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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, 2006**

[   ]  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                                                               | 98-0168932                     
|-------------------------------------------------------------------- | -------------------------------
|(State or other jurisdiction of incorporation or
      organization) | IRS Employer Identification No.
|                                                                     |                                
|#102 - 930 West 1stSt., North
      Vancouver, B.C. Canada           | V7P 3N4                        
|(Address of principal executive offices)                             | (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)

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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. [   ]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No
[X]

State issuer's revenues for the most recent fiscal year:
**$1,756,032**

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 13,
2007: $8,746,314.

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

**33,532,433 common shares, par value $0.001, as at
March 22, 2007.**

Transitional Small Business Disclosure Format (Check one): Yes
[   ]  No [X]

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Braintech, Inc.Form 10-KSB

TABLE OF CONTENTS

|             |                                                                                                      | Page
|------------ | ---------------------------------------------------------------------------------------------------- | ----
|             |                                                                                                      |     
|PART I       |                                                                                                      |     
|             |                                                                                                      |     
|Risk Factors |                                                                                                      | 14  
|             |                                                                                                      |     
|Item 1.      | Description of Business                                                                              | 4   
|             |                                                                                                      |     
|Item 2.      | Description of Property                                                                              | 18  
|             |                                                                                                      |     
|Item 3.      | Legal Proceedings                                                                                    | 19  
|             |                                                                                                      |     
|Item 4.      | Submission of Matters to a Vote of Security Holders                                                  | 19  
|             |                                                                                                      |     
|PART II      |                                                                                                      |     
|             |                                                                                                      |     
|Item 5.      | Market for Common Equity and Related Stockholder Matters                                             | 19  
|             |                                                                                                      |     
|Item 6.      | Management's Discussion and Analysis                                                                 | 20  
|             |                                                                                                      |     
|Item 7.      | Financial Statements                                                                                 | 30  
|             |                                                                                                      |     
|Item 8.      | Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure           | 31  
|             |                                                                                                      |     
|Item 8A.     | Controls and Procedures                                                                              | 31  
|             |                                                                                                      |     
|Item 8B.     | Other Information                                                                                    | 32  
|             |                                                                                                      |     
|PART III     |                                                                                                      |     
|             |                                                                                                      |     
|Item 9.      | Directors, Executive Officers, Promoters, and Control Persons                                        | 32  
|             |                                                                                                      |     
|Item 10.     | Executive Compensation                                                                               | 35  
|             |                                                                                                      |     
|Item 11.     | Security Ownership of Certain Beneficial Owners and Management
      And Related Stockholder Matters | 41  
|             |                                                                                                      |     
|Item 12.     | Certain Relationships and Related Transactions                                                       | 43  
|             |                                                                                                      |     
|Item 13.     | Exhibits and Reports on Form 8-K                                                                     | 46  
|             |                                                                                                      |     
|Item 14.     | Principal Accountant Fees and Services                                                               | 48  

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CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

This annual 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 relate to future events or our future
financial performance. In some cases, you can identify forward-looking
statements by terminology such as "may", "will", "should", "intends", "expects",
"plans", "anticipates", "believes", "estimates", "predicts", "potential" or
"continue" or the negative of these terms or other comparable terminology.

Forward-looking statements are only predictions and involve
known and unknown risks, uncertainties and other factors 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.

Except where specified otherwise, our financial statements are
stated in United States Dollars (US$) and are prepared in accordance with United
States Generally Accepted Accounting Principles. As our head office is in
Canada, many of our transactions (including payment of salaries to our
employees) are completed in Canadian dollars (Cdn$). 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$0.88, being the average exchange rate during the
year ended December 31, 2006.

PART I.

ITEM 1. DESCRIPTION OF BUSINESS

Corporate Overview

We were 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 (now called the British Columbia
Corporations 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.

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We have two wholly owned subsidiaries. The first, Braintech
Canada, Inc., was incorporated in British Columbia, Canada on March 30, 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.

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.

The description of our business in this Form 10-KSB includes
the activities of both Braintech, Inc. and Braintech Canada, Inc.

History

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 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, or
eVF, which is a software environment whose main components are a development
environment component and an Internet based service and support system. 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 eVF that did
not include the Internet based service and support system component. We have
included this commercial version of eVF with all of the vision guidance systems
that we have delivered since 2002

In the second quarter of 2001, at the request of Ford Motor
Company and in conjunction with ABB, we completed the development of a single
camera 3D vision guidance system, or SC3D, for robots used in

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automotive manufacturing systems. 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. All of the vision
guidance systems delivered to Ford Motor Company include the commercialized
version of eVF, SC3D and 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. These vision guidance systems are integrated with ABB
robots and are currently operating in Fords automotive power train assembly
lines.

Effective February 1, 2004, we entered into an Exclusive
Channel Partner Agreement with ABB for the licensing of our vision guided
robotics technologies and software products to develop and market vision guided
robotic systems to ABBs North American automotive customers. Early successes as
a result of the Channel Partner Agreement convinced ABB to create a marketing
strategy centered on a brand called TrueView. TrueView Vision Guided Robotics
systems fully integrate SC3D vision guidance technology and the eVF software
platform.

As a result of achieving market acceptance for TrueView
through 2004, ABB and our company initiated a significant sales program that
started in January 2005. Accordingly in January 2005, the February 1, 2004
agreement was amended to allow ABB to market TrueView, exclusively powered by
our technology, to the countries of the European Economic Union and sub-license
TrueView to their business partners on a worldwide basis.

On May 5, 2006 we entered into a new Exclusive Global Channel
Partner Agreement with ABB for the licensing of our vision guided robotics
technologies and software products. The stated purpose of the agreement is to
allow ABB to establish a leadership position in the global automobile and
general manufacturing vision guided robotics markets by strategically marketing
the TrueView family of vision guided robotic systems as their global standard.
As part of the new Exclusive Global Channel Partner Agreement, ABB has agreed to
guarantee a minimum purchase of our eVF runtime licenses totaling US$10,500,000
for the period ending December 31, 2008. The minimum guarantees are allocated on
an annual basis as follows: 2006 - $1,500,000; 2007 - $3,500,000; 2008 -
$5,500,000. In addition to the purchase commitments, ABB Inc. has agreed to
provide US$300,000 for research and development of a vision guided robotic bin
picking technology. In exchange for ABB Inc. entering into this agreement and
for providing the purchase and research commitments, we have granted ABB Inc. an
exclusive global channel partner license for the use of our software products in
the automotive market and in specified general industry markets.

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 amended
Exclusive Channel Partner Agreement with ABB.

In July 2001, we entered into a Memorandum of Understanding
with Marubeni Corporation, pursuant to which we and Marubeni agreed to cooperate
in developing and marketing vision systems for industrial applications including
vision guided robots in Japanese and Asian markets. During the first half of
2002, we continued the development of our relationship with Marubeni Corporation
and that culminated in the signing

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of a Marketing and Development Agreement on June 24, 2002. The
agreement, which covered Southeast Asia and Australia, provided for mutual
exclusivity, whereby Marubeni was granted an exclusive license to manufacture
and distribute our Vision Guided Robotic systems and Marubeni agreed that it
would not deal with any manufacturers or developers of competitive technology or
products. In March 2002, Marubeni placed an order for two eVF development
licenses and these licenses were delivered upon completion of the Marketing and
Development Agreement. In December 2002, Marubeni placed an order for two
run-time licenses and those licenses were delivered in March 2003. On November
4, 2004, Marubeni Corporation agreed to remove the exclusivity clauses on the
condition that we repurchase from Marubeni Corporation one of the eVF
development licenses and one of the run-time licenses for $20,000. The June 24,
2002 agreement was for a period of three years and in accordance with the terms
of the agreement, we gave notice to Marubeni and the agreement terminated on
June 24, 2005.

On December 2, 2004, we signed a non-exclusive developer's
agreement with Talk Engineering Co., Ltd. to develop Vision Guided Robotic
solutions powered by our eVF technologies specifically for the auto
manufacturing industry in Japan. Talk is a regional Japanese machine vision
developer and integrator primarily serving Japanese automobile and foods
manufacturers, and was introduced to us by ABB Japan as a regional resource for
developing TrueView solutions for the Japanese market. The non-exclusive
developers agreement with Talk was not renewed on the December 31, 2005 expiry
date. However, Talk has continued to market and integrate Braintechs products
in association with ABB Japan.

Business Overview

Our business consists of the development, supply and support of
machine vision guidance systems for robots used in manufacturing industries. The
field of vision guided robotics requires our vision systems to incorporate
advanced robotic engineering and programming know-how for optimal integration
with the robotic systems.

Principal Products and Services

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 vision guided robotic
systems we have sold to date are used mainly 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 develop vision guided robotic systems based on our
customers particular needs. Solutions that we have delivered range from single
and multi-camera 2D systems to single and multi-camera 3D systems.

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
have developed comprehensive training procedures that allow other users, such as
integrators and channel partners, to develop customized 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

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development stage and is subject to future release.

Since we commenced its development in 2000 we have added
functionality to eVF by developing components as follows:

Single Camera 3 D (SC3D):Our
principal vision guidance robotic technology is SC3D. We developed our SC3D
technology in response to a major automakers request for a robust 3D robot
guidance system for automotive part handling applications. A CCD (Coupled
Charged Devise) camera is integrated into the robot gripper. The robot moves to
position the camera near the part to be handled by the robot. A single image of
the part is captured and the SC3D technology 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 manipulate the part as required by
the particular task at hand. 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.

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.

AccuTest:AccuTest allows
operators to rapidly and accurately validate the robustness and reliability of a
vision guided robotic system before and during field deployment.

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.

IDM 2.5D (Inferential Depth
Measurement):IDM 2.5D is targeted for processes that do not require or
allow for complete 3D part location variance, but that are more complex than
basic 2D tasks. IDM

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2.5D exploits visual cues such as size
and shape variations among parts to compute not only the planar x, y and
rotation of a given part but also its height, or z coordinate, relative to the
robots coordinate system.

SCTrac (Single Camera
Tracking):SCTrac uses one or more cameras to image a given part in real
time and provides an industrial robot with a continuous stream of data about
where the part is, how fast and in what direction it is moving. SCTrac makes it
possible for robots to work on parts while in motion, significantly improving
production throughput. Other applications of the technology include dynamic
materials handling, assembly or measurement where the objects of interest are in
motion during the robotic process.

SL3D (Structured Light 3D):SL3D
uses Structured Light (i.e. laser) patterns to calculate the position and
orientation of smooth, sparsely featured objects (e.g., automotive body
components and panels). A structured light pattern is projected onto the surface
of an object and the reflection of this pattern is captured and analyzed to
determine surface topology, object position and orientation.

eVisionFactory - Development Environment

The eVisionFactory software environment 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 plan to supply major
modifications or upgrades at an extra charge.

eVisionFactory also includes 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.

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;

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-   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.

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 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 have developed software that permits 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 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 at the remote facility 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.

Our Internet-based service and support system was developed to
support users of our vision guided robotic systems. However, it can be adapted
for use with a variety of industrial manufacturing systems.

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.

Industry Background

The growth of the machine vision industry is dictated, on the
one hand, by the technical difficulty of achieving

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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.

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
preprocessing 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

-   First, it receives the
physical signatures of potential objects and attempts to match them to the

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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.

-   Second, tt 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.

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 patent regarding the
Method and Apparatus for Single Camera 3D Vision Guided Robotics will provide us
with a sustainable competitive advantage.

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

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During the year ended December 31, 2006, we incurred research
and development expense of $632,570 net of $48,367 Precarn funding, and during
the year ended December 31, 2005, we incurred research and development expense
of $588,103. Substantially all of our research and development expenses
consisted of internal personnel costs allocated to research and development. For
2007, 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,
AutoTrain-3D, AccuTest, Xi2D (Single/Multi-Camera 2D), DD3D (Direct Depth 3D),
IDM 2.5D (Inferential Depth Measurement), SR3D (Surround Vision 3D), SCTrac
(Single Camera Tracking), and SL3D (Structured Light 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 eVF and
eVisionFactory with the United States Patent and Trademark office. We have
also applied for registration of the trademark SC3D with the United
States Patent and Trademark Office. In the Canadian Trade-marks Office we have
registered the trademarks SC3D, 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. On June 2, 2005 we filed an application in the Japanese Patent
Office. On November 9, 2004, the United States Patent Office issued U.S. Patent
No. 6,816,755 regarding the Method And Apparatus For Single Camera 3D Vision
Guided Robotics.On June 23, 2005 we filed an Amendment and Supplemental
Information Disclosure Statement with the US Patent and Trademark Office
regarding the Method And Apparatus For Single Image 3D Vision Guided
Robotics.

On July 14, 2004 We filed an application in the United States
Patent Office regarding the Method And Apparatus For Multi Camera Surround 3D
Vision Guided Robotics. On July 14, 2005 we filed a Continuation in Part
entitled Method And Apparatus For Machine-Vision which referenced the

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application regarding the Method And Apparatus For Multi
Camera Surround 3D Vision Guided Robotics as the Parent Application.

Our ability to compete successfully will depend in part on our
ability to protect our proprietary technology and information. Except for the
U.S. Patent No. 6,816,755 regarding the Method And Apparatus For
Single Camera 3D Vision Guided Robotics described above, our application
in the United States Patent Office regarding the Method And Apparatus For
Machine-Vision, and apart from the above 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.

Employees

As of March 22, 2007, we have 19 employees. We are not subject
to any collective bargaining agreements and we consider relations with our
employees to be excellent.

RISK FACTORS

An investment in our common stock involves a number of very
significant risks. You should carefully consider the following risks and
uncertainties in addition to other information in this prospectus in evaluating
our company and its business before purchasing shares of our common stock. Our
business, operating results and financial condition could be seriously harmed
due to any of the following risks. You could lose all or part of your investment
due to any of these risks.

We may require additional funds to achieve our current
business strategy. Our inability to obtain such financing will inhibit our
ability to expand or even maintain our business operations.

We may need to raise additional funds through public or private
debt or sale of equity to achieve our current business strategy. The financing
we need may not be available when needed. Even if this financing is available,
it may be on terms that we deem unacceptable or are materially adverse to your
interests with respect to dilution of book value, dividend preferences,
liquidation preferences, or other terms. Our inability to obtain financing will
inhibit our ability to implement our business strategy, and as

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a result, could require us to diminish or suspend our business
strategy and possibly cease our operations. If we are unable to obtain financing
on reasonable terms, we could be forced to delay, scale back or cease our
operations, which could put your investment dollars at significant risk.

We have a history of losses and have a significant
deficit, which raises substantial doubt about our ability to continue as a going
concern.

We have generated only $4,629,749 in revenues since our
incorporation and we expect to incur operating losses in the future. Our net
loss from inception on January 3, 1994 to December 31, 2006 was $26,024,167. We
had cash in the amount of $16,950 as of December 31, 2006. We estimate our
average monthly operating expenses to be approximately $200,000 each month. We
cannot provide assurances that we will be able to successfully develop our
business. These circumstances raise substantial doubt about our ability to
continue as a going concern as described in an explanatory paragraph to our
independent auditors report on our audited financial statements, dated February
28, 2007. If we are unable to continue as a going concern, investors will likely
lose all of their investments in our company.

All of our assets and a majority of our directors and officers
  are outside the United States, with the result that it may be difficult for
  investors to enforce within the United States any judgments obtained against
  us or any of our directors or officers.

All of our assets are located outside the United States and we
do not currently maintain a permanent place of business within the United
States. In addition, the majority of our directors and officers are nationals
and/or residents of countries other than the United States, and all or a
substantial portion of such persons assets are located outside the United
States. As a result, it may be difficult for investors to enforce within the
United States any judgments obtained against us or our officers or directors,
including judgments predicated upon the civil liability provisions of the
securities laws of the United States or any state thereof. Consequently, you may
be effectively prevented from pursuing remedies under U.S. federal securities
laws against them.

Because we can issue additional common shares, purchasers
  of our common stock may incur immediate dilution and may experience further
  dilution.

We are authorized to issue up to 200,000,000 common shares, of
which 33,532,433 are issued and outstanding as of March 22, 2007. Our board of
directors has the authority to cause our company to issue additional shares of
common stock without the consent of any of our shareholders. Consequently, our
shareholders may experience more dilution in their ownership of our company in
the future.

We may lose our competitiveness if we are not able to
protect our proprietary technology and intellectual property rights against
infringement, and any related litigation may be time-consuming and
costly.

Our success and ability to compete depends to a significant
degree on our proprietary technology. If any of our competitors copy or
otherwise gain access to our proprietary technology or develop similar products
independently, we may not be able to compete as effectively. The measures we
have implemented to protect our proprietary technology and other intellectual
property rights are currently based upon a combination of provisional patent
applications, patents, trademarks and trade secrets. These measures, however,
may not be adequate to prevent the unauthorized use of our proprietary
technology and our other intellectual property rights. Further, the laws of
foreign countries may provide inadequate

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protection of such intellectual property rights. We may need to
bring legal claims to enforce or protect such intellectual property rights. Any
litigation, whether successful or unsuccessful, may result in substantial costs
and a diversion of our company's resources. In addition, notwithstanding our
rights to our intellectual property, other persons may bring claims against us
alleging that we have infringed on their intellectual property rights or claims
that our intellectual property rights are not valid. Any claims against us, with
or without merit, could be time consuming and costly to defend or litigate,
divert our attention and resources, result in the loss of goodwill associated
with our business or require us to make changes to our products.

We plan to rely on a single channel partner to distribute
and generate sales of our products. If our channel partner is unsuccessful in
distributing and generating sales of our products, or if the relationship with
our channel partner is terminated and we are unable to find a suitable
replacement, our business may fail and investors may lose their entire
investment.

We plan to rely solely on ABB Inc. to purchase our products and
distribute them to end users. If ABB is unsuccessful in generating sales of our
products, or if the relationship with ABB is terminated and we are unsuccessful
in establishing a relationship with an alternative channel partner who offers to
purchase and distribute our products for similar prices, our results of
operations could be adversely affected, our business may fail and investors may
lose their entire investment.

A decline in the price of our common stock could affect
our ability to raise further working capital and adversely impact our ability to
continue operations.

A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because a portion of our continued operations will
be financed through the sale of equity securities, a decline in the price of our
common stock could be especially detrimental to our liquidity and our
operations. Such reductions may force us to reallocate funds from other planned
uses and may have a significant negative effect on our business plan and
operations, including our ability to develop new products and continue our
current operations. If our stock price declines, we can offer no assurance that
we will be able to raise additional capital or generate funds from operations
sufficient to meet our obligations. If we are unable to raise sufficient capital
in the future, we may not be able to have the resources to continue our normal
operations.

The market price for our common stock may also be affected by
our ability to meet or exceed expectations of analysts or investors. Any failure
to meet these expectations, even if minor, may have a material adverse effect on
the market price of our common stock.

Our common stock is illiquid and the price of our common
stock may be negatively impacted by factors which are unrelated to our
operations.

Our common stock currently trades on a limited basis on the OTC
Bulletin Board. Trading of our stock through the OTC Bulletin Board is
frequently thin and highly volatile. There is no assurance that a sufficient
market will develop in our stock, in which case it could be difficult for
shareholders to sell their stock. The market price of our common stock could
fluctuate substantially due to a variety of factors, including market perception
of our ability to achieve our planned growth, quarterly operating results of our
competitors, trading volume in our common stock, changes in general conditions
in the economy and the financial markets or other developments affecting our
competitors or us. In addition, the stock market is subject to extreme price and
volume fluctuations. This volatility has had a significant effect on the

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market price of securities issued by many companies for reasons
unrelated to their operating performance and could have the same effect on our
common stock.

We operate in a highly competitive industry. Many of our
competitors have greater financial, technical, sales and marketing resources,
better name recognition and a larger customer base than ours. Our failure to
compete effectively in the areas of hiring qualified personnel, product line and
price may adversely affect our ability to generate revenue.

The market for vision guided robotics is subject to frequent
product introductions with improved price and/or performance characteristics.
Even if we are able to introduce products which meet customer requirements in a
timely manner, there can be no assurance that our existing and new products will
gain enough market acceptance to allow us to increase our revenues. Many of our
competitors have greater financial, technical, sales and marketing resources,
better name recognition and a larger customer base than ours. They may be better
able to attract qualified personnel than we will. In addition, many of our large
competitors may offer customers a broader product line, which may provide a more
comprehensive solution than our current solutions. Competitors' products may add
features, increase performance or sell at lower prices. We cannot predict
whether our products will compete successfully with such new or existing
competing products. Increased competition in the industry could result in
significant price competition, reduced profit margins or loss of market share,
any of which could have a material adverse effect on our ability to generate
revenues and successfully operate our business. If we go out of business,
investors will lose their entire investment.

Rapid technological changes in the vision guided robotics
industry could render our products non-competitive or obsolete and consequently
affect our ability to generate revenues, causing us to go out of business and
investors to lose their entire investment.

The vision guided robotics industry is characterized by rapidly
changing technology and evolving industry standards. We believe that our success
will depend in part on our ability to develop our products or enhance our
current products and to introduce our improved products promptly into the
market. We can make no assurance that our technology will not become obsolete
due to the introduction of alternative technologies by competitors. If we are
unable to continue to develop and introduce new products to meet technological
changes and changes in market demands, our business and operating results,
including our ability to generate revenues, could be adversely affected. If we
go out of business, investors will lose their entire investment.

We do not intend to pay dividends and there will be less
ways in which you can make a gain on any investment in Braintech Inc.

We have never paid any cash dividends and currently do not
intend to pay any dividends for the foreseeable future. Because we do not intend
to declare dividends, any gain on an investment in Braintechwill
need to come through appreciation of the price of our common stock. There can be
no assurance that the price of our common stock will increase.

Trading of our stock may be restricted by the SEC's penny
stock regulations, which may limit a

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stockholder's ability to buy and sell our stock.

The Securities and Exchange Commission has adopted regulations
which generally define "penny stock" to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
"accredited investors". The term "accredited investor" refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.

NASD sales practice requirements may also limit a
stockholder's ability to buy and sell our stock.

In addition to the "penny stock" rules described above, the
National Association of Securities Dealers (NASD) has adopted rules that require
that in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their
non-institutional customers, broker-dealers must make reasonable efforts to
obtain information about the customer's financial status, tax status, investment
objectives and other information. Under interpretations of these rules, the NASD
believes that there is a high probability that speculative low priced securities
will not be suitable for at least some customers. The NASD requirements make it
more difficult for broker-dealers to recommend that their customers buy our
common stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.

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 11,300 square feet. The term of the lease is five (5) years to
August 31, 2008. The annual rent is approximately $193,300 per year, inclusive
of operating costs. The lease agreement provides that a rental credit equal to
six months minimum rent 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.

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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.

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

|Quarter        | High | Low  | Close
|-------------- | ---- | ---- | -----
|               | ($)  | ($)  | ($)  
|               |      |      |      
|2006           |      |      |      
|Fourth quarter | 0.40 | 0.17 | 0.28 
|Third quarter  | 0.36 | 0.21 | 0.29 
|Second quarter | 0.51 | 0.30 | 0.32 
|First quarter  | 0.49 | 0.35 | 0.36 
|               |      |      |      
|2005           |      |      |      
|Fourth quarter | 0.57 | 0.37 | 0.40 
|Third quarter  | 0.53 | 0.35 | 0.51 
|Second quarter | 0.92 | 0.40 | 0.48 
|First quarter  | 0.94 | 0.42 | 0.82 

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.

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Holders

As at March 22, 2007 we have 33,532,433 shares of common stock
issued and outstanding held by approximately 520 stockholders of record.
Information regarding the holdings of our directors, executive officers and
certain other beneficial owners can be found beginning on page 38.

Our common shares are issued in registered form. Colonial Stock
Transfer, 66 Exchange Place, Salt Lake City, Utah 84111 (telephone; (801)
355-5740; facsimile (801) 355-5742) is the registrar and transfer agent for our
common shares.

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.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS

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" beginning on page 14 of
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, 2006, in the amount of $4,629,749.

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We have incurred aggregate net losses of $26,024,167 during the
period from our inception on January 3, 1994, to December 31, 2006. 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.

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.

Stock based Compensation

In December 2004, the Financial Accounting Standards Board (the
FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R,
Share Based Payment. SFAS No. 123R requires companies to estimate the fair
value of share-based payment awards on the date of grant using an option-pricing
model. The value of the portion of the award that is ultimately expected to vest
is recognized as expense over the requisite service period in the companys
financial statements. Stock based compensation expense recognized during the
period is based on the value of the portion of the share based payment awards
that is ultimately expected to vest during the period. We estimate the fair
value of stock options using the Black-Scholes valuation model, consistent with
the provisions of SFAS No. 123R and our prior period pro-forma disclosures of
net earnings. The Black-Scholes valuation model requires the input of highly
subjective assumptions, including the options expected life, the price
volatility of the

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underlying stock, and the risk free interest rate. The expected
stock price volatility assumption was determined using historical volatility of
our common stock. The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option valuation model and the fair value is
amortized on a straight line basis.

We adopted SFAS 123R effective January 1, 2006, using the
Modified Prospective Method. This method requires that awards granted, modified,
repurchased or cancelled in the quarter beginning after the adoption date use
the fair value method to recognize stock based compensation. Also any unvested
options, where compensation expense was amortized over the vesting period, and
was previously disclosed in the notes to financial statements as pro-forma,
shall now be expensed over the same amortization period.

Prior to the adoption of SFAS No. 123R, we applied Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB
No. 25), and related interpretations and provided the required pro-forma
disclosures of Financial Accounting Standards 123 Accounting for Stock-Based
Compensation (SFAS 123). Under APB 25, compensation expense is only recorded
to the extent that the exercise price is less than fair value on the measurement
date. Non-employee options are recognized at the fair value of the options as
determined by an option pricing model as the services are performed and the
options earned.

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, 2006 we realized a
foreign exchange gain of $15,163. The foreign exchange gain 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, 2006 and December 31, 2005
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.

Quantitative and Qualitative Disclosures about Market
Risk

As at December 31, 2006 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, 2006 approximate
their carrying values.

To December 31, 2006, 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.

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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, 2006 compared with year ended
December 31, 2005

The average exchange rate used to translate the Canadian Dollar
into the United States Dollar for the year ended December 31, 2006 was 1.13461.
For the year ended December 31, 2005, the exchange rate was 1.21173. The change
in our operating expenses illustrates the effect of fluctuating foreign exchange
rates have on our reported results. We reported a decrease in operating expenses
of $163,284 from $2,895,628 for the year ended December 31, 2005 to $2,732,344
for the year ended December 31, 2006. However, when adjusted for the change in
the foreign exchange rate (that is, by excluding the effect of the change in
exchange rates from the comparative periods levels), the actual change in
operating expense activity was a decrease of approximately $337,200. The foreign
exchange adjustment accounted for an increase of approximately $173,900 in
reported operating expenses. We have isolated the effect the fluctuating foreign
exchange rates had on our reported results in the discussion below.

Revenue from operations for the year ended December 31, 2006
was $1,756,032 (December 31, 2005 - $1,203,170). 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 as discussed in the significant accounting policies note to our
consolidated financial statements.

Revenue for the year ended December 31, 2006, included
approximately $516,500 for 31 eVF software runtime licenses delivered to ABB for
installation in automobile manufacturing plants, approximately $16,300 for 15
eVF off-line software licenses (for development, integration, and training),
approximately $157,400 previously recorded as deferred revenue and amortized
during the year into revenue in accordance with SOP 97-2, approximately $115,000
for engineering services, approximately $12,100 for training and other services,
and $150,000 for research and development services related to the bin-picking
project. In addition we received $927,900 from ABB for the purchase of 46 eVF
software runtime licenses as the balance of their purchase guarantee in
accordance with the terms of the Exclusive Global Channel Partner Agreement. In
accordance with SOP 97-2, of the $927,900 invoiced, we recorded $788,700 in
revenue and deferred $139,200.

Cost of sales for the year ended December 31, 2006 was $101,806
or approximately 5.8% .

23

---

Revenue for the year ended December 31, 2005, included
approximately $901,600 for 46 eVF software runtime licenses delivered to ABB for
installation in automobile manufacturing plants, approximately $84,300 for
software delivered to Idaho National Laboratory, approximately $41,600 for 8 eVF
off-line software licenses (for development, integration, and training),
approximately $95,300 previously recorded as deferred revenue and amortized
during the year into revenue in accordance with SOP 97-2, approximately $49,100
for engineering services, and approximately $31,300 for training and other
services.

Cost of sales for the year ended December 31, 2005 was $65,786
or approximately 5.5% .

We reported that research and development expenses increased
$44,467 from $588,103 for the year ended December 31, 2005 to $632,570 for the
year December 31, 2006. Stock option expense allocated to research and
development accounted for an increase of approximately $43,000 and a Precarn
funding grant of $48,367 was received to offset our expense. After eliminating
the stock option expense increase and the funding grant decrease, the foreign
exchange differential accounted for an increase of approximately $40,600,
indicating that actual research and development activity increased by
approximately $9,200. No stock option expense or funding grants were recorded
for the year ended December 31, 2005.

We reported that selling, general, and administrative expenses
decreased $207,751 from $2,307,525 for the year ended December 31, 2005 to
$2,099,774 for the year ended December 31, 2006. The foreign exchange
differential accounted for an increase of approximately $133,600 indicating an
actual decrease in activity of approximately $341,400. Several factors
contributed to the decrease and in discussing these factors, the foreign
exchange element has been indicated. The principal factors were as follows:

|- | Reported general and administrative salaries decreased
      $4,349 from $1,005,084 to $1,000,735. The foreign exchange differential
      accounted for an increase of approximately $63,700, resulting in an actual
      decrease in activity of approximately $68,000. The actual decrease
      resulted from the decrease of our staff by one employee. It is expected
      that the actual cost of general and administrative salaries will decrease
      further in 2007 because of the decrease of our staff by two additional
      employees.
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | Stock option expense in the amount of $193,580 was
      recorded for the year ended December 31, 2006 in accordance with the
      requirements of SFAS No. 123R, Share-Based Payment adopted by the
      Company on January 1, 2006. No stock option expense was recorded for the
      year ended December 31, 2005.                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | Reported amortization expenses decreased approximately
      $2,900 from $24,700 to $21,800. The foreign exchange differential
      accounted for an increase of approximately $1,400, resulting in an actual
      decrease of approximately $4,300.                                                                                                                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|- | Reported legal expenses increased approximately $52,900
      from $120,500 to $173,400. The foreign exchange differential accounted for
      approximately $11,000 of the increase, resulting in an actual increase in
      activity of approximately $41,800. The actual increase is principally a
      result of an increase in patent application and registration expenses.                                                                                                                                                                       

24

---

|- | Reported audit accounting expenses decreased
      approximately $90,700 from $130,100 to $39,400. The foreign exchange
      differential accounted for an increase of approximately $2,500, resulting
      in an actual decrease in activity of approximately $93,200. The actual
      decrease related to the change in our independent registered public
      accounting firm and one time corporate income tax compliance expenses
      incurred during the year ended December 31, 2005.                                                                                                                          
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | Reported travel and marketing expenditures decreased
      approximately $317,800 from $588,700 to $270,900. The foreign exchange
      differential accounted for an increase of approximately $17,200, resulting
      in an actual decrease in activity of approximately $335,000. The
      individual components of the actual decrease are as follows: investor
      relations decreased $146,400 from $349,200 to $202,800, travel decreased
      $20,800 from $49,500 to $28,700, trade shows decreased $53,800 from
      $53,800 to nil, and marketing materials decreased $86,000 from $87,000 to
      $1,000.
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|- | Reported rent and premises cost increased approximately
      $23,900 from $210,700 to $234,600. The foreign exchange differential
      accounted for an increase of approximately $14,900, resulting in an actual
      increase in activity of approximately $9,000.                                                                                                                                                                                                                                                                                                                                                     

Liquidity and Capital Resources

Working Capital and Operations

As of December 31, 2006, we had $16,950 in cash and cash
equivalents and working capital (deficiency) of ($109,027) and as of December
31, 2005, we had $522,943 in cash and cash equivalents and a working capital
(deficiency) of $(1,509,067).

As of December 31, 2006, our trade accounts receivable balance
was $1,149,797. Subsequent to December 31, all of this balance was received in
full. Our cash position as at March 22, 2007 is approximately $650,000.

We estimate that, at our current level of operation, our cash
expenses are approximately $200,000 per month. We base this estimate on the
following data:

|- | As at March 22, 2007, we have 19 employees and our salary
      costs are approximately $125,000 per month. For the year ended December
      31, 2006, our average monthly cash expenditures for general, overhead and
      administration, exclusive of salary costs, were approximately $75,000 per
      month. We expect that our general overhead and administrative costs,
      exclusive of salary costs, will remain constant over the next six months.                                                                                                                           
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | We do not expect to incur significant capital
      expenditures during 2007 unless they result from an increase in our level
      of operation.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|- | Our Exclusive Global Channel Partner Agreement dated May
      5, 2006 with ABB Inc. provides for a minimum purchase guarantee of
      $1,500,000 for the year ended December 31, 2006. To December 15, 2006, ABB
      Inc. made purchases totaling approximately $573,000 towards this minimum
      purchase guarantee. A Purchase order for the balance of $927,000 of the
      minimum purchase guarantee was received on December 15, 2006 and we
      delivered software on that date and invoiced $927,000 on December 15,
      2006. Because of this 4thquarter minimum purchase

25

---

|  | guarantee, we reported positive
      operating income for the 4thquarter.                                                                                                                                                         
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                    
|- | Subsequent to December 31, 2006, the minimum purchase
      commitment by ABB Inc. pursuant to the Exclusive Global Channel Partner
      Agreement should result in positive net income and cash flow on a
      continuing basis.

We expect that interest payment on our bank loan will total
approximately $160,000 during the year ending December 31, 2007 and
approximately $80,000 during the year ending December 31, 2008. We are scheduled
to make principal payments totaling $490,000 during the year ending December 31,
2007 and $1,982,837 during the year ending December 31, 2008. We expect that the
minimum purchase commitments by ABB during 2007 and 2008 ($3,500,000 and
$5,500,000 respectively) will be more than sufficient to service these debt
requirements as well as produce an operating income and positive cash flow
during 2007 and 2008.

Financing Activities

Because our business has not been profitable we have been
required to finance the development of our products, to pay the costs of
marketing those products, and to cover operating losses by way of equity
financing. During 2005 and 2006 we obtained financing as follows:

Convertible Debentures

Between September 2003 and May 2004, in accordance with the
terms of Securities Purchase Agreements, we issued convertible debentures in the
amount of $2,250,000. A general security agreement covering all of our real,
personal and intangible property was pledged as security for the debentures. The
debentures matured on August 25, 2006 and bore interest at eight percent (8%)
per annum. All convertible debentures ranked pari passu with all
convertible debentures issued. The principal amount and accrued interest were
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. Finders fees were paid to
investors, persons related to investors, and independent third parties by way of
cash payment of $26,250 and by way of issuance of 595,000 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 cash finders fees and the fair value of the units
underlying the finders fees have been recognized in stockholders equity.

On conversion of the debentures into common shares and share
purchase warrants, the fair value of the share purchase warrants was assigned
and recognized as an expense. $262,500 of principal and $17,327 of accrued
interest was converted into 1,119,312 common shares and 559,656 share purchase
warrants. Accordingly, we have expensed $90,513 as the fair value of the
warrants issued.

On September 9, 2006, we redeemed $325,000 of principal and
$71,787 of accrued interest.

26

---

Effective September 26, 2006, we entered into a Debenture
Settlement Agreement with the debenture holders remaining after the September 9,
2006 redemption payments. The Debenture Settlement Agreement provided for an
extension of time in which to redeem the remaining debentures in exchange for
the pro-rata issuance of 2,100,000 share purchase warrants among the remaining
debenture holders. Each share purchase warrant entitles the holder to purchase
one common share at a price of $0.25 per share for a period of five years. In
addition, the exercise price of 500,000 share purchase warrants previously held
by the agent for the debenture holders was reduced from $0.45 to $0.25 and the
exercise period of these share purchase warrants and a further 100,000 share
purchase warrants previously held by the agent for the debenture holders was
extended to September 26, 2011.

On October 23, 2006, we completed a transaction redeeming all
of the remaining secured convertible debentures representing $1,662,500 of
principal and $393,998 of interest.

Because the conversion price was less than the closing trading
prices of our shares on the commitment date, the convertible debentures contain
a beneficial conversion feature. In accordance with Emerging Issues Task Force
(EITF) Issue 98-5, the embedded beneficial conversion feature was 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 exceeded the face value of the debentures and was
therefore limited to the face value. The face value of the debt was allocated to
additional paid-in capital and was accreted to the face value of the convertible
debentures over the term of the debentures by a charge to interest expense.
Accrued interest was 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, 2006 has been calculated as follows:

Face
      value of convertible debentures issued (cash received)
    $
    2,250,000Beneficial conversion feature allocated to additional
      paid-in capital
    
    (2,249,995
    )Accretion of convertible debentures
    
    2,249,995Accrued interest payable
    
    483,113Conversion of debentures
    
    (279,828
    )Redemption of
      debentures
    
    (2,453,285
    )Convertible debentures at December 31, 2006
    $
    Nil


Bank Loan and Loan Guarantee

On October 23, 2006 we completed a transaction redeeming all of
the outstanding secured convertible debentures as noted above. To facilitate the
transaction, we arranged a bank loan of up to $2,500,000 from the Royal Bank of
Canada. The loan is repayable as to interest only at the rate of Libor + 1.50%
until June 30, 2007. Monthly principal payments plus interest at the rate of
Libor + 1.50% are due as follows: June 30, 2007 to December 31, 2007, $70,000;
January 31, 2008 to May 31, 2008, $110,000; June 30, 2008 to November 30, 2008,
$195,000; December 31, 2008, remaining balance due. We anticipate that the
minimum purchases guaranteed in accordance with the ABB Exclusive Global Channel
Partner Agreement will provide sufficient cash flow to service these interest
and principal payments.

27

---

The Royal Bank required that standby letters of credit securing
the bank loan of up to $2,500,000 be provided. Certain accredited investors
agreed to provide the letters of credit to the bank and as compensation we
agreed to issue one Unit for each one dollar pledged as security for the bank
loan. Each Unit consists of two (2) shares of our common stock, three (3) share
purchase warrants, each warrant entitling the holder to purchase one (1)
additional share of common stock at a price of $0.30 per share for a period of
five (5) years; and one and one-half (11⁄2) share purchase warrants, each whole
warrant entitling the holder to purchase one (1) additional share of common
stock at a price of $0.50 per share for a period of five (5) years.

As of October 23, 2006 we had obtained letters of credit
securing a total of $2,150,000 of the Bank Loan and accordingly on October 23,
2006 we issued 4,300,000 common shares, 6,450,000 warrants exercisable at $0.30
and 3,225,000 warrants exercisable at $0.50. As further compensation, the
exercise price of 250,000 share purchase warrants previously held by certain
providers of the letters of credit have been reduced from $1.00 to $0.30 per
share and the term of those warrants has been extended by 24 months, so that
they now expire May 2, 2010. Our Chief Executive Officer provided $400,000 of
the letters of credit.

As of October 23, 2006, cash collateral in the amount of
$350,000 had been pledged by accredited investors to allow the Royal Bank of
Canada to fund the total loan amount of $2,500,000. Our Chief Executive Officer
provided a portion of the $350,000 cash collateral.

As of February 5, 2007 we had obtained further letters of
credit letters totalling $300,000 and accordingly on February 5, 2007 we issued
600,000 common shares, 900,000 warrants exercisable at $0.30 and 450,000
warrants exercisable at $0.50. As further compensation, the exercise price of
62,500 share purchase warrants previously held by certain providers of the
letters of credit have been reduced from $1.00 to $0.30 per share and the term
of those warrants has been extended by 24 months, so that they now expire May 2,
2010.

Private Placements

At directors meetings held October 13, 2004 and December 21,
2004, approval was given to a private placement of 1,750,000 units at a price of
$0.40 per unit for gross proceeds of $700,000. Each unit comprises one share and
one-half (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 $0.50
per share. The private placement closed on various dates between December 1,
2004 and March 4, 2005. In conjunction with this private placement, we paid
$32,880 and issued 24,500 units as finders fees.

At a directors meeting held March 10, 2005, approval was given
to a private placement of up to 1,875,000 units at a price of $0.80 per unit for
total proceeds of $1,500,000. Each unit comprises one common share and one
half-share (1/2) share purchase warrant. Each whole warrant has a three (3) year
term and is exercisable at any time into one common share at a price of $1.00
per share. On May 3, 2005 we closed $1,307,000 of the private placement. In
conjunction with this portion of the private placement, we paid $39,210 and
issued 52,500 shares as finders fees.

At a directors meeting held October 5, 2005, approval was
given to a private placement of up to 6,000,000 units at a price of $0.50 per
unit for total proceeds of $3,000,000. Each unit comprises one common share and
one share purchase warrant. Each share purchase warrant entitles the holder to
purchase one additional share for two (2) years at US$0.60 per share. On January
23, 2006 we issued

28

---

1,008,548 units on account of this private placement.

At a directors meeting held May 30, 2006, approval was given
to a private placement of up to $3,000,000. The financing term sheet executed to
implement the private placement offered 10,000,000 units at $0.30 per unit. Each
Unit comprises one common share and one share purchase warrant. Each share
purchase warrant entitles the holder to purchase one additional share for three
(3) years at US$0.50 per share. On August 30, 2006 we issued 1,549,332 units on
account of this private placement representing $464,800.

By directors consent resolution dated November 24, 2006, approval
  was given to a private placement of up to $1,200,000. The financing term sheet
  executed to implement the private placement offered 6,000,000 units at $0.20
  per unit. Each Unit comprises one common share and one share purchase warrant.
  Each share purchase warrant entitles the holder to purchase one additional share
  for three (3) years at US$0.25 per share. On January 16, 2007 we issued 1,895,000
  units on account of this private placement representing $379,000. We also paid
  $1,500 and issued 30,000 units as a finders fee on account of this private
  placement. On February 21, 2007 we issued 275,000 units on account of this private
  placement representing $55,000.

Employee Stock Options

The exercise of 55,000 employee stock options has generated
$11,000 from January 1, 2005 to March 22, 2007.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or
are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to investors.

Going Concern Statement

Due to the uncertainty of our ability to meet our current
operating and capital expenses, in their report on the consolidated financial
statements for the period ended December 31, 2006, our independent registered
public accounting firm included an explanatory paragraph regarding concerns
about our ability to continue as a going concern. Our audited consolidated
financial statements contain additional note disclosures describing the
circumstances that lead to this disclosure by our independent registered public
accounting firm.

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

29

---

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.

|- | Report
        of Independent Registered Public Accounting Firm;                                                     
|- | ---------------------------------------------------------------------------------------------------------------------
|- | Consolidated Balance Sheets as of December 31, 2006 and
      2005;                                                  
|- | Consolidated Statements of Operations for each of the
      years in the two year period ended December 31, 2006;    
|- | Consolidated Statements of Stockholders' Equity (Deficit)
      for the two year period ended December 31, 2006;     
|- | Consolidated Statements of Cash Flows for each of the
      years in the two year period ended December 31, 2006; and
|- | Notes to Consolidated Financial Statements.                                                                          

30

---

Consolidated Financial Statements 
  (Expressed in United States dollars)

BRAINTECH, INC.

Years ended December 31, 2006 and 2005

---

**Smythe
  Ratcliffe LLP**

7thFloor, Marine Building 3

55 Burrard Street

Vancouver, BC V6C 2G8



fax: 604.688.4675

telephone: 604.687.1231

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
  FIRM

The Directors and Stockholders of 
  Braintech, Inc.

We have audited the consolidated balance sheets of Braintech,
  Inc. as of December 31, 2006 and 2005 and the consolidated statements of operations,
  stockholders equity (deficit) and cash flows for the years ended December
  31, 2006 and 2005. These financial statements are the responsibility of the
  Companys management. Our responsibility is to express an opinion on these
  financial statements based on our audits.

We conducted our audits in accordance with the auditing standards
  of the Public Company Accounting Oversight Board (United States of America).
  Those standards require that we plan and perform an 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 of December 31, 2006 and 2005 and the results of its operations
  and its cash flows for the years ended December 31, 2006 and 2005, 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
  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.

As discussed in note 2(j) to the consolidated financial statements,
  in 2006 the Company adopted SFAS no. 123R related to accounting for stock-based
  compensation.

Smythe Ratcliffe LLP (signed)

Chartered Accountants

Vancouver, Canada 
  February 28, 2007

Smythe Ratcliffe LLP, a British Columbia
          limited liability partnership, is a member of PKF North American Network
          and PKF International, associations of legally independent firms.


---

BRAINTECH, INC.

Consolidated Balance Sheets
  (Expressed in United States dollars)

December 31, 2006 and 2005

|                                                            |   | 2006        |   |   | 2005        |  
|----------------------------------------------------------- | - | ----------- | - | - | ----------- | -
|                                                            |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Assets (note 7)                                             |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Current assets:                                             |   |             |   |   |             |  
|Cash and cash equivalents                                   | $ | 16,950      |   | $ | 522,943     |  
|Accounts receivable                                         |   | 1,224,010   |   |   | 321,912     |  
|Inventory                                                   |   | 10,297      |   |   | 17,487      |  
|Prepaid expenses                                            |   | 47,930      |   |   | 44,700      |  
|                                                            |   | 1,299,187   |   |   | 907,042     |  
|                                                            |   |             |   |   |             |  
|Fixed assets (note
      4)                                 |   | 29,373      |   |   | 44,590      |  
|                                                            |   |             |   |   |             |  
|                                                            | $ | 1,328,560   |   | $ | 951,632     |  
|                                                            |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Liabilities and Stockholders Equity (Deficit)              |   |             |   |   |             |  
|                                                            |   |             |   |   |             |  
|Current liabilities:                                        |   |             |   |   |             |  
|Accounts payable                                            | $ | 260,415     |   | $ | 84,768      |  
|Accrued liabilities                                         |   | 317,387     |   |   | 238,952     |  
|Deferred leasehold
      inducements (note 5)               |   | 30,155      |   |   | 48,264      |  
|Deferred revenue                                            |   | 197,383     |   |   | 98,551      |  
|Due to related party
      (note 3)                         |   | 112,874     |   |   | 77,187      |  
|Convertible debentures (note 6)                             |   | -           |   |   | 1,868,387   |  
|Current portion of bank loan
      (note 7)                 |   | 490,000     |   |   | -           |  
|                                                            |   | 1,408,214   |   |   | 2,416,109   |  
|                                                            |   |             |   |   |             |  
|Bank loan (note 7)                                          |   | 1,982,837   |   |   | -           |  
|                                                            |   |             |   |   |             |  
|Total liabilities                                           |   | 3,391,051   |   |   | 2,416,109   |  
|                                                            |   |             |   |   |             |  
|Stockholders equity (deficit):                             |   |             |   |   |             |  
|Common stock (note
      8):                                |   |             |   |   |             |  
|Authorized:
      200,000,000 shares, with $0.001 par value |   |             |   |   |             |  
|Issued:
      30,732,433 shares (2005  23,353,689)         |   | 30,732      |   |   | 23,354      |  
|Additional paid-in capital                                  |   | 23,930,944  |   |   | 18,574,644  |  
|Accumulated deficit                                         |   | (26,024,167 | ) |   | (20,062,475 | )
|                                                            |   | (2,062,491  | ) |   | (1,464,477  | )
|                                                            |   |             |   |   |             |  
|                                                            | $ | 1,328,560   |   | $ | 951,632     |  
|                                                            |   |             |   |   |             |  
|Future operations (note 1)                                  |   |             |   |   |             |  
|Commitments (note 12)                                       |   |             |   |   |             |  
|Subsequent events (notes 7 & 17)                            |   |             |   |   |             |  

See accompanying notes to consolidated financial statements.

1

---

BRAINTECH, INC.

Consolidated Statements of Operations 
  (Expressed in United States dollars)

|                                                    |   | Years ended December 31, |  
|--------------------------------------------------- | - | ------------------------ | -
|                                                    |   | 2006                     |  
|                                                    |   |                          |  
|Sales (note 1)                                      | $ | 1,756,032                |  
|Cost of sales                                       |   | 101,806                  |  
|                                                    |   |                          |  
|Gross margin                                        |   | 1,654,226                |  
|                                                    |   |                          |  
|Operating expenses:                                 |   |                          |  
|Research and development,
      net (note 2(c))     |   | 632,570                  |  
|Selling, general and administrative
      (note 14) |   | 2,099,774                |  
|Software license settlement                         |   | -                        |  
|                                                    |   | 2,732,344                |  
|                                                    |   |                          |  
|Operating loss                                      |   | (1,078,118               | )
|                                                    |   |                          |  
|Non-operating:                                      |   |                          |  
|Interest income                                     |   | 1,372                    |  
|Interest expense - other                            |   | (4,274                   | )
|Financing expenses                                  |   |                          |  
|Interest on convertible
      debentures (note 6)   |   | (133,905                 | )
|Accretion
      of convertible debentures (note 6)  |   | (481,209                 | )
|Fair value of warrants
      issued on              |   |                          |  
|conversion of debentures (note 6)                   |   | (9,772                   | )
|Interest on bank loan
      (note 7)                |   | (44,661                  | )
|Fair
      value of warrants issued on              |   |                          |  
|settlement of debentures (note 6)                   |   | (452,376                 | )
|Fair
      value of equity issued as compensation   |   |                          |  
|for bank loan guarantee (note 7)                    |   | (3,726,617               | )
|Bank loan guarantee
      expenses                  |   | (32,132                  | )
|                                                    |   |                          |  
|                                                    |   | (4,883,574               | )
|                                                    |   |                          |  
|Net loss and comprehensive loss for the year        | $ | (5,961,692               | )
|                                                    |   |                          |  
|Loss per share information:                         |   |                          |  
|Basic                                               | $ | (0.23                    | )
|                                                    |   |                          |  
|Weighted average number of common                   |   |                          |  
|shares outstanding                                  |   | 25,681,482               |  

See accompanying notes to consolidated financial statements.

2

---

BRAINTECH, INC.

Consolidated Statements of Stockholders Equity (Deficit)
  (Expressed in United States dollars)

Years ended December 31, 2006 and 2005

Common
        stock
      
      
      
      
      
      
      
      
      TotalNumber
      
      
      
      
      
      Additional
      
      
      Accumulated
      
      
      stockholdersof
        shares
      
      
      Amount
      
      
      paid-in
        capital
      
      
      deficit
      
      
      equity (deficit)Balance, December 31, 2004
      
      20,294,257
      
      $
      20,294
      
      $
      16,299,521
      
      $
      (17,346,467
      )
      $
      (1,026,652
      )Common stock transactions(net of share issue costs)Shares issued
        for cash
      
      2,351,250
      
      
      2,352
      
      
      1,591,648
      
      
      -
      
      
      1,594,000Shares issued for services rendered
      
      210,000
      
      
      210
      
      
      99,990
      
      
      -
      
      
      100,200Shares issued
        for cash on exerciseof employee
        stock options
      
      55,000
      
      
      55
      
      
      10,945
      
      
      -
      
      
      11,000Shares issued
        on conversion ofconvertible
        debentures
      
      218,456
      
      
      218
      
      
      54,396
      
      
      -
      
      
      54,614Shares issued
        on exercise of warrants
      
      156,476
      
      
      157
      
      
      38,962
      
      
      -
      
      
      39,119Shares issued for finders
        fees
      
      68,250
      
      
      68
      
      
      (68
      )
      
      -
      
      
      -Common stock subscriptions
      
      
      
      
      
      
      
      500,000
      
      
      
      
      
      500,000Cash paid for finders fees
      
      -
      
      
      -
      
      
      (53,000
      )
      
      -
      
      
      (53,000
      )Fair value of warrants issued onconversion of debentures
      
      -
      
      
      -
      
      
      17,662
      
      
      -
      
      
      17,662Fair value of stock options grantedto a contractor
      
      
      
      
      -
      
      
      14,588
      
      
      -
      
      
      14,588Loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (2,716,008
      )
      
      (2,716,008
      )Balance, December 31, 2005
      
      23,353,689
      
      
      23,354
      
      
      18,574,644
      
      
      (20,062,475
      )
      
      (1,464,477
      )Common stock transactions(net of share issue costs)Shares issued
        for cash(net of
        subscriptions received in 2005)
      
      2,557,880
      
      
      2,557
      
      
      466,517
      
      
      -
      
      
      469,074Shares issued
        for services rendered
      
      375,000
      
      
      375
      
      
      173,375
      
      
      -
      
      
      173,750Shares issued on conversion ofconvertible debentures
      
      120,864
      
      
      121
      
      
      30,095
      
      
      -
      
      
      30,216Shares issued on exercise of
        warrants
      
      25,000
      
      
      25
      
      
      6,225
      
      
      -
      
      
      6,250Shares issued
        to LC providers
      
      4,300,000
      
      
      4,300
      
      
      1,371,700
      
      
      -
      
      
      1,376,000Common stock subscriptions
      
      -
      
      
      -
      
      
      259,000
      
      
      -
      
      
      259,000Fair value of warrants issued onconversion of debentures
      
      -
      
      
      -
      
      
      9,772
      
      
      -
      
      
      9,772Fair value of debenture settlement warrants
      
      -
      
      
      -
      
      
      452,376
      
      
      -
      
      
      452,376Fair value of warrants issued to LC providers
      
      -
      
      
      -
      
      
      2,350,617
      
      
      -
      
      
      2,350,617Fair value of stock options expensed
      
      -
      
      
      -
      
      
      236,623
      
      
      -
      
      
      236,623Loss for the year
      
      -
      
      
      -
      
      
      -
      
      
      (5,961,692
      )
      
      (5,961,692
      )Balance, December 31, 2006
      
      30,732,433
      
      $
      30,732
      
      $
      23,930,944
      
      $
      (26,024,167
      )
      $
      (2,062,491
      )


See accompanying notes to consolidated financial statements.

3

---

BRAINTECH, INC.

Consolidated Statements of Cash Flows 
  (Expressed in United States dollars)

|                                                                |   | Years ended December 31, |  
|--------------------------------------------------------------- | - | ------------------------ | -
|                                                                |   | 2006                     |  
|                                                                |   |                          |  
|Cash flows from operations:                                     |   |                          |  
|Loss for the year                                               | $ | (5,961,692               | )
|Items not involving
      cash:                                 |   |                          |  
|Amortization                                                    |   | 21,796                   |  
|Bad
      debt                                                  |   | -                        |  
|Shares issued
      for services rendered                       |   | 173,750                  |  
|Stock-based
      compensation                                  |   | 236,623                  |  
|Accretion of
      debenture beneficial conversion feature      |   | 481,209                  |  
|Fair
      value of warrants issued on conversion of debentures |   | 9,772                    |  
|Fair value
      of warrants issued on settlement of debentures |   | 452,376                  |  
|Fair
      value of warrants and common shares issued as        |   |                          |  
|compensation
      for bank loan guarantee                      |   | 3,726,617                |  
|Changes in non-cash
      operating working capital:            |   |                          |  
|Accounts receivable                                             |   | (902,098                 | )
|Inventory                                                       |   | 7,190                    |  
|Prepaid expenses                                                |   | (3,230                   | )
|Accounts
      payable and accrued liabilities                  |   | 254,082                  |  
|Due to related
      party                                      |   | 35,687                   |  
|Accrued
      interest on convertible debentures                |   | 133,905                  |  
|Deferred leasehold
      inducements                            |   | (18,109                  | )
|Deferred
      revenue                                          |   | 98,832                   |  
|Net cash used in operations                                     |   | (1,253,290               | )
|                                                                |   |                          |  
|Cash flows from investments:                                    |   |                          |  
|Purchase
      of fixed assets                                  |   | (6,579                   | )
|Net cash used in investments                                    |   | (6,579                   | )
|                                                                |   |                          |  
|Cash flows from financing:                                      |   |                          |  
|Common
      shares issued, net of issue costs                  |   | 475,324                  |  
|Share subscription
      received                               |   | 259,000                  |  
|Repayment
      of debentures                                   |   | (2,453,285               | )
|Bank loan                                                       |   | 2,472,837                |  
|Net cash provided by financing                                  |   | 753,876                  |  
|                                                                |   |                          |  
|Increase (decrease) in cash and cash equivalents                |   | (505,993                 | )
|                                                                |   |                          |  
|Cash and cash equivalents, beginning of year                    |   | 522,943                  |  
|                                                                |   |                          |  
|Cash and cash equivalents, end of year                          | $ | 16,950                   |  
|                                                                |   |                          |  
|Supplemental information:                                       |   |                          |  
|Non-cash financing activities:                                  |   |                          |  
|Shares
      issued for services rendered                       | $ | 173,750                  |  
|Shares and
      warrants issued on conversion of debentures    | $ | 39,988                   |  
|Shares
      and warrants issued to LC providers                | $ | 3,726,617                |  
|Warrants issued
      on settlement of debentures               | $ | 452,376                  |  
|Cash interest paid                                              | $ | 465,785                  |  

See accompanying notes to consolidated financial statements.

4

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|1. | Description of business and future operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Braintech, Inc. (the Company)
        was incorporated on March 4, 1987 under the laws of the State of Nevada
        as Tome Capital, Inc. The Company initially was in the business of real
        estate development. On January 3, 1994, the Company changed its name to
        Braintech, Inc. and began operations as a high tech development company,
        developing advanced software for the vision guidance of robotic systems.
        All sales of its products and services are made in this industry segment.
        In the year ended December 31, 2006, 99% of sales revenue (2005 
        88%) was generated from a single customer, ABB Inc. (ABB).
      These consolidated financial statements have been prepared
        on the going concern basis under which an entity is considered to be able
        to realize its assets and satisfy its liabilities in the ordinary course
        of business. The Company has generated only small amounts of revenues
        and is continuing to develop its business. Operations to date have been
        primarily financed by equity transactions. The Companys future operations
        and its continuation as a going concern are dependent upon its ability
        to raise additional capital, increase sales of its products by leveraging
        its Exclusive Global Channel Partner Agreement with ABB, generating positive
        cash flows from operations and ultimately attaining profitability. There
        can be no assurances that appropriate financings having favourable economic
        terms will be available as required.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Based on its current financial position, the
        Company believes that its present and anticipated cash resources from
        operations and equity financing will be sufficient to pay ongoing cash
        operating expenses throughout 2007 and 2008. The minimum revenue commitments
        by ABB pursuant to the Exclusive Global Channel Partner Agreement dated
        May 5, 2006 should result in positive net earnings and cash flow for 2007
        and 2008. There can be no assurance that an equity financing can be obtained
        as anticipated and there can be no assurance that ABB will fulfill its
        minimum revenue commitments. If the Company cannot do either, there is
        a risk that the business will fail. The consolidated financial statements
        do not include any adjustments relating to the recoverability of assets
        and classification of assets and liabilities that might be necessary should
        the Company be unable to continue as a going concern.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2. | Significant accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

5

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|2. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (b)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (c)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (d)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (e)                                         
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   | (f)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (g)                                         
|   |                                             
|   |                                             

| | Asset                  | Basis             | Rate            
| | ---------------------- | ----------------- | ----------------
| | Furniture and fixtures | declining-balance | 20%             
| | Computer equipment     | straight-line     | 36 months       
| | Computer software      | straight-line     | 24 months       
| | Leasehold improvements | straight-line     | lease
      term

6

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|2. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (h)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (i)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (j)                                         
|   |                                             
|   |                                             
|   |                                             
|   |                                             

Risk Free
      Expected
      Dividend
      ExpectedInterest Rate
      Life
      Yield
      VolatilityYears ended:December 31, 2006
      4.97%
      2 years
      0%
      159%December 31, 2005
      3.66%
      2 years
      0%
      171%


7

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|2. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (j)                                         
|   |                                             
|   |                                             
|   |                                             
|   |                                             

| | Net loss
      as reported                                                 | $ | (2,716,008 | )
| | -------------------------------------------------------------------------- | - | ---------- | -
| | Stock-based employee
      compensation if fair-value based method applied |   | (475,695   | )
| | Pro-forma loss as if fair-value based method had been applied              | $ | (3,191,703 | )
| |                                                                            |   |            |  
| | Basic and diluted loss per share                                           |   |            |  
| | As reported                                                                | $ | (0.12      | )
| | Pro forma                                                                  | $ | (0.15      | )

The weighted average fair value of stock
  options granted during the year ended December 31, 2006 was $0.36 per option.

In applying the Modified Prospective
  Application method for the year ended December 31, 2006, the Company recorded
  stock-based compensation cost totaling the amount that would have been recognized
  had the fair value method been applied since the effective date of SFAS No.
  123. Previous amounts have not been restated. Accordingly, the Company recorded
  stock-based compensation of $236,623 for the year ended December 31, 2006.

8

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|2. | Significant accounting policies (continued):
|-- | --------------------------------------------
|   |                                             
|   | (j)                                         
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   | (k)                                         
|   |                                             
|   |                                             
|   |                                             
|   | (l)                                         
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   | (m)                                         
|   |                                             
|   |                                             

9

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|3. | Related party balances and transactions:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Transactions with directors and officers:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | During the year ended December 31, 2005, the Companys
        Chief Executive Officer advanced $77,187 to the Company. During the year
        ended December 31, 2006, the Companys Chief Executive Officer advanced
        a further $35,687. The advances are unsecured, without interest and without
        specific terms of repayment. The Companys Chief Executive Officer
        also provided $400,000 in letters of credit as security for the bank loan
        (note 7). Financings with directors and officers are detailed in note
        8.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4. | Fixed assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                        |   |         |  |   | Accumulated  |  |   | Net book | 
| | ---------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| | December 31, 2006      |   | Cost    |  |   | amortization |  |   | value    | 
| |                        |   |         |  |   |              |  |   |          | 
| | Furniture and fixtures | $ | 80,581  |  | $ | 62,646       |  | $ | 17,935   | 
| | Computer equipment     |   | 198,274 |  |   | 191,584      |  |   | 6,690    | 
| | Computer software      |   | 51,449  |  |   | 49,910       |  |   | 1,539    | 
| | Leasehold improvements |   | 10,829  |  |   | 7,620        |  |   | 3,209    | 
| |                        |   |         |  |   |              |  |   |          | 
| |                        | $ | 341,133 |  | $ | 311,760      |  | $ | 29,373   | 

| |                        |   |         |  |   | Accumulated  |  |   | Net book | 
| | ---------------------- | - | ------- |  | - | ------------ |  | - | -------- | 
| | December 31, 2005      |   | Cost    |  |   | amortization |  |   | value    | 
| |                        |   |         |  |   |              |  |   |          | 
| | Furniture and fixtures | $ | 80,581  |  | $ | 56,880       |  | $ | 23,701   | 
| | Computer equipment     |   | 191,695 |  |   | 184,231      |  |   | 7,464    | 
| | Computer software      |   | 51,449  |  |   | 44,170       |  |   | 7,279    | 
| | Leasehold improvements |   | 10,829  |  |   | 4,683        |  |   | 6,146    | 
| |                        |   |         |  |   |              |  |   |          | 
| |                        | $ | 334,554 |  | $ | 289,964      |  | $ | 44,590   | 

|5. | Deferred leasehold inducements:
|-- | -------------------------------

| |                             |   | 2006    |   |   | 2005    |  
| | --------------------------- | - | ------- | - | - | ------- | -
| | Balance, beginning of year  | $ | 48,264  |   | $ | 64,226  |  
| | Amortization                |   | (18,601 | ) |   | (17,422 | )
| | Foreign exchange adjustment |   | 492     |   |   | 1,460   |  
| |                             |   |         |   |   |         |  
| | Balance, end of year        | $ | 30,155  |   | $ | 48,264  |  

10

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|6. | Convertible debentures:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Between September 5, 2003 and May 21, 2004, in accordance
        with the terms of Securities Purchase Agreements, the Company issued convertible
        debentures in the amount of $2,250,000. A general security agreement covering
        all of the Companys real, personal and intangible property was pledged
        as security for the debentures. The debentures matured on August 25, 2006
        and bore interest at eight percent (8%) per annum. All convertible debentures
        ranked pari passuwith all convertible debentures issued. The principal
        amount and accrued interest were 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.                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Finders fees were paid to investors, persons related
        to investors, and independent third parties by way of cash payment of
        $26,250 and by way of issuance of 595,000 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 cash finders fees and the
        fair value of the units underlying the finders fees have been recognized
        as a cost of issuance and in stockholders equity. On conversion
        of the debentures into common shares and share purchase warrants, the
        fair value of the share purchase warrants was assigned and recognized
        as an expense. Prior to maturity, $262,500 of principal and $17,328 of
        accrued interest was converted into 1,119,312 common shares and 559,656
        share purchase warrants. Accordingly, the Company expensed $90,513 as
        the fair value of the warrants issued.                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On September 9, 2006, $325,000 of principal and $71,787
        of interest was repaid.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Effective September 26, 2006, the Company entered into
        a Debenture Settlement Agreement with the remaining debenture holders
        after the September 9, 2006 repayments. The Debenture Settlement Agreement
        provided for an extension of time to repay the remaining debentures in
        exchange for the pro- rata issuance of 2,100,000 share purchase warrants
        among the remaining debenture holders. Each share purchase warrant entitles
        the holder to purchase one common share at a price of $0.25 per share
        for a period of five (5) years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | On October 23, 2006, the Company completed a transaction
        repaying all of the remaining secured convertible debentures representing
        $1,662,500 of principal and $393,998 accrued interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Because the conversion price was less than the closing
        trading prices of the Companys shares on the commitment date, the
        convertible debentures contain a beneficial conversion feature. In accordance
        with Emerging Issues Task Force (EITF) Issue 98-5, the embedded
        beneficial conversion feature was 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 exceeded the face value of the debentures and was therefore limited
        to the face value. Accordingly, the face value of the debt was allocated
        to additional paid-in capital on issuance and the convertible debentures
        were accreted back to their face value over the term to maturity with
        a corresponding charge to interest expense. Accrued interest is also recorded
        based on the face value of the debentures at the stated interest rate
        (8%). The convertible debentures have been recorded as follows:

11

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|6. | Convertible debentures (continued):
|-- | -----------------------------------

| |                                                                             |   |            |  
| | --------------------------------------------------------------------------- | - | ---------- | -
| | Face value of convertible debentures issued
      (cash received)           | $ | 2,250,000  |  
| | Beneficial conversion feature allocated to additional paid-in
      capital |   | (2,249,995 | )
| | Accretion of convertible debentures                                         |   | 2,249,995  |  
| | Accrued interest payable                                                    |   | 483,113    |  
| | Conversion of debentures                                                    |   | (279,828   | )
| | Repayment of debentures                                                     |   | (2,453,285 | )
| |                                                                             |   |            |  
| | Convertible debentures
      at December 31, 2006                           | $ | Nil        |  

|7. | Bank loan and loan guarantee:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On October 23, 2006 the Company completed a series of
        transactions repaying all of the outstanding Secured Convertible Debentures.
        To facilitate the transaction, the Company obtained a bank loan of up
        to $2,500,000 from the Royal Bank of Canada. The loan is repayable as
        to interest only at the rate of Libor plus 1.50% until June 30, 2007.
        Monthly principal payments plus interest at the rate of Libor plus 1.50%
        are due as follows: June 30, 2007 to December 31, 2007, $70,000; January
        31, 2008 to May 31, 2008, $110,000; June 30, 2008 to November 30, 2008,
        $195,000; December 31, 2008, remaining balance due.                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Royal Bank required that standby letters of credit
        securing the full amount of the loan be provided. Certain accredited investors
        (the LC Providers) agreed to provide the letters of credit
        to the bank and as compensation the Company agreed to issue one Unit for
        each one dollar pledged as security for the bank loan. Each Unit consists
        of two (2) shares of the common stock of the Company; three (3) share
        purchase warrants, each warrant entitling the holder to purchase one (1)
        additional share of common stock at a price of $0.30 per share for a period
        of five (5) years; and one and one-half (11⁄2) share purchase warrants,
        each warrant entitling the holder to purchase one (1) additional share
        of common stock at a price of $0.50 per share for a period of five (5)
        years. A general security agreement covering all of the Companys
        real, personal and intangible property has been pledged as security to
        the LC Providers.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | As of October 23, 2006 a total of $2,150,000 letters
        of credit had been obtained to secure the bank loan and accordingly 4,300,000
        common shares, 6,450,000 warrants at $0.30 and 3,225,000 warrants at $0.50
        have been issued. As further compensation, the exercise price of 250,000
        share purchase warrants previously held by certain LC providers has been
        reduced from $1.00 to $0.30 per share and the term of those warrants has
        been extended by 24 months, so that they now expire May 2, 2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

12

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|7. | Bank loan and loan guarantee (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | As of February 5, 2007 a total of $300,000
        additional letters of credit had been obtained to secure the bank loan
        and accordingly, 600,000 common shares, 900,000 warrants exercisable at
        $0.30 and 450,000 warrants exercisable at $0.50 have been issued. As further
        compensation, the exercise price of 62,500 share purchase warrants previously
        held by certain providers of the letters of credit have been reduced from
        $1.00 to $0.30 per share and the term of those warrants has been extended
        by 24 months, so that they now expire May 2, 2010.                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|8. | Common stock:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|9. | Stock options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company has reserved 1,500,000 common
        shares pursuant to the 1997 Stock Option Plan, 1,500,000 common shares
        pursuant to the 2000 Stock Option Plan and 2,500,000 common shares pursuant
        to the 2003 Stock Option Plan. Subject to the requirements of any stock
        exchange on which the Companys shares are listed, the Companys
        Board of Directors has discretion to set the price, term, vesting schedules,
        and other terms and conditions for options granted under the 1997 and
        2000 plans and the Companys Compensation Committee has discretion
        to set the price, terms, vesting schedules, and other terms and conditions
        for options granted under the 2003 plan.

13

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|9. | Stock options (continued):                                                                                                                                                                                                                                
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                           
|   | During the year ended December 31, 2006, the Company
        issued 220,000 stock options to directors, consultants and employees.
        Stock options normally vest in 25% increments every six months starting
        six months from the grant date.

| | (a) | A summary of the Companys stock option activity
        is as follows:
| | --- | -----------------------------------------------------------------------

| |                                  |  |           |   |   | Weighted       |  
| | -------------------------------- |  | --------- | - | - | -------------- | -
| |                                  |  | Number    |   |   | average        |  
| |                                  |  | of shares |   |   | exercise price |  
| |                                  |  |           |   |   |                |  
| | Balance, December 31, 2004       |  | 2,522,000 |   | $ | 0.55           |  
| | Options granted                  |  | 1,546,000 |   | $ | 0.57           |  
| | Options exercised                |  | (55,000   | ) | $ | (0.20          | )
| | Vested options expired           |  | (507,000  | ) | $ | (1.08          | )
| | Unvested options forfeited       |  | (140,000  | ) |   | (0.66          | )
| |                                  |  |           |   | $ |                |  
| | Balance, December 31, 2005       |  | 3,366,000 |   | $ | 0.48           |  
| | Options granted                  |  | 220,000   |   | $ | 0.49           |  
| | Vested options expired           |  | (115,000  | ) | $ | (0.71          | )
| | Unvested options forfeited       |  | (75,000   | ) | $ | (0.46          | )
| |                                  |  |           |   |   |                |  
| | Balance, December
      31, 2006 |  | 3,396,000 |   | $ | 0.48           |  

| | (b) | Additional information regarding options outstanding
        as at December 31, 2006 is as follows:
| | --- | ---------------------------------------------------------------------------------------------------

Outstanding
      
      
      ExercisableWeighted average
      
      
      Weighted
      
      
      
      
      
      Weightedremaining
      
      
      average
      
      
      
      
      
      averageExercise
      
      
      Number of
      
      
      contractual
      
      
      exercise
      
      
      Number of
      
      
      exerciseprice
      
      
      shares
      
      
      life
        (years)
      
      
      price
      
      
      shares
      
      
      price$ 0.00  0.25
      
      
      842,000
      
      
      0.94
      
      $
      0.20
      
      
      842,000
      
      $
      0.20$ 0.26  0.50
      
      
      670,000
      
      
      3.61
      
      $
      0.42
      
      
      407,500
      
      $
      0.42$ 0.51  0.75
      
      
      1,814,000
      
      
      2.49
      
      $
      0.61
      
      
      1,532,750
      
      $
      0.62$ 0.76  1.00
      
      
      45,000
      
      
      2.19
      
      $
      0.82
      
      
      40,000
      
      $
      0.81$ 1.01  1.25
      
      
      25,000
      
      
      0.70
      
      $
      1.25
      
      
      25,000
      
      $
      1.253,396,000
      
      
      2.31
      
      $
      0.48
      
      
      2,847,250
      
      $
      0.47


14

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|10. | Share purchase warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | Detailed information regarding share purchase warrant
        activity during the years ended December 31, 2005 and 2006 is as follows:
        Between January 12, 2005 and March 4, 2005, in conjunction with private
        placements the Company issued 358,750 common share purchase warrants (the
        purchasers received one common share purchase warrant for each two common
        shares purchased). Each common share purchase warrant entitles the holder
        to purchase one additional share for five (5) years at a price of $0.50
        per share. In conjunction with this private placement, the Company issued
        15,750 common shares and 7,875 common share purchase warrants as a finders
        fee. Each of these common share purchase warrants entitles the holder
        to purchase one additional share for five (5) years at a price of $0.50
        per share.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | At the request of certain debenture holders (note 6),
        on April 5, 2005 the Company converted $25,000 of principal and $1,808
        of accrued interest into 107,232 common shares and 53,616 share purchase
        warrants. Each warrant is exercisable at $0.25 into one common share for
        five (5) years. The fair value of the warrants ($8,670) has been recorded
        as an expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On May 3, 2005, in conjunction with private placements
        the Company issued 816,875 common share purchase warrants (the purchasers
        received one common share purchase warrant for each two common shares
        purchased). Each common share purchase warrant entitles the holder to
        purchase one additional share for three (3) years at a price of $1.00
        per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | At the request of certain debenture holders (note 6),
        on October 4, 2005 the Company converted $25,000 of principal and $2,806
        of accrued interest into 111,224 common shares and 55,612 share purchase
        warrants. Each warrant is exercisable at $0.25 into one common share for
        five (5) years. The fair value of the warrants ($8,992) has been recorded
        as an expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On October 4, 2005 156,476 warrants were exercised at
        $0.25 per warrant generating $39,119.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | By directors consent resolution dated January
        19, 2006, the Company extended certain share purchase warrants held by
        its Chief Executive Officer for an additional two years from the original
        October 2005 and December 2005 expiry dates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    | On January 19, 2006, in conjunction with a private placement,
        the Company issued 1,008,548 common share purchase warrants (the purchaser
        received one common share purchase warrant for each common share purchased).
        Each common share purchase warrant entitles the holder to purchase one
        additional share for two (2) years at a price of $0.60 per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

15

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|10. | Share purchase warrants (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On May 10, 2006, at the request of a debenture holder
        the Company converted $25,000 of principal and $5,216 of accrued interest
        into 120,864 common shares and 60,432 share purchase warrants. Each warrant
        is exercisable at $0.25 into one common share for five (5) years. The
        fair value of the warrants ($9,772) has been recorded as a cost of financing
        expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On August 30, 2006, in conjunction with a private placement,
        the Company issued 1,549,332 common share purchase warrants (the purchaser
        received one common share purchase warrant for each common share purchased).
        Each common share purchase warrant entitles the holder to purchase one
        additional share for three (3) years at a price of $0.50 per share. In
        addition, the exercise price of 441,875 share purchase warrants previously
        held by participants in this private placement was reduced from $1.00
        to $0.50 and the term of these warrants was extended by 12 months, so
        that they now expire May 2, 2009.                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On September 26, 2006, in conjunction with a Debenture
        Settlement Agreement, the Company issued 2,100,000 common share purchase
        warrants. Each common share purchase warrant entitles the holder to purchase
        one additional share for five (5) years at a price of $0.25 per share.
        The fair value of the warrants ($452,376) has been recorded as an expense.
        The fair value was calculated using the Black- Scholes option-pricing
        model and the following assumptions: dividend yield 0%, expected volatility
        161%, risk free interest rate 4.68%, and an expected term of two (2) years.
        In addition, the exercise price of 500,000 share purchase warrants previously
        held by the agent for the debenture holders was reduced from $0.45 to
        $0.25.                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On October 23, 2006, the Company issued 6,450,000 warrants
        exercisable at $0.30 per share and 3,225,000 warrants exercisable at $0.50
        per share as compensation to accredited investors (the LC Providers)
        for providing standby letters of credit securing the bank loan (note 7).
        The fair value of the warrants ($2,350,617) has been recorded as an expense.
        The fair value was calculated using the Black- Scholes option pricing
        model and the following assumptions: dividend yield 0%, expected volatility
        167%, risk-free interest rate 4.90%, and an expected term of two (2) years.
        As further compensation, the exercise price of 250,000 share purchase
        warrants previously held by certain LC providers has been reduced from
        $1.00 to $0.30 per share and the term of those warrants has been extended
        by 24 months, so that they now expire May 2, 2010.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | Of the warrants outstanding at December 31, 2006, 4,741,324
        were held by the Companys Chief Executive Officer (2005  2,941,324).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

16

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|10. | Share purchase warrants (continued):                                             
|--- | ---------------------------------------------------------------------------------
|    |                                                                                  
|    | A summary of the Companys share purchase warrant
        activity is as follows:

| |                                   |  |            |   |                |  |  | Weighted          | 
| | --------------------------------- |  | ---------- | - | -------------- |  |  | ----------------- | 
| |                                   |  |            |   | Weighted       |  |  | average remaining | 
| |                                   |  | Number     |   | average        |  |  | contractual life  | 
| |                                   |  | of shares  |   | exercise price |  |  | (years)           | 
| |                                   |  |            |   |                |  |  |                   | 
| | Balance, December 31, 2004        |  | 5,226,470  |   | $  0.38        |  |  | 3.10              | 
| | Warrants granted                  |  |            |   |                |  |  |                   | 
| | Debenture conversion              |  | 109,228    |   | $  0.25        |  |  | 4.50              | 
| | Finders fees                     |  | 7,875      |   | $  0.50        |  |  | 4.00              | 
| | Private placement                 |  | 1,175,625  |   | $  0.85        |  |  | 2.86              | 
| | Warrants exercised                |  | (156,476   | ) | $  0.25        |  |  | -                 | 
| | Warrants
      expired            |  | (1,868,539 | ) | $  0.41        |  |  | -                 | 
| | Expired warrants extended         |  | 1,764,014  |   | $  0.44        |  |  | 1.90              | 
| |                                   |  |            |   |                |  |  |                   | 
| | Balance, December 31, 2005        |  | 6,258,197  |   | $  0.46        |  |  | 2.53              | 
| | Warrants
      granted            |  |            |   |                |  |  |                   | 
| | Debenture conversion              |  | 60,432     |   | $  0.25        |  |  | 4.33              | 
| | Private placement                 |  | 2,557,880  |   | $  0.54        |  |  | 2.04              | 
| | Debenture settlement compensation |  | 2,100,000  |   | $  0.25        |  |  | 4.75              | 
| | LC providers compensation        |  | 9,675,000  |   | $  0.37        |  |  | 4.83              | 
| | Warrants exercised                |  | (25,000    | ) | $  0.25        |  |  | -                 | 
| | Warrants expired                  |  | (450,000   | ) | $  0.53        |  |  | -                 | 
| |                                   |  |            |   |                |  |  |                   | 
| | Balance, December 31, 2006        |  | 20,176,509 |   | $  0.37        |  |  | 3.62              | 

|11. | Income taxes:                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                              
|    | Income taxes attributable to loss for the year in these
        consolidated financial statements differ from amounts computed by applying
        the Canadian federal and provincial statutory rate of 34% (2005 
        35%) as follows:

| |                                             |   | 2006       |   |   | 2005     |  
| | ------------------------------------------- | - | ---------- | - | - | -------- | -
| |                                             |   |            |   |   |          |  
| | Expected tax recovery                       | $ | 2,153,000  |   | $ | 967,000  |  
| |                                             |   |            |   |   |          |  
| | Tax effect of:                              |   |            |   |   |          |  
| | Loss of foreign parent taxed at lower rates |   | (46,000    | ) |   | (32,000  | )
| | Permanent and other differences             |   | (1,639,000 | ) |   | (176,000 | )
| | Non-capital losses of prior years expired   |   | (468,000   | ) |   | (867,000 | )
| | Change in valuation allowance               |   | 0          |   |   | 108,000  |  
| |                                             |   |            |   |   |          |  
| |                                             | $ | -          |   | $ | -        |  

Deferred income taxes reflect the tax
  effects of temporary differences between the carrying amounts of assets and
  liabilities for financial reporting purposes and the amounts used for income
  tax purposes, as well as net operating loss and tax credit carryforwards.

17

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|11. | Income taxes (continued):                                                                      
|--- | -----------------------------------------------------------------------------------------------
|    |                                                                                                
|    | The Companys deferred income tax assets are comprised
        of the following at December 31:

| |                                            |   | 2006       |   |   | 2005       |  
| | ------------------------------------------ | - | ---------- | - | - | ---------- | -
| |                                            |   |            |   |   |            |  
| | Net deferred tax assets and liabilities:   |   |            |   |   |            |  
| | Net operating loss carryforwards and other |   |            |   |   |            |  
| | deductible temporary
      differences     | $ | 3,765,000  |   | $ | 3,765,000  |  
| |                                            |   |            |   |   |            |  
| | Total deferred tax assets                  |   | 3,765,000  |   |   | 3,765,000  |  
| |                                            |   |            |   |   |            |  
| | Valuation allowance                        |   | (3,765,000 | ) |   | (3,765,000 | )
| |                                            |   |            |   |   |            |  
| | Net deferred tax assets                    | $ | -          |   | $ | -          |  

At December 31, 2006, management believes
  that sufficient uncertainty exists as to whether the deferred tax assets will
  be realized, and accordingly, a valuation allowance is required.

As of December 31, 2006, the Company
  had net operating loss carryforwards of $10,267,117 available to offset taxable
  income earned in Canada and $2,239,659 available to offset taxable income earned
  in the United States. These losses expire as follows:

| |                     |   | Canada     |  |   | US        | 
| | ------------------- | - | ---------- |  | - | --------- | 
| |                     |   |            |  |   |           | 
| | 2007                | $ | 1,111,686  |  |   |           | 
| | 2008                |   | 2,021,365  |  |   |           | 
| | 2009                |   | 1,888,403  |  |   |           | 
| | 2010                |   | 2,086,964  |  |   |           | 
| | 2011                |   | 1,704,350  |  |   |           | 
| | 2012                |   | 1,092,669  |  |   |           | 
| | 2013                |   | 361,680    |  |   |           | 
| | 2018 and thereafter |   | -          |  | $ | 2,239,659 | 
| |                     |   |            |  |   |           | 
| |                     | $ | 10,267,117 |  | $ | 2,239,659 | 

|12. | Commitments:                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                           
|    | The Company has obligations under operating lease arrangements
        that require the following minimum annual payments:

| |                          |   |         | 
| | ------------------------ | - | ------- | 
| | Year ending December 31: |   |         | 
| | 2007                     | $ | 194,152 | 
| | 2008                     |   | 128,880 | 
| |                          |   |         | 
| |                          | $ | 323,032 | 

18

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|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|13. | Product warranty:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company provides for estimated warranty costs at
        the time of product sale. Warranty expense accruals are based on best
        estimate with reference to historical claims experience. Since warranty
        estimates are based on forecasts, actual claim costs may differ from amounts
        provided. On the basis of historical claim cost, the management estimated
        that the warranty cost for 2006 and the accumulated warranty liability
        would be negligible.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|14. | Selling, general and administrative expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | Selling, general and administrative expenses are comprised
        of the following:                                                                                                                                                                                                                                                                                                                                                                                                                 

| |                                  |   | Years ended December 31, |  
| | -------------------------------- | - | ------------------------ | -
| |                                  |   | 2006                     |  
| |                                  |   |                          |  
| | Salaries and benefits            | $ | 1,234,778                |  
| | Marketing and investor relations |   | 270,945                  |  
| | Legal and audit                  |   | 212,805                  |  
| | Rent and facilities              |   | 234,579                  |  
| | Foreign exchange loss/(gain)     |   | (15,163                  | )
| | Other                            |   | 161,830                  |  
| |                                  |   |                          |  
| |                                  | $ | 2,099,774                |  

|15. | Financial instruments:
|--- | ----------------------
|    |                       
|    | (a)                   
|    |                       
|    |                       
|    |                       
|    | (b)                   
|    |                       
|    |                       

19

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|15. | Financial instruments (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|16. | Exclusive Global Channel Partner Agreement:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On May 5, 2006 the Company entered into a
        new Exclusive Global Channel Partner Agreement with ABB for the licensing
        of its vision guided robotics technologies and software products. ABB
        has committed to a minimum purchase of eVF runtime licenses totaling US$10,500,000
        for the period ending December 31, 2008. The minimum purchase commitments
        are as follows: 2006 - $1,500,000; 2007 - $3,500,000; 2008 - $5,500,000.
        In addition to the purchase commitments, ABB has agreed to fund US$300,000
        for research and development of a vision guided robotic bin picking technology.
        In exchange for ABB entering into this agreement and for providing the
        purchase and research commitments, the Company granted ABB an exclusive
        global channel partner license for the use of the Companys software
        products in the automotive market and in specified general industry markets.

|17. | Subsequent events:
|--- | ------------------

| | (a) | Private placement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |     | Pursuant to a term sheet approved by the board of directors
        on November 22, 2006, on January 16, 2007 the Company issued 1,895,000
        units at $0.20 per unit representing subscription proceeds of $379,000.
        Each unit comprises one common share and one share purchase warrant. Each
        share purchase warrant has a three (3) year term and is exercisable at
        any time into one common share at a price of $0.25 per share. Of the subscription
        proceeds, $259,000 had been received prior to December 31, 2006. The Companys
        Chief Executive officer purchased 1,220,000 units of this private placement
        representing subscription proceeds of $244,000. In conjunction with the
        private placement, the Company paid $1,500 and issued 30,000 units as
        a finders fee. Also, on February 21, 2007 the Company issued 275,000
        units on account of this private placement representing $55,000.

20

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|17. | Subsequent events (continued):   
|--- | ---------------------------------
|    |                                  
|    | (b)                              
|    |                                  
|    |                                  
|    |                                  
|18. | Recent accounting pronouncements:
|    |                                  
|    | (a)                              
|    |                                  
|    | (b)                              
|    |                                  
|    | (c)                              

21

---

|BRAINTECH, INC.                           
|------------------------------------------
|                                          
|Notes to Consolidated Financial Statements
|(Expressed in United States dollars)      
|                                          
|Years ended December 31, 2006 and 2005    
|                                          

|18. | Recent accounting pronouncements (continued):
|--- | ---------------------------------------------
|    |                                              
|    | (d)                                          
|    |                                              
|    | (e)                                          

22

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

None.

ITEM 8A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of
1934, as of the end of the period covered by the annual report, being December
31, 2006, we have carried out an evaluation of the effectiveness of the design
and operation of our companys disclosure controls and procedures. This
evaluation was carried out under the supervision and with the participation of
our companys management, including our companys president and our companys
chief executive officer. Based upon that evaluation, our companys Chief
Financial Officer and our companys Chief Executive Officer concluded that our
companys disclosure controls and procedures are effective as at the end of the
period covered by this report. There have been no material changes in our
internal controls over financial reporting that occurred during our most recent
fiscal quarter that have affected, or are reasonably likely to affect our
internal controls over financial reporting.

Disclosure controls and procedures and other procedures that
are designed to ensure that information required to be disclosed in our reports
filed or submitted under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time period specified in the
Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include, without limitation,

31

---

controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Securities Exchange Act
of 1934 is accumulated and communicated to management including our president
and chief executive officer as appropriate, to allow timely decisions regarding
required disclosure.

ITEM 8B. OTHER INFORMATION

Not Applicable

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
22, 2007, with respect to our directors, executive officers and
key employees.

|Name                | Age | Position                                                         
|------------------- | --- | -----------------------------------------------------------------
|Owen L.J. Jones     | 55  | Director, and
      Chief Executive Officer                      
|Babak Habibi        | 36  | Director, President, and Chief
      Operating Officer           
|Edward A. White     | 62  | Director, Chief
      Financial Officer, Treasurer, and Secretary
|James L. Speros*    | 47  | Director                                                         
|Drew Miller         | 48  | Director                                                         
|Clifford G. Butler* | 53  | Director                                                         

* Denotes member of the audit committee.

Owen L.J. Jones has been 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.

Babak Habibi was appointed as a Director and president
effective June 19, 2001. Prior to his appointment as President, Mr Habibi was
Vice President of Engineering. Mr. Habibi supervises the design, development,
and deployment of 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.

32

---

Edward A. White was appointed as a Director and Chief
Financial Officer and Treasurer effective November 1, 2000 and was appointed as
Secretary on August 28, 2002. Mr. White has been a member of the British
Columbia Institute of Chartered Accountants for 33 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 holds a
Bachelor of Commerce Degree for the University of British Columbia as well as
his CA Degree. Mr. White is not a director of any other public companies.

James L. Speros was appointed a director of our company
on September 15, 1998. Mr. Speros was also a director, President and Chief
Executive Officer of Sideware Systems Inc. and of Sideware Corp., a wholly owned
subsidiary of Sideware Systems Inc. Mr. Speros is currently Chairman of Chalk
Inc., a wholly owned subsidiary of Chalk Media Corp., a public company trading
on the TSX Venture Exchange. From July 2005 to June 2006, Mr. Speros served as
CEO of Chalk Inc.

Dr. Drew Miller has been the President of Heartland
Consulting Group since 1994. He serves on the Board of Directors and Audit
Committee of Signature Eyewear Inc (OTC:SEYE). In past positions he served as
President of Financial Continuum, a financial planning firm; Vice President of
Planning and Development at Securities America, one of the largest independent
broker-dealers in the United States; and President of Global Vantage Securities,
an investment banking firm. Dr. Miller is a Certified Management Accountant,
Certified Mergers and Acquisitions Advisor, Certified Financial Planner and a
Certified Government Financial Manager. Dr. Miller began his business career at
ConAgra Inc in their Corporate Planning and Development department after serving
as an Air Force intelligence officer. Dr. Miller served in the Pentagon in the
Senior Executive Service, and continues to pursue defense analysis work as a
consultant with the Institute for Defense Analyses and a Colonel in the USAF
Reserve. Dr. Miller is a summa cum laude graduate of the U.S. Air Force Academy,
and received an academic scholarship to Harvard Universitys Kennedy School of
Government where he earned a Masters Degree and PhD in Public Policy. He
currently serves as a member of the University of Nebraska Board of Regents.

Clifford G. Butler was appointed as a director on May
10, 2006. Mr. Butler is currently President and CEO of the BAS Group, Inc., a
privately held automotive service center, Managing Member of 14720 Southlawn,
LLC, a private company that owns and manages commercial investments and
commercial real estate, Managing Member of 2916 Palm Blvd., LLC, a private
company that owns and operates resort investment real estate, and President and
Chief Operating Officer of Aviation Facilities Corporation, Inc., an aviation
real estate venture that owns and operates the leasehold for 60 individual
aircraft T-Hangers for the indoor storage of aircraft. Throughout the 80s and
early 90s, Mr. Butler was a lessee member of Congressional Air, Ltd., an
aircraft charter operation, and he played a vital role in its success. Mr.
Butler has over 33 consecutive years of Entrepreneurial experience in the
private sector. Mr. Butler is not a director of any other public companies.

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.

33

---

Family Relationships

There are no family relationships among our directors or
officers.

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
      FormsBabak Habibi
    Nil
    Nil
    NilOwen Jones
    1 (2)
    1
    NilEdward White
    Nil
    Nil
    NilJames Speros
    1 (2)
    1
    NilRichard Torre
    1 (2)
    1
    NilDrew Miller
    Nil
    Nil
    NilClifford Butler
      2 (1) (2)
    2
    Nil


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

(2) 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.

We will provide a copy of our Code of Ethics and Business
Conduct to any person without charge, upon request. Requests can be sent to
Braintech, Inc. at #102 - 930 West 1st St., North Vancouver, B.C.
Canada or via email to ir@braintech.com.

34

---

ITEM 10. EXECUTIVE COMPENSATION

The following table shows compensation paid to our Executive
Officers during the two fiscal periods ended December 31, 2005.

Summary Compensation Table

Name and Principal 
        Position
      Year
      Annual Compensation
      Long Term Compensation
      All Other 
        CompensationSalary
      Bonus
      Other
      Awards
      PayoutsRestricted 
        Stock 
        Awards
      Securities 
        Underlying 
        Options/SARsOwen Jones , CEO and 
        Director
      2005 
        2004
      124,500 
        115,500
      Nil 
        Nil
      7,970 
        Nil
      Nil 
        Nil
      100,000 
        Nil
      Nil 
        Nil
      Nil 
        NilBabak Habibi President, 
        COO and Director
      2005 
        2004
      99,600 
        92,400
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      100,000 
        Nil
      Nil 
        Nil
      Nil 
        NilEdward A. White, CFO, 
        Treasurer, Secretary and Director
      2005 
        2004
      99,600 
        92,400
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      350,000 
        Nil
      Nil 
        Nil
      Nil 
        Nil


There were no stock options granted to any of our Officers
during the year ended December 31, 2006.

SUMMARY COMPENSATION

Name and Principal
      Position
      Year
      Salary ($)
      Bonus ($)
      Stock Awards ($)
      Option Awards
      ($)
      Non-Equity Incentive Plan
      Compensa- tion ($)
      Change in Pension Value and
      Nonqualified Deferred Compensation
      Earnings ($)
      All Other
      Compensa- tion ($)
      Total ($)(a)
    (b)
    (c)
    (d)
    (e)
    (f)
    (g)
    (h)
    (i)
    (j)Owen Jones CEO and Director
    2006
    132,000
    Nil
    Nil
    Nil
    Nil
    Nil
    12,672
    144,672Babak Habibi President, COO and Director
    2006
    105,600
    Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    105,600Edward A. White, CFO, Treasurer, Secretary, and Director
    2006
    105,600
    Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    105,600


35

---

**GRANTS OF PLAN-BASED AWARDS**

Name
      GrantDate
      Estimated Future Payout UnderNon-Equity Incentive Plan Awards
      Estimated Future Payouts UnderEquity Incentive PlanAwards
      All OtherStockAwards:Numberof Sharesof Stockor Units(#)
      All OtherOptionAwards:Number ofSecuritiesUnderlyingOptions(#)
      Exerciseor BasePrice ofOptionAwards($/Sh)Threshold($)
      Target($)
      Maximum($)
      Threshold(#)
      Target(#)
      Maximum(#)(a)
      (b)
      (c)
      (d)
      (e)
      (f)
      (g)
      (h)
      (i)
      (j)
      (k)Owen 
        Jones , 
        CEO and 
        Director
      01/12/02 
        12/12/05
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      200,000 
        100,000
      0.20 
        0.40Babak 
        Habibi 
        President, 
        COO and 
        Director
      17/12/02 
        05/11/03 
        12/12/05
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      150,000 
        500,000 
        100,00
      0.20 
        0.60 
        0.40Edward 
        A. White, 
        CFO, 
        Treasurer 
        Secretary, 
        and 
        Director
      17/12/02 
        25/01/05 
        12/12/05
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      Nil
      150,000 
        250,000 
        100,000
      0.20 
        0.65 
        0.40


36

---

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

Options Awards
      Stock AwardsName
      Number of Securities
        Underlying Unexercised Options (#) Exercisable
      Number of Securities
        Underlying Unexercised Options (#) Unexercisable
      Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)
      Option Exercise Price ($)
      Option Expiration Date
      Number of Shares
        or Units of Stock That Have Not Vested (#)
      Market Value of
        Shares or Units of Stock That Have Not Vested
        ($)
      Equity Incentive Plan Awards: Number of Unearned
        Shares, Units or Other Rights That
        Have Not Vested (#)
      Equity Incentive Plan Awards: Market or Payout
        Value of Unearned Shares, Units
        or Other Rights That Have Not
        Vested ($)(a)
      (b)
      (c)
      (d)
      (e)
      (f)
      (g)
      (h)
      (i)
      (j)Owen 
        Jones , 
        CEO and 
        Director
      200,000 
        50,000
      Nil 
        50,000
      Nil 
        Nil
      0.20 
        0.40
      01/12/07 
        11/12/10
      Nil
      Nil
      Nil
      NilBabak 
        Habibi 
        President, 
        COO and 
        Director
      150,000 
        500,000 
        50,000
      Nil 
        Nil 
        50,000
      Nil 
        Nil 
        Nil
      0.20 
        0.60 
        0.40
      16/12/07 
        4/11/08 
        11/12/10
      Nil
      Nil
      Nil
      NilEdward 
        A. White, 
        CFO, 
        Treasurer 
        Secretary 
        and 
        Director
      150,000 
        200,000 
        50,000
      Nil 
        50,000 
        50,000
      Nil 
        Nil 
        Nil
      0.20 
        0.65 
        0.40
      16/12/07 
        24/01/10 
        11/12/10
      Nil
      Nil
      Nil
      Nil


37

---

OPTION EXERCISES AND STOCK VESTED

Options Awards
      Stock AwardsName
      Number of Shares
        Acquired on Exercise (#)
      Value Realized Upon Exercise ($)
      Number of Shares Acquired on Vesting (#)
      Value Realized on Vesting ($)(a)
      (b)
      (c)
      (d)
      (e)Owen Jones , CEO 
        and Director
      Nil
      Nil
      Nil
      NilBabak Habibi 
        President, COO and 
        Director
      Nil
      Nil
      Nil
      NilEdward A. White, 
        CFO, Treasurer, 
        Secretary and 
        Director
      Nil
      Nil
      Nil
      Nil


DIRECTOR COMPENSATION(1)

Name
      Fees Earned or Paid
      in Cash ($)
      Stock Awards ($)
      Option Awards
      ($)
      Non-Equity Incentive
      Plan Compensation ($)
      Change in Pension Value and
      Nonqualified Deferred Compensation Earnings
      All Other
      Compensation ($)
      Total ($)(a)
    (b)
    (c)
    (d)
    (e)
    (f)
    (g)
    (h)James Speros Director
    12,250
    Nil
    Nil
    Nil
    Nil
    Nil
    12,250Drew Miller(2)Director
    11,750
    Nil
    Nil
    Nil
    Nil
    Nil
    11,750Clifford Butler(3)Director
    6,650
    Nil
    37,239
    Nil
    Nil
    Nil
    43,889


(1) For information regarding directors who are also
officers, please see the tables above.(2) For the year ended December
31, 2006, we owed Mr. Miller $11,500 in accrued but unpaid salary. For the year
ended December 31, 2005, we owed Mr. $7,113 in accrued but unpaid salary.
(3) For the year ended December 31, 2006, we owed Mr. Butler $6,650
in accrued but unpaid salary

38

---

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 (#)
      Aggregate 
        Value 
        Realized
      Number of Securities  Underlying 
        Unexercised Options/SARs at 
        end of fiscal year 
        Exercisable / Unexercisable
      Value of Unexercised In-the  -Money Options/SARs
        at FY- 
        end ($) 
        Exercisable / Unexercisable(1)Exercisable
      Unexercisable
      Exercisable
      UnexercisableOwen L.J. Jones
      Nil
      Nil
      300,000(2)
      Nil
      16,000(1)
      N/A


(1) The values for
"in-the-money" options are calculated by determining the difference between the
fair market value of the securities underlying the options as of December 31,
2006 ($0.28 per share on OTC Bulletin Board) and the exercise price of the
individual's options.

(2)The total of 300,000
options granted to Mr. Jones represents, 200,000 options granted to Mr. Jones
during the fiscal year ended December, 31, 2002 and 100,000 options granted to
Mr. Jones during the fiscal year ended December 31, 2005

Compensation to our Directors

We currently provide the following compensation to our
directors who are executive officers:

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 $11,000 (CDN$12,500) 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 $8,800
(CDN$10,000) 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 $8,800
(CDN$10,000) 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.

Non-executive Directors

We currently provide the following compensation to our
non-executive directors:

39

---

- Annual fee of $10,000 to be paid at the end each calendar quarter.
- Board of Director meeting fees of $750 per meeting attended in person or
  $250 per meeting attended by telephone.
- Committee meeting fees of $500 per meeting attended in person or $250 per
  meeting attended by telephone.
- Annual stock option award.

To date we have accrued these director fees for future payment.

The aggregate amount of cash remuneration that we paid or
accrued to our directors as a group, was approximately $371,200 during the
fiscal year ended December 31, 2006. 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, 2006.

Name
    Grant Year
    Options Granted
    Number Exercised
    Number Outstanding
    Exercise Price
    Market Value of Underlying Shares
      at Date of Grant
    Expiry Date (m/d/y)Owen L.J. Jones
    2005 2002
    100,000 200,000
    Nil Nil
    100,000 200,000
    $0.40 $0.20
    $0.40 $0.20
    12/11/10 12/01/07Babak Habibi
    2005 2003 2002
    100,000 500,000 150,000
    Nil Nil Nil
    100,000 500,000 150,000
    $0.40 $0.60 $0.20
    $0.40 $0.60 $0.15
    12/11/10 11/04/08 12/16/07Edward A. White
    2005 2005 2002
    100,000 250,000 150,000
    Nil Nil Nil
    100,000 250,000 150,000
    $0.40 $0.65 $0.20
    $0.40 $0.62 $0.15
    12/11/10 01/24/10 12/16/07James Speros
    2005 2005 2002
    47,000 100,000 50,000
    Nil Nil Nil
    47,000 100,000 50,000
    $0.66 $0.65 $0.20
    $0.66 $0.62 $0.20
    02/09/10 01/24/10 12/01/07Drew Miller
    2005
    100,000
    Nil
    100,000
    $0.46
    $0.46
    08/25/10Clifford Butler
    2006
    100,000
    Nil
    100,000
    $0.51
    $0.51
    05/09/11


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

40

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

Equity Compensation Plan Information as of December 31, 2006

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
    3,396,000
    $0.48
    850,800Equity compensation plans not approved by security
      holders
    13,082,250
    $0.34
    NilTotal
    16,478,250
    $0.37
    878,300


We have set forth in the following table certain information
regarding our common stock beneficially owned on March 22, 2007 for (i) each
shareholder we know to be the beneficial owner of 5% or more of our outstanding
common stock, (ii) each of our executive officers and directors, and (iii) all
executive officers and directors as a group. In general, a person is deemed to
be a "beneficial owner" of a security if that person has or shares the power to
vote or direct the voting of such security, or the power to dispose or to direct
the disposition of such security. A person is also deemed to be a beneficial
owner of any securities of which the person has the right to acquire beneficial
ownership within 60 days. As of March 22, 2007, we had 33,532,433 shares of
common stock issued and outstanding.

Name and Address of Beneficial Owner
      Amount and Nature of Beneficial
      Ownership
      Percentage of
      Class(1)Owen L.J. Jones* 309  9th Avenue New Westminster, BC V3L
      2A2
    12,594,639(2)
    31.69%Babak Habibi* 1680 Orkney Place North Vancouver, BC V7H
      2Z1
    833,334(3)
    2.43%Edward A. White* 416-5 K de K Court New Westminster, BC
      V3M 6B6
    533,334(4)
    1.57%James L. Speros* 1921 Gallows Road, Suite 540 Vienna,
      Virginia 22182
    1,450,750(5)
    4.22%


41

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Name and Address of Beneficial Owner
      Amount and Nature of Beneficial
      Ownership
      Percentage of
      Class(1)Drew Miller* 1904 Barrington Parkway Papillion, Nebraska
      68046
    95,000(6)
    0.28%Clifford G. Butler* 19720 Golden Valley Lane Brookeville,
      MD 20833
    2,206,666(7)
    6.41%Frederick W. Weidinger 558 Innsbruck Avenue Great Falls,
      Virginia 22066
    5,583,750(8)
    15.03%All directors and executive officers as a group (6 Persons)
    17,713,723(9)
    41.48%


* Denotes a Director of the Company

| | (1) | Based on 33,532,433 shares of common stock issued and
      outstanding as of March 22, 2007. Beneficial ownership is determined in
      accordance with the rules of the SEC and generally includes voting or
      investment power with respect to securities. Except as otherwise
      indicated, we believe that the beneficial owners of the common stock
      listed above, based on information furnished by such owners, have sole
      investment and voting power with respect to such shares, subject to
      community property laws where applicable.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Includes 250,000 shares issuable pursuant to stock
      options and 5,961,324 shares issuable pursuant to share purchase warrants
      exercisable within 60 days. Figures stated for Mr. Jones exclude 321,934
      shares owned by Judy Jones, of which Mr. Jones disclaims beneficial
      ownership.                                                                                                                                                                                                                                                            
| | (3) | Includes 700,000 shares issuable pursuant to stock
      options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (4) | Includes 400,000 shares issuable pursuant to stock
      options exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | (5) | Includes 197,000 shares issuable pursuant to stock
      options and 673,750 shares issuable pursuant to share purchase warrants
      exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                      
| | (6) | Includes 75,000 shares issuable pursuant to stock options
      exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | (7) | Includes 50,000 shares issuable pursuant to stock options
      and 863,333 shares issuable pursuant to share purchase warrants
      exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                       
| | (8) | Includes 3,611,250 shares issuable pursuant to shares
      purchase warrants exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | (9) | Includes 1,622,000 shares issuable pursuant to stock
      options and 6,278,407 shares issuable pursuant to share purchase warrants
      exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                  

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

42

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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, and
DIRECTOR INDEPENDENCE

Transactions involving Directors

Other than as described under the heading "Executive
Compensation", no director, executive officer, principal shareholder holding at
least 5% of our common shares, or any family member thereof, had any material
interest, direct or indirect, in any transaction, or proposed transactions,
during the year ended December 31, 2006, in which the amount involved in the
transaction exceeded or exceeds the lesser of $120,000 or one percent of the
average of our total assets at year-end for the last three completed fiscal
years.

Owen L.J. Jones, a director and our Chief Executive
Officer:

Mr. Jones purchased 751,544 shares at a price of $0.60 per
share in a private placement conducted in the last quarter of 2002. For every
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, 2007;

Mr. Jones purchased 267,106 shares at a price of $0.31 per
share in a private placement conducted in the last quarter of 2002. For every
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, 2007;

Mr. Jones purchased 297,334 shares at a price of $0.27 per
share in a private placement conducted in the last quarter of 2002. For every
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, 2007;

Mr. Jones purchased 227,480 shares at a price of $0.21 per
share in a private placement conducted in the last quarter of 2002. For every
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, 2007;

Mr. Jones purchased 407,640 shares at a price of $0.15 per
share in a private placement conducted in the last quarter of 2002. For every
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, 2007;

Mr. Jones purchased 576,924 shares at a price of $0.20 per
share in a private placement conducted in the last quarter of 2002. For every
two shares purchased, Mr. Jones received one share purchase warrant, which
entitles him to purchase one additional share for one year at $0.25 per share.
We have voluntarily and without receipt of any further consideration agreed to
extend the share purchase warrants until December 17, 2007.

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. We have voluntarily and without receipt of any further
consideration agreed to extend the share purchase warrants until October 29,
2007;

In November 2006, Mr. Jones provided a $400,000 standby letter
of credit as partial security for the Royal Bank loan and as compensation he
received 800,000 common shares, 1,200,000 share purchase warrants exercisable at
$0.30 per share, and 600,000 share purchase warrants exercisable at $0.50 per
share. The share

43

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purchase warrants are exercisable for a period of five years.

Mr. Jones purchased 1,220,000 shares at a price of $0.20 per
share in a private placement conducted in the first quarter of 2007. For each
share purchased, Mr. Jones received one share purchase warrant, which entitles
him to purchase one additional share for three years at $0.25 per share.

Edward White, a director and our Chief Financial Officer

In March 2001, Mr. 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 every 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.

Babak Habibi, a director and our President and Chief
Operating Officer:

In June 2001, Mr. 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 every 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 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.

James Speros, a director:

On December 29, 2004 Mr. Speros purchased 125,000 Units at a
purchase price of $0.40 per Unit. On March 4, 2005 he purchased an additional
97,500 Units at a purchase price of $0.40 per Unit. Each Unit comprises one
share and one-half (1/2) share purchase warrant. Each whole warrant is
exercisable at $0.50 into one common share for five years. In conjunction with
private placements, in 2004, he received $12,500 in finders fees and in 2005 he
received $49,790 in finders fees. He also received 52,500 common shares at a
deemed price of $0.80 per share on account of finders fees and 55,000 common
shares at a deemed price of $0.50 per share on account of services rendered.
Effective February 1, 2005, we entered into a Marketing Communications Services
Agreement with Baldacci Communications LLC. The agreement and specifies monthly
payments of $26,000 for the first six months and $18,000 for the final six
months. Of these payments, Mr. Speros is entitled to receive from Baldacci
$12,000 per month during the first six months and $10,000 per month during the
final six months. The agreement with Baldacci Communications LLC was terminated
May 31, 2005. In November 2006, Mr. Speros provided a $125,000 standby letter of
credit as partial security for the Royal Bank loan and as compensation he
received 250,000 common shares, 375,000 share purchase warrants exercisable at
$0.30 per share, and

44

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187,500 share purchase warrants exercisable at $0.50 per share.
The share purchase warrants are exercisable for a period of five years.

Clifford Butlera director:

Mr. Butler purchased 110,000 shares at a price of $0.40 per
share in a private placement conducted in the first quarter of 2005. For each
two shares purchased, Mr. Butler received one share purchase warrant, which
entitles him to purchase one additional share for five years at $0.50 per share.

Mr. Butler purchased 750,000 shares at a price of $0.80 per
share in a private placement conducted in the second quarter of 2005. For each
two shares purchased, Mr. Butler received one share purchase warrant, which
entitles him to purchase one additional share for three years at $1.00 per
share. We have voluntarily and without receipt of any further consideration
agreed to reduce the exercise price of these warrants to $0.30 per share and
extend the exercise period to four years.

Mr. Butler purchased 433,333 shares at a price of $0.30 per
share in a private placement conducted in the third quarter of 2006. For each
share purchased, Mr. Butler received one share purchase warrant, which entitles
him to purchase one additional share for three years at $0.50 per share.

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

Transactions with Independent Directors

None of our independent directors entered into any transaction,
relationship or arrangement during the year ended December 31, 2006 that was
considered by our board of directors in determining whether the director
maintained his or her independence in accordance with Nasdaq Marketplace Rule
4200(a)(15).

Corporate Governance

We currently act with 6 directors, consisting of Owen L.J.
Jones, Babak Habibi, Edward A. White, James L. Speros, Drew Miller and Clifford
G. Butler.

We have determined that James L. Speros, Clifford G. Butler and
Drew Miller are independent directors, as that term is used in Item 7(b)(3)(iv)
of Schedule 14A under the Securities Exchange Act of 1934.

We currently act with a standing audit committee and a standing
compensation committee. Our audit committee is comprised of James L. Speros and
Clifford G. Butler. Our compensation committee is comprised of James L. Speros
and Clifford G. Butler. We do not have a standing nominating committee but our
entire board of directors acts as our nominating committee.

If any shareholders seeks to nominate a director or bring any
other business at any meeting of our shareholders, the shareholder must comply
with the procedures contained in our bylaws and the shareholder must notify us
in writing and such notice must be delivered to or received by the

45

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Secretary in accordance with Rule 14a-8 of the Exchange Act. A
shareholder may write to the Secretary of our company at our principal executive
office to deliver the notices discussed above and for a copy of the relevant
bylaw provisions regarding the requirements for making stockholder proposals and
nominating director candidates.

Audit Committee Financial Expert

Our board of directors has determined that we do not have a
board member that qualifies as an "audit committee financial expert" as defined
in Item 401(e) of Regulation S-B, We believe that our audit committee is capable
of analyzing and evaluating our financial statements and understanding internal
controls and procedures for financial reporting. The board of directors of our
company does not believe that it is necessary to have an audit committee
financial expert because our company believes that the functions of an audit
committees can be adequately performed by the audit committee without an audit
committee financial expert. In addition, we believe that retaining an new
independent director who would qualify as an "audit committee financial expert"
would be overly costly and burdensome and is not warranted in our circumstances
given the stage of our development.

ITEM 13. INDEX TO EXHIBITS

|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                                                                                   

46

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|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)   | Code of Business Conduct and Ethics
      for Directors, Officers and Employees           
|          |                                                                                           
|10.9(9)   | Corporate Governance Guidelines                                                           
|          |                                                                                           
|10.10(10) | Loan Agreement                                                                            
|          |                                                                                           
|10.11(10) | General Security Agreement                                                                
|          |                                                                                           
|10.12(10) | Service Agreement with Elite Financial
      Communications Group                         
|          |                                                                                           
|10.13(10) | 2003 Stock Option Plan                                                                    
|          |                                                                                           
|10.14(11) | Lease Agreement dated July 30,
      2003 between Hoop Realty and Braintech Canada, Inc.  
|          |                                                                                           
|10.15(12) | ABB Exclusive Channel Partner Agreement
      dated February 1, 2004                      
|          |                                                                                           
|10.16(13) | ABB Exclusive Channel Partner Agreement
      dated January 1, 2005                       
|          |                                                                                           
|10.17(14) | Marketing Communications Services
      Agreement with Baldacci Communications, LLC,      
|          |                                                                                           
|10.18(15) | ABB Exclusive Global Channel Partner
      Agreement dated April 1, 2006                  
|          |                                                                                           
|10.19(16) | Form of Loan Guarantee and Subscription
      Agreement                                   
|          |                                                                                           
|10.20(16) | General Security Agreement dated
      October 18, 2006                                   
|          |                                                                                           
|11.1      | Computation of net loss
      per share                                                   
|          |                                                                                           
|23.1      | Consent Letter from Auditor
      dated March 5, 2007                                     
|          |                                                                                           
|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

* Filed here

|(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.                              
|(13) | Exhibit already on file - exhibit to our Form 8-K filed
      January 19, 2005.                           
|(14) | Exhibit already on file - exhibit to our Form 8-K filed
      March 3, 2005.                              
|(15) | Exhibit already on file  exhibit to our Form 10QSB
      covering the quarter ended March 31, 2006.      
|(16) | Exhibit already on file  exhibit to our Form 8-K filed
      October 26, 2006.                           

47

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ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

Fees for audit services totalled $38,527 for the fiscal year
ended December 31, 2006 and $63,414 for the fiscal year ended December 31, 2005,
including fees associated with the audit of the annual financial statements and
review of financial statements included in quarterly filings.

Audit-Related Fees

Fees for audit-related services totalled $12,325 for the fiscal
year ended December 31, 2005. $8,748 of these services were in connection with
discussions related to the Securities and Exchange Commissions request for
supplemental information and $3,577 of these services related to consent and
filing of Form S-8. There were no audit-related services for the fiscal year
ended December 31, 2006.

Tax Fees

Fees for tax services totalled $3,520 for the fiscal year ended
December 31, 2005, regarding the preparation of and filing of the Canadian
corporate income tax return for the 2005 fiscal year. Fees for tax services
totalled $60,136 for the fiscal year ended December 31, 2005 regarding
preparation and filing of Canadian and United States corporate income tax
returns for the all fiscal years to 2004.

All Other Fees

No fees were billed for professional services during the fiscal
years ended December 31, 2006 and 2005 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 2006 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).

48

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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 |  | Chief Executive Officer,            | March 22, 2007
|Owen L.J. Jones            |  | Director                            |               
|                           |  | (Principal Executive Officer)       |               
|                           |  |                                     |               
|                           |  |                                     |               
|/s/ Babak Habibi           |  | President, Director,                | March 22, 2007
|Babak Habibi               |  |                                     |               
|                           |  |                                     |               
|                           |  |                                     |               
|/s/ Edward A.
      White  |  | Chief Financial Officer,            | March 22, 2007
|Edward A. White            |  | Director                            |               
|                           |  | (Principal Financial and Accounting |               
|                           |  | Officer)                            |               

49

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