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 endedDecember 31, 2005  [ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period fromto  Commission file number   BRAINTECH, INC.(Name of small business issuer in its charter)  Nevada
        
        98-0168932(State or other jurisdiction of incorporation or organization)
        
        (I.R.S. Employer Identification No.)  #102  930 West 1st StreetNorth Vancouver, BC  Canada
        
        V7P 3N4(Address of principal executive offices)
        
        (Zip Code) Issuers telephone number(604) 988-6440 Securities registered pursuant to Section 12(b) of the Act:  Title of each classNil
        
        Name of each exchange on which registeredNil Securities registered pursuant to Section 12(g) of the Act:  Common Stock, $0.001 par value(Title of class)  Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.YesxNo [   ]  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  [   ]          Nox  1       State issuer's revenues for the most recent fiscal year:$1,203,170  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 27, 2006: $6,633,556.  State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:  24,487,237 common shares, par value $0.001, as at March 29, 2006.  Transitional Small Business Disclosure Format (Check one):
        Yes [ ]
        Nox   2       Braintech, Inc. Form 10-KSB TABLE OF CONTENTS Page  PART I  Risk Factors
        13  Item 1.
        Description of Business
        4  Item 2.
        Description of Property
        17  Item 3.
        Legal Proceedings
        17  Item 4.
        Submission of Matters to a Vote of Security Holders
        17   PART II  Item 5.
        Market for Common Equity and Related Stockholder Matters
        17  Item 6.
        Management's Discussion and Analysis
        19  Item 7.
        Financial Statements
        28  Item 8.
        Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
        58  Item 8A.
        Controls and Procedures
        58  Item 8B.
        Other Information
        58   PART III  Item 9.
        Directors, Executive Officers, Promoters, andControl Persons
        58  Item 10.
        Executive Compensation
        62  Item 11.
        Security Ownership of Certain Beneficial Owners and Management And Related Stockholder Matters
        64  Item 12.
        Certain Relationships and Related Transactions
        66  Item 13.
        Exhibits and Reports on Form 8-K
        69  Item 14.
        Principal Accountant Fees and Services
        71   3       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$0.83, being the average exchange rate during the year ended December 31, 2005.  PART I.  ITEM 1.  DESCRIPTION OF BUSINESS  Business Development  Our company was incorporated in Nevada on March 4, 1987 under the name Tome Capital Inc.  We changed our name to Nevada Manhattan Mining Inc. on August 15, 1988, then back to Tome Capital Inc. on July 5, 1990. On February 19, 1993, we changed our name to Offshore Reliance Ltd. Then, on April 20, 1993, we changed our name to Cozy Financial Corporation. On January 3, 1994, we changed our name to Braintech, Inc.  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 site is found at  www.braintech.com.  We have two wholly owned subsidiaries.  The first, Braintech Canada, Inc., was incorporated in British Columbia, Canada on March 3, 1994 under the name Brainware Systems Inc.   Brainware  4      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.  The description of our business in this annual report includes the activities of both Braintech, Inc. and Braintech Canada, Inc.  Our other subsidiary was incorporated on September 15, 1999, as 9141 Investments Ltd.  On September 19, 2001, 9141 Investments Ltd. changed its name to Brainware Systems Inc.  This subsidiary currently has no active operations.  Its function is to hold the Brainware Systems name.  Business of Issuer  Historical Development  We entered the technology field in the first quarter of 1994.  Since then, the majority of our efforts have been devoted to developing technologies and products to be used in machine vision or "computerized vision".  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 March 2000, we entered into a strategic alliance with ABB Inc. ("ABB").  ABB is a major supplier of industrial robots and manufacturing automation systems.  Based in Europe, ABB employs over 165,000 people in more than 100 countries.  Under the alliance agreement, we agreed to cooperate with ABB in identifying, developing, and pursuing business opportunities that combine the expertise and technology of the two companies.  Since entering into our alliance with ABB, we have focused on the development and implementation of vision guidance systems for robots used in the automobile manufacturing industry.  In 2000, we commenced the development of eVisionFactory ("eVF"), a software environment whose main components are: e - Real-Time Internet Support, V - Vision Science & Engineering, and F - Application Development & Operation.  eVF combines vision technology, systems engineering, and Internet-based service and support system.  Early in 2002 we completed a commercial version of eVF that did not include our Internet based service and support system.  We included eVF software with all of the systems that we have delivered since the commercial version was completed.  In the 2nd quarter of 2001, at the request of Ford Motor Company and in conjunction with ABB, we completed the development of a 3D single camera (SC3D) vision guidance system for robots used in 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.  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.   5       As a result of achieving market acceptance for TrueView through 2004, the two companies initiated a significant sales program that started in January 2005.  Accordingly in January 2005, the February 1, 2004 agreement was expanded to allow ABB to market TrueView, exclusively powered by our technology, to the countries of the European Economic Union and to sub-license TrueView to their business partners on a worldwide basis.  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 the design of vision guided robotic systems.  We expect this type of revenue to continue especially in light of our amended Exclusive Channel Partner Agreement.  In July 2001, we entered into a Memorandum of Understanding with Marubeni Corporation, pursuant to which, we and Marubeni have agreed to cooperate in developing and marketing vision systems for industrial applications including vision guided robots in Japanese and Asian markets.  During the 1st half of 2002, we continued the development of our relationship with Marubeni Corporation and that culminated in the signing of a Marketing and Development Agreement on June 24, 2002.  The agreement, which covers 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 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 agreed to remove the exclusivity clauses on the condition that we repurchase from Marubeni one of the eVF development licenses and one of the run-time licenses for $20,000.  The June 24, 2002 agreement with Marubeni 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 eVisionFactory 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 by us to ABB Japan as a regional resource for developing TrueView solutions for the Japanese market.  We have not at any time been able to generate sufficient revenue from sales of our services or products to sustain ongoing operations, and other than our agreement with ABB, we do not have an established distribution channels for our services or products.  In order to continue as a going concern, we will have to begin generating significant sales revenue.  From inception on January 3, 1994 to December 31, 2005, we have generated total revenues of only $2,873,717 and as of December 31, 2005, we have incurred an aggregate deficit of $20,062,475 during our development and operations stage.  We may continue to incur significant additional operating losses as our product development, research and development, and marketing efforts continue.  Operating losses may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenue recognised.   6       Principal Products and Services  Our business consists of the development, supply and support of machine vision guidance systems for robots used in the automotive manufacturing industry.  The field of vision guided robotics requires our vision systems to incorporate advanced robotic engineering and programming know-how for optimal integration with the robotic systems.  Our products and services are suitable for both product inspection and location analysis applications, and the projects we have completed 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  Our principal product is eVisionFactory (eVF).  eVF is a comprehensive software environment used in the design, development, operation, and support of vision guided robotic systems.  We use the eVF environment and its array of comprehensive components to develop the custom vision guided robotic systems that we sell for use in industrial automation situations.  We have also developed comprehensive training procedures that allow other users, such as integrators and channel partners, to develop customized vision guided robotic systems.  eVF consists of two principal elements, a development environment and an Internet based service and support system (CoBuss).  The Internet based service and support system is still in the development stage and will be released separately.  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 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.  7       eVisionFactory  Internet-based Service and Support System  In the fall of 2000, we commenced development of a system for Internet based service and support of industrial systems.  During the first half of 2001, for development purposes we began to incorporate this system as part of eVisionFactory.  The principal components of the system include the following:  -
        communication devices, to transmit messages between on-site personnel and a server operating at the industrial site; -
        a server which controls communication within the industrial site, and which also connects to internet sites offering web based technical support; and -
        web based technical support applications, queuing mechanisms, channel managers, and synchronization mechanisms designed to respond to technical inquiries over the Internet.  Initially, our Internet-based service and support system will use networked computers to carry out its communication functions.  We also plan to incorporate wireless communication features for use by on-site personnel.  We plan to implement the wireless components of the system through universally accepted standards for short-range wireless communications, such as Bluetooth communications protocols or the 802.11b standard protocol.  Both sets of protocols are used in implementing wireless networks, and are compatible with TCP/IP protocols used in transmitting data over the Internet.  We do not yet have a timetable for completion of the wireless components.  To complete development of the system we will have to develop interfaces between the wireless components and software applications that will be used to support Internet based communications.  We are developing software that will permit companies operating the Internet based service and support system to obtain the following types of support services in a secure manner:  -
        Fault Information Wizards.  The wizards will ask the system operator a few simple questions aimed at identifying the nature of the problem and its location.  The system then transmits the support request to the remote support facility.  The technical support staff will acknowledge the receipt of the support request and respond by invoking one of three support mechanisms provided by the system;  -
        Two-way text chat capability.  If the problem description is unclear from the request, the technical support person can initiate a chat session and ask specific questions to ascertain the true nature of the problem.  The chat capability will be available from the eVF interface installed in the PC on the factory floor.  -
        Trouble-shooting Wizards.  The system is capable of storing troubleshooting wizards for typical problems that can be transmitted to the system operator.  The wizards are designed to guide the operator in a step-by-step fashion with the aid of clear schematics to resolve the fault;  -
        Remote Diagnostics.  The system has been designed to enable the support person to take remote control of the vision system when offline and when permitted by the operator, to identify and resolve a problem.  We plan initially to market our Internet-based service and support system to users of our vision guided robotic systems.  However, our Internet-based service and support system can be adapted  8      for use with a variety of industrial manufacturing systems.  Accordingly, we also we plan to market the system through our alliance with ABB, to users of industrial robotic systems developed by ABB.  Investors are cautioned that our Internet-based service and support system is in the development stage, and that we have no assurance that we will be able to complete technical development of the system, or to market the system successfully if it is completed.  Since its initial development in 2002 we have continued to add functionality to eVF by developing additional 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.   9       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 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.  Industry Background  The growth of the machine vision industry is dictated, on the one hand, by the technical difficulty of achieving accurate "computerized vision", and on the other hand, by the vast theoretical scope of the potential applications.  The principal technical difficulties include the problems of compensating for background interference 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 pre-processing module performs the following principal functions: -
        It filters out noise and other apparent anomalies in the digital data. -
        It segments the data by identifying subsets of the digital data which represent candidates for physical objects that the vision system is intended to recognize. -
        It transforms data by deriving selected numerical characteristics of the data subsets identified as potential objects.  The numerical characteristics may include such quantities as the length or width of the object, or a series of numbers describing its colour or texture.  10      The numerical quantities thus derived are stored as a vector, referred to as the "physical signature" of the potential object.  Training and Matching Module:The training and matching module performs two essential functions. -
        It receives the physical signatures of potential objects and attempts to match them to the signatures of specified objects already stored in memory (the objects the system is trying to locate or recognize).  The training and matching module "classifies" physical signatures by calculating how well they match the signatures stored in memory.  Since physical objects are unlikely to be perfectly identical, or to be described perfectly by a digitized version of visual input, classification necessarily involves the comparison of approximate quantities.  The classification of physical signatures thus requires a mathematical algorithm for deciding how closely a physical signature and a signature match.  A variety of mathematical models, including fuzzy mathematics and standard probability error functions, can be used to fulfil this requirement.  While the technical
details of the mathematical models differ, they have the common object of producing a numerical measure of how closely two mathematical data vectors match. -
        It refines the stored signatures to which future physical signatures can be matched, that is it "trains" the system for more accurate object recognition in the future.  Depending on the mathematical algorithm used to identify matching signatures, the training and matching module can adjust the appropriate memory signatures, or the mathematical parameters or functions used in matching physical signatures to the signatures stored in memory.  Control and Feedback Modules:The control and feedback module controls input to, and output from, the system.  The control and feedback module determines the extent to which the system is being trained and also permits direct operator participation in certain steps of the process, such as the identification of candidate objects or new objects.  When a physical signature does not match any of the signatures stored in memory, the control and feedback module can also initiate procedures to create a "new" signature in memory, to be used to identify the "new" object in the future.  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.   11       Research and Development  During the year ended December 31, 2005, we incurred research and development expense of $588,103, and during the year ended December 31, 2004, we incurred research and development expense of $503,145.  Substantially all of our research and development expenses consisted of internal personnel costs allocated to research and development.  For 2006, our own employees will do substantially all of our research and development work.  Intellectual Property  We believe that the 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), and SR3D (Surround Vision 3D); 
        software we have written and incorporated in the Internet based service and support system included in eVisionFactory; 
        software routines we have written from time to time in developing machine vision systems; and 
        software routine we have written from time to time in developing vision guided robotic systems.  In the United States Patent and Trademark Office, we have registered the trademarks Braintech, BrainTron, and eVisionFactory.  We have also applied for registration of the trademarks SC3Dand eVFwith the United States Patent and Trademark Office.  In the Canadian Trade-marks Office we have registered the trademarks eVF, eVisionFactory, and SC3D.  On January 31, 2002, we filed an application in the Canadian Patent Office regarding theMethod And Apparatus For Single Camera 3D Vision Guided Roboticsand 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 theMethod 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 theMethod And Apparatus For Single Image 3D Vision Guided Robotics.  On July 14, 2004 We filed an application in the United States Patent Office regarding theMethod And Apparatus For Multi Camera Surround 3D Vision Guided Robotics.On July 14, 2005 we filed a Continuation in Part entitledMethod And Apparatus For Machine-Visionwhich referenced the application regarding the Method And Apparatus For Multi Camera Surround 3D Vision Guided Roboticsas the Parent Application.   12       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 theMethod And Apparatus ForSingle Camera 3D Vision Guided Roboticsdescribed above, our application in the United States Patent Office regarding theMethod 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.  RISK FACTORS  Investment in our common stock involves a high degree of risk.  Prospective investors should carefully consider the following risk factors in addition to other information in this annual report before purchasing our common stock.  Because we have had negative cash flows from operations from inception to December 31, 2005, if we are not able to obtain further financing we may become insolvent and investors could lose their entire investment.  We have never earned substantial operating revenue.  We have been dependent on equity financing to pay operating costs and to cover operating losses.  We have sufficient cash and accounts receivable to pay ongoing operating expenses, at their current level, to approximately May 15, 2006.  To continue operation beyond that we will have to raise additional capital and/or generate significant revenue.  If we are unable to do so, we face a risk of insolvency.  The auditors report on our December 31, 2005 consolidated financial statements includes an additional paragraph that identifies conditions which raise substantial doubt about our ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Because we have accumulated losses of $20,062,475 from inception to December 31, 2005, we may not be able to raise the additional capital we need.  We have accumulated losses of $20,062,475 from inception to December 31, 2005 and have depended on sales of our equity securities and debt financing to meet our cash requirements. We will need to raise additional funds to continue the development of our products, to pay the costs of  13      marketing those products and to cover operating losses until we are able to become profitable.  As we have never generated operating profits or significant sales revenue, investors may decide that other companies are more attractive investments and choose not to invest in our company.  Several other factors may also hinder our efforts to raise capital.  They include the following:  
        Our share price has been highly volatile during 2003, 2004 and 2005.  The volatility of our share price may deter potential investors. 
        Many technology companies have experienced financial difficulties and rapidly declining share prices.  As a result, potential investors may be less willing to invest in technology companies generally.  Because we will have to raise additional capital, the interests of shareholders may be diluted.  To raise additional capital we may have to issue additional shares, which may dilute the interests of existing shareholders substantially.  Alternatively, we may have to borrow large sums, and assume obligations to make substantial interest and capital payments.  We may also have to sell significant interests in some or all of our products.  If we are able to raise additional capital, we cannot assure that it will be on terms that enhance the value of our common shares.  Because we have no significant sales history and are substantially dependent on our Exclusive Channel Partner Agreement with ABB Inc. to generate future sales, our future is uncertain if our relationship with ABB fails or ABB is not successful in generating the amount of sales that we need.  We believe our channel partner agreement with ABB is our best prospect for generating sales revenue.  We have no other established distribution channels or marketing arrangements.  If ABB does not generate sales for us, either as a result of unsuccessful sales efforts or a breakdown of our business relationship, we may not ever become profitable and our business may fail.  We are currently dependent on one channel partner for the sale of our products and if our channel partner is unable to generate significant sales of our products, our revenues may not increase significantly and our business and revenues may suffer.  We plan to market our vision guided robotic technologies, software products, and Internet based support and service system through our channel partner agreement with ABB. A channel partner is a party who will purchase our product for resale to end users.  Instead of selling and supporting the end user directly, we will utilize the channel partner to conduct the sales and support activities for our products. If ABB is unable to generate significant sales of our products, then we may not be able to significantly increase our revenues and our business, financial condition and results of operations would be materially and adversely affected.  Because our Internet based service and support system is in the development stage, we have no assurance that we will complete development successfully.  We commenced development of our Internet based service and support system during the fall of 2000.  That system is still in the development stage.  We have no assurance that we will be able to complete development of the system, or that any market will exist for the system when it is completed.   14       Because we develop and install customized vision guidance systems for specific customer needs, we may not be able to create a repeat customer base.  Most vision guidance systems are designed for the specific needs of a particular customer, and represent isolated purchases by the customers in question.  As a result, we have no assurance that we will be able to obtain additional contracts to supply our custom vision guidance systems, or that any customers we secure will become repeat customers.  Because our work force is small, with only 21 people employed either as officers, employees or contractors, we are vulnerable to the loss of key people or to rapid expansion.  We employ only 21 people either as officers, employees or contractors.  We try to employ people with skill sets that match the specific fields important to our business.  As a result, the departure of a single person or a small number of people could materially adversely affect our business.  We do not have key man insurance on any of the people we employ.  Qualified technical personnel are in great demand in all high technology industries.  Accordingly, it may be difficult for us to replace people who depart, or to hire additional people we may require if we are able to generate substantial sales.  Because we do not have patent protection for all of our products, our intellectual property may be copied or misappropriated.  On January 31, 2002, we filed an application in the Canadian Patent Office regarding theMethod And Apparatus For Single Camera 3D Vision Guided Roboticsand 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 theMethod 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 theMethod And Apparatus For Single Image 3D Vision Guided Robotics.  On July 14, 2004 We filed an application in the United States Patent Office regarding theMethod And Apparatus For Multi Camera Surround 3D Vision Guided Robotics.On July 14, 2005 we filed a Continuation in Part entitledMethod And Apparatus For Machine-Visionwhich referenced the application regarding the Method And Apparatus For Multi Camera Surround 3D Vision Guided Roboticsas the Parent Application.  These are the only instances in which we have applied for patent protection of our intellectual property. Accordingly, we have limited legal means to prevent other companies from developing products that perform similar functions in a similar way.  We believe that the software code that we have written for eVisionFactory and each of our custom vision guidance systems is protected by copyright law.  However, copyright law does not prevent other companies from developing their own software to perform the same functions as our products.  Because the market price of our common stock has been particularly volatile, purchasers of our common stock face a high degree of market risk.  15       The market price of our common stock has experienced extreme fluctuations.  Since January 1, 2005 the market price of our common stock has varied between $0.35 and $0.99.  As we have not announced any material changes to our operations, we believe that the fluctuations in our stock price have resulted primarily from market perceptions of the speculative value of our business opportunities.  The susceptibility of our stock price to fluctuation exposes purchasers of our stock to a high degree of risk.  Because a significant percentage of our issued shares has recently become free trading, and because of the size of anticipated share offerings, there is a risk of downward pressure on our stock price.  During 2004 and early 2005, we issued approximately 2.0 million shares in private placements and other transactions.  Many of those shares are now eligible for re-sale under Rule 144 to the Securities Act of 1933.  In addition, during 2003 and 2004 we issued $2,250,000 in convertible debentures bearing interest at 8% per annum.  The debenture principal and accrued interest are convertible into units at $0.25 per unit, each unit consisting of one common share and one-half share purchase warrant.  In conjunction with the convertible debentures, we issued 595,000 common shares and 297,500 share purchase warrants for finders fees.  During the balance of 2005 and early 2006, we issued approximately 3 million shares in private placement and other transactions.  We may register these shares for resale.  The market price of our stock could drop significantly if the owners of these shares sell all or a large
portion of the shares, or are perceived as intending to sell them.  Substantially 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.  Substantially 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, a 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.  Trading of our stock may be restricted by the SEC's penny stock regulations, which may limit a 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  16      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 $189,000 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.  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.    17       The following table shows the high and low bid information for our common shares for the quarters indicated.  Quarter
        
        High
        Low
        Close($)
        ($)
        ($)2005Fourth quarter
        
        0.57
        0.37
        0.40Third quarter
        
        0.53
        0.35
        0.51Second quarter
        
        0.92
        0.40
        0.48First quarter
        
        0.94
        0.42
        0.822004Fourth quarter
        
        0.66
        0.32
        0.45Third quarter
        
        0.48
        0.33
        0.48Second quarter
        
        0.80
        0.42
        0.42First quarter
        
        0.78
        0.36
        0.70  The source of this information is the OTC-Bulletin Board.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.  Holders  As at March 29 2006, we have 24,487,237 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 page58.  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.  18       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" included elsewhere in this document.  Except for historical information, the following discussion contains forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions and our current beliefs regarding revenues we might earn if we are successful in implementing our business strategies. See "Special Note Regarding Forward-Looking Statements" for further information regarding forward-looking statements.  Our actual results may differ materially from the results discussed in the forward-looking statements as a result of a number of factors, many of which are beyond our control, including those factors discussed under "Risk Factors" and other headings in
this document, which could, among other things, cause the price of our common stock to fluctuate substantially.  Overview  We generate the majority of our revenues from the sale of computer software that we have developed and that we believe constitutes intellectual property belonging to us.  Our software sales have principally involved computerized vision systems used for the guidance of industrial robots performing automated assembly, material handling, and part identification and inspection functions.  We have generated total revenues, from inception on January 3, 1994 to December 31, 2005, in the amount of $2,873,717.  We have incurred aggregate net losses of $20,062,475 during the period from our inception on January 3, 1994, to December 31, 2005.  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.  Fiscal 2005 Priorities  At the beginning of fiscal 2005, we set strategic operating priorities for the ensuing year.  These priorities and the results are as follows:  Our first and major priority for 2005 was to significantly grow our revenue through our Channel Partner Agreement with ABB so that we may eventually reduce our reliance on equity financing to fund our operations.  During the second quarter of 2005, we started to achieve this priority.  During the year ended December 31, 2005, we invoiced approximately $1,265,000 and, in accordance with the software revenue recognition rules, we recorded approximately $1,200,000 in revenues.  Although not significant in terms of profitability, it is significant in terms of increase over previous years and as a percent of our total revenue generated from inception.  We achieved this revenue growth on several fronts as follows:  We assisted ABB with their TrueView marketing and sales program which expanded their sales in North America and Japan.  We expanded the product line of eVF application solutions for ABBs automotive customers by developing body panel handling, adhesive application and inspection, and real time visual tracking.  It is our plan to eventually develop application for each of the automotive business units within ABB.  In doing so, we will be able to utilize the sales personnel attached to each of these divisions.  We expanded our revenue sources outside ABB and the automotive industry by pursuing opportunities with the United States Government.  Our provision of vision guidance software  19      for Nuclear Waste Handling systems for the Idaho National Laboratory and the receipt of a purchase order for the supply of a 3D vision guided solution for the US Governments new Joint Strike Fighter demonstrates our successful pursuit of United States Government contracts.  Another priority for 2005 was to develop a commercialized version of our Internet-based services and support system.  On November 1, 2004, we announced the beta release of the new product: theCommunity Of Businesses Using Support Systems,orCoBuss.  Field trials have shown that CoBuss is capable of providing remote electronic support to our installed base of eVF VGR systems.  However, we have not yet completed development of a commercialized product and recognize that further research and development will be required.  Another priority for 2005 was to continue the development of our business in Asia through our relationship with Talk Engineering Co., Ltd.  Our marketing strategy was to combine the strength of ABBs TrueView brand of Vision Guided Robotics and the strength of Talks relationship with the Japanese automotive industry.  During the year ended December 31, 2005, we delivered four eVF runtime licenses, complete with SC3D functionality, for installation in two major Japanese automakers assembly plants.  To date, in 2006 we have delivered two additional eVF runtime licenses for additional installations in one of the automakers plants.  We expect that many more eVF runtime license deliveries will result from these successful installations.  Another priority for 2005 was to increase the public and investor visibility of our company and our products.  In order to accomplish this, we engaged a number of marketing and communications companies to assist us.  Our director, James Speros, is also engaged in public and investor relations activities on our behalf.  Another priority for 2005 was to continue to add functionality to eVF by developing additional components and features.  During the year ended December 31, 2005, we added the following components to eVF:  AccuTest:AccuTest allows operators to rapidly and accurately validate the robustness and reliability of a vision guided robotic system before and during field deployment.  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 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.  Fiscal 2006 Priorities  Our first and major priority for fiscal 2006 is to continue growing our revenue so that we achieve an operating profit for the year ended December 31, 2006.  We intend to achieve this revenue growth on several fronts as follows:  20       We intend to expand our relationship with ABB by assisting them with their TrueView marketing and sales program throughout North America, Europe and Asia.  We also intend to continue to expand our product line to develop applications for each of the automotive business units within ABB and in doing so, utilize the sales personnel attached to each of these divisions.  We also intend to continue to expand our revenue sources outside ABB and the automotive industry.  We will continue to pursue opportunities with the United States Government; particularly the Departments of Energy, Defense and Homeland Security.  In September 2005, we introduced the eVF Evaluation Kit.  The Evaluation Kit enables engineers, systems integrators and process design engineers to rapidly develop and run adaptive applications in real world environments.  We have experienced significant interest in the Evaluation Kit and once engineers realize the ease of use of eVF they will create and develop their own vision guided robotic applications for eVF.  We anticipate that this could be a significant source of revenue for us.  Another priority for 2006 is to continue the development of CoBuss, our Internet-based service and support system.  This product has attracted interest outside of our original target market of the industrial manufacturing industry and we intend to pursue these other markets throughout 2006.  We also intend to continue to add functionality to eVF by developing additional components and features.  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.   21       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, 2005 we incurred a foreign exchange loss of $17,150.  The foreign exchange loss resulted principally from transactions recorded in United States dollars for reporting purposes, but actually carried out in Canadian dollars.  As at the date of this annual report, we have not engaged in exchange rate-hedging activities.  To the extent we implement such hedging activities in the future, we cannot assure that we will be successful.  In the years ended December 31, 2005 and December 31, 2004 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, 2005 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, 2005 approximate their carrying values.  To December 31, 2005, the majority of our cash costs have been realized or incurred in Canadian dollars. To date we have not entered into foreign currency contracts to hedge against foreign currency risks between the Canadian dollar or other foreign currencies and our reporting currency, the United States dollar.  Generally, however, we attempt to manage our risk of exchange rate fluctuations by maintaining sufficient net assets in Canadian dollars to retire our liabilities as they come due.  Results of Operations  We believe that our limited history of revenue generation and recent business developments make the prediction of future results of operations difficult, and, accordingly, our operating results should not be relied upon as an indication of future performance.  The majority of our cash costs have been incurred in Canadian dollars.  Our reporting currency is the United States dollar.  At the end of each reporting period, we translate our expenses incurred in Canadian dollars into United States dollars at the average exchange rate for the period.  Fluctuations in the foreign exchange rate can have a substantial influence on reported expenses even though the actual expenditure has not increased or decreased to the same extent.  Year ended December 31, 2005 compared with year ended December 31, 2004  The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the year ended December 31, 2005 was 1.21173.  For the year ended December 31, 2004, the exchange rate was 1.29207.  The change in our operating expenses illustrates the effect of fluctuating foreign exchange rates have on our reported results.  Exclusive of the software license settlement recognized in 2004, we reported an increase in operating expenses of approximately $542,065 from $2,353,563 for the year ended December 31, 2004 to $2,895,628 for the year ended December 31, 2005.  However, when adjusted for the change in the foreign exchange rate,  22      the actual change in operating expense activity was an increase of approximately $362,018.  The foreign exchange adjustment accounted for an increase of $180,047 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, 2005 was $1,203,170 (December 31, 2004 - $749,969).  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, 2005, included approximately $901,600 for 46 vision systems delivered to ABB for installation in automobile manufacturing plants, approximately $84,300 for software delivered to Idaho National Laboratory, approximately $95,300 previously recorded as deferred revenue and amortized during the year into revenue in accordance with SOP 97-2, approximately $41,600 for eVF license sales (development licenses and off-line licenses), approximately $49,100 for commissioning 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%.  Revenue for the year ended December 31, 2004, included approximately $456,400 for 18 vision systems delivered to ABB for installation in automobile manufacturing plants, approximately $112,500 for 3 vision systems delivered to an independent integrator, approximately $68,600 previously recorded as deferred revenue and amortized during the year into revenue in accordance with SOP 97-2, approximately $113,700 for commissioning services, and approximately $18,300 for training and other services.  We also recorded a credit to revenue of $20,000 regarding the repurchase of licenses from Marubeni.  Cost of sales for the year ended December 31, 2004 was $76,939 or approximately 10.3%  We reported that research and development expenses increased $84,958 from $503,145 for the year ended December 31, 2004 to $588,103 for the year ended December 31, 2005.  The foreign exchange differential accounted for an increase of approximately $36,500 indicating that actual research and development activity increased by approximately $48,400.  The increase is attributable to an increase in wage and benefit costs and the hiring of one additional vision scientist.  We reported that selling, general, and administrative expenses increased $457,107 from $1,850,418 for the year ended December 31, 2004 to $2,307,525 for the year ended December 31, 2005.  The foreign exchange differential accounted for an increase of approximately $143,500 indicating an actual increase in activity of approximately $313,600.  Several factors contributed to the decrease and in discussing these factors, the foreign exchange element has been indicated.  The principal factors were as follows:  
        Actual general and administrative salaries increased approximately $33,100 from $909,500 to $942,600.  The foreign exchange differential accounted for an increase of approximately $62,500 resulting in a net reported increase of approximately $95,600.  The actual increase resulted from minor benefit cost increases and a net increase of our staff by one employee.  
        For the year ended December 31, 2004, we recorded stock based compensation charges of $33,038 in accordance with the application of the Black-Scholes option pricing model on the issuance of 75,000 share purchase warrants granted in connection with consulting  23      agreements for the provision of consulting services.  For the year ended December 31, 2005, we recorded a stock based compensation charge of $14,588 in accordance with the application of the Black-Scholes option pricing model on the issuance of 60,000 stock options granted in connection with a consulting agreement for the provision of consulting services.  
        Actual amortization expenses decreased approximately $4,900 from $28,000 to $23,100 principally as a result of the diminishing value of our fixed assets and the full amortization of fixed assets amortized on the straight-line basis.  The foreign exchange differential accounted for an increase of approximately $1,500 resulting in a net reported decrease of approximately $3,400.  
        Actual legal expenses increased approximately $39,300 from $73,700 to $113,000, principally as a result of preparation of a registration statement for filing under the Securities Act of 1933, a general increase in corporate activities and a significant increase in patent application and registration expenses.  The foreign exchange differential accounted for an increase of approximately $7,500 resulting in a net reported increase of approximately $46,800.  
        Actual accounting expenses increased approximately $53,600 from $68,400 to $122,000.  The increase related to corporate income tax compliance expenses, an increase in fees relating to the audit of the December 31, 2004 financial statements, fees related to the preparation of a registration statement under the Securities Act of 1933, and fees relating to communications with the SEC.  The foreign exchange differential accounted for an increase of approximately $8,100 resulting in a net reported increase of approximately $61,700.  
        Actual overall travel and marketing expenditures increased approximately $297,900 from approximately $254,200 to approximately $552,100.  The foreign exchange differential accounted for an increase of approximately $36,600 resulting in a net reported increase of approximately $334,500.  The individual components of the actual decrease are as follows:  Expenditures for marketing materials increased from $24,700 to $81,600, trade shows increased from $38,200 to $50,500, investor relations increased from $113,100 to $327,500, travel increased from $30,600 to $46,500, and web site expenditures decreased from $20,700 to $9,000.  The increase in investor relations activities relates mainly to the engagement of Baldacci Communications LLC for the provision of investor relations and market communications services.  
        Actual rent and premises cost increased $3,800 from $193,800 to $197,600.  The foreign exchange differential accounted for an increase of approximately $13,100 resulting in a net reported increase of approximately $16,900.  
        For the year ended December 31, 2004, we recorded a $100,000 charge relating to corporate income tax compliance expenses.  There was no similar charge in the year ended December 31, 2005.  
        For the year ended December 31, 2004, we recorded a $103,883 charge relating to a software license settlement regarding our potential use of unlicensed software.  There was no similar charge in the year ended December 31, 2005.   24       Liquidity and Capital Resources  Working Capital and Operations  As of December 31, 2005, we had $522,943 in cash and cash equivalents and working capital (deficiency) of ($1,509,067) and as of December 31, 2004, we had $196,012 in cash and cash equivalents and a working capital (deficiency) of $(104,395).  As of December 31, 2005, our trade accounts receivable balance was $311,532.  Subsequent to December 31, all but $14,755 of this balance was received in full. Between January 1 and March 29, 2006, we have delivered a further $215,000 in products and services to our customers.  Our accounts receivable as at March 29, 2006 is approximately $230,000 and our cash position is approximately $275,000.  We estimate that, at our current level of operation, our cash expenses are approximately $225,000 per month.  We base this estimate on the following data:  - As at March 29, 2006, we have 21 employees and our salary costs are approximately $125,000 per month.  - For the year ended December 31, 2005, our average monthly cash expenditures for general, overhead and administration, exclusive of salary costs, were approximately $100,000 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 the remainder of 2006 unless they result from an increase in our level of operation.  On October 5, 2005 the directors approved a private placement of up to $3,000,000.  The financing term sheet executed to implement the private placement offers 6,000,000 units at $0.50 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 two (2) years at US$0.60 per share.  To December 31, 2005 we had received subscriptions totaling $500,000 pursuant to this private placement.  At a meeting held March 15, 2006, the Board of Directors approved the private placement of up to $3,000,000 on terms to be negotiated with the investors.  It is anticipated that the private placement will close on or about May 15, 2006.  Based on our current financial position, we believe that the present and anticipated cash resources from operations and the equity financings discussed above will be sufficient to pay ongoing cash operating expenses until approximately December 31, 2006.  To continue as a going concern, the Company will either have to raise additional capital or increase sales revenue.  There can be no assurance that we can or will obtain sufficient funds from operations or that the financings discussed above will close as anticipated.  If we cannot do either, there is a risk that our 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 we be unable to continue as a going concern.  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 2004 and 2005 we obtained financing as follows:  25       Convertible Debentures  On September 25, 2003, we executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures.  A general security agreement covering all of our real, personal and intangible property is pledged as security for the debentures.  The debentures mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  All convertible debentures rankpari passuwith all other convertible debentures issued pursuant to the term sheet.  The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.  The debentures may be redeemed by repayment of all
outstanding principal and accrued interest at any time on 7 days notice.  The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption.  We may at our discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of our shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.  Between September 5, 2003 and May 21, 2004, in accordance with the terms of Securities Purchase Agreements, we issued convertible debentures in the amount of $2,250,000.  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.  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 is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.  The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value.  The face value of the debt has been allocated to additional paid-in capital and is being accreted to the face value of the convertible debentures over the term of the debentures by a charge to interest expense.  Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%).  The amount
recorded on the balance sheet as at December 31, 2004 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 to convertible debentures
        
        
        
        1,768,786Accrued interest payable
        
        
        
        349,207Conversion of debentures
        
        
        
        (249,612)Convertible debentures at December 31, 2005
        
        
        $
        1,868,386    26       On conversion of the debentures into common shares and share purchase warrants, the fair value of the share purchase warrants will be assigned and recognized as an expense.  To December 31, 2005, $237,500 of principal and $12,112 of accrued interest has been converted into 998,448 common shares and 499,224 share purchase warrants.  Accordingly, we have expensed $80,724 as the fair value of the warrants issued.  Private Placement  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 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 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 $3,000,000.  The financing term sheet executed to implement the private placement offered 6,000,000 units at $0.50 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 two (2) years at US$0.60 per share.  To December 31, 2005 we had received subscriptions totaling $500,000 pursuant to this private placement and on January 23, 2006 we issued 1,008,548 units on account of this subscription and accrued interest.  At a meeting held March 15, 2006, the Board of Directors approved the private placement of up to $3,000,000 on terms to be negotiated with investors.  It is anticipated that the private placement will close on or about May 15, 2006.  Employee Stock Options  The exercise of 55,000 employee stock options has generated $11,000 from January 1, 2005 to March 29, 2006.  Off-Balance Sheet Arrangements  Not Applicable.  Going Concern Statement  Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on the consolidated financial statements for the period ended December 31, 2005, our independent auditors 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 auditors.  27       There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing, successful and sufficient market acceptance of our software products, the continuing successful development of our computerized vision systems and, finally, achieving a profitable level of operations.  The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.  There are no assurances that we will be able to obtain further funds required for our continued operations.  We are pursuing various financing alternatives to meet our immediate and long-term financial requirements.  There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms.  If we are not able to obtain the additional financing on a timely basis, we will not be able to proceed with our expansion program and may not be able to meet our other obligations as they become due.  ITEM 7.  FINANCIAL STATEMENTS  Each of the following items is contained in our consolidated financial statements, which are attached as an exhibit to our annual report.  -
        Report of Independent Registered Public Accounting Firm;-
        Consolidated Balance Sheets as of December 31, 2005 and 2004; -
        Consolidated Statements of Operations for each of the years in the three year period ended December 31, 2005; 
        Consolidated Statements of Stockholders' Equity (Deficit) for the three year period ended December 31, 2005; 
        Consolidated Statements of Cash Flows for each of the years in the three year period ended December 31, 2005; and 
        Notes to Consolidated Financial Statements.  Supplementary financial data showing unaudited quarterly financial information such as revenues, gross margin, net loss for the period and net loss per share during our two most recent fiscal years is contained in note 15 to our audited consolidated financial statements.  28            Consolidated Financial Statements (Expressed in United States dollars) BRAINTECH, INC.  Years ended December 31, 2005, 2004 and 2003   29          REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Directors and Stockholders of Braintech, Inc.  We have audited the consolidated balance sheet of Braintech, Inc. as of December 31, 2005 and the consolidated statements of operations, stockholders equity (deficit) and cash flows for the year then ended.  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 audit. We conducted our audit in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States).  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 audit provides 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, 2005 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. 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.  SmytheRatcliffe (signed)  Chartered Accountants  Vancouver, Canada February 9, 2006, except as to note 18(b) which is as of March 21, 2006  30        KPMG LLP
        Telephone
        (604) 691-3000Chartered Accountants
        Fax
        (604) 691-3031PO Box 10426  777 Dunsmuir Street
        Internet
        www.kpmg.ca Vancouver  BC  V7Y 1K3 Canada  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders of Braintech, Inc.  We have audited the accompanying consolidated balance sheet of Braintech, Inc. as of December 31, 2004 and the related consolidated statements of operations, stockholders equity (deficit) and cash flows for each of the years in the two year period ended December 31, 2004.  These consolidated financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Braintech, Inc. as of December 31, 2004 and the results of its operations and its cash flows for each of the years in the two year period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. 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.  KPMG LLP (signed)  Chartered Accountants  Vancouver, Canada February 7, 2005   KPMG LLP, a Canadian limited liability partnership is the Canadian member firm of KPMG International, a Swiss cooperative.  31        BRAINTECH, INC.Consolidated Balance Sheets(Expressed in United States dollars)December 31, 2005 and 20042005
        2004AssetsCurrent assets:Cash and cash equivalents
        $
        522,943
        $
        196,012Accounts receivable
        321,912
        84,643Inventory
        17,487
        6,569Prepaid expenses
        44,700
        53,550907,042
        340,774Fixed assets (note 4)
        44,590
        60,638$
        951,632
        $
        401,412Liabilities and Stockholders Equity (Deficit)Current liabilities:Accounts payable
        $
        84,768
        $
        123,210Accrued liabilities
        238,952
        222,600Deferred leasehold inducements (note 5)
        48,264
        64,226Deferred revenue
        98,551
        35,133Due to related party (note 3)
        77,187
        -Convertible debentures (note 7)
        1,868,387
        -2,416,109
        445,169Non-current liabilitiesConvertible debentures (note 7)
        -
        982,895Total liabilities
        2,416,109
        1,428,064Stockholders equity (deficit):Common stock (note 8):Authorized: 200,000,000 shares, with $0.001 par valueIssued: 23,353,689 shares
        23,354
        20,294(2004  20,294,257)Additional paid-in capital
        18,574,644
        16,299,521Accumulated deficit
        (20,062,475)
        (17,346,467)(1,464,477)
        (1,026,652)$
        951,632
        $
        401,412  Future operations (note 1) Commitments (note 11) Subsequent events (note 18)  See accompanying notes to consolidated financial statements.  32        BRAINTECH, INC.Consolidated Statements of Operations(Expressed in United States dollars)Years ended December 31,2005
        
        2004
        
        2003Sales
        $
        1,203,170
        $
        749,969
        $
        213,584Cost of sales
        
        65,786
        
        76,939
        
        24,286Gross margin
        
        1,137,384
        
        673,030
        
        189,298Operating expenses:Research and development
        
        588,103
        
        503,145
        
        467,074Selling, general and administrative(note 13)
        
        2,307,525
        
        1,850,418
        
        1,672,741Software license settlement (note 16)
        
        -
        
        103,883
        
        -2,895,628
        
        2,457,446
        
        2,139,815Operating loss
        
        (1,758,244)
        
        (1,784,416)
        
        (1,950,517)Non-operating:Interest income
        
        4
        
        109
        
        79Loss on settlement of debt (note 6)
        
        -
        
        -
        
        (741,705)Interest on promissory notes (note 6)
        
        -
        
        -
        
        (29,501)Interest on convertible debentures (note 7)
        
        (163,038)
        
        (156,226)
        
        (29,945)Beneficial conversion feature accretedto convertible debentures (note 7)
        
        (777,068)
        
        (856,674)
        
        (135,043)Fair value of warrants issued onconversion of debentures (note 7)
        
        (17,662)
        
        (63,062)
        
        -(957,764)
        
        (1,075,853)
        
        (936,115)Loss for the year
        $
        (2,716,008)
        $
        (2,860,269)
        $
        (2,886,632)Loss per share information:Basic and diluted
        $
        (0.12)
        $
        (0.15)
        $
        (0.19)Weighted average number of commonShares outstanding
        
        21,997,493
        
        18,516,638
        
        15,408,397 See accompanying notes to consolidated financial statements.   33        BRAINTECH, INC.Consolidated Statements of Stockholders Equity (Deficit)(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 2003Common stock
        
        
        TotalNumber
        
        Additional
        Accumulated
        stockholdersof shares
        Amount
        paid-in capital
        deficit
        equity (deficit)Balance, December 31, 2002
        15,219,394
        
        15,219
        
        11,804,849
        
        (11,599,566)
        
        220,502Common stock transactions(net of share issue costs)Shares issued for promissory notespayable
        2,354,621
        2,355
        586,300
        -
        588,655Shares issued for services rendered
        20,000
        20
        5,380
        -
        5,400Shares issued for cash on exerciseof employee stock options
        107,000
        107
        21,293
        -
        21,400Shares issued for finders fees
        482,000
        482
        (482)
        -
        -Compensatory benefit of warrantsissued to contractors
        -
        -
        189,521
        -
        189,521Cash paid for finders fee
        -
        -
        (26,250)
        -
        (26,250)Loss on settlement of debt
        -
        -
        741,705
        -
        741,705Fair value of debenture beneficialconversion feature
        -
        -
        1,724,997
        -
        1,724,997Debenture issue expenses
        -
        -
        (19,379)
        -
        (19,379)Loss for the year
        -
        -
        -
        (2,886,632)
        (2,886,632)Balance, December 31, 2003
        18,183,015
        
        18,183
        
        15,027,934
        
        (14,486,198)
        
        559,919Common stock transactions(net of share issue costs)Shares issued for cash
        1,032,500
        1,032
        411,968
        -
        413,000Shares issued for services rendered
        100,000
        100
        47,900
        -
        48,000Shares issued for cash on exerciseof employee stock options
        77,000
        77
        17,023
        -
        17,100Shares issued on conversion ofconvertible debentures
        779,992
        780
        194,218
        -
        194,998Shares issued for finders fees
        121,750
        122
        (122)
        -
        -Compensatory benefit of warrants
        
        
        
        -issued to contractors
        -
        -
        33,038
        
        33,038Cash paid for finders fees
        -
        -
        (19,090)
        -
        (19,090)Fair value of debenture beneficialconversion feature
        -
        -
        524,998
        -
        524,998Debenture issue expenses
        -
        -
        (1,408)
        -
        (1,408)Fair value of warrants issued on conversionof debentures
        -
        -
        63,062
        -
        63,062Loss for the year
        -
        -
        -
        (2,860,269)
        (2,860,269)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 period
        
        
        
        (2,716,008)
        (2,716,008) Balance, December 31, 2005
        23,353,689
        $
        23,354
        $
        18,574,644
        $
        (20,062,475)
        $
        (1,464,477) See accompanying notes to consolidated financial statements.   34       BRAINTECH, INC.Consolidated Statements of Cash Flows(Expressed in United States dollars)Years ended December 31,2005
        
        2004
        
        2003Cash flows from operations:Loss for the year
        $
        (2,716,008)
        $
        (2,860,269)
        $
        (2,886,632)Items not involving cash:Amortization
        
        24,659
        
        28,071
        
        59,990Bad debt
        
        10,172
        
        -
        
        -Loss on settlement of debt
        
        -
        
        -
        
        741,705Shares issued for services rendered
        
        100,200
        
        48,000
        
        5,400Stock based compensation
        
        14,588
        
        -
        
        -Compensatory benefit of warrants issued to contractor
        
        -
        
        33,038
        
        189,521Interest on promissory notes
        
        -
        
        -
        
        29,501Accretion of debenture beneficial conversion feature
        
        777,068
        
        856,674
        
        135,043Fair value of warrants issued onconversion of debentures
        
        17,662
        
        63,062
        
        -Changes in non-cash operating working capital:Accounts receivable
        
        (247,441)
        
        (23,468)
        
        137,760Inventory
        
        (10,918)
        
        9,663
        
        (14,973)Prepaid expenses
        
        8,850
        
        (12,747)
        
        (1,528)Deferred cost of sales
        
        -
        
        -
        
        1,488Accounts payable and accrued liabilities
        
        (22,090)
        
        236,489
        
        27,663Due to related party
        
        77,187
        
        -
        
        -Accrued interest on convertible debentures
        
        163,038
        
        156,226
        
        29,945Deferred leasehold inducements
        
        (15,962)
        
        14,597
        
        49,629Deferred revenue
        
        63,418
        
        6,180
        
        (51,515)Net cash used in operations
        
        (1,755,577)
        
        (1,444,484)
        
        (1,547,003)Cash flows from investments:Deposit on lease
        
        -
        
        -
        
        (16,000)Purchase of fixed assets
        
        (8,611)
        
        (35,580)
        
        (7,136)Net cash used in investments
        
        (8,611)
        
        (35,580)
        
        (23,136)Cash flows from financing:Common shares issued, net of issue costs
        
        1,591,119
        
        411,010
        
        21,400Share subscription received
        
        500,000Promissory notes payable (note 6)
        
        -
        
        -
        
        809,154Promissory notes repayment (note 6)
        
        -
        
        -
        
        (250,000)Convertible debenture payable (note 7)
        
        -
        
        525,000
        
        1,725,000Debenture issue costs
        
        -
        
        (1,408)
        
        (45,629)Net cash provided by financing
        
        2,091,119
        
        934,602
        
        2,259,925Increase (decrease) in cash and cash equivalents
        
        326,931
        
        (545,462)
        
        689,786Cash and cash equivalents, beginning of year
        
        196,012
        
        741,474
        
        51,688Cash and cash equivalents, end of year
        $
        522,943
        $
        196,012
        $
        741,474Supplemental information:Non-cash financing activities:Shares issued for services rendered
        $
        100,200
        $
        48,000
        $
        5,400Shares issued for promissory notes payable
        
        -
        
        -
        
        1,330,360Shares and warrants issued on conversion ofconvertible debentures
        $
        72,276
        
        258,060
        $
        - See accompanying notes to consolidated financial statements.   35        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20031.
        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, 2005, 88% of sales revenue (2004  79%; 2003  82%) was generated from a single customer.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.  Past equity financings from related parties are detailed in note 8(d).  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 Channel Partner Agreement and Sales and Marketing Agreement with a major supplier of robotic systems, generating positive cash flows from operations and
ultimately attaining profitability.  It is the Companys intention to focus on developing this partnership and continuing as their principal supplier of vision systems, raising financing and achieving profitable operations.  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 the equity financing discussed in note 18(b) will be sufficient to pay ongoing cash operating expenses until approximately December 31, 2006.  There can be no assurance that the Company can or will obtain sufficient funds from operations or additional financing discussed in note 18(b) will close as anticipated.  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)
        Basis of presentation:These consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America and present the financial position, results of operations and cash flows of the Company and its wholly-owned subsidiary, Braintech Canada, Inc., incorporated under the Company Act (British Columbia) on March 30, 1994.  All material intercompany balances and transactions have been eliminated.   36        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20032.
        Significant accounting policies (continued):(b)
        Cash and cash equivalents:Cash and cash equivalents include highly liquid investments, such as term deposits, having terms to maturity of three months or less at the date of acquisition and that are readily convertible to contracted amounts of cash.  Cash includes $500,000 held in trust for the Company for subscriptions received for shares issued on January 23, 2006 (note 18)(c)
        Research and development costs:Research and development costs are expensed as incurred.(d)
        Inventory:Inventory is valued at the lower of cost and net realizable value with cost being determined on a first-in, first-out basis.  Cost includes laid-down cost which is the cost of materials and other applicable direct costs.(e)
        Revenue recognition:The Company recognizes revenue when there is persuasive evidence of an arrangement, delivery has occurred, the fee is fixed or determinable, collectibility is reasonably assured, and there are no substantive performance obligations remaining.  The Companys revenue recognition policies are in conformity with the AICPAs Statement of Position No. 97-2 (SOP 97-2), Software Revenue Recognition.Cash received in advance of meeting the revenue recognition criteria is recorded as deferred revenue and the costs related to that revenue are recorded as deferred costs.(f)
        Warranty costs:The Company accrues warranty costs based on managements best estimate.(g)
        Fixed assets:Fixed assets do not include several robots of significant value on loan from the manufacturers.Fixed assets are carried at cost less accumulated amortization.  Amortization is calculated annually as follows:Asset
        Basis
        RateFurniture and fixtures
        declining-balance
        20%Computer equipment
        straight-line
        36 monthsComputer software
        straight-line
        24 monthsLeasehold improvements
        straight-line
        lease term    37        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20032.
        Significant accounting policies (continued):(h)
        Impairment or disposal of long-lived assets:The Company adopted the provisions in FASB Statement of Financial Accounting Standards (SFAS) No. 144 Accounting for the Impairment or Disposal of Long-Lived Assets as of January 1, 2002.  Under this standard, an impairment loss calculated as the difference between the carrying amount and the fair value of the asset should be recognized on long-lived assets held and used only if the carrying amount of the asset is not recoverable from its undiscounted cash flows.  Long-lived assets to be disposed other than by sale should be considered held and used until they are disposed of.  Long-lived assets to be disposed of by sale should be measured at the lower of its carrying amount or fair value less cost to sell.(i)
        Use of estimates:The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts may differ from these estimates.(j)
        Foreign currency:The Companys functional currency is the United States dollar.  Assets and liabilities denominated in a foreign currency have been translated into the functional currency at rates of exchange in effect at the balance sheet date.  Revenue and expense items are translated at average exchange rates during the year.  Exchange gains and losses are included in operations.(k)
        Stock-based compensation:The Company has elected to apply the provision of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its stock options granted to employees.  Under APB 25, compensation expense is only recorded to the extent that the exercise price is less than fair value on the measurement date.  The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards 123, Accounting for Stock-Based Compensation (SFAS 123). 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.  Had compensation cost been determined based on the fair value of
employee stock options at their grant date, the Companys net loss and net loss per share would have been as follows:   38        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20032.
        Significant accounting policies (continued):(k)
        Stock-based compensation (continued):Years ended December 31,2005
        2004
        2003Net loss as reported
        $
        (2,716,008)
        $
        (2,860,269)
        $
        (2,886,632)Stock-based employeecompensation if fair-valuebased method applied
        (482,394)
        (292,106)
        (120,943)Pro forma loss as if fair-valuebased method had been applied
        $
        (3,198,402)
        $
        (3,152,375)
        $
        (3,007,575)Basic and diluted loss per shareAs reported
        $
        (0.12)
        $
        (0.15)
        $
        (0.19)Pro forma
        $
        (0.15)
        $
        (0.17)
        $
        (0.20)The fair value for the options was estimated using the Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions:Interest
        
        Expectedrate
        Term
        Dividends
        VolatilityYears ended:December 31, 2005
        3.66%
        2 years
        0%
        171%December 31, 2004
        2.24%
        2 years
        0%
        243%December 31, 2003
        1.90%
        2 years
        0%
        255%Weighted average
        
        Weighted averageexercise price
        
        grant-date fair valueDecember 31,
        
        December 31,2005
        2004
        2003
        
        2005
        2004
        2003Exercise price exceedsmarket price of stockon grant date
        $
        0.57
        $
        0.46
        $
        0.56
        
        $
        0.43
        $
        0.41
        $
        0.51    39        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20032.
        Significant accounting policies (continued):(l)
        Income taxes:The Company follows the asset and liability method of accounting for income taxes.  Deferred tax assets and liabilities are recognized based on the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis.  Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  When the likelihood of realization of a deferred tax asset is not considered to be more likely than not, a valuation allowance is provided.(m)
        Loss per share:Loss per share is calculated based on the weighted average number of shares outstanding.As the effect of all outstanding convertible debentures (note 7) options (note 8(f)) and warrants (note 9) is anti-dilutive, diluted loss per share does not differ from basic loss per share.The number of shares used to calculate loss per share for the years ended December 31, 2005, 2004 and 2003 was reduced by 300,000 shares in each year for shares issued and held by the Company.(n)
        Comprehensive loss:Loss for the year for the Company is the same as comprehensive loss.(o)
        Comparative figures:The Company has reclassified certain of the figures presented for comparative purposes to conform to the financial statement presentation adopted in the current year.(p)
        Deferred leasehold inducements:Leasehold inducements are deferred and amortized to reduce rent expense on a straight-line basis over the term of the lease.3.
        Related party balances and transactions:Transactions with directors and officers:On November 8, 2005, the Companys Chief Executive Officer advanced $77,187 (CDN$90,000) to the Company.  The advance is unsecured, without interest and without specific terms of repayment.  Equity financings with directors and officers are detailed in note 8.    40        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20034.
        Fixed assets:Accumulated
        
        Net bookDecember 31, 2005
        
        Cost
        
        amortization
        
        valueFurniture and fixtures
        $
        80,581
        $
        56,880
        $
        23,701Computer equipment
        
        191,695
        
        184,231
        
        7,464Computer software
        
        51,449
        
        44,170
        
        7,279Leasehold improvements
        
        10,829
        
        4,683
        
        6,146$
        334,554
        $
        289,964
        $
        44,590Accumulated
        
        Net bookDecember 31, 2004
        
        Cost
        
        amortization
        
        valueFurniture and fixtures
        $
        80,581
        $
        49,931
        $
        30,650Computer equipment
        
        183,084
        
        178,425
        
        4,659Computer software
        
        51,449
        
        35,017
        
        16,432Leasehold improvements
        
        10,829
        
        1,932
        
        8,897$
        325,943
        $
        265,305
        $
        60,6385.
        Deferred leasehold inducements:2005
        
        2004Balance, beginning of year
        $
        64,226
        $
        49,629Leasehold inducements received during the period
        
        -
        
        25,410Amortization
        
        (17,422)
        
        (15,769)Foreign exchange adjustment
        
        1,460
        
        4,956Balance, end of year
        $
        48,264
        $
        64,2266.
        Promissory notes payable:In January and March, 2003, the Companys Chief Executive Officer advanced $155,838 (CAD $235,000) in return for unsecured demand promissory notes with an annual interest rate of 8%.Between April 12, 2003 and July 29, 2003, the Companys Chief Executive Officer advanced a further $594,355 (CAD $833,000) to the Company.  These additional financings bore interest at 8% per annum and were repayable on demand.  A general security agreement covering all of the Companys real, personal and intangible property was pledged as security for the additional advances.    41        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20036.
        Promissory notes payable (continued):The agreements governing the issuance of the convertible debentures (note 7) provided that the general security agreement pledged as security for the promissory notes issued to the Companys Chief Executive Officer be discharged, provided that $250,000 of the proceeds be used to repay the notes, and further provided that the unpaid balance of the notes be repaid by issuing units at a deemed price of $0.25 per unit.  A partial repayment of $50,000 was made on September 22, 2003 and on November 3, 2003, the remaining $200,000 was repaid.All of the promissory notes were repayable in Canadian Dollars and as such as at November 3, 2003 a foreign exchange loss of $58,855 and interest of $29,501 was accrued.On November 3, 2003, the unpaid balance of the promissory notes was repaid by the issuance of 2,354,621 common shares and 1,177,310 share purchase warrants.  Each share purchase warrant has a five year term and is exercisable into one common share at a price of $0.25 per share.  Since the promissory notes did not have terms for conversion into equity, the transaction is considered a settlement of debt for accounting purposes.  The face value of the debt plus accrued interest is compared to the fair market value of the cash and equity received by the Chief Executive Officer and a gain or loss for the difference was recognized.  Accordingly, the Company has recorded a loss on settlement of debt in the amount of $741,705.7.
        Convertible debentures:On September 25, 2003, the Company executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures.  A general security agreement covering all of the Companys real, personal and intangible property is pledged as security for the debentures.  The debentures are to mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  All convertible debentures rankpari passuwith all convertible debentures to be issued pursuant to the term sheet.  The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant
has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.The debentures may be redeemed by repayment of all outstanding principal and accrued interest at any time on 7 days notice.  The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption.The Company may at its discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of the Companys shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.    42        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20037.
        Convertible debentures (continued):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.  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 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 will be assigned and recognized as an expense.  To date, $237,500 of principal and $12,112 of accrued interest has been converted into 998,448 common shares and 499,224 share purchase warrants.  Accordingly, the Company has expensed $80,724 as the fair value of the warrants issued.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 is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.  The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value.  The face value of the debt has been allocated to additional paid-in capital and is being accreted to the face value of the convertible debentures over the term of the debentures by a charge to interest expense.
Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%).  The amount recorded on the balance sheet as at December 31, 2005 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
        
        
        
        1,768,786Accrued interest payable
        
        
        
        349,207Conversion of debentures
        
        
        
        (249,612)Convertible debentures at December 31, 2005
        
        
        $
        1,868,386   43        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20038.
        Common stock:(a)
        At a special meeting of shareholders held January 19, 2004, the stockholders approved an increase in the authorized share capital of the Company from 40 million common shares to 200 million common shares having a par value of $0.001 each.(b)
        Of the common stock issued at December 31, 2005, 3,085,976 shares (2004  2,034,242; 2003  3,156,621) are subject to trading restrictions of up to one year following issue unless a registration statement is filed qualifying the shares for distribution.  These include the 300,000 shares retained by the Company, as described in note 8(c).(c)
        In 1993, 1,100,000 common stock were issued for technology and recorded at a par value of $1,100.  300,000 of these shares have been retained by the Company because the development of the technology was not completed.(d)
        During the year ended December 31, 2005, nil (2004  nil; 2003  79%) of the common share issuances were to the Chief Executive Officer.  Except for the 2,354,621 common shares issued in 2003 to the Chief Executive Officer at a deemed price of $0.25 per unit (note 6), the private placements completed during 2005, 2004, and 2003 were at market value determined by the trading price of the Companys common stock on the date of the private placement.(e)
        Promissory notes receivable:In conjunction with private placements completed during 2001, the Companys Chief Financial Officer and the Companys Chief Operating Officer each issued a promissory note in the amount of $100,000 in payment for 133,334 common shares and 66,667 common share purchase warrants.  These notes receivable have been recorded as a deduction from additional paid-in capital in stockholders equity.  Each common share purchase warrant entitled the holder to purchase one additional share at $0.75 per share until February 28, 2004.  These warrants expired on February 28, 2004 and none of these warrants were exercised prior to expiry.  In accordance with Agreements for Escrow of Share Certificates, the common share certificates and warrant certificates issued will remain in escrow until the Company
receives full payment of the $100,000 for each note receivable.  The amounts are due upon demand, are unsecured and are without interest.(f)
        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.    44        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20038.
        Common stock (continued):(f)
        Stock options: (continued)(i)
        A summary of the Companys stock option activity is as follows:WeightedNumber
        
        averageof shares
        
        exercise priceBalance, December 31, 2002
        1,815,500
        
        $
        0.59Options granted
        940,000
        
        0.55Options exercised
        (107,000)
        
        (0.20)Vested options expired
        (94,500)
        
        (0.99)Unvested options forfeited
        (24,000)
        
        (0.20)Balance, December 31, 2003
        2,530,000
        
        0.57Options granted
        290,000
        
        0.46Options exercised
        (77,000)
        
        (0.22)Vested options expired
        (161,000)
        
        (0.86)Unvested options forfeited
        (60,000)
        
        (0.40)Balance, December 31, 2004
        2,522,000
        
        0.55Options granted
        1,546,000
        
        0.57Options exercised
        (55,000)
        
        (0.20)Vested options expired
        (504,500)
        
        (1.09)Unvested options forfeited
        (140,000)
        
        (0.66)Balance, December 31, 2005
        3,368,500
        
        $
        0.48(ii)
        Additional information regarding options outstanding as at December 31, 2005 is as follows:Outstanding
        
        ExercisableWeightedaverage
        Weighted
        
        
        Weightedremaining
        average
        
        
        averageExercise
        Number of
        contractual
        exercise
        
        Number of
        exerciseprices
        shares
        life (years)
        price
        
        shares
        Price$ 0.00  0.25
        842,000
        1.95
        $ 0.20
        
        842,000
        $ 0.20$ 0.26  0.50
        750,000
        4.57
        0.43
        
        86,250
        0.43$ 0.51  0.75
        1,676,500
        3.22
        0.62
        
        1,286,500
        0.61$ 0.76  1.00
        45,000
        3.19
        0.82
        
        30,000
        0.80$ 1.01  1.25
        55,000
        0.72
        1.25
        
        55,000
        1.253,368,500
        3.16
        $ 0.48
        
        2,299,750
        $ 0.47    45        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20039.
        Share purchase warrants:Detailed information regarding share purchase warrant activity during the years ended December 31, 2003, 2004 and 2005 is as follows:On April 8, 2003, as partial consideration for an investor relations service agreement, the Company issued share purchase warrants as follows:50,000 warrants exercisable at $0.50 vesting on April 8, 200350,000 warrants exercisable at $0.75 vesting on July 7, 200350,000 warrants exercisable at $1.00 vesting on October 6, 200350,000 warrants exercisable at $1.25 vesting on January 4, 2004The fair value of the warrants ($4,121) has been recorded as an expense and additional paid-in capital in the year ended December 31, 2003.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 95%, risk free rate interest rate 2.61%, and an expected term of 1 year.As partial consideration for finders fees relating to the issuance of convertible debentures (note 7), the Company issued a total of 297,500 share purchase warrants exercisable at $0.25 per share for a period of five (5) years.Pursuant to the agreements governing the issuance of convertible debentures (note 7), the Company executed a consulting agreement with one of the investors for strategic introductions and general consulting in the manufacturing industry.  The consulting agreement is for a period of two (2) years commencing December 22, 2003.  As consideration for entering into the consulting agreement, the Company issued 500,000 share purchase warrants exercisable at $0.45 per share for a period of five (5) years.  The fair value of the warrants ($185,400) has been recorded as an expense and additional paid-in capital in the year ended December 31, 2003.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 256%, risk free
rate interest rate 1.84%, and an expected term of 2 years.On November 5, 2003, as partial repayment of the promissory notes payable (note 6), the Company issued to its Chief Executive Officer, 1,177,310 share purchase warrants exercisable at $0.25 per share for a period of five (5) years.As consideration for a consulting agreement, on January 9, 2004, the Company issued share purchase warrants as follows:25,000 warrants exercisable at $0.25 vesting on January 9, 2004250,000 warrants exercisable at $0.25 vesting in accordance with certain performance criteria.   46        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20039.
        Share purchase warrants (continued):The fair value of the 25,000 warrants ($11,406) has been recorded as an expense and additional paid-in capital in the nine months ended September 30, 2004.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 256%, risk free rate interest rate 1.68%, and an expected term of 2 years.  The fair value of the 250,000 warrants will be recorded when management determines that it is likely that the warrants will become exercisable in accordance with the performance criteria.At the request of certain debenture holders (note 7), on April 15, 2004 the Company converted $125,000 of principal and $5,397 of accrued interest into 521,588 common shares and 260,794 share purchase warrants.  Each warrant is exercisable at $0.25 into one common share for five (5) years.  The fair value of the warrants ($42,170) has been recorded as an expense.At the request of certain debenture holders (note 7), on September 10, 2004 the Company converted $62,500 of principal and $2,101 of accrued interest into 258,404 common shares and 129,202 share purchase warrants.  Each warrant is exercisable at $0.25 into one common share for five (5) years.  The fair value of the warrants ($20,892) has been recorded as an expense.On September 24, 2004, as partial consideration for an investor relations service agreement, the Company issued 50,000 share purchase warrants exercisable at $0.50 into one common share for a period not to exceed three (3) years.  The fair value of the warrants ($21,632) 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 233%, risk free rate interest rate 2.62%, and an expected term of 2 years.During December 2004, in conjunction with private placements the Company issued 516,250 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 8,750 common shares and 4,375 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.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.    47        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20039.
        Share purchase warrants (continued):At the request of certain debenture holders (note 7), 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 7), 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 its Chief Executive Officer for an additional two years from the original October 2005 and December 2005 expiry dates.Of the warrants outstanding at December 31, 2005, 2,941,324 were held by the Companys Chief Executive Officer (2004  2,941,324; 2003  3,524,658).A summary of the Companys share purchase warrant activity is as follows:Numberof shares
        Weightedaverageexercise price
        Weightedaverage remainingcontractual life(years)Balance, December 31, 2002
        3,447,260
        $0.62
        0.72Warrants grantedServices rendered
        650,000
        0.52
        4.37Finders fees
        241,000
        0.25
        4.17Private placement
        1,177,310
        0.25
        4.83Warrants expired
        (3,447,260)
        0.62
        -Expired warrants extended
        3,447,260
        0.62
        1.08    48        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 20039.
        Share purchase warrants (continued):Balance, December 31, 2003
        5,515,570
        0.51
        2.40Warrants grantedServices rendered
        375,000
        0.42
        1.27Debenture conversion
        389,996
        0.25
        4.39Finders fees
        60,875
        0.27
        4.46Private placement
        516,250
        0.50
        4.97Warrants expired
        (3,447,260)
        0.62
        -Expired warrants extended
        1,816,039
        0.42
        0.90Balance, December 31, 2004
        5,226,470
        0.38
        3.10Warrants grantedDebenture conversion
        109,228
        0.25
        4.50Finders fees
        7,875
        0.50
        4.00Private placement
        1,175,625
        0.85
        2.84Warrants exercised
        (156,476)
        0.25
        -Warrants expired
        (1,868,539)
        0.41
        -Expired warrants extended
        1,764,014
        0.44
        1.93Balance, December 31, 2005
        6,258,197
        $0.46
        3.3610.
        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 35.6% (2004  35.6%; 2003  35.6%) as follows:2005
        2004
        2003Expected tax recovery
        $
        967,000
        $
        1,018,000
        $
        1,028,000Tax effect of:Loss of foreign parent taxed at lower rates
        
        (32,000)
        
        (22,000)
        
        (11,000)Permanent and other differences
        
        (176,000)
        
        (193,000)
        
        (3,000)Non-capital losses of prior years expired
        
        (867,000)
        
        (220,000)
        
        -Change in valuation allowance
        
        (108,000)
        
        (583,000)
        
        (1,014,000)$
        -
        $
        -
        $
        -Deferred income taxes reflect the tax effects of temporary differences between the carrying amount 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.   49        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200310.
        Income taxes: (continued)The Companys deferred income tax assets are comprised of the following at December 31:2005
        2004Net deferred tax assets and liabilities:Net operating loss carryforwards and otherdeductible temporary differences
        $
        3,765,000
        $
        3,873,000Total deferred tax assets
        
        3,765,000
        
        3,873,000Valuation allowance
        
        (3,765,000)
        
        (3,873,000)Net deferred tax assets
        $
        -
        $
        -At December 31, 2005, management believes that sufficient uncertainty exists as to whether or not the deferred tax assets will be realized, and accordingly, a valuation allowance is required.As of December 31, 2005, the Company had net operating loss carryforwards of$10,278,093 available to offset taxable income earned in Canada and $2,102,627 available to offset taxable income earned in the United States.  These losses expire as follows:Canada
        US2005
        $
        1,022,9372006
        
        1,255,1612007
        
        1,081,2752008
        
        1,966,3052009
        
        1,817,5262010
        
        1,647,3422011
        
        1,487,5472018 and thereafter
        
        -
        
        2,102,627$
        10,278,093
        $
        2,102,627    50        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200311.
        Commitments:The Company has obligations under operating lease arrangements which require the following minimum annual payments:Year ending December 31:2006
        $
        192,3562007
        189,8592008
        126,018$
        508,23312.
        Contingent liabilities: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 2005 would be negligible.Years ended December 31,2005
        2004
        2003Balance, beginning of year
        $
        18,728
        $
        4,038
        $
        11,436Increase for new product sales
        -
        18,728
        4,038Actual warranty claim costs
        -
        -
        -Reversal for expired warranty
        (18,728)
        (4,038)
        (11,436)Balance, end of year
        $
        -
        $
        18,728
        $
        4,038    51        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200313.
        Selling, general and administrative expenses:Selling, general and administrative expenses are comprised of the following:Years ended December 31,2005
        2004
        2003Salaries and benefits
        $
        1,073,873
        $
        960,931
        $
        908,211Marketing
        588,702
        254,219
        238,414Legal and audit
        250,611
        142,130
        137,092Rent and facilities
        210,714
        193,804
        151,792Foreign exchange loss
        17,150
        13,674
        76,238Other
        166,475
        285,660
        160,994$
        2,307,525
        $
        1,850,418
        $
        1,672,74114.
        Financial instruments:(a)
        Fair values of financial instruments:The Companys financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities and convertible debentures.  The fair value of these financial instruments approximate their carrying values due to their relative short term to maturity.(b)
        Foreign currency risk:Foreign currency risk reflects the risk that the Companys net assets or operations will be negatively impacted due to fluctuations in exchange rates.  Revenues and expenses of the Company denominated in foreign currencies come due in the short-term and accordingly, management of the Company believes there is no significant exposure to foreign currency fluctuations.  The Company does not have foreign currency derivative instruments in place.(c)
        Credit risk:Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains cash and cash equivalents with high quality financial institutions.  As at December 31, 2005, one customer represented 95% of outstanding trade accounts receivable. (2004 - 97%).  Management is of the opinion that any risk of accounting loss is significantly reduced due to the financial strength of its current customers.  The Company's customers are currently concentrated in Canada and the United States.  The Company performs ongoing credit evaluations, generally does not require collateral and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends
and other information.    52        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200314.
        Financial instruments (continued):(c)
        Credit risk (continued):Beginning
        
        Recoveries
        End ofof year
        Charged to
        and
        yearbalance
        expenses
        write-offs
        balanceAllowance for doubtful accountsYear ended December 31,2005
        $
        -
        $
        10,172
        $
        (10,172)
        $
        -Year ended December 31,2004
        
        -
        
        -
        
        -
        
        -Year ended December 31,2003
        $
        -
        $
        -
        $
        -
        $
        -15.
        Unaudited interim financial information:The following table sets forth selected unaudited quarterly information for the Companys last eight fiscal quarters (in thousands):Fiscal 2005 Quarter EndDecember 31
        
        September 30
        
        June 30
        
        March 31Revenues
        
        298
        
        262
        
        540
        
        103Gross margin
        
        280
        
        244
        
        514
        
        100Net loss for the period
        
        (711)
        
        (752)
        
        (482)
        
        (771)Net loss per share
        
        (0.03)
        
        (0.03)
        
        (0.02)
        
        (0.04)Fiscal 2004 Quarter EndDecember 31
        
        September 30
        
        June 30
        
        March 31Revenues
        
        46
        
        399
        
        18
        
        286Gross margin
        
        44
        
        343
        
        16
        
        270Net loss for the period
        
        (817)
        
        (541)
        
        (941)
        
        (461)Net loss per share
        
        (0.04)
        
        (0.03)
        
        (0.05)
        
        (0.03)    53        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200316.
        Software license settlement:As previously disclosed, an organization representing leading software manufacturers has made enquiries regarding the Companys potential use of unlicensed software.  The enquiry did not relate to software that the Company sold, but to software used in the conduct of its business.  A self-audit revealed that the Company had unlicensed copies of software installed on its computers and, therefore, the Company agreed on June 16, 2004 to pay $103,883 as a settlement.  The settlement amount, which was accrued in the three months ended June 30, 2004, is payable in thirteen monthly installments.   The Company has since developed and implemented processes to monitor and control the installation and usage of software.17.
        Segmented information:(a)
        Segment information:During 2005, 2004 and 2003, the Corporation was operating only in the advanced software for vision guidance of robotics system segment.(b)
        Geographic information:Substantially all assets and operations are in Canada.  A summary of sales by region of customer location is as follows:Years ended December 31,2005
        2004
        2003Canada
        $
        37,804
        $
        270,643
        $
        140,405U.S.
        1,135,366
        499,326
        50,491Japan
        30,000
        (20,000)
        22,688$
        1,203,170
        $
        749,969
        $
        213,584(c)
        Major customers:Sales to customers representing greater than 10% of total sales are as follows:    54        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200317.
        Segmented information: (continued)Years ended December 31,2005
        2004
        2003Customer A
        $
        1,060,218
        $
        611,237
        $
        174,586Customer B
        -
        145,420
        -Customer C
        -
        -
        22,68818.
        Subsequent events:(a)
        Share subscriptionOn January 23, 2006 the Company issued 1,008,548 units at $0.50 per unit representing subscription proceeds of $500,000 and $4,274 of accrued interest paid from receipt date of the subscription amount.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a two (2) year term and is exercisable at any time into one common share at a price of $0.60 per share.(b)
        Private placementAt a meeting held March 15, 2006, the Board of Directors approved the private placement of up to $3,000,000 on terms to be negotiated with the investors.  It is anticipated that the private placement will close on or about May 15, 2006.19.
        Recent accounting pronouncements:(a)
        In January 2003, the FASB issued FASB Interpretation No. 46, as amended ("FIN No. 46R"), Consolidation of Variable Interest Entities. FIN No. 46R clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.  FIN 46R applies to the Company in fiscal 2004.  The adoption of FIN No. 46 has had no material impact on the Companys financial statements.    55        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200319.
        Recent accounting pronouncements: (continued)(b)
        In May 2003, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 150"Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity"(FAS 150). FAS 150 establish standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. FAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of FAS 150 and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The application of FAS 150 has had no impact on the Companys financial statements.(c)
        Effective July 1, 2003, the Company adopted Emerging Issues Task Force 00-21 ("EITF 00-21"). EITF 00-21 is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003.  EITF 00-21 addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities. In some arrangements, the different revenue-generating activities are sufficiently separable, and there may be sufficient evidence of their fair value to separately account for some or all of the deliverables. In other arrangements, some or all of the deliverables are not independently functional, or there is not sufficient evidence of their fair values to account for them separately. The adoption of this standard had no material impact on the Company's
financial statements.(c)
        In December 2003, the SEC issued Staff Accounting Bulletin No. 104 ("SAB 104"), "Revenue Recognition", which superseded Staff Accounting Bulletin No. 101 ("SAB 101"),"Revenue Recognition in Financial Statements." The primary purpose of SAB 104 was to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, which was superseded as a result of the issuance of EITF 00-21.  SAB 104 also incorporated certain sections of the SEC's "Revenue Recognition in Financial StatementsFrequently Asked Questions and Answers" document. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101, as they apply to the Company, remain largely
unchanged by the issuance of SAB 104. The adoption of SAB 104 had no material impact on the Companys financial statements.    56        BRAINTECH, INC.Notes to Consolidated Financial Statements(Expressed in United States dollars)Years ended December 31, 2005, 2004 and 200319.
        Recent accounting pronouncements (continued):(d)
        In November 2004, the FASB issued SFAS No. 151, Inventory Costs.  The statement amends Accounting Research Bulletin (ARB) No. 43, Inventory Pricing to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material.  ARB No. 43 previously stated that these costs must be so abnormal as to require treatment as current period charges.  SFAS No. 151 requires that those items be recognized as current-period charges regardless of whether they meet the criterion of so abnormal.  In addition, this statement requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities.  The statement is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005.  The adoption of SFAS No. 151 is not expected to have any material impact on the Companys financial statements.(e)
        In December 2004, the FASB revised its SFAS No. 123 (SFAS 123R).  The revision requires the measurement of all employee share-based payments to employees, including grants of employee stock options, using a fair-value-based method and the recording of such expense in the consolidated statements of operations.  The accounting provisions of SFAS 123R are effective for reporting periods beginning after December 15, 2005.  The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. See "Stock-based compensation" in note 2 for the pro forma net loss and net loss per share amounts, for fiscal 2003 through fiscal 2005, as if we had used a fair-value-based method in those years, similar to the methods required under SFAS 123R to
measure compensation expense for employee stock incentive awards. Although it has not yet been determined whether the adoption of SFAS 123R will result in amounts that are similar to the current pro forma disclosures under SFAS 123, the Company is evaluating the requirements under SFAS 123R and expects the adoption to have a significant adverse impact on the amounts reported in our consolidated statements of operations and net loss per share.    57      ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  Not Applicable.  ITEM 8A.  CONTROLS AND PROCEDURES  Evaluation of Disclosure Controls and Procedures  As 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, 2005, 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, 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 29, 2006,with respect to our directors, executive officers and key employees.  Name
        Age
        PositionOwen L.J. Jones
        54
        Director, and Chief Executive OfficerBabak Habibi
        35
        Director, President, and Chief Operating OfficerEdward A. White
        61
        Director, Chief Financial Officer, Treasurer, and Secretary    58        Name
        Age
        PositionJames L. Speros*
        47
        DirectorRichard M. Torre
        60
        DirectorDrew Miller*
        47
        Director  * Denotes member of the audit committee.  Owen L.J. Joneshas 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 Habibiwas 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.  Edward A. Whitewas 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 29 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. Speroswas appointed a Director 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.  From June 1993 to January 1997 Mr. Speros was the President and owner of two professional sports franchises, the Baltimore Stallions and Montreal Alouettes of the Canadian Football League.  Richard M Torrehas over 30 years of diversified national and international finance and business experience in New York, Dallas, Los Angeles and Montreal, specializing in mergers and acquisitions, corporate finance and investment advisory services.  Mr. Torre is an active board member for a variety of public and private firms and civic organizations.  Presently he is Chairman of Signature Eyewear Inc (OTCBB) and The Hydrogen Fund as well as Vice Chairman of JLM Foodservices Inc.  He is also President of MMT Investors Inc., Managing Partner of Dauntless Capital Partners, LLC., and a member of the Boards of both Airecomm Wireless Inc and Cosco Inc.  He has completed terms as Vice Chairman of Pacific Mercantile Bank (NASDAQ) and as Chairman of Exceed Capital Holdings (CDNX).  He is the former Chairman of the highly regarded Forum for Corporate Directors and is currently a member of
the Executive Board of the Graduate School of Management at the University of California, Irvine.  Additionally he is a member of the Association for Corporate Growth and the Southern California Investors Association.  Mr. Torre's corporate career began with Mill Factors Corp. and subsequently included Philadelphia National Bank / Congress Financial and Bank of Virginia in their New York and Montreal subsidiaries.  Subsequently he served as senior vice president of Heller Financial in Los Angeles, responsible for the firm's factoring and asset based lending on the West Coast, the Orient and Australia.  He has  59      been a guest lecturer at Pepperdine University, the US Naval Institute, City College of New York, Woodbury University, the New York Institute of Credit (it's former President) and Melbourne University on a diverse range of topics, principally business finance and strategy and tactics of the Pacific War 1937-1945.  Particularly notable has been his commitment to the establishment of the USS Missouri as a National Monument at Pearl Harbor and his support of the National World War II Memorial, Washington D.C. which was commissioned as a National Monument on May 29, 2004.  Dr. Drew Millerhas been the President of Heartland Consulting Group since 1994.  He serves on the Board of Directors and Audit Committee of Signature Eyewear Inc (OTC).  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.  Owen Jones was a director of Sideware Systems Inc. at the time when two bankruptcy petitions under theBankruptcy 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.  Family Relationships  There are no family relationships among our directors or officers.  Audit Committee Financial Expert  Our board of directors has determined that our company has one audit committee financial expert serving on the audit committee, which person is Dr. Drew Miller.  Dr. Miller is a Certified Management Accountant, Certified Mergers and Acquisitions Advisor, Certified Financial Planner and a Certified Government Financial Manager. Our board of directors has also determined that Dr. Miller is "independent", as that term is used in Item 7(b)(3)(iv) of Schedule 14A under theSecurities Exchange Actof 1934.  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  60      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 ofLate Reports
        Number of Transactions NotReported on a Timely Basis
        Failure to FileRequested FormsBabak Habibi
        1 (2)
        2
        0Owen Jones
        1 (2)
        2
        0Edward White
        1 (2)
        2
        0James Speros
        2 (2)
        2
        0Richard Torre
        1 (1)
        1
        0Drew Miller
        0
        0
        0Lionel Dodd
        1 (2)
        1
        0George Joseph
        1 (2)
        5
        0Frederick Weidinger
        0
        0
        0 (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.    61      ITEM 10.  EXECUTIVE COMPENSATION  During the last three completed fiscal years, our only named executive officer was our Chief Executive Officer, Owen Jones.  The following table shows compensation paid to our Chief Executive Officer during our last three fiscal years. Summary Compensation Table  Name and Principal Position
        Year
        Annual Compensation
        Long Term Compensation
        All Other CompensationSalary
        Bonus
        Other
        Awards
        PayoutsRestricted Stock Awards
        Securities Underlying Options/SARsOwen Jones, CEO and Director
        200520042003
        124,500115,50035,500
        NilNilNil
        7,970NilNil
        NilNilNil
        100,000NilNil
        NilNilNil
        NilNilNil  The following table sets forth information on grants of stock options to our Chief Executive Officer during our last fiscal year:  Option / SAR Grants in Last Fiscal Year  Name
        Number of securities underlying  Options/SARs granted
        Percent of total options/SARs granted to employees in fiscal year
        Exercise or base price
        Expiration
Date
        Grant date present value(1)Owen Jones
        100,000
        6.47%
        $0.40
        December 11, 2010
        Nil  (1)Grant date present value was calculated by multiplying the number of option shares by the difference between the exercise price and the closing trading price on the date of grant.  The following table sets out the options exercised by our Chief Executive Officer during the last fiscal year.  Aggregated Option / SAR Exercises in Last Fiscal Year and FY-End Option / SAR Values  Name
        Shares acquired on exercise
        Value realized
        Number of securities underlying unexercised options/SARs at end of fiscal year
        Value of unexercised in-the-money options/SARs at end of fiscal yearExercisable/Unexercisable
        Exercisable/UnexercisableOwen Jones
        Nil
        Nil
        300,000(1)/ Nil
        $46,000(2)/ N/A  (1)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.  (2)Theclosing price for our shares on the OTC-Bulletin Board as of December 31, 2005 was $0.42.  Compensation to our Directors  We currently provide the following compensation to our directors who are executive officers:  62       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 $10,375 (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 $8,300 (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 $8,300 (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.  We currently provide the following compensation to our non-executive directors:  
        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.  In addition to the above compensation, in conjunction with private placements, in 2005, director James Speros received $49,790 in finders fees.  In addition, we issued James Speros 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 $0.52 per share on account of services rendered.  The aggregate amount of cash remuneration that we paid or accrued to our directors as a group, was approximately $418,466 during the fiscal year ended December 31, 2005.  None of our directors receive any pension plan or similar benefits.   63       Stock options granted to our Directors  The following table shows the stock options held by our directors and officers as at December 31, 2005.  Name
        Options Granted
        NumberExercised
        Number Outstanding
        Exercise Price
        Market Value of Underlying Shares at Date of Grant
        Expiry Date(m/d/y)Owen Jones
        100,000200,000
        NilNil
        100,000200,000
        $0.40$0.20
        $0.20$0.20
        12/11/1012/01/07Babak Habibi
        100,000500,000150,000
        NilNilNil
        100,000500,000150,000
        $0.40$0.60$0.20
        $0.40$0.60$0.15
        12/11/1011/04/0812/16/07Edward A. White
        100,000250,000150,000
        NilNilNil
        100,000250,000150,000
        $0.40$0.65$0.20
        $0.40$0.62$0.15
        12/11/1001/24/1012/16/07James Speros
        47,000100,00050,000
        NilNilNil
        47,000100,00050,000
        $0.66$0.65$0.20
        $0.66$0.62$0.20
        02/09/1001/24/1012/01/07Richard Torre
        100,000
        Nil
        100,000
        $0.46
        $0.46
        08/25/10Drew Miller
        100,000
        Nil
        100,000
        $0.46
        $0.46
        08/25/10  We do not have a long-term incentive plan, and have not granted any stock appreciation rights.  ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS  Equity Compensation Plan Information  Plan category
        Number of securities to be issued upon exercise of outstanding options, warrants and rights
        Weighted-average exercise price of outstanding options, warrants and rights
        Number of securities remaining available for future issuance(a)
        (b)
        (c)Equity compensation plans approved by shareholders
        3,368,500
        $0.48
        878,300Equity compensation plans not approved by security holders
        1,782,250
        $0.40
        NilTotal
        5,150,750
        $0.45
        878,300   The following table shows certain information regarding beneficial ownership of common stock, as of March 29, 2006 by (i) each shareholder whom we know to be the beneficial owner of more than 5% of outstanding shares, (ii) each of our Directors and executive officers, and (iii) all Directors and executive officers as a group:  64        NAME AND ADDRESSOF BENEFICIAL OWNER
        NUMBER OF SHARESBENEFICIALLY OWNED(1)
        PERCENTAGE OF SHARESBENEFICIALLY OWNED(1)Owen L.J. Jones*(2)Chief Executive Officer309  9th AvenueNew Westminster, B.C.Canada V3L 2A2
        9,604,639
        34.76%Babak Habibi*(3)President1680 Orkney PlaceNorth Vancouver, B.C.Canada V7H 2Z1
        783,334
        3.12%Edward A. White*(4)Chief Financial Officer416-5 K de K CourtNew Westminster, B.C.Canada V3M 6B6
        433,334
        1.75%James L. Speros*(5)1921 Gallos Road, Suite 540Vienna, VirginiaUSA  22182
        588,250
        2.38%Richard Torre*(6)4621 Teller Avenue, #200Newport Beach, CaliforniaUSA  92660
        663,824
        2.68%Drew Miller*(7)1904 Barrington ParkwayPapillion, NebraskaUSA  68046
        45,000
        0.18%All executive officers and directors as a group (6 Persons)(8)
        12,118,381
        41.62%  * Denotes Director of the Company  (1)Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 29, 2006 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage  65      of any other person. Except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock beneficially owned.  (2)Includes 200,000 shares issuable pursuant to stock options and 2,941,324 shares issuable pursuant to share purchase warrants, all being 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 650,000 shares issuable pursuant to stock options, all being exercisable within 60 days.  (4)Includes 300,000 shares issuable pursuant to stock options exercisable within 60 days.  (5)Includes 147,000 shares issuable pursuant to stock options and 111,250 shares issuable pursuant to share purchase warrants, all being exercisable within 60 days.  (6)Includes 25,000 shares issuable pursuant to stock options, 186,568 shares issuable pursuant to share purchase warrants, and 54,120 shares issuable pursuant to the conversion of convertible debentures, all being exercisable within 60 days.  (7)Includes 25,000 shares issuable pursuant to stock options exercisable within 60 days.  (8)Includes 1,347,000 shares issuable pursuant to stock options, 3,239,142 shares issuable pursuant to share purchase warrants, and 54,120 shares issuable pursuant to the conversion of convertible debentures, all being 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.  ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  Transactions involving Directors  Transactions within the last three years of which our directors have an interest are as follows:  During our last three fiscal years and to March 29, 2006 Owen Jones, a director and our Chief Executive Officer, has directly participated in the following securities transactions:  
        Purchased 333,334 shares at a price of $0.75 per share in a private placement conducted in last quarter of 2000 and first quarter of 2001.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share.  These warrants expired on February 28, 2004 without being exercised;  
        Purchased 833,334 shares at a price of $0.75 per share in a private placement conducted in the last quarter of 2001 and first quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004.  These warrants expired on February 28, 2004 without being exercised;  66       
        Purchased 751,544 shares at a price of $0.60 per share in a private placement conducted in the last quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.85 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until October 29, 2007;  
        Purchased 267,106 shares at a price of $0.31 per share in a private placement conducted in the last quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.36 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until October 29, 2007;  
        Purchased 297,334 shares at a price of $0.27 per share in a private placement conducted in the last quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.32 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until December 17, 2007;  
        Purchased 227,480 shares at a price of $0.21 per share in a private placement conducted in the last quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.26 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until December 17, 2007;  
        Purchased 407,640 shares at a price of $0.15 per share in a private placement conducted in the last quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.20 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until December 17, 2007;  
        Purchased 576,924 shares at a price of $0.20 per share in a private placement conducted in the last quarter of 2002.  For each two shares purchased, Mr. Jones received one share purchase warrant, which entitles him to purchase one additional share for one year at $0.25 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 January and March 2003, Owen Jones advanced CAD $235,000 ($155,838) in return for unsecured demand promissory notes with an annual interest rate of 8%.  Between April 12, 2003 and July 29, 2003, the Chief Executive Officer advanced a further CAD $833,000 ($594,355).  67      These additional financings bore interest at 8% per annum and were repayable on demand.  A general security agreement covering all of our real, personal and intangible property was pledged as security for the additional advances.  The agreements governing the issuance of the convertible debentures (see below) provide that the general security agreement pledged as security for the promissory notes issued to the Chief Executive Officer be discharged, provided that $250,000 of the proceeds from the convertible debentures be used to repay the notes, and further provided that the unpaid balance of the notes be repaid by issuing units at a deemed price of $0.25 per unit.  We considered the value of $0.25 per unit to be the fair market of the shares and share purchase warrants which form the units, because that was the value we negotiated with independent third parties to be the conversion price of the convertible debentures that were
assuming a position similar to the promissory notes being repaid.  A partial repayment of $50,000 was made on September 22, 2003 and on November 3, 2003 a further $200,000 was repaid.  All of the promissory notes were repayable in Canadian Dollars and as such as at November 3, 2003 a foreign exchange loss of $58,855 and interest of $29,607 was accrued.  On November 3, 2003, the unpaid balance of the promissory notes was repaid by the issuance of 2,354,621 common shares and 1,177,310 share purchase warrants.  Each share purchase warrant has a five year term and is exercisable into one common share at a price of $0.25 per share.  Since the promissory notes did not have terms for conversion into equity, the transaction is considered a settlement of debt for accounting purposes. A gain or loss for accounting purposes was recognizable on settlement to the extent that the carrying value of the debt plus accrued interest is compared to the fair value of the cash and equity, based on the
trading price on the date the Company committed to the issuance of the convertible debentures, received by the Chief Executive Officer.  Accordingly we have recorded a loss on settlement of debt in the amount of $741,705.  In June 2001, Judy Jones, wife of Owen Jones, acquired 333,334 shares at a price of $0.75 per share in a private placement.  For each two shares purchased, Mrs. Jones received one share purchase warrant, which entitles her to purchase one additional share for one year at $1.00 per share. We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share.  These warrants expired on February 28, 2004 without being exercised.  In March 2001, Edward White acquired 133,334 shares at a price of $0.75 in a private placement.  Mr. White provided us with a demand promissory note in the amount of $100,000 without interest to pay for the shares and has signed an agreement to hold the share certificate and warrant certificate in escrow. The date of the agreement is February 27, 2001.  According to the agreement, the shares and warrants issued to him will remain in escrow until he submits full payment to us.  For each two shares purchased, Mr. White received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share.  We have voluntarily and without receipt of any further consideration agreed to extend the share purchase warrants until February 28, 2004 and to reduce the exercise price to $0.75 per share.  These warrants expired on February 28, 2004 without being exercised.  If Mr. White
fails to pay the demand promissory note, we will cancel the share certificate issued to him.  In June 2001, Babak Habibi acquired 133,334 shares at a price of $0.75 in a private placement.  Mr. Habibi provided us with a demand promissory note in the amount of $100,000 without interest to pay for the shares and has signed an agreement to hold the share certificate and warrant certificate in escrow. The date of the agreement is June 26, 2001.  According to the agreement, the shares and warrants issued to him will remain in escrow until he submits full payment to us.  For each two shares purchased, Mr. Habibi received one share purchase warrant, which entitles him to purchase one additional share for one year at $1.00 per share.  We have voluntarily and without receipt of any further consideration agreed to 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 issued to him.  68       On December 29, 2004 Jim 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, Jim 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.  On October 1, 2003 Richard Torre purchased convertible debentures in the amount of $50,000 and on May 10, 2004 he purchased additional convertible debentures in the amount of $12,500.  The debentures were to mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.  On April 15, 2004, Mr. Torre converted $50,000 of principal and $2,159 of accrued interest into 208,636 common shares and 104,318 share purchase warrants.  In conjunction with private placements, in 2004, he received 8,750 Units as a finders fee and in 2005 he received $15,750 Units as a
finders fee.  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.  We do not have established policies about entering into future transactions with affiliates.  Management addresses individual transactions on their individual merits.   ITEM 13.
        INDEX TO EXHIBITS  Number
        Exhibit3.1(1)
        Articles of Incorporation, dated February 27, 19873.2(1)
        Articles of Amendment, dated July 14, 19983.3(1)
        Articles of Amendment, dated June 28, 19903.4(1)
        Articles Of Amendment of the Company, dated February 8, 19933.5(1)
        Articles of Amendment of the Company, dated April 6, 19933.6(1)
        Articles of Amendment of the Company, dated December 6, 19933.7(5)
        Restated Articles of Incorporation of the Company dated June 1, 20003.8(1)
        By-Laws of the Company3.9(6)
        Amendment to By-Laws of the Company4.1(1)
        Specimen Stock Certificate4.2(2)
        1997 Stock Option Plan4.3(2)
        2000 Stock Option Plan4.4(4)
        Amended 2000 Stock Option Plan dated November 1, 2000   69     Number
        Exhibit10.1(4)
        Agreement for Escrow of Share Certificate & Promissory Note between Edward White and the Company dated February 27, 200110.2(5)
        Agreement for Escrow of Share Certificate and Promissory Note between Babak Habibi and the Company dated June 21, 200110.3(7)
        License Agreement with Marubeni Corporation10.4(8)
        Certificate of Reverse Stock Split10.5(9)
        Corporate Governance Committee Charter10.6(9)
        Audit Committee Charter10.7(9)
        Compensation Committee Charter10.8(9)
        Code of Business Conduct and Ethics for Directors, Officers and Employees10.9(9)
        Corporate Governance Guidelines10.10(10)
        Loan Agreement10.11(10)
        General Security Agreement10.12(10)
        Service Agreement with Elite Financial Communications Group10.13(10)
        2003 Stock Option Plan10.14(11)
        Lease Agreement dated July 30, 2003 between Hoop Realty and Braintech Canada, Inc.10.15(12)
        ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies10.16(13)
        ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies10.17(14)
        Marketing Communications Services Agreement with Baldacci Communications, LLC,11.1
        Computation of net loss per share23.1
        Consent Letter from previous Auditor dated March 29, 200623.2
        Consent Letter from current Auditor dated March 29, 200631.1
        Certificate of Owen L.J. Jones pursuant to Sec 302 of the Sarbanes-Oxley Act of 200231.2
        Certificate of Edward A. White pursuant to Sec 302 of the Sarbanes-Oxley Act of 200232.1
        Certificate of Owen L.J. Jones pursuant to Sec 906 of the Sarbanes-Oxley Act of 200232.2
        Certificate of Edward A. White pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002  (1) Exhibit already on file - exhibit to our Form 10-SB registration statement filed September 25, 1998. (2) Exhibit already on file - exhibit to our Schedule 14A proxy information filed March 1, 2000. (3) Exhibit already on file - exhibit to our Form S-1 registration statement filed February 11, 2000. (4) Exhibit already on file - exhibit to our Form 10-KSB for the year ended December 31, 2000. (5) Exhibit already on file - exhibit to our Form S-1/A registration statement filed July 3, 2001. (6) Exhibit already on file - exhibit to our Form 10-KSB for the year ended December 31, 2001 (7) Exhibit already on file - exhibit to our Form 8-K filed July 5, 2002. (8) Exhibit already on file  exhibit to our Form 8-K filed September 9, 2002. (9) Exhibit already on file  exhibit to our Form 10KSB for the year ended December 31, 2002. (10) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended March 31, 2003. (11) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended September 30, 2003. (12) Exhibit already on file - exhibit to our Form 8-K filed March 9, 2004. (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.   70     ITEM 14.
        PRINCIPAL ACCOUNTANT FEES AND SERVICES.  Audit Fees  Fees for audit services totalled $63,414 for the fiscal year ended December 31, 2005 and $46,243 for the fiscal year ended December 31, 2004, 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, 2004.  Tax Fees  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.  Fees for tax services totalled $3,850 for the fiscal year ended December 31, 2004, regarding conversion of debt to equity, including various telephone discussions and preparation of related correspondence.  All Other Fees  No fees were billed for professional services during the fiscal years ended December 31, 2005 and 2004 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 2005 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).   71     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 29, 2006Owen L.J. Jones
        Director(Principal Executive Officer)   /s/ Babak Habibi
        President, Director,
        March 29, 2006 Babak Habibi   /s/ Edward A. White
        Chief Financial Officer,
        March 29, 2006Edward A. White
        Director(Principal Financial and AccountingOfficer)   72