to
CA$1.49 per share). With that financing ART has terminated its
credits facility of CA$1.000.000 to cover fluctuations in cash as
well as its CA$1.300.000 facility to finance investment tax credits.

The accounting for the classification of these compound financial
instruments will be determined in the 2005 third quarter.

The unaudited quarterly financial statements have not been reviewed
by external auditors.


Contact Information

  • ART Advanced Research Technologies Inc.
    Jacques Bedard
    Chief Financial Officer
    jbedard@art.ca
    or
    ART Advanced Research Technologies Inc.
    Jacques (Jack) Raymond
    Vice-President, Business Development
    (514) 832-0777
    jraymond@art.ca
    www.art.ca