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

Form 10-KSB

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to

Commission file number

BRAINTECH, INC.

Name of small business issuer in its charter)

|Nevada(State or other jurisdiction of incorporation or organization)                          |  | 98-016932IRS Employer Identification No.
|--------------------------------------------------------------------------------------------- |  | ----------------------------------------
|#102 - 930 West 1st St., North Vancouver, B.C. Canada(Address of principal executive offices) |  | V7P 3N4(Postal Code)                    

Issuer's telephone number 	(604) 988-6440

Securities registered under Section 12(b) of the Exchange Act:

|Title of each class |  | Name of each exchange on which registered
|------------------- |  | -----------------------------------------
|None                |  |                                          
|                    |  |                                          

Securities registered under Section 12(g) of the Exchange Act:

|Common Stock, $0.001 par value(Title of class)
|----------------------------------------------
|(Title of class)                              

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.		Yes	[X]	No	[ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.	[ ]

State issuer's revenues for the most recent fiscal year: $213,584

2

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days.	As at March 24, 2004: $8,969,123.

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

18,210,015 common shares, par value $0.001, as at March 24, 2004.

3

Braintech, Inc.
Form 10-KSB
TABLE OF CONTENTS



|             |                                                                                                | Page
|------------ | ---------------------------------------------------------------------------------------------- | ----
|PART I       |                                                                                                |     
|Risk Factors |                                                                                                | 4   
|Item 1.      | Description of Business                                                                        | 7   
|Item 2.      | Description of Property                                                                        | 18  
|Item 3.      | Legal Proceedings                                                                              | 18  
|Item 4.      | Submission of Matters to a Vote of Security Holders                                            | 18  
|PART II      |                                                                                                |     
|Item 5.      | Market for Common Equity and Related Stockholder Matters                                       | 18  
|Item 6.      | Management's Discussion and Analysis or Plan of Operation                                      | 20  
|Item 7.      | Financial Statements                                                                           | 28  
|Item 8.      | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           | 54  
|Item 8A.     | Controls and Procedures                                                                        | 54  
|PART III     |                                                                                                |     
|Item 9.      | Directors, Executive Officers, Promoters, and 	Control Persons                                 | 54  
|Item 10.     | Executive Compensation                                                                         | 56  
|Item 11.     | Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters | 59  
|Item 12.     | Certain Relationships and Related Transactions                                                 | 61  
|Item 13.     | Exhibits and Reports on Form 8-K                                                               | 64  
|Item 14.     | Principal Accountant Fees and Services                                                         | 65  

4

CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Forward-looking statements deal with our current plans, intentions, beliefs and expectations and are statements of future economic performance. Statements containing terms like "believes," "does not believe," "plans," "expects," "intends," "estimates," "anticipates," and other phrases of similar meaning are considered to imply uncertainty and are forward-looking statements.

Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from what is currently anticipated. We make cautionary statements throughout this report and the documents we have incorporated by reference, including those stated under the heading "Risk Factors". You should read these cautionary statements as being applicable to all related forward- looking statements wherever they appear in this report, the materials referred to in this report, and the materials incorporated by reference into this report.

We cannot guarantee our future results, levels of activity, performance or achievements. Neither we nor any other person assumes responsibility for the accuracy and completeness of these statements. We are under no duty to update any of the forward-looking statements after the date of this report.

RISK FACTORS

Investment in our common stock involves a high degree of risk. Prospective investors should carefully consider the following risk factors in addition to other information in this annual report before purchasing our common stock.

Because we have earned revenue of only $920,578 from inception to December 31, 2003, we face a risk of insolvency.

We have never earned substantial operating revenue. We have been dependent on equity financing to pay operating costs and to cover operating losses.

We have sufficient cash to pay ongoing operating expenses, at their current level, to approximately May 31, 2004. To continue operation beyond that we will have to raise additional capital and/or generate significant revenue. If we are unable to do so, we face a risk of insolvency.

The auditors' report on our December 31, 2003 consolidated financial statements includes an additional paragraph that identifies conditions which raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Because we have no significant sales history and are substantially dependent on our Exclusive Channel Partner Agreement with ABB Inc. to generate future sales, our future is uncertain if our relationship with ABB fails.

We plan to market our vision guided robotic technologies, software products, and Internet based support and service system through our channel partner agreement with ABB. We believe our channel partner agreement with ABB is our best prospect for generating sales revenue. We have no other established distribution channels or marketing arrangements, and if we are unable to generate sales through ABB, our prospects for generating revenue are highly speculative.

5

Because our agreement with ABB is new, we have no assurance that it will lead to additional sales.

We made our original alliance agreement with ABB in March 2000 and together we have been awarded contracts for more than 30 vision guided robotic systems to date. Our relationship with ABB has developed to the point where in February 2004, we entered into an exclusive channel partner agreement with ABB to try to make additional sales through that relationship. However, our channel partner agreement with ABB is new and our prospects for generating sales under the ABB agreement are uncertain. Furthermore, additional sales through ABB will be dependent upon our products and services meeting customer demands.

Because our Internet based service and support system is in the development stage, we have no assurance that we will complete development successfully.

We commenced development of our Internet based service and support system during the fall of 2000. That system is still in the development stage. We have no assurance that we will be able to complete development of the system, or that any market will exist for the system when it is completed.

Because of our limited operating and sales history, we cannot make reliable projections of our future operating costs.

If we are able to generate sales, we may have to hire additional personnel to service our customers and to continue development of our technology. We may also have to incur additional marketing and overhead expenses. As a result of our lack of historical sales, we cannot make reliable projections of the number of additional personnel we will require, the cost of employing those personnel, or the level of marketing and overhead expenses we will incur. We thus have no assurance that any revenue we earn will be sufficient to cover the cost of earning that revenue, or to generate operating profits.

Because we develop and install customized vision guidance systems for specific customer needs, we may not be able to create a repeat customer base.

Most vision guidance systems are designed for the specific needs of a particular customer, and represent isolated purchases by the customers in question. As a result, we have no assurance that we will be able to obtain additional contracts to supply our custom vision guidance systems, or that any customers we secure will become repeat customers.

Because our work force is small, with only 22 people employed either as officers, employees or contractors, we are vulnerable to the loss of key people or to rapid expansion.

We employ only 22 people either as officers, employees or contractors. We try to employ people with skill sets that match the specific fields important to our business. As a result, the departure of a single person or a small number of people could materially adversely affect our business. We do not have key man insurance on any of the people we employ.

Qualified technical personnel are in great demand in all high technology industries. Accordingly, it may be difficult for us to replace people who depart, or to hire additional people we may require if we are able to generate substantial sales.

Because we do not have patent protection for any of our products, our intellectual property may be copied or misappropriated.

We do not hold any patents on any of our products. Accordingly, we have no legal means to prevent other companies from developing products that perform similar functions in a similar way. On January 31, 2002, we filed an application in the Canadian Patent Office regarding the Method And

6

Apparatus For Single Camera 3D Vision Guided Robotics and on May 24, 2002 we filed an identical application in the United States Patent Office. On January 31, 2003 we filed an International Application according to the Patent Cooperation Treaty. The Patent Cooperation Treaty provides a procedure enabling applicants to obtain patents in many countries. This is the only instance in which we have applied for patent protection of our intellectual property.

We believe that the software code that we have written for eVisionFactory, the BrainTron processor, the Odysee Development Studio, and each of our custom vision guidance systems is protected by copyright law. However, copyright law does not prevent other companies from developing their own software to perform the same functions as our products.

Because the market price of our common stock has been particularly volatile, purchasers of our common stock face a high degree of market risk.

The market price of our common stock has experienced extreme fluctuations. Since January 1, 2003 the market price of our common stock has varied between $0.11 and $0.91. As we have not announced any material changes to our operations, we believe that the fluctuations in our stock price have resulted primarily from market perceptions of the speculative value of our business opportunities. The susceptibility of our stock price to fluctuation exposes purchasers of our stock to a high degree of risk.

Because we have generated revenue of only $920,578 from inception to December 31, 2003, and our business has not been profitable with accumulated losses of $14,486,198 from inception to December 31, 2003, we may not be able to raise the additional capital we need.

We will require additional capital to continue the development of our products, to pay the costs of marketing those products, or to cover operating losses until we are able to become profitable. As we have never generated operating profits or significant sales revenue, we may not be able to raise the amount of capital we require.

Several other factors may also hinder our efforts to raise capital. They include the following:

- Our share price has been highly volatile during 2001, 2002 and 2003. The volatility of our share price may deter potential investors.
- Subsequent to the beginning of 2000, many technology companies have experienced financial difficulties and rapidly declining share prices. As a result, potential investors may be less willing to invest in technology companies generally.
- Subsequent to the beginning of 2000, capital markets have become tighter generally, with less financing available for technology companies.
- Capital markets have become tighter due to international tensions beginning on September 11, 2001.

Because we will have to raise additional capital, the interests of shareholders may be diluted.

To raise additional capital we may have to issue additional shares, which may dilute the interests of existing shareholders substantially. Alternatively, we may have to borrow large sums, and assume obligations to make substantial interest and capital payments. We may also have to sell significant interests in some or all of our products. If we are able to raise additional capital, we cannot assure that it will be on terms that enhance the value of our common shares.

7

Because a significant percentage of our issued shares has recently become free trading, and because of the size of anticipated share offerings, there is a risk of downward pressure on our stock price.

During 2001 and 2002, we issued approximately 6.1 million shares in private placements and other transactions. Those shares are now eligible for re-sale under Rule 144 to the Securities Act of 1933. In addition, during 2003 we issued $1,725,000 in convertible debentures bearing interest at 8% per annum. The debenture principal and accrued interest are convertible into units at $0.25 per unit, each unit consisting of one common share and one-half share purchase warrant. In conjunction with the convertible debentures, we issued 482,000 common shares and 241,000 share purchase warrants for finders' fees. We also issued 2,354,621 common shares and 1,177,310 share purchase warrants for settlement of promissory notes payable. We may register these shares and share purchase warrants for resale. The market price of our stock could drop significantly if the owners of these shares sell all or a large portion of the shares, or are perceived as intending to sell them.

Because our stock may be subject to "low price stock" rules, the market for our stock may be limited.

The Securities and Exchange Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price less than $5.00. Our stock is presently covered by those rules, and may continue to be so. The penny stock rules require broker-dealers to make a special suitability determination before selling our stock to investors who are not either regular customers or accredited investors. As a result, the potential market for our stock may be limited.

PART I.

ITEM 1. DESCRIPTION OF BUSINESS

Our financial statements are presented in United States dollars, and dollar figures stated in this annual report refer to United States dollars (except where specified otherwise). As our head office is in Canada, many of our transactions (including payment of salaries to our employees) are completed in Canadian dollars ("Cdn$"). For purposes of this annual report, other than amounts extracted from our financial statements, Canadian dollar amounts have been converted to United States dollars at an exchange rate of Cdn$1.00 = US$0.71, being the average exchange rate during the year ended December 31, 2003.

Business Development

Our company was incorporated in Nevada on March 4, 1987 under the name Tome Capital Inc. We changed our name to Nevada Manhattan Mining Inc. on August 15, 1988, then back to Tome Capital Inc. on July 5, 1990, to Offshore Reliance Ltd. on February 19, 1993, to Cozy Financial Corporation on April 20, 1993 and to Braintech, Inc. on January 3, 1994.

We were registered as an extra-provincial company under the British Columbia Company Act on January 17, 1996. Our principal executive offices are located at Unit 102-930 West 1st Street, North Vancouver, British Columbia, Canada V7P 3N4. Our telephone number is (604) 988-6440 and our Internet address is www.braintech.com.

Our Subsidiaries

We have two wholly owned subsidiaries. The first, Braintech Canada, Inc., was incorporated in British Columbia, Canada on March 3, 1994 under the name Brainware Systems Inc. Brainware Systems Inc. changed its name to Braintech Canada, Inc. on September 19, 2001. Braintech Canada, Inc. carries out our research and development activities, employs our technical and managerial personnel, and carries on our sales activities.

8

The description of our business in this annual report includes the activities of both Braintech, Inc. and Braintech Canada, Inc.

Our other subsidiary was incorporated on September 15, 1999, as 9141 Investments Ltd. On September 19, 2001, 9141 Investments Ltd. changed its name to Brainware Systems Inc. This subsidiary currently has no active operations. Its function is to hold the Brainware Systems name.

Business of Issuer

Historical Development

We entered the technology field in the first quarter of 1994. Since then, the majority of our efforts have been devoted to developing technologies and products to be used in developing machine vision or "computerized vision". Machine vision refers to the technology base that employs any number of electro-optical or non-contact techniques to acquire image data, process that data and analyze it to draw conclusions with little or no operator intervention. Basically, machine vision is the application of electronic imaging, image processing, and image analysis techniques to applications in the manufacturing industries for the purpose of control (process control, quality control, machine control, and robot control).

In 1998, we began to apply our technology and expertise to the development of machine vision systems for industrial applications. We have developed machine vision systems used in product inspection, location analysis, and parts handling and assembly.

In March 2000, we entered into a strategic alliance with ABB Inc. ("ABB"). ABB is a major supplier of industrial robotics as well as manufacturing automation systems. Since entering into our alliance with ABB, we have focused on the development and implementation of vision guidance systems for robots used in the automobile manufacturing industry.

In 2000, we commenced the development of eVisionFactory ("eVF"), a software environment whose main components are: e - Real-Time Internet Support, V - Vision Science & Engineering, and F - Application Development & Operation. eVF combines vision technology, systems engineering, and Internet-based service and support system. The Internet-based service and support system is designed to provide technical support through the Internet to purchasers of our vision guidance systems. The Internet-based support system could also be used to provide technical support to companies operating other types of industrial or non-industrial machinery and systems.

Early in 2002 we completed a commercial version of eVisionFactory that did not include our Internet based service and support system. We included eVisionFactory software with the systems we delivered in 2002 and 2003.

In the 2nd quarter of 2001, at the request of Ford Motor Company, we completed the development of a 3D single camera vision guidance system for robots used in automotive manufacturing systems ("SC3D"). The SC3D system uses a single conventional CCD (Charge Coupled Device) camera. Software algorithms use images from the camera mounted on the robot arm or stationary position to determine the position and orientation of an object of interest. That information is used to guide the robot to operate on or manipulate the object. As a result of our completion of the development of the SC3D proof of concept, we received from ABB an order for 19 vision guidance systems for installation into two engine assembly plants of Ford Motor Company.

To date, we have delivered all 19 SC3D vision systems ordered by ABB. All of these systems include the commercialized version of eVF, SC3D and AutoCal-3D. These systems are integrated with ABB robots and are currently operating in Ford's automotive power train assembly lines.

9

In July 2001, we entered into a Memorandum of Understanding with Marubeni Corporation, pursuant to which the two companies agreed to cooperate in developing and marketing of the Braintech technology for industrial applications including vision guided robots in the Japanese and Asian markets. Marubeni is a Japanese trading company with offices and subsidiaries throughout the world. Marubeni is ranked 25th on the 2002 Fortune Global 500 ranking of the world's largest corporations, based on 2001 revenues.

During 2002, we continued the development of our relationship with Marubeni Corporation and that culminated in the signing of a Marketing and Development Agreement. The agreement, which covers Southeast Asia and Australia, provides for mutual exclusivity, whereby Marubeni is granted an exclusive license to manufacture and distribute Braintech's vision guided robotic systems and Marubeni agrees that it will not deal with any competitive technology or products during the three-year term. Marubeni placed an order for two eVF development systems and these systems were delivered upon completion of the Marketing and Development Agreement. We have completed the integration work for utilization of eVF with Kawasaki robots. We have also set up the demonstration/training models of eVF in the Marubeni Vision Techno Centre in Nagoya, Japan and have provided onsite training to Marubeni engineers. In addition, Mr. Babak Habibi, our President, gave a presentation to senior level executives of Marubeni at the Techno Centre. We have also hired a Vice-President Marketing and Business Relations - Asian Region to oversee and manage our relationship with Marubeni.

During 2002 and 2003 we continued to add functionality to eVF by developing additional components as follows:

AutoCal-3D; AutoCal-3D is a fully automated process for 3D calibration of a stationary or robot-mounted camera. Calibration refers to the process whereby the mathematical relationship between pixel coordinates of objects in digital images and real-world coordinates such as inches and millimeters is calculated. In contrast to the manual calibration process, AutoCal-3D eliminates all steps involving operator input thereby increasing both efficiency and accuracy.

AutoTrain-3D; AutoTrain-3D is a fully automated process that facilitates the introduction or "training" of new parts into a given eVF-based system running the SC3D technology.

Xi2D (Single/Multi-Camera 2D); Xi2D consists of a single or multi-camera arrangement that views various features of interest.

DD3D (Direct Depth 3D); DD3D uses stereo vision for direct measurement and consists of a binocular camera arrangement to view a part or feature.

SR3D (Surround Vision 3D); SR3D is similar to SC3D but involves multiple cameras configured to view different areas of the same part.

We have not at any time been able to generate sufficient revenue from sales of our services or products to sustain ongoing operations, and we do not have an established record of sales or established distribution channels for our services or products. In order to continue as a going concern, we will have to begin generating significant sales revenue.

As of December 31, 2003, we have incurred an aggregate deficit of approximately $14.5 million during our development and operations stage. We may continue to incur significant additional operating losses as our product development, research and development, and marketing efforts continue. Operating losses may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenue recognised.

We have generated total revenues, from inception on January 3, 1994 to December 31, 2003, in the amount of $920,578.

10

Principal Products and Services

Machine Vision Systems

Our business consists of the development and supply of custom machine vision systems. Systems like the ones we developed are known as application specific machine vision systems. Application specific machine vision systems are generally custom designed to perform a specific function. We have also developed specialized software products for use in the development, maintenance and support of machine vision systems.

The principal industrial applications of machine vision systems are inspection, location analysis, and pattern recognition. Examples of inspection, location analysis and pattern recognition applications include inspection of products for quality control purposes, location analysis for control of industrial machines or robots, or control of fitting and assembly of products, and optical character recognition.

Currently, we are focusing on the development, supply and support of machine vision systems for robots used in the automotive manufacturing industry. The field of vision guided robotics requires our vision systems to incorporate advanced robotic engineering and programming know-how and programming for optimal integration with robotic systems.

Our products and services are suitable for both product inspection and location analysis applications, and the projects we have completed with ABB have involved both applications. The machine vision systems we have sold to date are used in the manufacture of automotive parts, but we believe that we are capable of developing systems that can be applied in a large number of industrial sectors. We have not to date completed any projects or proposals in the two industries which make the greatest use of machine vision systems, the semiconductor and electronics industries.

We develop machine vision systems based on our customers' particular needs. Solutions that we have delivered range from single and multi-camera 2D systems to single camera 3D systems. A 3D system determines the position of an object in 3 dimensional space, i.e. the x,y,z coordinates and roll, pitch and yaw angles.

Our vision systems are used in the following types of applications:

- mold number recognition for aluminum die-cast components (single camera 2D system);
- automotive brake shoe identification and sorting (multi-camera 2D system);
- robotic guidance and location of features for plastic blow molded gas tanks (multi-camera 2D system);
- robotic guidance and positioning of automotive engine/radiator-racks (multi-camera 2D system);
- robotic guidance and grasping of automotive engine heads and intake manifolds (single camera 3D system)

Single Camera 3D Vision Systems

We developed our 3D Single CCD (Coupled Charged Devise) Camera vision system (SC3D) in response to a major automaker's request for a robust 3D robot guidance system for automotive part handling applications.

11

The SC3D is integrated into the robot gripper. The robot moves to position the SC3D over the bin containing the part to be handled by the robot. The SC3D captures a single image of the part and performs its analysis. The SC3D system determines the position of the part in 3D space, ie. its position on the on x, y, z axis and its orientation (roll, pitch, and yaw angles). These values are transmitted to the robot controller via Ethernet. The robot uses this information to adjust the position of its gripper to match the 3D coordinates of the part and proceeds to intercept, grasp and remove the part from the bin. The complete process takes less than one second. In extreme cases, where the part is heavily tilted to one side, the vision guidance system can perform two measurements (coarse and then fine) to achieve higher accuracy and reliability. The vision guidance system makes this decision automatically.

The SC3D vision system can keep track of multiple part models and multiple part features so that the user can re-configure the vision system for use with different parts.

Applications for SC3D include robot-handling applications involving precisely manufactured parts such as engine heads and manifolds. The system provides the necessary accuracy for robots transferring parts to conveyors or placing parts precisely in a fixture. The system is not suitable for flexible parts where dimensions vary significantly such as plastic blow-moulded products.

We believe that the major advantages of our SC3D systems are its compactness for installation on the end of the robotic arm, low-cost conventional sensor and computing platform, ease of calibration, and short cycle times.

Our sales efforts were historically directed at generating direct sales to end users, consistent with the majority of the vision systems market. As a result of our channel partner agreement with ABB, we expect that most our future sales efforts will be through, or in conjunction with, ABB. We are also developing our relationship with Marubeni Corporation in order to make sales in Japan and other Asian countries.

Machine Vision Systems - Industry Background

The growth of the machine vision industry is dictated, on the one hand, by the technical difficulty of achieving accurate "computerized vision", and on the other hand, by the vast theoretical scope of the potential applications. The principal technical difficulties include the problems of compensating for background noise that masks or distorts objects, separating objects from their backgrounds, determining how much "similarity" must exist before two visual patterns are considered to represent the same object, and comparing physical objects which are only approximately "similar" in the first place.

As the technical difficulties are solved, the potential benefits and applications of computerized vision are large. In industrial quality control, computerized vision can replace and perform inspections more accurately than human inspectors. In industrial automation, computerized vision can be used to control industrial machines or robots. In security systems, computerized vision can be used to detect human visitors or intruders in video camera images. In military applications, computerized vision can be used in automated targeting systems. In medical applications, it can be used to improve diagnostic reliability.

Technical description - computerized vision

Computerized vision involves analysing visual images in a digital electronic form. To do so, a computerized vision system must first express a visual image in digital form. The system must then analyse the digital data to recognize patterns or specific objects.

We separate the development of a vision system into the following modules, which correspond to the logical steps that must be followed in analysing an electronic visual image.

12

Acquisition and Digitization Module.

The acquisition and digitization module receives input such as the signal from a video monitor, and creates a digitized version of that input.

Pre-processing Module.

The pre-processing module receives digitized output from the acquisition and digitization module and performs certain operations and modifications on the digital data to facilitate pattern recognition. The pre-processing module performs the following principal functions:

-	It filters out noise and other apparent anomalies in the digital data.

-	It segments the data by identifying subsets of the digital data which represent candidates for physical objects that the vision system is intended to recognize.

-	It transforms data by deriving selected numerical characteristics of the data subsets identified as potential objects. The numerical characteristics may include such quantities as the length or width of the object, or a series of numbers describing its colour or texture. The numerical quantities thus derived are stored as a vector, referred to as the "physical signature" of the potential object.

Training and Matching Module.

The training and matching module performs two essential functions.

-	It receives the physical signatures of potential objects and attempts to match them to the signatures of specified objects already stored in memory (the objects the system is trying to locate or recognize). The training and matching module "classifies" physical signatures by calculating how well they match the signatures stored in memory. Since physical objects are unlikely to be perfectly identical, or to be described perfectly by a digitized version of visual input, classification necessarily involves the comparison of approximate quantities. The classification of physical signatures thus requires a mathematical algorithm for deciding how closely a physical signature and a signature match. A variety of mathematical models, including fuzzy mathematics and standard probability error functions, can be used to fulfil this requirement. While the technical details of the mathematical models differ, they have the common object of producing a numerical measure of how closely two mathematical data vectors match.

-	It refines the stored signatures to which future physical signatures can be matched, that is it "trains" the system for more accurate object recognition in the future. Depending on the mathematical algorithm used to identify matching signatures, the training and matching module can adjust the appropriate memory signatures, or the mathematical parameters or functions used in matching physical signatures to the signatures stored in memory.

Control and Feedback Modules.

The control and feedback module controls input to, and output from, the system. The control and feedback module determines the extent to which the system is being trained and also permits direct operator participation in certain steps of the process, such as the identification of candidate objects or new objects. When a physical signature does not match any of the signatures stored in memory, the control and feedback module can also initiate procedures to create a "new" signature in memory, to be used to identify the "new" object in the future.

13

Customer projects - machine vision and vision guided robotic systems

Our attempts to sell customized vision systems were unsuccessful until the final quarter of 1999. Since then, we have sold and installed 33 vision systems, we have upgraded 2 existing vision systems to eVF, we have sold 2 developer's licenses, and we have sold 2 runtime licenses.

Satisfied Brake Products Inc.

In September 1999, we entered into a contract to develop a system for inspecting and sorting brake shoes for Satisfied Brake Products Inc. We agreed to develop the machine vision components of the system. A company named Mercator Robotec Inc. agreed to provide system integration services, to link our machine vision components with the mechanical control systems of the customer's production line. The machine vision components of the system were required to identify and separate approximately 200 different types of brake shoes, and to inspect the brake shoes visually for defects. The system was completed in January 2000, and is currently in operation. Our contract with Satisfied Brake Products Inc. represented our first major contract for the sale of a custom vision system.

ABB, Inc.

In March 2000, we entered into an alliance agreement with ABB. ABB is a technology group based in Europe, employing over 165,000 people in more than 100 countries.

Under the alliance agreement, we agreed to cooperate with ABB in identifying, developing, and pursuing business opportunities that combine the expertise and technology of the two companies. Either company, upon becoming aware of such an opportunity, will notify the other, and the companies will cooperate in preparing proposals, specifications, and contracts. The companies have agreed to work with each other exclusively to the greatest extent reasonably practicable. However, the exclusivity provisions do not apply if either company has a bona fide business reason, such as preference of a customer, for contracting with a different company. Either party may terminate the alliance agreement on 120 days notice.

We received an initial purchase order from ABB to develop a vision system to identify and sort automobile transmission casing parts. We completed and installed the system in May 2000.

In July 2000, we received a purchase order to develop two further vision systems for ABB, to locate specified features on plastic blow-moulded automotive fuel tanks, and to transmit that information to industrial robots operating on the fuel tanks. We completed and installed the systems in September 2000.

In February 2001, we received a purchase order from ABB, for a third vision system to control industrial robots used in manufacturing fuel tanks. We completed and installed the system in March 2001.

In August 2001, we received a purchase order from ABB for a vision system to guide industrial robots used in inspecting automotive air conditioning systems. We completed and installed the system in September 2001.

In late September and early October, 2001 we received purchase orders from ABB to supply 19 vision guided robotic systems used in engine parts handling. These systems are for installation in Ford Motor Company's Windsor and Essex engine plants. These vision systems utilize our 3D single camera vision systems. In April 2002 we received a 10% advance payment for all 19 systems. Installation of the systems commenced in the second quarter of 2002 and to date all of the systems had been installed. The final 4 systems were installed between December 2003 and February 2004.

In June 2003, we received a purchase order from ABB for a vision guided robotic system used for cast head location. We completed and installed this system in the General Motors Massena engine plant in August 2003.

14

In April 2003, we received a purchase order from ABB for 2 vision guided robotic systems for an intake manifold auto load application at Ford Motor Company's Windsor engine plant. We completed and installed this system between October and December 2003.

In July 2003, we received a purchase order from ABB for a vision guided robotic system for an axel knuckle assembly auto load application at the Delphi chassis systems plant in Oshawa, Ontario. We completed and installed this system in November 2003.

In May 2003, we received a purchase order from ABB for 2 vision guided robotic systems for a V8-V10 engine head decking application at Ford Motor Company's Windsor engine plant. We completed and installed this system between December 2003 and February 2003.

In addition to supplying vision guided robotic systems to ABB, we have provided them with eVF upgrades for previously installed systems, we have held training seminars for their technical staff and we have provided engineering services to assist them in design of vision guided robotic systems. We expect this type of revenue to continue especially in light of our Exclusive Channel Partner Agreement.

Effective February 1, 2004, ABB and Braintech entered into an Exclusive Channel Partner Agreement For The Licensing Of Braintech's Vision Guided Robotics Technologies And Software Products to develop and market vision guided robotic systems to ABB's North American automotive customers. This agreement has to date resulted in the receipt of 5 additional purchase orders for vision guided robotic systems. These systems will be completed and installed in the second and third quarters of 2004.

Axium Automation Inc.

In September 2001, we received a purchase order from integrator Axium Automation Inc. to supply a vision system to guide robots used in the manufacture of plastic blow-moulded automotive fuel tanks. We completed and installed the system in December 2001 and invoiced Axium on December 21, 2001. However, in accordance with the software revenue recognition rules outlined in the American Institute of Certified Public Accountant's Statement of Position (SOP) 97-2, we recognized the revenue from this installation throughout fiscal 2002.

In November 2001, we received a purchase order from Axium Automation Inc. to supply an additional vision system to guide robots used in the manufacture of plastic blow-moulded automotive fuel tanks. We completed and installed the system in March 2002 and invoiced Axium on March 28, 2002. In accordance with the software revenue recognition rules, we recognized the revenue from this installation over the 12-month period commencing April 1, 2002.

Marubeni Corporation

In July 2001, we entered into a Memorandum of Understanding with Marubeni Corporation, pursuant to which the two companies have agreed to cooperate in developing and marketing vision systems for industrial applications including vision guided robots in Japanese and Asian markets. During the 1st half of 2002, we continued the development of our relationship with Marubeni Corporation and that culminated in the signing of a Marketing and Development Agreement. In March 2002, Marubeni placed an order for two eVF development systems and these systems were delivered upon completion of the Marketing and Development Agreement. In December 2002, Marubeni placed an order for demonstration run-time licenses and those licenses were delivered in March 2003.

We caution investors that most machine vision systems are designed for the specific needs of a particular customer, and represent isolated purchases by the customers in question. Accordingly, we have no assurance that any customers we secure will become repeat customers.

15

eVisionFactory

eVisionFactory (eVF) is intended to provide a comprehensive software environment for the design, development, operation, and support of vision guided robotic systems. eVF consists of two principal elements, a development environment and an Internet based service and support system.

We use eVF to develop custom vision guided robotic systems. We include a version of eVF without the Internet-based service and support system in all of the vision guidance systems that we deliver. The Internet based support system is still in the development stage and will be released separately.

eVisionFactory - Development Environment

The development software included in eVisionFactory performs functions similar to the Odysee Development Studio, which we completed in 1999. That software is designed to facilitate the expeditious and economical development of custom vision guided robotic systems. eVisionFactory stores and manipulates libraries of routines to perform the various functions that can be included within a vision guided robotic system. eVisionFactory includes standardized interfaces to which all of the routines are adapted, so that the routines can be combined easily and efficiently into an integrated system. eVisionFactory permits the operator to "drag and drop" individual routines from particular libraries to a window opened for the system under development. Once added to the system window, the routines are automatically linked together through the standardized eVisionFactory interface. eVisionFactory thus eliminates the need to write specialized computer code to link individual routines.

eVisionFactory is installed on a user's computer system as part of a completed vision guided robotic system. After installation, the system can be modified or upgraded, by altering or adding to the software components of the system, or by augmenting the data used by the system. eVisionFactory will permit users to make minor modifications directly. We will supply major modifications or upgrades at an extra charge.

eVisionFactory will also include maintenance and support features which monitor the performance of a vision guidance system to detect errors, and to notify the operator when an error has been detected. We expect to release the maintenance and support features separately, in 2004.

The software by which eVisionFactory links the various routines within its libraries is proprietary to us. However, we do not have proprietary ownership of the majority of the individual routines that can be used with eVisionFactory, some of which are available in the public domain.

eVisionFactory - Internet-based Service and Support System

In the fall of 2000, we commenced development of a system for Internet based service and support of industrial systems. During the first half of 2001, for development purposes we began to incorporate this system as part of eVisionFactory. The principal components of the system include the following:

-	communication devices, to transmit messages between on-site personnel and a server operating at the industrial site;

-	a server which controls communication within the industrial site, and which also connects to internet sites offering web based technical support; and

-	web based technical support applications, queuing mechanisms, channel managers, and synchronization mechanisms designed to respond to technical inquiries over the Internet.

Initially, our Internet-based service and support system will use networked computers to carry out its communication functions. We also plan to incorporate wireless communication features for use by on-site personnel. We plan to implement the wireless components of the system through universally accepted standards for short-range wireless communications, such as Bluetooth communications

16

protocols or the 802.11b standard protocol. Both sets of protocols are used in implementing wireless networks, and are compatible with TCP/IP protocols used in transmitting data over the Internet. We do not yet have a timetable for completion of the wireless components.

To complete development of the system we will have to develop interfaces between the wireless components and software applications that will be used to support Internet based communications.

We are developing software that will permit companies operating the Internet based service and support system to obtain the following types of support services in a secure manner:

-	Fault Information Wizards. The wizards will ask the system operator a few simple questions aimed at identifying the nature of the problem and its location. The system then transmits the support request to the remote support facility. The technical support staff will acknowledge the receipt of the support request and respond by invoking one of three support mechanisms provided by the system;

-	Two-way text chat capability. If the problem description is unclear from the request, the technical support person can initiate a chat session and ask specific questions to ascertain the true nature of the problem. The chat capability will be available from the eVF interface installed in the PC on the factory floor.

-	Trouble-shooting Wizards. The system is capable of storing troubleshooting wizards for typical problems that can be transmitted to the system operator. The wizards are designed to guide the operator in a step-by-step fashion with the aid of clear schematics to resolve the fault;

-	Remote Diagnostics. The system has been designed to enable the support person to take remote control of the vision system when offline and when permitted by the operator, to identify and resolve a problem.

We plan initially to market our Internet-based service and support system to users of our vision guided robotic systems. However, our Internet-based service and support system can be adapted for use with a variety of industrial manufacturing systems. Accordingly, we also we plan to market the system through our alliance with ABB, to users of industrial robotic systems developed by ABB.

Investors are cautioned that our Internet-based service and support system is in the development stage, and that we have no assurance that we will be able to complete technical development of the system, or to market the system successfully if it is completed.

Competitive Position -Vision Guided Robotic Systems

Vision guided robotics is an emerging industry and as such, no statistics are available to determine the size or composition of the overall market. Many of our potential competitors are substantially larger than we are and earn substantially greater revenue. We do not know of a reliable way to evaluate our future competitive position within the industry. We believe that a substantial number of companies operating in the machine vision market have the capability to develop the kind of vision guidance systems we develop. However, we also believe that:

- eVisionFactory will enable us to develop vision guided robotic systems quickly and efficiently;
- through our alliance with ABB, we have demonstrated an ability to complete projects for major industrial clients; and
- our pending patent regarding the Method and Apparatus for Single Camera 3D Vision Guided Robotics will provide us with a sustainable competitive advantage.

17

We, however, do not have an established track record of sales or profits to provide any reliable indication of our ability to attract significant market share or to operate profitably.

Research and Development

During the year ended December 31, 2003, we incurred research and development expense of $467,074, and during the year ended December 31, 2002, we incurred research and development expense of $477,392. Substantially all of our research and development expenses consisted of internal personnel costs allocated to research and development. For 2004, our own employees will do substantially all of our research and development work.

Intellectual Property

We believe that software and related technical data which we have developed constitute intellectual property belonging to us. The software and technical data over which we assert intellectual property rights include principally the following:

- software we have written in developing our single camera 3D robot guidance system;
- software we have written and incorporated in eVisionFactory, including the software by which eVisionFactory links the various subroutines within its libraries;
- software we have written in developing the components of eVisionFactory including AutoCal-3D, Xi2D (Single/Multi-Camera 2D), DD3D (Direct Depth 3D), and SR3D (Surround Vision 3D);
- software we have written and incorporated in the Internet based service and support system included in eVisionFactory;
- software routines we have written from time to time in developing machine vision systems; and
- software routine we have written from time to time in developing vision guided robotic systems.

We have registered the trademarks "Braintech" and "BrainTron" with the United States Patent and Trademark office. We have also applied for registration of the trademarks SC3D, eVisionFactory and eVF with the United States Patent and Trademark Office. In the Canadian Trade-marks Office we have applied for and received notice of registration for the trademarks SC3D,and applied for registration of the trademarks, eVF, and eVisionFactory.

On January 31, 2002, we filed an application in the Canadian Patent Office regarding the Method And Apparatus For Single Camera 3D Vision Guided Robotics and on May 24, 2002 we filed an identical application in the United States Patent Office. On January 31, 2003 we filed an International Application according to the Patent Cooperation Treaty. The Patent Cooperation Treaty provides a procedure enabling applicants to obtain patents in many countries. This is the only instance in which we have applied for patent protection of our intellectual property.

On March 3, 2004, the United States Patent and Trademark Office issued a Notice Of Allowance And Fees Due regarding the Method And Apparatus For Single Camera 3D Vision Guided Robotics. According, we expect that the patent will be granted shortly.

Our ability to compete successfully will depend in part on our ability to protect our proprietary technology and information. Except for the patent applications regarding our Method And Apparatus For Single Camera 3D Vision Guided Robotics described above, and apart from the above

18

trademarks and trade mark applications, we have not applied for registration of intellectual property rights in respect of any of our software (although certain forms of legal protection, such as copyright ownership, are available without registration). Although we attempt to prevent improper disclosure of our proprietary technology, we cannot assure that the measures we take will be adequate, or that competitors will not be able to develop similar technology independently. Further, we can not assure that claims allowed on any patent we obtain will be broad enough to protect our technology, that any patent applications will ultimately be successful, or that foreign intellectual property laws will protect our intellectual property. We may have to resort to litigation to enforce or determine the validity and scope of our proprietary rights. Litigation of this nature would likely be expensive, and its outcome uncertain.

We have no pending claims against us for infringement of any patents or other intellectual property rights of others. We have no reason to believe that we infringe any intellectual property rights of others, although we do not conduct systematic patent searches to determine whether any of our products infringe existing patent rights. Whether or not we are actually infringing the rights of third parties, claims of infringement may be advanced against us, forcing us either to defend costly litigation or to purchase license rights from third parties. If we are forced to purchase license rights from third parties, we can not assure that we will be able to do so on commercially reasonable terms, or at all.

ITEM 2. DESCRIPTION OF PROPERTY

Our office premises are located at Unit 102, 930 West 1st Street, North Vancouver, British Columbia, Canada and consist of approximately 9,750 square feet. The term of the lease is five (5) years from September 1, 2003 to August 31, 2008. The annual rent is approximately $130,000 per year, inclusive of operating costs. The lease agreement provides that a rental credit equal to six months minimum rent will be applied to the first six months rent payable. For financial statement purposes the monthly rental credits are recorded as deferred leasehold inducements and applied over the term of the lease.

We have entered into an agreement effective April 1, 2004 to lease an additional 1,555 square feet adjacent to our existing office premises. The annual rent is approximately $17,000 per year, inclusive of operating costs. The lease agreement provides that a rental credit equal to six months minimum rent will be applied to the first six months rent payable. For financial statement purposes the monthly rental credits will be recorded as deferred leasehold inducements and applied over the term of the lease.

Our premises at Unit 102-930 West 1st Street are suitable and adequate for our current and future anticipated research and development and production operations. Additional facilities at other locations will be occupied as dictated by our needs and growth.

ITEM 3. LEGAL PROCEEDINGS

As at the date of this annual report, we are not involved in any legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not Applicable.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common shares are currently trading through the OTC Bulletin Board under the symbol "BRHI".

19

The following table shows the high and low bid information for our common shares for the quarters indicated.

|Quarter        |  | High | Low  | Close
|-------------- |  | ---- | ---- | -----
|               |  | ($)  | ($)  | ($)  
|2003           |  |      |      |      
|Fourth quarter |  | 0.65 | 0.35 | 0.45 
|Third quarter  |  | 0.67 | 0.40 | 0.53 
|Second quarter |  | 0.87 | 0.27 | 0.55 
|First quarter  |  | 0.51 | 0.11 | 0.30 
|               |  |      |      |      
|2002           |  |      |      |      
|Fourth quarter |  | 0.31 | 0.10 | 0.11 
|Third quarter  |  | 0.68 | 0.25 | 0.31 
|Second quarter |  | 0.90 | 0.55 | 0.67 
|First quarter  |  | 0.95 | 0.62 | 0.80 

The source of this information is the OTC-Bulletin Board. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

Holders

As at March 24, 2004, we have 18,210,015 shares issued and outstanding. We have approximately 360 registered shareholders. Approximately 8.9 million shares are registered in the name of CEDE & Co., a depository. Based on research into the indirect holdings registered in the names of depositories and financial institutions, we estimate that we have over 9,500 beneficial shareholders.

Common Stock

Our authorized capital stock consists of 200,000,000 shares of common stock with a par vale of $0.001 per share. The holders of outstanding shares of our common stock are entitled to receive dividends out of assets legally available at times and in amounts as the board of directors may from time to time determine. Holders of common stock are entitled to one vote per share on all matters on which the holders of common stock are entitled to vote. The common stock is not entitled to pre-emptive rights and may not be redeemed or converted. Upon liquidation, dissolution or winding up, the assets legally available for distribution to our shareholders are divided among the holders of the common stock in proportion to the number of shares of common stock held by each of them, after payments of all of our debts and liabilities.

Dividend Policy

We have never paid cash dividends on our capital stock. We currently intend to retain any profits we earn to finance the growth and development of our business. We do not anticipate paying any cash dividends in the foreseeable future.

Recent Sales of Unregistered Securities

On December 1, 2003, we issued 105,000 common shares at a deemed value of $0.57 per share to

20

Stephen Weisenfeld on account of a finder's fee. We also issued 52,500 share purchase warrants. Each warrant has a five-year term and is exercisable into one common share at a price of $0.25 per share. The shares and warrants were issued to an accredited investor pursuant to exemptions from registration as set out in Rule 506 of Regulation D under the Securities Act.

On December 26, 2003, we issued 115,000 common shares at a deemed value of $0.41 per share to Robotech, LLC. on account of a finder's fee. We also issued 57,500 share purchase warrants. Each warrant has a five-year term and is exercisable into one common share at a price of $0.25 per share. The shares and warrants were issued to an accredited investor pursuant to exemptions from registration as set out in Rule 506 of Regulation D under the Securities Act.

On December 22, 2003, we issued 500,000 share purchase warrants as consideration for entering into a consulting agreement. Each warrant has a five-year term and is exercisable into one common share at a price of $0.45 per share. The warrants were issued to an accredited investor pursuant to exemptions from registration as set out in Rule 506 of Regulation D under the Securities Act.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discussion and analysis should be read in conjunction with our consolidated financial statements and notes and the information included under the caption "Risk Factors" included elsewhere in this document. Except for historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions and our current beliefs regarding revenues we might earn if we are successful in implementing our business strategies. See "Special Note Regarding Forward-Looking Statements" for further information regarding forward-looking statements. Our actual results may differ materially from the results discussed in the forward-looking statements as a result of a number of factors, many of which are beyond our control, including those factors discussed under "Risk Factors" and other headings in this document, which could, among other things, cause the price of our common stock to fluctuate substantially.

Overview

We generate the majority of our revenues from the sale of computer software that we have developed and that we believe constitutes intellectual property belonging to us. Our software sales have principally involved computerized vision systems used for the guidance of industrial robots performing automated assembly, material handling, and part identification and inspection functions. We have generated total revenues, from inception on January 3, 1994 to December 31, 2003, in the amount of $920,578.

We have incurred aggregate net losses of approximately $14.5 million during the period from our inception on January 3, 1994, to December 31, 2003. We will likely continue to incur significant additional operating losses as our product development, research and development, and marketing efforts continue. Operating losses may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenue recognized.

Plan Of Operation

At the beginning of fiscal 2003, we set strategic operating priorities for the ensuing year. These priorities and the results are as follows:

21

A major priority was to leverage the success of the installations in the Ford Motor Company's engine assembly plants by informing the automotive industry of how the intelligent processing of vision guided robotics allows for greater creativity and flexibility in vehicle design and assembly. In March 2003, we attended the Society of Automotive Engineers World Congress trade show in Detroit Michigan, in May 2003 we attended the Robot and Vision Show in Chicago, in September 2003 we attended the Assembly Technology Exposition in Chicago, and in March 2004 we again attended the Society of Automotive Engineers World Congress trade show in Detroit Michigan. At each of the shows, we exhibited the vision guidance technology currently being used in Ford Motor Company's engine assembly plants. We have generated substantial interest in our technology and this is reflected in the expansion of our installation base to include Ford Motor Company, General Motors, Delphi, TI Automotive Group, and Toyota. In September 2003 we were honored with the distinguished Henry Ford Technology Award. The Ford Motor Company award recognized our 3D-Vision Guided Robotics parts handling technology currently in operation at Ford's Windsor and Essex auto manufacturing plants. Established in 1981 as part of its effort to provide greater management attention to, and recognition of exceptional technical contributions by employees and suppliers, the Henry Ford Technology Award program recognizes Ford's highest level of technical achievement.

To continue the development of our relationship with ABB, we expanded our presence in the automotive assembly concentrations of Southern Ontario and Detroit Michigan by hiring Mr. Jim Dara as Vice-President of Sales and General Manager North American Operations. Together with our sales contractor located in the Detroit area, and our Application Support Specialist located in the Windsor, Ontario area, Jim Dara has increased our visibility with the major North American automakers. This increased visibility together with our success in the first Ford engine plant assembly installations and the expansion of our installation base, resulted in ABB entering into an Exclusive Channel Partner Agreement For The Licensing Of Braintech's Vision Guided Robotics Technologies And Software Products. The agreement provides that ABB will develop vision guided robotic systems using Braintech's eVisionFactory development platform and market those systems to ABB's North American automotive customers.

To continue the development of our relationship with Marubeni, we assisted in their sale process by providing engineering solution assistance. In this regard, Marubeni arranged for the loan of Denso and Kawasaki robots and we integrated the Denso and Kawasaki robot controllers into our eVF platform. In October 2003, Marubeni installed their first production 3D-VGR system for Hino Motors Ltd. Tokyo, Japan, an affiliate of the Toyota Corporation.

Another priority for fiscal 2003 was to continue the development of eVisionFactory, including our Internet based service and support system. We completed a major upgrade to eVisionFactory and installed the upgraded systems into several of our existing installations. We field-tested a preliminary version of our Internet based service and support system using ABB and Ford facilities. In addition, we continued to add functionality to eVF by upgrading the existing components and by developing additional components and features.

Our strategic operating priorities for fiscal 2004 include the following:

Our first and major priority for 2004 is to grow our revenue through our Channel Partner Agreement with ABB. We intend to accomplish this by providing eVF training to both their technical and sales staff and by jointly developing sales and marketing materials. The marketing approach will include the exclusive branding by ABB of jointly developed Vision Guided Robotic solutions. We believe that, in combination with ABB's North American sales, engineering and field service teams, we will be able to achieve significant market penetration.

22

Another priority for 2004 is to develop markets for our Internet-based service and support system. We intend to accomplish this by leveraging our Channel Partner Agreement with ABB so that full operating systems can be set up to demonstrate to potential end users the value and flexibility of both the Internet-based service and support system and the eVF platform on which it is built. We also intend to seek out potential end users outside the automobile manufacturing industry.

In 2004 we also intend to continue the development of our business in Asia through our relationship with Marubeni. These developments may include an arrangement with an Asian integrator to leverage the inherent strengths of Marubeni's trading and business relationships.

We intend to continue to add functionality to eVF by developing additional components and features. We expect that during fiscal 2004 our Internet based service and support system will have completed field-testing and be available for commercial installation.

Critical Accounting Policies and Changes to Existing Accounting Policies

On December 12, 2001, the Securities and Exchange Commission issued cautionary advice regarding the disclosure of critical accounting policies. Critical accounting policies are those that our management believes are both most important to the portrayal of our financial condition and results, and that require difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that involve uncertainty.

We believe the "critical" accounting policies we use in preparation of our financial statements are as follows:

Revenue Recognition. We follow the software revenue recognition rules outlined in the American Institute of Certified Public Accountant's Statement of Position (SOP) 97-2. We recognize revenue when there is a persuasive evidence of a contract, delivery has occurred, the fee is fixed or determinable, collection is reasonably assured, and there are no substantive performance obligations remaining. Any cash received in advance of meeting these criteria is recorded as deferred revenue on our balance sheet. Changes in contractual arrangements or customer relationships in the future could impact the extent or timing of revenue recognition.

Income Taxes. Our financial statements reflect a full valuation allowance against the net future income tax assets based on our assessment that we are not more likely than not to be able to utilize certain deductions before their expiry. Our assessment is based on a judgment of estimated loss before such deductions. Changes in the timing of the recognition and amount of revenues and expenses in the future may impact our ability to utilize these deductions.

Effects of Foreign Currency Exchange Rates and Inflation

While we record our financial statements in United States dollars, many of our expenses are incurred in Canadian dollars. As a result, fluctuations in the Canadian dollar exchange rate can affect our expenses, and thus our profit or loss. During the year ended December 31, 2003 we incurred a foreign exchange loss of $76,238. The foreign exchange loss resulted principally from transactions recorded in United States dollars for reporting purposes, but actually carried out in Canadian dollars. As at the date of this annual report, we have not engaged in exchange rate-hedging activities. To the extent we implement such hedging activities in the future, we cannot assure that we will be successful.

In the years ended December 31, 2003 and December 31, 2002 inflation has had a limited impact on our operations. However, there can be no assurance that inflation will not have a material adverse effect on our results of operations in the future.

23

Quantitative and Qualitative Disclosures about Market Risk

As at December 31, 2003 we have not entered into or acquired financial instruments that have a material market risk. We have no financial instruments for trading or other purposes or derivative or other financial instruments with off balance sheet risk. All financial assets and liabilities are due within the next twelve months and are classified as current assets or liabilities in the consolidated balance sheet provided with this annual report. The fair value of all financial instruments at December 31, 2003 approximate their carrying values.

To December 31, 2003, the majority of our cash costs have been realized or incurred in Canadian dollars. To date we have not entered into foreign currency contracts to hedge against foreign currency risks between the Canadian dollar or other foreign currencies and our reporting currency, the United States dollar. Generally, however, we attempt to manage our risk of exchange rate fluctuations by maintaining sufficient net assets in Canadian dollars to retire our liabilities as they come due.

Results of Operations

We believe that our limited history of revenue generation and recent business developments make the prediction of future results of operations difficult, and, accordingly, our operating results should not be relied upon as an indication of future performance.

The majority of our cash costs have been incurred in Canadian dollars. Our reporting currency is the United States dollar. At the end of each reporting period, we translate our expenses incurred in Canadian dollars into United States dollars at the average exchange rate for the period. Fluctuations in the foreign exchange rate can have a substantial influence on reported expenses even though the actual expenditure has not increased or decreased to the same extent.

Year ended December 31, 2003 compared with year ended December 31, 2002

The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the year ended December 31, 2003 was 1.37119. For the year ended December 31, 2002, the exchange rate was 1.57152. The change in our operating expenses illustrates the effect of fluctuating foreign exchange rates have on our reported results. We reported an increase in operating expenses of approximately $136,800 from $2,003,000 for the year ended December 31, 2002 to $2,139,800 for the year ended December 31, 2003. However, when adjusted for the change in the foreign exchange rate, the actual change in operating expense activity was a decrease of approximately $136,000. The foreign exchange adjustment accounted for an increase of $272,800 in reported operating expenses. We have isolated the effect the fluctuating foreign exchange rates has on our reported results in the discussion below.

Revenue from operations for the year ended December 31, 2003 was $213,584 (December 31, 2002 - $460,093). The amount of our revenues is calculated in accordance with the software revenue recognition rules outlined in the American Institute of Certified Public Accountant's Statement of Position (SOP) 97-2. More detail on how we apply SOP 97-2 is provided at page 22.

Revenue for the year ended December 31, 2003, included approximately $27,250 for a vision system delivered to ABB for Ford Motor Company, approximately $20,000 for eVF run time licenses for Marubeni, approximately $7,400 for training and consulting revenue, approximately $47,000 for a vision system delivered to General Motors, Massena Powertrain plant, approximately $37,000 for a vision system delivered to the Delphi Chassis plant, and approximately $70,000 previously recorded as deferred revenue and now recognized as revenue.

Cost of sales for the year ended December 31, 2003 was $24,286.

24

Revenue for the year ended December 31, 2002 included approximately $21,250 for the sale of eVF development licenses, approximately $362,000 for vision guidance systems delivered to ABB for installation at Ford engine assembly plants, approximately $59,000 for vision guidance systems used in the manufacture of plastic fuel tanks, and approximately $16,500 for upgrades of previously delivered vision guidance systems used in the manufacture of plastic fuel tanks.

Cost of sales for the year ended December 31, 2002 was $36,449.

We reported that research and development expenses decreased $10,318 from $477,392 for the year ended December 31, 2002 to $467,074 for the year ended December 31, 2003. The foreign exchange differential accounted for an increase of approximately $59,500 indicating that actual research and development activity decreased by approximately $70,000. The decrease is accounted for by a reduction in wage and benefit costs.

We reported that selling, general, and administrative expenses increased $147,095 from $1,525,646 for the year ended December 31, 2002 to $1,672,741 for the year ended December 31, 2003. The foreign exchange differential accounted for an increase of approximately $213,000 indicating an actual decrease in activity of approximately $66,000. Several factors contributed to the decrease and in discussing these factors, the foreign exchange element has been indicated. The principal factors were as follows:

- Actual general and administrative salaries decreased approximately $21,000 form $627,500 to $606,500. The foreign exchange differential accounted for an increase of approximately $88,600 resulting in a net reported increase of approximately $67,600.
- For the year ended December 31, 2002, we recorded a stock based compensation charge of $39,663 in accordance with the application of the Black-Scholes option pricing model on the issuance of 500,000 share purchase warrants granted to Mr. Owen Jones, our Chief Executive Officer in lieu of salary for the period from January 1, 2002 to September 30, 2002. There was no similar charge during the year ended December 31, 2003.
- For the year ended December 31, 2003, we recorded a stock based compensation charge of $185,400 in accordance with the application of the Black-Scholes option pricing model on the issuance of 500,000 share purchase warrants granted in connection with a consulting agreement for the provision of strategic introductions and general consulting in the manufacturing industry. There was no similar charge during the year ended December 31, 2002.
- Actual amortization expenses decreased approximately $26,200 from $78,600 to $52,300 principally as a result of the diminishing value of our fixed assets and the full amortization of fixed assets amortized on the straight-line basis. The foreign exchange differential accounted for an increase of approximately $7,600 resulting in a net reported decrease of approximately $18,600.
- Actual legal expenses decreased approximately $43,500 from $106,500 to $63,000, principally due to a reduction in the use of outside legal counsel. The foreign exchange differential accounted for an increase of approximately $9,200 resulting in a net reported decrease of approximately $34,300.
- Actual accounting expenses increased approximately $7,000 from $49,600 to $56,600, principally due to an increase in the complexity of our financial statements and filing documents. The foreign exchange differential accounted for an increase of approximately $8,300 resulting in a net reported increase of approximately $15,300.

25

- Actual overall travel and marketing expenditures decreased approximately $82,100 from approximately $290,100 to approximately $208,000. The foreign exchange differential accounted for an increase of approximately $30,400 resulting in a net reported decrease of approximately $51,700. The individual components of the actual decrease are as follows: Expenditures for marketing materials decreased from $58,600 to $7,000, trade shows decreased from $86,600 to $82,700, investor relations decreased from $98,800 to $69,500, travel decreased from $24,900 to $24,300, and web site expenditures increased from $4,900 to $5,200.
- Actual rent and premises cost decreased $8,300 from $140,700 to $132,400. The foreign exchange differential accounted for an increase of approximately $19,400 resulting in a net reported increase of approximately $11,100. The decrease is the result of the six-month rental credit granted as a leasehold inducement at the commencement of our new lease. The leasehold inducement is being deferred as earned and amortized over the five-year term of the lease.
- Annual general meeting costs increased from nil to $21,130 because no meeting was held in 2002.

Liquidity and Capital Resources

Working Capital and Operations

As of December 31, 2003, our trade accounts receivable balance was $61,175. Subsequent to December 31, this balance was received in full. In addition, we have received $20,000 for engineering services billed in 2004. Our accounts receivable as at March 24, 2004 is approximately $290,000 and our cash position is approximately $250,000

We estimate that, at our current level of operation, our cash expenses are approximately $175,000 per month. We base this estimate on the following data:

- As at March 24, 2004, we have 22 employees and our salary costs are approximately $110,000 per month;

- For the year ended December 31, 2003, our average monthly cash expenditures for general, overhead and administration, exclusive of salary costs, were approximately $65,000 per month. We expect that our general overhead and administrative costs, exclusive of salary costs, will increase to approximately $75,000 per month over the next six months, because of an anticipated increase in general business activity; and

- We do not expect to incur significant capital expenditures during the remainder of 2004 unless they result from an increase in our level of operation.

Based on the foregoing, we estimate that our total cash expenditures for the period from March 24, 2004 to September 30, 2004 will be approximately $1,000,000. Accordingly, at our anticipated level of operation, our existing cash balances, our existing accounts receivable, our expected sales revenue based on purchase orders received, and the anticipated proceeds from the funding agreement described elsewhere in this document should be sufficient to pay our anticipated cash expenditures to approximately September 30, 2004. To continue beyond September 30, 2004 as a going concern, we will either have to raise additional capital or generate substantial sales revenue. If we cannot do either by September 30, 2004, we face the risk that our business will fail.

Financing Activities

Because our business has not been profitable we have been required to finance the development of

26

our products, to pay the costs of marketing those products, and to cover operating losses by way of equity financing. During 2003 we obtained financing as follows:

Promissory Notes Payable

In January and March 2003, our Chief Executive Officer advanced CAD $235,000 ($155,838) in return for unsecured demand promissory notes with an annual interest rate of 8%.  Between April 12, 2003 and July 29, 2003, the Chief Executive Officer advanced a further CAD $833,000 ($594,355).  These additional financings bear interest at 8% per annum and are repayable on demand.  A general security agreement covering all of our real, personal and intangible property was pledged as security for the additional advances.  The agreements governing the issuance of the convertible debentures (see below) provide that the general security agreement pledged as security for the promissory notes issued to the Chief Executive Officer be discharged, provided that $250,000 of the proceeds from the convertible debentures be used to repay the notes, and further provided that the unpaid balance of the notes be repaid by issuing units at a deemed price of $0.25 per unit.  We considered the value of $0.25 per unit to be the fair market of the shares and share purchase warrants which form the units, because that was the value we negotiated with independent third parties to be the conversion price of the convertible debentures that were assuming a position similar to the promissory notes being repaid.  A partial repayment of $50,000 was made on September 22, 2003 and on November 3, 2003 a further $200,000 was repaid.  All of the promissory notes were repayable in Canadian Dollars and as such as at November 3, 2003 a foreign exchange loss of $58,855 and interest of $29,607 was accrued.  On November 3, 2003, the unpaid balance of the promissory notes was repaid by the issuance of 2,354,621 common shares and 1,177,310 share purchase warrants.  Each share purchase warrant has a five year term and is exercisable into one common share at a price of $0.25 per share.  Since the promissory notes did not have terms for conversion into equity, the transaction is considered a settlement of debt for accounting purposes. A gain or loss for accounting purposes was recognizable on settlement to the extent that the carrying value of the debt plus accrued interest is compared to the fair value of the cash and equity, based on the trading price on the date the Company committed to the issuance of the convertible debentures, received by the Chief Executive Officer.  Accordingly we have recorded a loss on settlement of debt in the amount of $741,705.

Convertible Debentures

On September 25, 2003, we executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures. A general security agreement covering all of our real, personal and intangible property is pledged as security for the debentures. The debentures mature on August 25, 2006 and bear interest at eight percent (8%) per annum. All convertible debentures rank pari passu with all other convertible debentures issued pursuant to the term sheet. The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit. Each unit comprises one common share and one half-share (1/2) share purchase warrant. Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share. The debentures may be redeemed by repayment of all outstanding principal and accrued interest at any time on 7 days notice. The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption. We may at our discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of our shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.

On September 5, 2003, in accordance with the terms of a Securities Purchase Agreement, we issued a convertible debenture in the amount of $750,000. A finder's fee was paid to a person related to the investor by way of issuance of 150,000 units at $0.25 per unit each unit comprised of

27

one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. The fair value of the units underlying the finder's fee has been recognized as a transaction cost in stockholders' equity. An additional finder's fee was paid to an unrelated third party by payment of $26,250 cash and the issuance of 105,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. The fair value of the additional finder's fees has also been recognized as a transaction cost in stockholders' equity.

On October 1, 2003, in accordance with the terms of Securities Purchase Agreements, we issued convertible debentures in the amount of $400,000. A finder's fee was paid to one of the investors by way of issuance of 112,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. The fair value of the units underlying the finder's fee has been recognized as a transaction cost in stockholders' equity.

On December 10, 2003, in accordance with the terms of Securities Purchase Agreements, we issued convertible debentures in the amount of $575,000. A finder's fee was paid to one of the investors by way of issuance of 115,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. The fair value of the units underlying the finder's fee has been recognized as a transaction cost in stockholders' equity.

The balance of the convertible debentures to be issued pursuant to the September 25, 2003 term sheet are subject to an investor option to purchase convertible debentures up to an aggregate principal amount of $500,000 on or before March 1, 2004. At a meeting held March 15, 2004, our directors resolved to extend the investor option to April 15, 2004.

On conversion of the debentures into common shares and share purchase warrants, the fair value of the share purchase warrants will be assigned and recognized as an expense.  No conversions have occurred to March 24, 2004. Because the conversion price was less than the closing trading prices of our shares on the dates of issuance, the convertible debentures contain a beneficial conversion feature. In accordance with Emerging Issues Task Force ("EITF") Issue 98-5, the embedded beneficial conversion feature is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value. The face value of the debt was initially recorded at a nominal amount and is being accreted to the face value of the convertible debentures over the term of the debentures by a charge to interest expense. Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%). The amount recorded on the balance sheet as at December 31, 2003 has been calculated as follows:

|
|
|
|
|
|
|
|
|

Off-Balance Sheet Arrangements

Not Applicable.

Going Concern Statement

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on the consolidated audited financial statements for the period ended December 31, 2003, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our consolidated audited financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

28

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing, successful and sufficient market acceptance of our software products, the continuing successful development of our computerized vision systems and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will not be able to proceed with our expansion program and may not be able to meet our other obligations as they become due.

ITEM 7. FINANCIAL STATEMENTS

Each of the following items is contained in our consolidated financial statements, which are attached as an exhibit to our annual report.

- Report of KPMG LLP Independent Auditors;
- Consolidated Balance sheets as of December 31, 2003 and 2002;
- Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2003;
- Consolidated Statements of Stockholders' Equity (Deficit) for the three year period ended December 31, 2003;
- Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2003; and
- Notes to Consolidated Financial Statements.

Supplementary financial data showing unaudited quarterly financial information such as revenues, gross margin, net earnings (loss) for the period and net loss per share during our two most recent fiscal years is contained in note 14 to our audited consolidated financial statements.

29

|Consolidated Financial Statements
(Expressed in United States dollars)BRAINTECH, INC.Years ended December 31, 2003, 2002 and 2001
|---------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                 
|                                                                                                                                 



30



|AUDITORS' REPORT TO THE STOCKHOLDERSWe have audited the accompanying consolidated balance sheets of Braintech, Inc. as at December 31, 2003 and 2002 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the three year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Braintech, Inc. as at December 31, 2003 and 2002 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 1 to the financial statements, the Company has incurred recurring losses from operations and used cash in operating activities that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
KPMGLLP(signed)
Chartered Accountants

Vancouver, Canada

February 9, 2004
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



31

|BRAINTECH, INC.                                                 
|----------------------------------------------------------------
|Consolidated Balance Sheets
(Expressed in United States dollars)
|December 31, 2003 and 2002                                      
|                                                                
|                                                                
|                                                                
|Assets                                                          
|Current assets:                                                 
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Fixed assets (note 4)                                           
|                                                                
|                                                                
|                                                                
|Liabilities and Stockholders' Equity                            
|Current liabilities:                                            
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|Non-current liabilities                                         
|                                                                
|                                                                
|Total liabilities                                               
|                                                                
|                                                                
|Stockholders' equity:                                           
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                
|                                                                

Future operations (note 1)
Commitments (note 11)
Contingencies (note 15)
Subsequent events (notes 8a and 16)

See accompanying notes to consolidated financial statements.

32

|BRAINTECH, INC.                                                           
|--------------------------------------------------------------------------
|Consolidated Statements of Operations
(Expressed in United States dollars)
|
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Sales                                                                     
|Cost of sales                                                             
|                                                                          
|Gross margin                                                              
|Operating expenses:                                                       
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Operating loss                                                            
|Non-operating:                                                            
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Loss for the period                                                       
|                                                                          
|                                                                          
|Loss per share information:                                               
|                                                                          
|                                                                          
|Weighted average number of common                                         
|                                                                          
|                                                                          

See accompanying notes to consolidated financial statements.

33

|BRAINTECH, INC.                                                                                
|-----------------------------------------------------------------------------------------------
|Consolidated Statements of Stockholders' Equity (Deficit) 
(Expressed in United States dollars)
|
|For the three year period ended December 31, 2003                                              
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Balance, December 31, 2000,                                                                    
|Common stock transactions                                                                      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Common stock subscriptions                                                                     
|Common stock to be issued for                                                                  
|                                                                                               
|Deferred stock-based compensation                                                              
|Amortization of deferred stock-based                                                           
|                                                                                               
|Loss for the period                                                                            
|                                                                                               
|Balance, December 31, 2001                                                                     
|                                                                                               
|Common stock transactions                                                                      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Stock based compensation                                                                       
|Deferred stock-based compensation                                                              
|Loss for the year                                                                              
|                                                                                               
|Balance, December 31, 2002                                                                     
|Common stock transactions                                                                      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Compensatory benefit of warrants                                                               
|                                                                                               
|Cash paid for finders fee                                                                      
|Loss on settlement of debt                                                                     
|Value of debenture beneficial conversion                                                       
|                                                                                               
|Debenture issue expenses                                                                       
|Loss for the year                                                                              
|                                                                                               
|                                                                                               
|Balance, December 31, 2003                                                                     
|                                                                                               

See accompanying notes to consolidated financial statements.

34

|BRAINTECH, INC.                                                            
|---------------------------------------------------------------------------
|Consolidated Statements of Cash Flows 
(Expressed in United States dollars)
|
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash flows from operations:                                                
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash flows from investments:                                               
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Cash flows from financing:                                                 
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|Increase (decrease) in cash and cash equivalents                           
|                                                                           
|Cash and cash equivalents, beginning of period                             
|                                                                           
|Cash and cash equivalents, end of period                                   
|                                                                           
|                                                                           
|Supplemental information:                                                  
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           
|                                                                           

See accompanying notes to consolidated financial statements.

35

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|                                                                               
|1.                                                                             
|                                                                               
|                                                                               
|                                                                               
|2.                                                                             
|                                                                               
|                                                                               
|                                                                               



36

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|2.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



37

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|2.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



38

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|2.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|2003                                                                           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



39

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|2.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|3.                                                                             
|                                                                               
|                                                                               
|                                                                               



40

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|3.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|4.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               

41

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|4.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|5.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|6.                                                                             
|                                                                               
|                                                                               
|                                                                               



42

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|6.                                                                             
|                                                                               
|                                                                               
|                                                                               
|7.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               



43

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|7.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



44



|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|8.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



45

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|8.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



46

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|8.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|9.                                                                             
|                                                                               
|                                                                               



47

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|9.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



48

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|9.                                                                             
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               

49

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|10.                                                                            
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               



50

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|11.                                                                            
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|12.                                                                            
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|2003                                                                           
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|13.                                                                            
|                                                                               
|                                                                               
|                                                                               
|                                                                               

51

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|13.                                                                            
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|14.                                                                            
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               

52

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|15.                                                                            
|                                                                               
|                                                                               
|16.                                                                            
|                                                                               
|                                                                               
|                                                                               
|17.                                                                            
|                                                                               
|                                                                               

53

|BRAINTECH, INC.                                                                
|-------------------------------------------------------------------------------
|Notes to Consolidated Financial Statements
(Expressed in United States dollars)
|
|Years ended December 31, 2003, 2002 and 2001                                   
|                                                                               
|17.                                                                            
|                                                                               
|                                                                               

54

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not Applicable.

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As at the end of the period covered by this report, the Company's Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures. The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in its periodic Securities and Exchange Commission ("SEC") filings is recorded, processed and reported within the time periods specified in the SEC's rules and forms. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as at the end of the period covered by this report, the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company's periodic SEC filings.

Changes in Internal Controls

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

The Company maintains a system of internal accounting controls designed to provide reasonable assurance that transactions are properly recorded and summarized so that reliable financial records and reports can be prepared and assets safeguarded. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Additionally, the cost of a particular accounting control should not exceed the benefit expected to be derived.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors, Executive Officers and Key Employees

The following table sets forth certain information, as of March 24, 2004, with respect to our directors, executive officers and key employees.

|Name             | Age | Position                                                   
|---------------- | --- | -----------------------------------------------------------
|Owen L.J. Jones  | 52  | Director, and Chief Executive Officer                      
|Babak Habibi     | 33  | Director, President, and Chief Operating Officer           
|Edward A. White  | 59  | Director, Chief Financial Officer, Treasurer, and Secretary
|Lionel Dodd*     | 64  | Director                                                   
|James L. Speros* | 45  | Director                                                   
|Robert Gayton*   | 64  | Director                                                   
|George Joseph    | 58  | Director                                                   

* Denotes member of the audit committee.

55

The board of directors has determined that Robert Gayton, Chairman of the Audit Committee, is a financial expert in accordance with the SEC definition of that term and that he is independent as that term is used under the Exchange Act.

Owen L.J. Jones has been our Chief Executive Officer and a Director since December 1993. Between May 1995 and November 30, 2000, Mr. Jones divided his time and effort between our affairs and the affairs of Sideware Systems Inc. Mr. Jones resigned as the President of Sideware Systems Inc. on October 16, 2000, and as a director of Sideware Systems Inc. on November 30, 2000. Mr. Jones now works full time for Braintech, Inc. Mr. Jones is not a director of any other public companies.

Lionel Dodd was appointed a Director on August 1, 2002. During the period from 1996 to 2000 Mr. Dodd was the President and Chief Executive Officer of Versacold Corporation (TSX:ICE). Since that time he has sat on the boards of many public and private companies. Currently, Mr. Dodd sits as an independent director on the boards of Pope and Talbot, Inc. (NYSE:POP), Napier International Technologies Inc. (TSX:NIC), and International Absorbents Inc. (AMEX:IAX).

James L. Speros was appointed a Director on September 15, 1998. Mr. Speros is also a Director, President and Chief Executive Officer of Sideware Systems Inc. and of Sideware Corp., a wholly owned subsidiary of Sideware Systems Inc. From June 1993 to January 1997 Mr. Speros was the President and owner of two professional sports franchises, the Baltimore Stallions and Montreal Alouettes of the Canadian Football League. From January 1997 to February 1999 Mr. Speros was President of Exploration Mirandor, a mining exploration company. Mr. Speros was also a director of Consolidated Maymac Petroleum Corp. from September 9, 1999 to March 5, 2001. Consolidated Maymac Petroleum Corp. is a public company trading on the Canadian Venture Exchange.

Edward A. White was appointed as a Director and our Chief Financial Officer and Treasurer effective November 1, 2000 and he was appointed as our Secretary on August 28, 2002. Mr. White has been a member of the British Columbia Institute of Chartered Accountants for 28 years and, for 23 of those years, Mr. White practiced as a self-employed chartered accountant serving clients in both the public and private sectors. Mr. White was a director of Sideware Systems Inc. from October 1995 to March 20, 2002. Mr. White is not a director of any other public companies.

Babak Habibi was appointed as a Director and as our president effective June 19, 2001. Prior to his appointment as President, Mr Habibi was our Vice President of Engineering. Mr. Habibi supervises the design, development, and deployment of our machine vision systems, and has also been involved in the development of eVisionFactory. Mr. Habibi holds Bachelor's and Master's Degree in Applied Science from the University of Waterloo. Mr. Habibi is not a director of any other public companies.

Robert Gayton was appointed as a Director on March 31, 2003. Mr. Gayton has been a member of the Institute of Chartered Accountants of B.C. since 1962 and has been elected as a Fellow of both the B.C. and Ontario Institutes. In 1973, Mr. Gayton obtained a Ph.D. in Business at the University of California, Berkeley. Mr. Gayton is currently an officer and /or director of Intrinsyc Software Inc. (TSX:ICS), Western Copper Holdings Limited (TSX:WTC, AMEX:WTZ), Quaterra Resources Inc. (TSX-V:QTA), XML Global Technologies Inc. (OTC-BB:XMLG), and Doublestar Resources Ltd. (TSX-V:DSR).

George J. Joseph was appointed as a director on December 19, 2003. Mr. Joseph is a retired Director of Global Business Development for Ford Motor Company specializing in technology acquisitions. He has led the formation of strategic alliances and acquired technology-rich companies in a variety of disciplines in the automotive sector. In addition, he managed the formation of a telematics joint venture with a global telecommunications and vehicle positioning technology partner to service Ford's 6 million annual vehicle production fleet. He has held a board of director's position in Zebra Imaging, a 3-D technology firm from 1998-2003. He is presently a partner in a regional venture capital firm, holds an MBA and has 35 years of experience in Ford's central finance and business development activities.

56

Owen Jones was a director of Sideware Systems Inc. at the time when two bankruptcy petitions under the Bankruptcy and Insolvency Act (Canada) were brought in the Supreme Court of British Columbia against that company by former directors of that company or private corporations controlled by them. Both bankruptcy petitions were dismissed in January 1998.

Our directors will hold office until they resign, or until our next shareholders' meeting.

Compliance With Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the Securities and Exchange Commission regulations to furnish our company with copies of all Section 16(a) reports they file.

To the best of our knowledge, all executive officers, directors, and greater than 10% shareholders filed the required reports in a timely manner, with the exception of the following:

|Name          | Number of 
Late Reports | Number of Transactions Not 
Reported on a Timely Basis | Failure to File 
Requested Forms
|------------- | ----------------------- | ------------------------------------------------------ | --------------------------------
|Babak Habibi  | 1 (3)                   | 1 (3)                                                  | Nil                             
|Owen Jones    | 1 (3)                   | 1 (3)                                                  | Nil                             
|Lionel Dodd   | 1 (2)                   | 1 (2)                                                  | Nil                             
|Robert Gayton | 1 (2)                   | 1 (2)                                                  | Nil                             

(1) The named officer, director or greater than 10% shareholder, as applicable, filed a late Form 5 - Annual Statement of Changes in Beneficial Ownership

(2) The named officer, director or greater than 10% shareholder, as applicable, filed a late Form 3 - Initial Statement of Beneficial Ownership.

(3) The named, officer, director or greater than 10% shareholder, as applicable, filed a late Form 4 - Statement of Changes in Beneficial Ownership.

Code of Ethics

On January 29, 2003 our Board of Directors adopted a Code of Business Conduct and Ethics for Directors, Officers and Employees.

ITEM 10. EXECUTIVE COMPENSATION

During our last completed fiscal year our only named executive officer was our Chief Executive Officer. The following table shows compensation paid to our Chief Executive Officer during our last three fiscal years.

Summary Compensation Table



|Name and Principal Position           | Year                               | Annual Compensation | Long Term Compensation | All Other Compensation
|------------------------------------- | ---------------------------------- | ------------------- | ---------------------- | ----------------------
|Salary                                | Bonus                              | Other               | Awards                 | Payouts               
|Restricted Stock Awards               | Securities Underlying Options/SARs |                    
|Owen JonesPresident, CEO and Director | 2003
2002
2001                     | 35,500
Nil
Nil      | Nil
Nil
Nil            | Nil
Nil
Nil           

57

The following table sets forth information on grants of stock options to our Chief Executive Officer during our last fiscal year:

Option / SAR Grants in Last Fiscal Year



|Name       | Number of securities underlying Options/SARs granted | Percent of total options/SARs granted to employees in fiscal year | Exercise or base price | Expiration
Date | Grant date present value(1)
|---------- | ---------------------------------------------------- | ----------------------------------------------------------------- | ---------------------- | --------------- | ---------------------------
|Owen Jones | Nil                                                  |                                                                   |                        |                 |                            

(1)



The following table sets out the options exercised by our Chief Executive Officer during the last fiscal year.

Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR Values

|Name                      | Shares acquired on exercise | Value realized | Number of securities underlying unexercised options/SARs at end of fiscal year | Value of unexercised in-the-money options/SARs at end of fiscal year
|------------------------- | --------------------------- | -------------- | ------------------------------------------------------------------------------ | --------------------------------------------------------------------
|Exercisable/Unexercisable | Exercisable/Unexercisable  
|Owen Jones                | Nil                         | Nil            | 185,500(1)/ 60,000                                                             | $35,000(2)/ $15,000                                                 

(1)

(2)

Compensation to our Directors

We currently provide the following compensation to our directors:

58

Owen Jones. Between January 1, 2001 and August 31, 2003, Mr. Jones worked for us without salary. On October 17, 2002, we issued 500,000 common share purchase warrants to Mr. Jones in settlement of salary owed for the period from January 1, 2002 to September 30, 2002. Each share purchase warrant entitles him to purchase one common share for two years at $0.31 per share, which was the fair market value of the common shares on September 30, 2002. The fair value of the warrants as calculated by the Black-Scholes option-pricing model of $39,409 has been recorded as an expense and additional paid-in capital in the year ended December 31, 2002. Commencing September 1, 2003, Mr. Jones receives a salary of $8,875 per month from us. Mr. Jones receives no other compensation from us or any of our subsidiaries.

Babak Habibi. Mr. Habibi receives a salary of $7,100 per month from us. Mr. Habibi also holds stock options as listed in the table below. Mr. Habibi receives no other compensation from us or any of our subsidiaries.

Edward A. White. Mr. White receives a salary of $7,100 per month from us. Mr. White also holds stock options as listed in the table below. Mr. White receives no other compensation from us or any of our subsidiaries.

James L. Speros. Mr. Speros holds stock options as listed in the table below. Mr. Speros receives no other compensation from us or any of our subsidiaries.

Lionel Dodd. Mr. Dodd holds stock options as listed in the table below. Mr. Dodd receives no other compensation from us or any of our subsidiaries.

Robert Gayton. Mr. Gayton holds stock options as listed in the table below. Mr. Gayton receives no other compensation from us or any of our subsidiaries.

The aggregate amount of cash remuneration that we paid to our directors as a group, was approximately $206,000 during the fiscal year ended December 31, 2003. None of our directors receive any pension plan or similar benefits.

Stock options granted to our Directors

The following table shows the stock options held by our directors and officers as at December 31, 2003.

59



|Name            | Options Granted               | Number
Exercised  | Number Outstanding            | Exercise Price          | Market Value of Underlying Shares at Date of Grant | Expiry Date
(m/d/y)                
|--------------- | ----------------------------- | ----------------- | ----------------------------- | ----------------------- | -------------------------------------------------- | -----------------------------------
|Owen Jones      | 200,000
40,000
5,500          | Nil
NilNil        | 200,000
40,0005,500           | $0.20
$1.25
$1.00       | $0.20
$1.00
$0.95                                  | 12/01/07
11/30/05
04/19/04         
|Babak Habibi    | 500,000
150,000
80,000
20,000 | Nil
Nil
Nil
7,000 | 500,000
150,000
80,000
13,000 | $0.60
$0.20
$1.25
$1.00 | $0.60
$0.15
$1.00
$0.95                            | 11/04/08
12/16/07
11/30/05
04/19/04
|James Speros    | 50,000
60,000                 | Nil
Nil           | 50,000
60,000                 | $0.20
$1.00             | $0.20
$0.95                                        | 12/01/07
04/19/04                  
|Edward A. White | 150,000
100,000               | Nil
Nil           | 150,000
100,000               | $0.20
$1.25             | $0.15
$1.00                                        | 12/16/07
11/30/05                  
|Lionel Dodd     | 100,000                       | Nil               | 100,000                       | $0.75                   | $0.60                                              | 07/31/07                           
|Robert Gayton   | 100,000                       | Nil               | 100,000                       | $0.40                   | $0.30                                              | 03/31/08                           

Mr. Habibi exercised options to acquire 7,000 shares at $1.00 per share in January 2000.

We do not have a long-term incentive plan, and have not granted any stock appreciation rights.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Equity Compensation Plan Information

|Plan category                                              | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------------------------------------------
|                                                           | (a)                                                                                         | (b)                                                                         | (c)                                                         
|Equity compensation plans approved by shareholders         | 2,530,000                                                                                   |                                                                             | $0.57                                                       
|Equity compensation plans not approved by security holders | 941,000                                                                                     |                                                                             | $0.49                                                       
|Total                                                      | 3,471,000                                                                                   |                                                                             | $0.55                                                       

60

The following table shows certain information regarding beneficial ownership of common stock, as of March 24, 2004 by (i) each shareholder whom we know to be the beneficial owner of more than 5% of outstanding shares, (ii) each of our Directors and executive officers, and (iii) all Directors and executive officers as a group:

|                                                                              
|------------------------------------------------------------------------------
|NAME AND ADDRESS
OF BENEFICIAL OWNER                                          
|                                                                              
|Owen L.J. Jones*(2)309 - 9th Avenue
New Westminster, B.C.
Canada V3L 2A2      
|Babak Habibi*(3)3308 Manning Crescent
North Vancouver, B.C.
Canada V7H 2R6    
|James L. Speros*(4)6420 Grovesdale Drive
Alexandria, Virginia
USA 22310       
|Edward A. White*(5)416-5 K de K Court
New Westminster, B.C. 
Canada V3M 6B6   
|Lionel Dodd*(6)3508 Mathers Avenue
West Vancouver, B.C.
Canada V7V 2K9        
|Robert Gayton*(7)5145 Ashfeild Road
West Vancouver, B.C.
Canada V7W 2X4       
|George Joseph*(8)256 Chestnut Circle
Bloomfield Hills, Michigan
USA 48034-2104
|                                                                              
|All executive officers and directors as a group (7 Persons)(9)                
|                                                                              

* Denotes Director of the Company

(1)

61

the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned.

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

We are unaware of any arrangements, the operation of which may at a subsequent date result in a change of corporate control.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Transactions involving Directors

Transactions within the last three years of which our directors have an interest are as follows:

We have acquired legal services from the law firm Sutherland Johnston, of which Grant Sutherland, a former director, is a partner. During the year ended December 31, 2003, we were charged nil (2002 - $54,885; 2001 - $136,157) for legal services provided by a former director. This arrangement for the provision of legal services by the director was terminated effective June 30, 2002. These charges are included in selling, general and administrative expenses.

During our last three fiscal years and to March 24, 2004 Grant Sutherland, a former director, has directly or indirectly participated in the following securities transactions:

- Beau J Holdings Ltd., a private company owned by Mr. Sutherland purchased 333,334 shares at a price of $0.75 per share in a private placement conducted in the last quarter of 2000 and the first quarter of 2001. For each two shares purchased, Beau J Holdings Ltd. received one share purchase warrant, which entitles the holder to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share. These warrants expired on February 28, 2004 without being exercised;
- Beau J Holdings Ltd. purchased 295,304 shares at a price of $0.75 per share in a private placement conducted in the last quarter of 2001 and first quarter of 2002. For each two shares
- purchased, Beau J Holdings Ltd. received one share purchase warrant, which entitles the holder to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004. These warrants expired on February 28, 2004 without being exercised;

62





During our last three fiscal years and to March 24, 2004 Owen Jones, a director and our Chief Executive Officer, has directly participated in the following securities transactions:

- Purchased 333,334 shares at a price of $0.75 per share in a private placement conducted in last quarter of 2000 and first quarter of 2001. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share. These warrants expired on February 28, 2004 without being exercised;
- Purchased 833,334 shares at a price of $0.75 per share in a private placement conducted in the last quarter of 2001 and first quarter of 2002. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004. These warrants expired on February 28, 2004 without being exercised;
- Purchased 751,544 shares at a price of $0.60 per share in a private placement conducted in the last quarter of 2002. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.85 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until October 28, 2005;
- Purchased 267,106 shares at a price of $0.31 per share in a private placement conducted in the last quarter of 2002. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.36 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until October 28, 2005;
- Purchased 297,334 shares at a price of $0.27 per share in a private placement conducted in the last quarter of 2002. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.32 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until December 17, 2005;
- Purchased 227,480 shares at a price of $0.21 per share in a private placement conducted in the last quarter of 2002. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.26 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until December 17, 2005;
- Purchased 407,640 shares at a price of $0.15 per share in a private placement conducted in the last quarter of 2002. For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.20 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until December 17, 2005;

63





In January and March 2003, our Chief Executive Officer advanced CAD $235,000 ($155,838) in return for unsecured demand promissory notes with an annual interest rate of 8%.  Between April 12, 2003 and July 29, 2003, the Chief Executive Officer advanced a further CAD $833,000 ($594,355).  These additional financings bear interest at 8% per annum and are repayable on demand.  A general security agreement covering all of our real, personal and intangible property was pledged as security for the additional advances.  The agreements governing the issuance of the convertible debentures (see below) provide that the general security agreement pledged as security for the promissory notes issued to the Chief Executive Officer be discharged, provided that $250,000 of the proceeds from the convertible debentures be used to repay the notes, and further provided that the unpaid balance of the notes be repaid by issuing units at a deemed price of $0.25 per unit.  We considered the value of $0.25 per unit to be the fair market of the shares and share purchase warrants which form the units, because that was the value we negotiated with independent third parties to be the conversion price of the convertible debentures that were assuming a position similar to the promissory notes being repaid.  A partial repayment of $50,000 was made on September 22, 2003 and on November 3, 2003 a further $200,000 was repaid.  All of the promissory notes were repayable in Canadian Dollars and as such as at November 3, 2003 a foreign exchange loss of $58,855 and interest of $29,607 was accrued.  On November 3, 2003, the unpaid balance of the promissory notes was repaid by the issuance of 2,354,621 common shares and 1,177,310 share purchase warrants.  Each share purchase warrant has a five year term and is exercisable into one common share at a price of $0.25 per share.  Since the promissory notes did not have terms for conversion into equity, the transaction is considered a settlement of debt for accounting purposes. A gain or loss for accounting purposes was recognizable on settlement to the extent that the carrying value of the debt plus accrued interest is compared to the fair value of the cash and equity, based on the trading price on the date the Company committed to the issuance of the convertible debentures, received by the Chief Executive Officer.  Accordingly we have recorded a loss on settlement of debt in the amount of $741,705.

In June 2001, Judy Jones, wife of Owen Jones, acquired 333,334 shares at a price of $0.75 per share in a private placement. For each two shares purchased, Mrs. Jones received one share purchase warrant, which entitles her to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share. These warrants expired on February 28, 2004 without being exercised.

In March 2001, Edward White acquired 133,334 shares at a price of $0.75 in a private placement. Mr. White provided us with a demand promissory note in the amount of $100,000 without interest to pay for the shares and has signed an agreement to hold the share certificate and warrant certificate in escrow. The date of the agreement is February 27, 2001. According to the agreement, the shares and warrants issued to him will remain in escrow until he submits full payment to us. For each two shares purchased, Mr. White received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share. These warrants expired on February 28, 2004 without being exercised. If Mr. White fails to pay the demand promissory note, we will cancel the share certificate and warrant certificate issued to him.

In June 2001, Babak Habibi acquired 133,334 shares at a price of $0.75 in a private placement. Mr. Habibi provided us with a demand promissory note in the amount of $100,000 without interest to pay for the shares and has signed an agreement to hold the share certificate and warrant certificate in escrow. The date of the agreement is June 26, 2001. According to the agreement, the shares and warrants issued to him will remain in escrow until he submits full payment to us. For each two shares purchased, Mr. Habibi received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to

64

extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share. These warrants expired on February 28, 2004 without being exercised. If Mr. Habibi fails to pay the demand promissory note, we will cancel the share certificate and warrant certificate issued to him.

On December 10, 2003 George Joseph, who was appointed as a director effective December 19, 2003, purchased convertible debentures in the amount of $12,500. The debentures are to mature on August 25, 2006 and bear interest at eight percent (8%) per annum. The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit. Each unit comprises one common share and one half-share (1/2) share purchase warrant. Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.

We do not have established policies about entering into future transactions with affiliates. Management addresses individual transactions on their individual merits.

ITEM 13. INDEX TO EXHIBITS AND REPORTS ON FORM 8-K

|Number    | Exhibit                                                                                                                 
|--------- | ------------------------------------------------------------------------------------------------------------------------
|3.1(1)    | Articles of Incorporation, dated February 27, 1987                                                                      
|3.2(1)    | Articles of Amendment, dated July 14, 1998                                                                              
|3.3(1)    | Articles of Amendment, dated June 28, 1990                                                                              
|3.4(1)    | Articles Of Amendment of the Company, dated February 8, 1993                                                            
|3.5(1)    | Articles of Amendment of the Company, dated April 6, 1993                                                               
|3.6(1)    | Articles of Amendment of the Company, dated December 6, 1993                                                            
|3.7(5)    | Restated Articles of Incorporation of the Company dated June 1, 2000                                                    
|3.8(1)    | By-Laws of the Company                                                                                                  
|3.9(6)    | Amendment to By-Laws of the Company                                                                                     
|4.1(1)    | Specimen Stock Certificate                                                                                              
|4.2(2)    | 1997 Stock Option Plan                                                                                                  
|4.3(2)    | 2000 Stock Option Plan                                                                                                  
|4.4(4)    | Amended 2000 Stock Option Plan dated November 1, 2000                                                                   
|10.1(4)   | Agreement for Escrow of Share Certificate & Promissory Note between Edward White and the Company dated February 27, 2001
|10.2(5)   | Agreement for Escrow of Share Certificate and Promissory Note between Babak Habibi and the Company dated June 21, 2001  
|10.3(7)   | License Agreement with Marubeni Corporation                                                                             
|10.4(8)   | Certificate of Reverse Stock Split                                                                                      
|10.5(9)   | Corporate Governance Committee Charter                                                                                  
|10.6(9)   | Audit Committee Charter                                                                                                 
|10.7(9)   | Compensation Committee Charter                                                                                          
|10.8(9)   | Corporate Governance Guidelines                                                                                         
|65       
|10.9(10)  | Loan Agreement                                                                                                          
|10.10(10) | General Security Agreement                                                                                              
|10.11(10) | Service Agreement with Elite Financial Communications Group                                                             
|10.12(10) | 2003 Stock Option Plan                                                                                                  
|10.13(11) | Lease Agreement dated July 30, 2003 between Hoop Realty and Braintech Canada, Inc.                                      
|10.14(12) | ABB Exclusive Channel Partner Agreement for Licensing of Braintech's Technologies                                       
|11.1      | Computation of net loss per share                                                                                       
|14(9)     | Code of Business Conduct and Ethics for Directors, Officers and Employees                                               
|23        | Consent Letter from the Auditor dated March 24, 2004                                                                    
|31.1      | Certificate of Owen L.J. Jones pursuant to Sec 302 of the Sarbanes-Oxley Act of 2002                                    
|31.2      | Certificate of Edward A. White pursuant to Sec 302 of the Sarbanes-Oxley Act of 2002                                    
|32.1      | Certificate of Owen L.J. Jones pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002                                    
|32.2      | Certificate of Edward A. White pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002                                    

(1) Exhibit already on file - exhibit to our Form 10-SB registration statement filed September 25, 1998.

(2) Exhibit already on file - exhibit to our Schedule 14A proxy information filed March 1, 2000.

(3) Exhibit already on file - exhibit to our Form S-1 registration statement filed February 11, 2000.

(4) Exhibit already on file - exhibit to our Form 10-KSB for the year ended December 31, 2000.

(5) Exhibit already on file - exhibit to our Form S-1/A registration statement filed July 3, 2001.

(6) Exhibit already on file - exhibit to our Form 10-KSB for the year ended December 31, 2001

(7) Exhibit already on file - exhibit to our Form 8-K filed July 5, 2002.

(8) Exhibit already on file - exhibit to our Form 8-K filed September 9, 2002.

(9) Exhibit already on file - exhibit to our Form 10KSB for the year ended December 31, 2002.

(10) Exhibit already on file - exhibit to our Form 10QSB covering the quarter ended March 31, 2003.

(11) Exhibit already on file - exhibit to our Form 10QSB covering the quarter ended September 30, 2003.

(12) Exhibit already on file - exhibit to our Form 8-K filed March 9, 2004.

REPORTS ON FORM 8-K

On March 9, 2004, we filed a report on Form 8-K containing the Exclusive Channel Partner Agreement For The Licensing of Braintech's Vision Guided Robotics Technologies and Software Products Between Braintech Canada, Inc. and ABB Inc.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

Fees for audit services totalled $65,462 for the year ended December 31, 2003 and $46,150 for the year ended December 31, 2002, including fees associated with the annual audit and reviews of quarterly reports on Form 10-QSB.

Audit-Related Fees

Fees for audit-related services totalled $3,550 for the year ended December 31, 2003, consisting of scoping and planning assistance with respect to Sarbanes-Oxley Section 404: Management's Assessment of Internal Control. Fees for audit-related services totalled $9,833 for the year ended December 31, 2002, consisting of review and analysis of significant new revenue contracts in accordance with SOP 97-2 and assistance in the preparation of Notice to Reader statements for each of the companies in the consolidated entity Braintech, Inc. and related Future Income Tax Disclosure in the consolidated financial statements.

66

Tax Fees

Fees for tax services totalled $1,242 for the year ended December 31, 2003, regarding activities in the United States. No fees for tax services were billed for the year ended December 31, 2002.

All Other Fees

No fees were billed by KPMG, LLP for professional services during the fiscal years ended December 31, 2002 and 2003 other than those specified above.

The Audit Committee pre-approves audit engagement terms and fees prior to the commencement of any audit work, other than that which may be necessary for the independent auditor to prepare the proposed audit approach, and scope and fee estimates. The independent auditor submits a written proposal that details audit and audit-related services. Audit fees are fixed and contained in the proposal.

There were no fees in 2003 that were not pre-approved by the Audit Committee. All services described above under the captions "Audit Fees", "Audit-Related Fees" and "Tax Fees" were approved by the Audit Committee pursuant to SEC Regulation S-X, Rule 2-01(c)(7)(i).

67

SIGNATURES



In accordance with Section 13 of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|Signature                            | Title                                                                          | Date          
|------------------------------------ | ------------------------------------------------------------------------------ | --------------
|/s/ Owen L. J. Jones	Owen L.J. Jones | Chief Executive Officer, Director
(Principal Executive Officer)                | March 29, 2004
|/s/ Babak Habibi
Babak Habibi        | President, Director                                                            | March 29, 2004
|/s/ Edward A. White
Edward A. White  | Chief Financial Officer, Director
(Principal Financial and Accounting Officer) | March 29, 2004