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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-QSB

(Amendment No. 1)



|x |  | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- |  | ---------------------------------------------------------------------------------



For the quarterly period ended June 30, 2007





| ̈ |  | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
|- |  | ---------------------------------------------------------------



For the transition period from

to



Commission file number 000-24911





BRAINTECH, INC.

|                                                                 
|-----------------------------------------------------------------
|(Exact name of small business issuer as specified in its charter)





|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|Nevada                                                         |  | 98-0168932                       
|(State or other jurisdiction of incorporation or organization) |  | (IRS Employer Identification No.)





930 West 1st Street, Unit #102, North Vancouver, B.C., Canada V7P 3N4

|                                        
|----------------------------------------
|(Address of principal executive offices)



(604) 988-6440

|                           
|---------------------------
|(Issuers telephone number)





N/A

|                                                                                  
|----------------------------------------------------------------------------------
|(Former name, former address and former fiscal year, if changed since last report)

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

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



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.   Yes  ̈  No  ̈



APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 36,946,719common shares
issued and outstanding as of August10, 2007.



|
|
|

Transitional Small Business Disclosure Format (Check one):  Yes  ̈  No x









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Braintech, Inc.

Form 10-QSB

(Amendment No. 1)

TABLE OF CONTENTS



|                                             |  |        
|-------------------------------------------- |  | -------
|PART I. FINANCIAL INFORMATION                |  |        
|                                             | 
|Item 1. Financial Statements                 |  | page 3 
|                                             | 
|Item 2. Managements Discussion and Analysis |  | page 17
|                                             | 
|PART II. OTHER INFORMATION                   |  |        
|                                             | 
|Item 6. Exhibits                             |  | page 30



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Explanatory Note

Braintech, Inc. is filing this Amendment No. 1 on Form 10-QSB/A (the Form 10-QSB/A) to amend its Quarterly Report on Form 10-QSB for the quarterly period ended June 30, 2007 that was filed with the Securities and
Exchange Commission on August 14, 2007 (the Form 10-QSB). This Form 10-QSB/A is being filed to replace Part I, Items 1 and 2 of the Form 10-QSB to correct an error related to accounting for stock-based compensation expense.
Braintech, Inc. has determined that additional non-cash stock-based compensation expenses should have been recorded with respect to certain stock options granted during the first and second quarter of 2007. This restatement will result in a net
increase in the non-cash expense for the second quarter of 2007 of $66,369. No other amendments or changes are being made in this Form 10-QSB/A.

PART IFINANCIAL INFORMATION



|ITEM 1. | FINANCIAL STATEMENTS
|------- | --------------------

Each of the following items is contained in our
Condensed Consolidated Financial Statements and form part of this quarterly report.

(i) Condensed Consolidated Balance Sheets as at
June 30, 2007 (unaudited) and December 31, 2006;

(ii) Condensed Consolidated Statements of Operations (unaudited) for the three
and six months ended June 30, 2007 and 2006;

(iii) Condensed Consolidated Statement of Stockholders Deficiency (unaudited) for
the six months ended June 30, 2007;

(iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended
June 30, 2007 and 2006; and

(v) Notes to Condensed Consolidated Financial Statements (unaudited) for the six months ended
June 30, 2007 and 2006.



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Condensed Consolidated Financial Statements

(Expressed in United States dollars)

BRAINTECH, INC.

Six months ended June 30, 2007 and 2006

Three months ended June 30, 2007 and 2006

(Unaudited  Prepared by Management)



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BRAINTECH, INC.

Condensed Consolidated Balance Sheets

(Expressed in United States dollars)



|                                                      |  |              |             |   |                  |   |             |  
|----------------------------------------------------- |  | ------------ | ----------- | - | ---------------- | - | ----------- | -
|                                                      |  | June 30,2007 |             |   | December 31,2006 |  
|                                                      |  | (unaudited)  |             |   |                  |  
|Assets                                                |  |              |             |   |                  |   |             |  
|Current assets:                                       |  |              |             |   |                  |   |             |  
|Cash and cash equivalents                             |  | $            | 939,327     |   |                  | $ | 16,950      |  
|Accounts receivable                                   |  |              | 737,182     |   |                  |   | 1,224,010   |  
|Inventory                                             |  |              | 4,778       |   |                  |   | 10,297      |  
|Prepaid expenses                                      |  |              | 44,615      |   |                  |   | 47,930      |  
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  |              | 1,725,902   |   |                  |   | 1,299,187   |  
|Fixed assets                                          |  |              | 36,462      |   |                  |   | 29,373      |  
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  | $            | 1,762,364   |   |                  | $ | 1,328,560   |  
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  |             
|Liabilities and Stockholders Equity (Deficiency)     |  |              |             |   |                  |   |             |  
|Current liabilities:                                  |  |              |             |   |                  |   |             |  
|Accounts payable                                      |  | $            | 126,678     |   |                  | $ | 260,415     |  
|Accrued liabilities                                   |  |              | 409,728     |   |                  |   | 317,387     |  
|Deferred leasehold inducements (note 3)               |  |              | 23,242      |   |                  |   | 30,155      |  
|Deferred revenue (note 4)                             |  |              | 383,723     |   |                  |   | 197,383     |  
|Due to related party                                  |  |              | 120,242     |   |                  |   | 112,874     |  
|Current portion of bank loan (note 5)                 |  |              | 1,165,000   |   |                  |   | 490,000     |  
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  |              | 2,228,613   |   |                  |   | 1,408,214   |  
|Bank loan (note 5)                                    |  |              | 1,237,837   |   |                  |   | 1,982,837   |  
|                                                      |  |              |             |   |                  |   |             |  
|Total liabilities                                     |  |              | 3,466,450   |   |                  |   | 3,391,051   |  
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  |             
|Stockholders equity (deficiency):                    |  |              |             |   |                  |   |             |  
|Common stock (note 6):                                |  |              |             |   |                  |   |             |  
|Authorized: 200,000,000 shares, with $0.001 par value |  |              |             |   |                  |   |             |  
|Issued: 35,201,719 shares                             |  |              | 35,201      |   |                  |   | 30,732      |  
|(December 31, 2006  30,732,433)                      |  |              |             |   |                  |   |             |  
|Additional paid-in capital                            |  |              | 26,525,768  |   |                  |   | 23,930,944  |  
|Accumulated deficit                                   |  |              | (28,265,055 | ) |                  |   | (26,024,167 | )
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  |              | (1,704,086  | ) |                  |   | (2,062,491  | )
|                                                      |  |              |             |   |                  |   |             |  
|                                                      |  | $            | 1,762,364   |   |                  | $ | 1,328,560   |  
|                                                      |  |              |             |   |                  |   |             |  

See accompanying notes to condensed consolidated financial statements.



5



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BRAINTECH, INC.

Condensed Consolidated Statements of Operations

(Unaudited  Prepared by Management)

(Expressed in United States dollars)



|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|------------------------------------------------------------------- |  | ------------------------ | ---------- | - | -------------------------- | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                    |  | Six Months Ended June 30 |            |   | Three Months Ended June 30 |  
|                                                                    |  | 2007                     |            |   | 2006                       |   |            | 2007 |  |   | 2006       |  
|Sales                                                               |  | $                        | 1,268,934  |   |                            | $ | 560,547    |      |  | $ | 600,562    |   |  | $ | 326,629    |  
|Cost of sales                                                       |  |                          | 99,893     |   |                            |   | 28,570     |      |  |   | 55,852     |   |  |   | 13,088     |  
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Gross margin                                                        |  |                          | 1,169,041  |   |                            |   | 531,977    |      |  |   | 544,710    |   |  |   | 313,541    |  
|                                                                    |  |                          |            |  
|Operating expenses:                                                 |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Research and development                                            |  |                          | 289,220    |   |                            |   | 351,618    |      |  |   | 144,856    |   |  |   | 174,256    |  
|Selling, general and administration                                 |  |                          | 1,509,660  |   |                            |   | 1,203,664  |      |  |   | 706,048    |   |  |   | 680,541    |  
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|                                                                    |  |                          | 1,798,880  |   |                            |   | 1,555,282  |      |  |   | 850,904    |   |  |   | 854,797    |  
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Operating income/(loss)                                             |  |                          | (629,839   | ) |                            |   | (1,023,305 | )    |  |   | (306,194   | ) |  |   | (541,256   | )
|                                                                    |  |                          |            |  
|Non-operating:                                                      |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                                     |  |                          | 589        |   |                            |   | 274        |      |  |   | 44         |   |  |   |           |  
|Interest expenseother                                              |  |                          |           |   |                            |   | (4,274     | )    |  |   |           |   |  |   |           |  
|Financing expenses                                                  |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Interest on convertible debentures                                  |  |                          |           |   |                            |   | (79,557    | )    |  |   |           |   |  |   | (39,861    | )
|Accretion of convertible debentures                                 |  |                          |           |   |                            |   | (368,829   | )    |  |   |           |   |  |   | (186,088   | )
|Fair value of warrants issued on conversion of debentures           |  |                          |           |   |                            |   | (9,772     | )    |  |   |           |   |  |   | (9,772     | )
|Interest on bank loan                                               |  |                          | (89,858    | ) |                            |   |           |      |  |   | (50,072    | ) |  |   |           |  
|Fair value of equity issued as compensation to bank loan guarantors |  |                          | (1,424,741 | ) |                            |   |           |      |  |   | (877,500   | ) |  |   |           |  
|Bank loan guarantee expenses                                        |  |                          | (7,039     | ) |                            |   |           |      |  |   | (313       | ) |  |   |           |  
|Fair value of equity issued as compensation for financing services  |  |                          | (90,000    | ) |                            |   |           |      |  |   |           |   |  |   |           |  
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|                                                                    |  |                          | (1,611,049 | ) |                            |   | (462,158   | )    |  |   | (927,841   | ) |  |   | (235,721   | )
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Loss for the period                                                 |  | $                        | (2,240,888 | ) |                            | $ | (1,485,463 | )    |  | $ | (1,234,035 | ) |  | $ | (776,977   | )
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Loss per share information:                                         |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                                                   |  | $                        | (0.07      | ) |                            | $ | (0.06      | )    |  | $ | (0.04      | ) |  | $ | (0.03      | )
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  
|Weighted average number of Common shares outstanding                |  |                          | 33,152,054 |   |                            |   | 24,105,980 |      |  |   | 33,771,206 |   |  |   | 24,324,479 |  
|                                                                    |  |                          |            |   |                            |   |            |      |  |   |            |   |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



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BRAINTECH, INC.

Condensed Consolidated Statements of Stockholders Equity (Deficiency)

(Unaudited  Prepared by Management)

(Expressed in United States dollars)



|                                                               |  |                 |  |                           |        |  |                    |            |   |                                    |   |             |   |  |   |            |  
|-------------------------------------------------------------- |  | --------------- |  | ------------------------- | ------ |  | ------------------ | ---------- | - | ---------------------------------- | - | ----------- | - |  | - | ---------- | -
|                                                               |  | Common stock    |  | Additionalpaid-in capital |        |  | Accumulateddeficit |            |   | Totalstockholdersequity (deficit) |  
|                                                               |  | Numberof shares |  | Amount                    |        |  |                   
|Balance, December 31, 2006                                     |  | 30,732,433      |  | $                         | 30,732 |  | $                  | 23,930,944 |   |                                    | $ | (26,024,167 | ) |  | $ | (2,062,491 | )
|                                                               |  |                 |  |                           |       
|Common stock transactions (net of share issue costs)           |  |                 |  |                           |        |  |                    |            |   |                                    |   |             |   |  |   |            |  
|Shares issued for cash (net of subscriptions received in 2006) |  | 3,474,286       |  |                           | 3,474  |  |                    | 536,726    |   |                                    |   |            |   |  |   | 540,200    |  
|Shares issued for services rendered                            |  | 265,000         |  |                           | 265    |  |                    | 95,135     |   |                                    |   |            |   |  |   | 95,400     |  
|Shares issued to bank loan guarantors                          |  | 700,000         |  |                           | 700    |  |                    | 215,300    |   |                                    |   |            |   |  |   | 216,000    |  
|Shares issued for finders fees                                |  | 30,000          |  |                           | 30     |  |                    | (30        | ) |                                    |   |            |   |  |   |           |  
|Cash paid for finders fees                                    |  |                |  |                           |       |  |                    | (4,020     | ) |                                    |   |            |   |  |   | (4,020     | )
|Fair value of warrants issued to bank loan guarantors          |  |                |  |                           |       |  |                    | 331,241    |   |                                    |   |            |   |  |   | 331,241    |  
|Fair value of shares to be issued to bank loan guarantors      |  |                |  |                           |       |  |                    | 877,500    |   |                                    |   |            |   |  |   | 877,500    |  
|Fair value of stock options expensed                           |  |                 |  |                           |        |  |                    | 542,972    |   |                                    |   |            |   |  |   | 542,972    |  
|Loss for the period                                            |  |                |  |                           |       |  |                    |           |   |                                    |   | (2,240,888  | ) |  |   | (2,240,888 | )
|                                                               |  |                 |  |                           |        |  |                    |            |   |                                    |   |             |   |  |   |            |  
|Balance, June 30, 2007                                         |  | 35,201,719      |  | $                         | 35,201 |  | $                  | 26,525,768 |   |                                    | $ | (28,265,055 | ) |  | $ | (1,704,086 | )
|                                                               |  |                 |  |                           |        |  |                    |            |   |                                    |   |             |   |  |   |            |  

See accompanying notes to condensed consolidated financial statements.



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BRAINTECH, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited  Prepared by Management)

(Expressed in United States dollars)



|                                                                                                    |  |                          |            |   |      |   |            |  
|--------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                    |  | Six months ended June 30 |           
|                                                                                                    |  | 2007                     |            |   | 2006 |  
|Cash flows from operations:                                                                         |  |                          |            |   |      |   |            |  
|Loss for the period                                                                                 |  | $                        | (2,240,888 | ) |      | $ | (1,485,463 | )
|Items not involving cash:                                                                           |  |                          |            |   |      |   |            |  
|Amortization                                                                                        |  |                          | 9,245      |   |      |   | 12,403     |  
|Shares issued for services rendered                                                                 |  |                          | 95,400     |   |      |   | 173,750    |  
|Stock option expense                                                                                |  |                          | 542,972    |   |      |   | 119,406    |  
|Accretion of convertible debentures                                                                 |  |                          |           |   |      |   | 368,829    |  
|Fair value of warrants issued on conversion of debentures                                           |  |                          |           |   |      |   | 9,772      |  
|Fair value of warrants and common shares issued and to be issued as compensation to loan guarantors |  |                          | 1,424,741  |   |      |   |           |  
|Changes in non-cash operating working capital:                                                      |  |                          |            |   |      |   |            |  
|Accounts receivable                                                                                 |  |                          | 486,828    |   |      |   | 185,446    |  
|Inventory                                                                                           |  |                          | 5,519      |   |      |   | 6,932      |  
|Prepaid expenses                                                                                    |  |                          | 3,315      |   |      |   | (3,968     | )
|Accounts payable and accrued liabilities                                                            |  |                          | (41,396    | ) |      |   | 6,834      |  
|Due to related party                                                                                |  |                          | 7,368      |   |      |   |           |  
|Accrued interest on convertible debentures                                                          |  |                          |           |   |      |   | 79,557     |  
|Deferred leasehold inducements                                                                      |  |                          | (6,913     | ) |      |   | (7,443     | )
|Deferred revenue                                                                                    |  |                          | 186,340    |   |      |   | (32,938    | )
|                                                                                                    |  |                          |            |   |      |   |            |  
|Net cash provided by (used in) operations                                                           |  |                          | 472,531    |   |      |   | (566,883   | )
|                                                                                                    |  |                          |            |   |      |   |            |  
|                                                                                                    |  |                         
|Cash flows from investments:                                                                        |  |                          |            |   |      |   |            |  
|Purchase of fixed assets                                                                            |  |                          | (16,334    | ) |      |   | (2,875     | )
|                                                                                                    |  |                          |            |   |      |   |            |  
|Net cash used in investments                                                                        |  |                          | (16,334    | ) |      |   | (2,875     | )
|                                                                                                    |  |                          |            |   |      |   |            |  
|                                                                                                    |  |                         
|Cash flows from financing:                                                                          |  |                          |            |   |      |   |            |  
|Common shares issued, net of issue costs                                                            |  |                          | 536,180    |   |      |   | 10,524     |  
|Repayment of amount due to related party                                                            |  |                          |           |   |      |   | (14,692    | )
|Common share subscriptions received                                                                 |  |                          |           |   |      |   | 120,000    |  
|Repayment of bank loan                                                                              |  |                          | (70,000    | ) |      |   |           |  
|                                                                                                    |  |                          |            |   |      |   |            |  
|Net cash provided by (used in) financing                                                            |  |                          | 466,180    |   |      |   | 115,832    |  
|                                                                                                    |  |                          |            |   |      |   |            |  
|Increase (decrease) in cash and cash equivalents                                                    |  |                          | 922,377    |   |      |   | (453,926   | )
|Cash and cash equivalents, beginning of period                                                      |  |                          | 16,950     |   |      |   | 522,943    |  
|                                                                                                    |  |                          |            |   |      |   |            |  
|Cash and cash equivalents, end of period                                                            |  | $                        | 939,327    |   |      | $ | 69,017     |  
|                                                                                                    |  |                          |            |   |      |   |            |  
|                                                                                                    |  |                         
|Supplemental information:                                                                           |  |                          |            |   |      |   |            |  
|Non-cash financing:                                                                                 |  |                          |            |   |      |   |            |  
|Shares and warrants issued on conversion of convertible debentures                                  |  |                          |            |   |      |   | 39,988     |  
|Shares issued for services rendered                                                                 |  | $                        | 95,400     |   |      |   |           |  
|Shares and warrants issued to bank loan guarantors                                                  |  | $                        | 1,424,741  |   |      | $ |           |  
|                                                                                                    |  |                          |            |   |      |   |            |  

See accompanying notes to condensed consolidated financial statements.



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BRAINTECH, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited  Prepared by Management)

(Expressed in United States dollars)

Six months ended June 30, 2007 and
2006



|1. | Description of business and future operations:
|-- | ----------------------------------------------

Braintech, Inc. (the Company) together with its wholly owned subsidiary, Braintech Canada, Inc. is 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 six months ended June 30, 2007, 99% of sales revenue (2006  100%) was generated from ABB Inc. (ABB).

These condensed consolidated financial statements have been prepared on the going concern basis under which an entity is considered to be able to realize
its assets and satisfy its liabilities in the ordinary course of business. The Company has generated only small amounts of revenues and is continuing to develop its business. Operations to date have been primarily financed by equity transactions.
The Companys future operations and its continuation as a going concern are dependent upon its ability to raise additional capital, increase sales of its products by leveraging its Exclusive Global Channel Partner Agreement with ABB, generating
positive cash flows from operations and ultimately attaining profitability. There can be no assurances that appropriate financings having favourable economic terms will be available as required.

Based on its current financial position, the Company believes that its present and anticipated cash resources from operations and equity financing will be
sufficient to pay ongoing cash operating expenses throughout 2007 and 2008. The minimum revenue commitments by ABB pursuant to the Exclusive Global Channel Partner Agreement dated May 5, 2006 should result in positive net earnings and cash flow
for 2007 and 2008. There can be no assurance that an equity financing can be obtained as anticipated and there can be no assurance that ABB will fulfill its minimum revenue commitments. If the Company cannot do either, there is a risk that the
business will fail. The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a
going concern.



|2. | Basis of presentation:
|-- | ----------------------



| | (a) | Unaudited financial information:
| | --- | --------------------------------

These condensed
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of
management, are necessary for fair presentation of the interim financial information. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the
entire year ending December 31, 2007. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These
unaudited



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condensed consolidated financial statements and notes included herein have been prepared on a basis consistent with and should be read in conjunction with
the Companys audited consolidated financial statements and notes for the year ended December 31, 2006, as filed in its annual report on Form 10-KSB.



| | (b) | Principals of consolidation:
| | --- | ----------------------------

These condensed consolidated
financial statements include the accounts of the Company, and its wholly-owned subsidiary Braintech Canada, Inc., incorporated under the Company Act (British Columbia) on March 30, 1994. All material inter-company balances and
transactions have been eliminated.



| | (c) | Use of estimates:
| | --- | -----------------

The preparation of financial statements
in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities as at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of estimates relate to the impairment of assets and rates for amortization,
estimated amount of income tax balances and the estimated balances of accrued liabilities, and the calculation of stock-based compensation expense. Actual amounts may differ from these estimates.



| | (d) | Stock based compensation:
| | --- | -------------------------

In December 2004, the Financial
Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment. SFAS No. 123R requires companies to estimate the fair value of share-based payment
awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Companys financial statements. Stock based
compensation expense recognized during the period is based on the value of the portion of the share based payment awards that is ultimately expected to vest during the period. The Company estimates the fair value of stock options using the
Black-Scholes valuation model, consistent with the provisions of SFAS No. 123R. The Black-Scholes valuation model requires the input of highly subjective assumptions, including the options expected life and the price volatility of the
underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Companys common stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
valuation model and expensed using the straight-line amortization approach.

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



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| | (d) | Stock-based compensation (continued):
| | --- | -------------------------------------

In applying the
Modified Prospective Application method, the Company recorded stock based compensation cost totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123. Previous amounts
have not been restated. Accordingly, the Company recorded stock based compensation of $542,973 for the six months ended June 30, 2007 (2006$119,406).

As at January 1, 2006, the Company had an unrecorded deferred stock based compensation balance related to stock options of $263,132 before estimated forfeitures. In the Companys pro-forma disclosures prior
to the adoption of SFAS No. 123R, the Company accounted for forfeitures upon occurrence. SFAS No. 123R requires forfeitures to be estimated at the time of grant and revised if necessary in subsequent periods if actual forfeitures differ
from those estimates. Accordingly, as of January 1, 2006, the Company estimated that the stock based compensation for the awards not expected to vest was nil, and therefore, the unrecorded deferred stock based compensation balance related to
stock options was not adjusted for estimated forfeitures.

The weighted average fair value of stock options granted during the six months
ended June 30, 2007 was $0.34 per option (2006$0.51). The fair value was estimated using the Black-Scholes option valuation model and the following weighted average assumptions:



|                        |  |                  |   |  |               |  
|----------------------- |  | ---------------- | - |  | ------------- | -
|                        |  | Six Months Ended |  
|                        |  | June 30, 2007    |   |  | June 30, 2006 |  
|Expected life (years)   |  | 2.0              |   |  | 2.0           |  
|Risk free interest rate |  | 4.69             | % |  | 5.01          | %
|Expected volatility     |  | 167              | % |  | 152           | %
|Dividend yield          |  | 0                | % |  | 0             | %

As of June 30, 2007, the unrecorded deferred stock based compensation balance related to
stock options was $324,157 and will be recognized over an estimated weighted average amortization period of 1.44 years (2006$212,965, 1.11 years).



| | (e) | Deferred leasehold inducements:
| | --- | -------------------------------

Leasehold inducements are
deferred and amortized to reduce rent expense on a straight-line basis over the term of the lease.



| | (f) | Loss per share:
| | --- | ---------------

Loss per share is calculated based on the
weighted average number of common shares outstanding.

As the effect of all outstanding stock options (note 7) and share purchase warrants
(note 8) 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 six month periods ended June 30, 2007 and 2006 was reduced by 300,000 shares in each period for shares issued and held by the Company.



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| | (g) | 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 or accounts receivable recorded in advance of meeting the revenue recognition criteria are recorded as deferred revenue and the costs related to that revenue are recorded as deferred costs.



|3. | Deferred leasehold inducements:
|-- | -------------------------------



|                             |  |                          |        |   |      |   |        |  
|---------------------------- |  | ------------------------ | ------ | - | ---- | - | ------ | -
|                             |  | Six Months Ended June 30 |       
|                             |  | 2007                     |        |   | 2006 |  
|Balance, beginning of period |  | $                        | 30,155 |   |      | $ | 48,264 |  
|Amortization                 |  |                          | (9,296 | ) |      |   | (9,263 | )
|Foreign exchange adjustment  |  |                          | 2,383  |   |      |   | 1,820  |  
|                             |  |                          |        |   |      |   |        |  
|Balance, end of period       |  | $                        | 23,242 |   |      | $ | 40,821 |  
|                             |  |                          |        |   |      |   |        |  



|4. | Deferred revenue:
|-- | -----------------



|                                                         |  |                          |         |   |      |   |         |  
|-------------------------------------------------------- |  | ------------------------ | ------- | - | ---- | - | ------- | -
|                                                         |  | Six Months Ended June 30 |        
|                                                         |  | 2007                     |         |   | 2006 |  
|Balance, beginning of period                             |  | $                        | 197,383 |   |      | $ | 98,551  |  
|Revenue invoiced and deferred for future recognition     |  |                          | 227,730 |   |      |   | 55,785  |  
|Previously deferred revenue recognized in current period |  |                          | (41,390 | ) |      |   | (88,723 | )
|                                                         |  |                          |         |   |      |   |         |  
|Balance, end of period                                   |  | $                        | 383,723 |   |      | $ | 65,613  |  
|                                                         |  |                          |         |   |      |   |         |  



|5. | Bank loan and loan guarantee:
|-- | -----------------------------

On October 23,
2006 the Company completed a series of transactions redeeming all of the outstanding Secured Convertible Debentures. To facilitate the transaction, the Company obtained a bank loan of up to $2,500,000 from the Royal Bank of Canada. The loan is
repayable as to interest only at the rate of Libor plus 1.50% until June 30, 2007. Monthly principal payments plus interest at the rate of Libor plus 1.50% are due as follows: June 30, 2007 to December 31, 2007, $70,000;
January 31, 2008 to May 31, 2008, $110,000; June 30, 2008 to November 30, 2008, $195,000; December 31, 2008, remaining balance due.

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



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stock at a price of $0.50 per share for a period of five (5) years. A general security agreement covering all of the Companys real, personal and
intangible property has been pledged as security to the LC Providers.

A total of $2,450,000 letters of credit have been obtained to secure
the bank loan and accordingly 4,900,000 common shares, 7,350,000 warrants exercisable at $0.30 and 3,675,000 warrants exercisable at $0.50 have been issued. As further compensation, the exercise price of 312,500 share purchase warrants previously
held by certain LC providers has been reduced from $1.00 to $0.30 per share and the term of those warrants has been extended by 24 months, so that they now expire May 2, 2010.

$2,150,000 of the letters of credit were received October 23, 2006 and, accordingly, we issued 4,300,000 common shares, 6,450,000 warrants
exercisable at $0.30 and 3,225,000 warrants exercisable at $0.50. On October 23, 2006 we recorded as an expense, $1,376,000 on account of the fair value of the common shares issuance and $2,350,617 on account of the fair value of the warrant
issuance. The fair value of the common shares was calculated using the closing market price of the common stock on October 23, 2006 ($0.32) and the fair value of the warrants was calculated using the Black-Scholes option valuation model and the
following assumptions: dividend yield 0%, expected volatility 167%, risk-free interest rate 4.90%, and an expected term of two (2) years.

$300,000 of the letters of credit were received February 5, 2007 and, accordingly, we issued 600,000 common shares, 900,000 warrants exercisable at $0.30 and 450,000 warrants exercisable at $0.50. On February 5, 2007 we recorded
as an expense, $180,000 on account of the fair value of the common shares issuance and $302,835 on account of the fair value of the warrant issuance. The fair value of the common shares was calculated using the closing market price of the common
stock on February 5, 2007 ($0.30) and the fair value of the warrants was calculated using the Black-Scholes option valuation model and the following assumptions: dividend yield 0%, expected volatility 165%, risk-free interest rate 4.92%, and an
expected term of two (2) years.

The Agreement governing the LC Providers and the Loan Guarantee terms required that the Company file a
Registration Statement such that the securities issued to the LC Providers would qualify for resale pursuant to the Registration Statement. The Agreement contained penalty provisions if the Company did not file a Registration Statement, and if the
Registration Statement did not become effective, within certain time provisions. Upon review, the Company determined that the penalty provision clauses applied and the Company agreed to issue one additional common share to the LC Providers that
delivered letters of credit on or before October 23, 2006. Owen Jones, the Companys CEO and a director and James Speros, an independent director, both of whom delivered letters of credit on or before October 23, 2007, elected not to
participate in the additional share issuance. Accordingly, on August 10, 2007, the Company issued 1,625,000 common shares at a deemed price of $0.48 per share.

Prior to the receipt of the final letters of credit, cash collateral had been pledged by accredited investors to allow the Royal Bank of Canada to fund the total amount of the loan. The receipt of the final letters of
credit allowed for the release of the cash collateral. As compensation for pledging the cash collateral, on March 22, 2007 the company issued to one of the accredited investors 100,000 common shares and 100,000 share purchase warrants
exercisable at $0.30 exercisable for a period of three years. On March 22, 2007 we recorded as an expense, $36,000 on account of the fair value of the common shares issuance and $28,406 on account of the fair value of the warrant issuance. The
fair value of the common shares was calculated using the closing market price of the common stock on March 22, 2007 ($0.36)



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and the fair value of the warrants was calculated using the Black-Scholes option valuation model and the following assumptions: dividend yield 0%, expected
volatility 165%, risk-free interest rate 4.58%, and an expected term of two (2) years. As further compensation, the exercise price of 1,008,548 share purchase warrants previously held by the accredited investor was reduced from $0.60 to $0.30
per share and the term of those warrants has been extended by 36 months, so that they now expire January 18, 2011.

The Companys
Chief Executive Officer provided $400,000 in letters of credit and also pledged a portion of the cash collateral. The Chief Executive Officer received no compensation for providing his portion of the cash collateral.



|6. | Common stock:
|-- | -------------

On January 16, 2007 the Company
issued 1,895,000 units at $0.20 per unit in a private placement representing subscription proceeds of $379,000. $259,000 of the subscription proceeds was received prior to December 31, 2006. Each unit comprises one common share and one share
purchase warrant. Each share purchase warrant has a three (3) year term and is exercisable at any time into one common share at a price of $0.25 per share. A finders fee of 30,000 units and $1,500 was paid in conjunction with this private
placement.

On February 5, 2007 the Company issued 300,000 units as compensation
for the provision of letters of credit securing the bank loan (note 4). Each Unit consists of two (2) shares of the common stock of the Company; three (3) share purchase warrants, each warrant entitling the holder to purchase one
(1) additional share of common stock at a price of $0.30 per share for a period of five (5) years; and one and one-half (11/2) share purchase warrants, each warrant entitling the holder to purchase one (1) additional share of common stock at a price of $0.50 per share for a period of five (5) years.

On February 21, 2007 the Company issued 275,000 units at $0.20 per unit in a private placement representing subscription proceeds of $55,000. Each
unit comprises one common share and on share purchase warrant. Each share purchase warrant has a three (3) year term and is exercisable at any time into one common share at a price of $0.25 per share.

On March 22, 2007 the Company issued 265,000 common shares at a deemed price of $0.36 per share for services rendered. Of these shares, 250,000 were
issued to a director of the Company.

On June 18, 2007 the Company issued 1,304,286 units at $0.28 per unit in a private placement
representing subscription proceeds of $365,200. Each unit comprises one common share and one share purchase warrant. Each share purchase warrant has a three (3) year term and is exercisable at any time into one common share at a price of $0.30
per share. A finders fee of $2,520 was paid in conjunction with this private placement.



|7. | Stock options:
|-- | --------------

A summary of the Companys
stock option activity is as follows:



|                           |  |                 |   |  |                               |     
|-------------------------- |  | --------------- | - |  | ----------------------------- | ----
|                           |  | Numberof shares |   |  | Weightedaverageexercise price
|Balance, December 31, 2006 |  | 3,396,000       |   |  | $                             | 0.48
|Options granted            |  | 2,310,000       |   |  | $                             | 0.44
|Options exercised          |  |                |   |  |                               |    
|Vested options expired     |  | (25,000         | ) |  | $                             | 0.59
|Unvested options forfeited |  | (25,000         | ) |  | $                             | 0.46
|                           |  |                 |   |  |                               |     
|Balance, June 30, 2007     |  | 5,656,000       |   |  | $                             | 0.46
|                           |  |                 |   |  |                               |     



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Of those outstanding at June 30, 2007, 4,797,250 are exercisable (December 31, 20062,847,250),
having a weighted average exercise price of $0.44 (December 31, 2006$0.47).

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, 2,500,000 common shares pursuant to the 2003 Stock Option Plan, and 10,000,000 common shares pursuant to the 2007 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 and 2007 plans.



|8. | Share purchase warrants:
|-- | ------------------------

A summary of the
Companys share purchase warrant activity is as follows:



|                                     |  |                 |  |                               |      |                                                  |     
|------------------------------------ |  | --------------- |  | ----------------------------- | ---- | ------------------------------------------------ | ----
|                                     |  | Numberof shares |  | Weightedaverageexercise price |      | Weightedaverage remainingcontractual life(years)
|Balance, December 31, 2006           |  | 20,176,509      |  | $                             | 0.37 |                                                  | 3.62
|Warrants granted                     |  |                 |  |                               |      |                                                  |     
|Private placement                    |  | 3,474,286       |  | $                             | 0.27 |                                                  | 2.86
|Finders fee                         |  | 30,000          |  | $                             | 0.25 |                                                  | 2.50
|Compensation to bank loan guarantors |  | 1,450,000       |  | $                             | 0.36 |                                                  | 4.46
|                                     |  |                 |  |                               |      |                                                  |     
|Balance, June 30, 2007               |  | 25,130,795      |  | $                             | 0.34 |                                                  | 3.34
|                                     |  |                 |  |                               |      |                                                  |     

Of the warrants outstanding at June 30, 2007, 5,961,324 were held by the Companys Chief
Executive Officer (December 31, 20064,741,324).



|9. | Commitments:
|-- | ------------

The Company has obligations under
operating lease arrangements that require the following minimum annual payments:



|                         |  |   |        
|------------------------ |  | - | -------
|Year ending December 31: |  |   |        
|2007                     |  | $ | 106,433
|2008                     |  |   | 141,910
|                         |  |   |        
|                         |  | $ | 248,343
|                         |  |   |        



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|10. | Registration statement:
|--- | -----------------------

On April 20, 2007 the
Company filed a Form SB-2 Registration Statement under the Securities Act of 1933. The registration statement relates to the resale by certain selling stockholders of up to 13,977,494 shares of common stock and 23,694,259 shares of common stock
issuable to security holders upon exercise of share purchase warrants. The 37,671,753 shares that may be resold were acquired by the selling stockholders in various private placement offerings, as payment for services rendered, as repayment of
promissory notes, as finders fees, as consideration pursuant to a debenture settlement arrangement, and as compensation for the provision of letters of credit. All of these transactions were exempt from the registration requirements of the
Securities Act of 1933. On May 11, 2007 the United States Securities and Exchange Commission declared the Registration Statement to be effective.



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|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS
|------- | ------------------------------------

CAUTIONARY NOTICE REGARDING
FORWARD LOOKING STATEMENTS

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

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

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

Where we say we, us, our, or the Company, we mean Braintech Inc. and our subsidiaries, Braintech Canada, Inc. and Brainware Systems Inc.

OVERVIEW

We were incorporated in Nevada on March 4, 1987 under
the name Tome Capital Inc. We changed our name to Nevada Manhattan Mining Inc. on August 15, 1988, then back to Tome Capital Inc. on July 5, 1990, to Offshore Reliance Ltd. on February 19, 1003, to Cozy Financial Corporation on
April 20, 1993 and to Braintech, Inc. on January 3, 1994.

We have two wholly-owned subsidiaries. The first, Braintech Canada, Inc. was
incorporated in British Columbia Canada on March 30, 1994 under the name Brainware Systems Inc. Brainware Systems Inc. changed its name to Braintech Canada, Inc. on September 19, 2001. Braintech Canada, Inc. carries out our research and
development activities, employs our technical and managerial personnel, and carries on our sales activities.

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

We are in the business of developing technologies and products used in machine or computerized vision guidance systems. 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). Since entering into
a strategic alliance with ABB Inc. in March, 2000, we have focused on the development and implementation of vision guidance systems for robots used in the automobile manufacturing industry. ABB Inc., which is based in Europe and employs over 165,000
people in more than 100 countries, is a major supplier of industrial robots and manufacturing automation systems.

Effective February 1, 2004, we
entered into an Exclusive Channel Partner Agreement with ABB Inc. whereby we agreed to work together to develop and market vision guided robotic systems to ABBs North American automotive customers. Early successes convinced ABB to create a
marketing strategy centered on a brand called TrueView. TrueView Vision Guided Robotics systems fully integrate our technology. In January 2005, we expanded the scope of our February 1, 2004 exclusive channel partner agreement to
allow ABB to market TrueView in the European Economic Union and to sub-license TrueView to their business partners on a worldwide basis.



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

In addition to supplying vision guided robotic systems to ABB Inc., we have provided them with 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 new
Exclusive Global Channel Partner Agreement.

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.

We have not at any time been able to generate sufficient revenue from sales of our products or services to sustain ongoing operations, and other than our agreement with
ABB Inc., we do not have any established distribution channels for our services or products. From inception on January 3, 1994 to June 30, 2007, we have generated total revenues of only $5,898,683 and as of June 30, 2007, we have
incurred an aggregate deficit of $28,265,055. We may continue to incur significant additional operating losses as our product development, research and development, and marketing efforts continue. Operating losses may fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and revenue recognised.

We believe that our present and anticipated cash resources
from operations and equity financing will be sufficient to pay our ongoing cash operating expenses throughout 2007 and 2008. The minimum revenue commitments by ABB pursuant to the Exclusive Global Channel Partner Agreement dated May 5, 2006
should result in positive net earnings and cash flow for 2007 and 2008. There can be no assurance that an equity financing can be obtained as anticipated and there can be no assurance that ABB will fulfil its minimum revenue commitments. If we
cannot do either, there is a risk that our company will fail. Our 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
our company be unable to continue as a going concern.

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.



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Income Taxes

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

Stock based Compensation

In December 2004, the Financial Accounting
Standards Board (the FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123R, Share Based Payment. SFAS No. 123R requires companies to estimate the fair value of share-based payment awards on
the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period in the Companys financial statements. Stock based
compensation expense recognized during the period is based on the value of the portion of the share based payment awards that is ultimately expected to vest during the period. We estimate the fair value of stock options using the Black-Scholes
valuation model, consistent with the provisions of SFAS No. 123R. The Black-Scholes valuation model requires the input of highly subjective assumptions, including the options expected life, the price volatility of the underlying stock,
and the risk free interest rate. The expected stock price volatility assumption was determined using historical volatility of our common stock. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option
valuation model and the fair value is amortized on a straight line basis.

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

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 six
months ended June 30, 2007 we realized a foreign exchange loss of $7,197. The foreign exchange gain resulted principally from transactions recorded in United States dollars for reporting purposes, but actually carried out in Canadian dollars.
As at the date of this quarterly 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 year ended December 31, 2006 and the six months ended June 30, 2007 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.



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Quantitative and Qualitative Disclosures about Market Risk

As at June 30 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, except the bank loan, are due within the next twelve months and are classified as current assets or liabilities in the
consolidated balance sheet provided with this report. The fair value of all financial instruments at June 30, 2007, except the bank loan, approximate their carrying values.

To June 30, 2007, 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.

Six-month period ended June 30, 2007 compared with the
six month period ended June 30, 2006.

The average exchange rate used to translate the Canadian Dollar into the United States Dollar for the
six month period ended June 30, 2007 was 1.13599. For the six month period ended June 30, 2006, 2006 the average exchange was 1.13931. The change in our operating expenses illustrates the effect fluctuating foreign exchange rates have on
our reported results. We reported an increase in operating expenses of $243,598 from $1,555,282 for the six month period ended June 30, 2006, 2006 to $1,798,880 for the six month period ended June 30, 2007. However, when adjusted for the
change in the foreign exchange rate (that is, by excluding the effect of the change in exchange rates from the comparative periods levels) and elimination of the stock based compensation portion of the expense, the actual change in operating
expense activity was a decrease of approximately $183,600. The foreign exchange adjustment accounted for an increase of approximately $3,700 in the reported operating expenses. We have isolated the effect the fluctuating foreign exchange rate had on
our reported results in the discussion below.

Revenue from operations for the six month period ended June 30, 2007 was $1,268,934 (June 30,
2006$560,547). 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
critical accounting policies section above.

During the six month period ended June 30, 2007 we invoiced $1,437,619 for software licenses delivered
for installation in automobile manufacturing plants. Of this amount, we deferred $227,730 for future revenue recognition in accordance with SOP 97-2. We also recorded $15,205 for engineering services and $43,840 of previously deferred revenue.

Cost of sales for the six month period ended June 30, 2007 was $99,893 or approximately 7.9% of revenue.

During the six month period ended June 30, 2006 we invoiced $313,478 for software licenses delivered for installation in automobile manufacturing plants. Of this
amount, we deferred $55,785 for future revenue recognition in accordance with SOP 97-2. We also recorded $150,000 for research and development services related to the bin picking project, $64,733 for engineering services and $88,121 of previously
deferred revenue.



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Cost of sales for the six month period ended June 30, 2006 was $28,570 or approximately 5.1% of revenue.

We reported that research and development expenses decreased $62,398 from $351,618 for the six month period ended June 30, 2006 to $289,220 for the six month
period June 30, 2007. Stock option expense allocated to research and development was $21,957 for the six month period ended June 30, 2006 and $5,409 for the six month period ended June 30, 2007 and therefore accounted for $16,548 of
the decrease. A Precarn funding grant of $54,369 was accrued to offset our expense during the six month period ended June 30, 2007. No such accrual occurred during the six month period ended June 30, 2006. After eliminating the stock
option expense decrease and the funding grant decrease, the foreign exchange differential accounted for an increase of approximately $1,000, indicating that the actual research and development activity increased approximately $7,500.

We reported that selling, general, and administrative expenses increased $305,996 from $1,203,664 for the six month period ended June 30, 2006 to $1,509,660 for the
six month period ended June 30, 2007. Stock option expense in the amount of $97,499 was recorded for the six month period ended June 30, 2006 and $537,564 for the six month period ended June 30, 2007 accounting for $440,065 of the
increase. The foreign exchange differential accounted for an increase of approximately $2,800, indicating an actual decrease in activity of approximately $136,900. The principal factors contributing to the changes were as follows:



| |  |  | Reported general and administrative salaries decreased approximately $45,300 from $517,100 to $471,800. The foreign exchange differential accounted for an increase
of approximately $1,400, resulting in an actual decrease in activity of approximately $46,700. The actual decrease resulted from the decrease of our staff by two employees.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported amortization expenses decreased approximately $3,200 from $12,400 to $9,200. The foreign exchange differential was negligible.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported legal expenses decreased approximately $28,200 from $83,800 to $55,600. The foreign exchange differential accounted for an increase of approximately $200,
resulting in an actual decrease in activity of approximately $28,300. The actual decrease is principally a result of a decrease in patent application and registration expenses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported accounting expenses increased approximately $7,800 from $12,800 to $20,600. The foreign exchange differential accounted for an increase of approximately
$100, resulting in an actual increase in activity of approximately $7,700. The actual increase related to a general increase in the cost of accounting, auditing, and tax services.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported travel and marketing expenditures decreased approximately $70,500 from $247,300 to $18,800. The foreign exchange differential accounted for an increase of
approximately $500, resulting in an actual decrease in activity of approximately $71,000. The individual components of the reported decrease are as follows: investor relations decreased $172,200 from $206,200 to $34,000, travel increased $9,400 from
$25,100 to $34,500, trade shows increased from nil to $99,400 and marketing materials decreased from $45,400 to Nil.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported rent and premises cost increased approximately $5,700 from $117,100 to $122,800. The foreign exchange differential accounted for an increase of
approximately $400, resulting in an actual increase in activity of approximately $5,400.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Three month period ended June 30, 2007 compared with the three month period ended June 30, 2006.

The average exchange rate used to translate the Canadian Dollar into the United States Dollar for the three month period ended June 30, 2007 was
1.10031. For the three month period ended June 30, 2006 the average exchange was 1.12369. The change in our operating expenses illustrates the effect fluctuating foreign exchange rates have on our reported results. We reported a decrease in
operating expenses of $3,893 from $854,797 for the three month period ended June 30, 2006 to $850,904 for the three month period ended June 30, 2007. However, when adjusted for the change in the foreign exchange rate (that is, by excluding
the effect of the change in exchange rates from the comparative periods levels), and elimination of the stock based compensation portion of the expense, the actual change in operating expense activity was a decrease of approximately $87,800.
The foreign exchange adjustment accounted for a decrease of approximately $15,000 in the reported operating expenses. We have isolated the effect the fluctuating foreign exchange rate had on our reported results in the discussion below.

Revenue from operations for the three month period ended June 30, 2007 was $600,562 (June 30, 2006$326,629). 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 critical accounting policies section above.

During the three month period ended June 30, 2007 we invoiced $686,343 for software licenses delivered for installation in automobile manufacturing plants. Of this
amount, we deferred $115,867 for future revenue recognition in accordance with SOP 97-2. We also recorded $7,725 for engineering services and $22,361 of previously deferred revenue.

Cost of sales for the three month period ended June 30, 2007 was $55,852 or approximately 9.3% of revenue.

During the three month period ended June 30, 2006 we invoiced $137,142 for software licenses delivered for installation in automobile manufacturing plants. Of this amount, we deferred $30,461 for future revenue recognition in
accordance with SOP 97-2. We also recorded $150,000 for research and development services related to the bin picking project, $25,460 for engineering services and $44,489 of previously deferred revenue.

Cost of sales for the three month period ended June 30, 2006 was $13,088 or approximately 4.0% of revenue.

We reported that research and development expenses decreased $29,400 from $174,256 for the three month period ended June 30, 2006 to $144,856 for the three month
period June 30, 2007. Stock option expense allocated to research and development was $10,543 for the three month period ended June 30, 2006 and $1,137 for the three month period ended June 30, 2007 and therefore accounted for $9,406
of the decrease. A Precarn funding grant of $31,543 was accrued to offset our expense during the three month period ended June 30, 2007. No such accrual occurred during the three month period ended June 30, 2006. After eliminating the
stock option expense decrease and the funding grant decrease, the foreign exchange differential accounted for an increase of approximately $3,600, indicating that the actual research and development activity increased approximately $7,900.

We reported that selling, general, and administrative expenses increased $25,507 from $680,541 for the three month period ended June 30, 2006 to
$706,048 for the three month period ended June 30, 2007. Stock option expense in the amount of $49,751 was reported for the three month period ended June 30, 2006 and $128,081 for the three month period ended June 30, 2007 accounting
for $78,330 of the increase. The foreign exchange differential accounted for an increase of approximately $12,000, indicating an actual decrease in activity of approximately $64,800. The principal factors contributing to the changes were as follows:



| |  |  | Reported general and administrative salaries decreased $22,466 from $261,129 to $238,663. The foreign exchange differential accounted for an increase of
approximately $4,900, resulting in an actual decrease in activity of approximately $27,400. The actual decrease resulted from the decrease of our staff by two employees.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported amortization expenses decreased approximately $1,300 from $6,200 to $4,900. The foreign exchange differential accounted for an increase of approximately
$100, resulting in an actual decrease of approximately $1,400.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Reported legal expenses decreased approximately $39,600 from $65,000 to $25,400. The foreign exchange differential accounted for an increase of approximately $500,
resulting in an actual decrease in activity of approximately $40,100. The actual decrease is principally a result of a decrease in patent application and registration expenses.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported accounting expenses increased approximately $1,200 from $7,900 to $9,100. The foreign exchange differential accounted for a decrease of approximately $200,
resulting in an actual increase in activity of approximately $1,000. The actual increase related to a general increase in the cost of accounting and auditing services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported travel and marketing expenditures decreased approximately $15,600 from $168,500 to $152,900. The foreign exchange differential accounted for an increase of
approximately $3,200, resulting in an actual decrease in activity of approximately $18,700. The individual components of the reported decrease are as follows: investor relations decreased $129,400 from $148,700 to $19,300, travel increased $17,500
from $11,500 to $29,000, trade shows increased from nil to 99,400, and marketing materials decreased from $29,200 to nil.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reported rent and premises cost increased approximately $1,900 from $58,700 to $60,600. The foreign exchange differential accounted for an increase of approximately
$1,300, resulting in an actual increase in activity of approximately $600.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Liquidity and Capital Resources

Working Capital and Operations

As of June 30, 2007, we
had $939,327 in cash and cash equivalents and a working capital deficit of $417,711 and as of June 30, 2006, we had $69,017 in cash and cash equivalents and a working capital deficit of $2,521,334.

Our cash position as at August 10, 2007 is approximately $620,000 and our trade accounts receivable are approximately $725,000.

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 August 10, 2007, we have 20 employees and our salary costs are approximately $140,000 per month. For the year ended December 31, 2006 and the first
three months of 2007, our average monthly cash expenditures for general, overhead and administration, exclusive of salary costs, were approximately $85,000 per month. We expect that our general overhead and administrative costs, exclusive of salary
costs, will remain constant over the next six months.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We do not expect to incur significant capital expenditures during 2007 unless they result from an increase in our level of operation.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our Exclusive Global Channel Partner Agreement dated May 5, 2006 with ABB Inc. provides for a minimum purchase guarantee of our eVF Runtime Licenses totalling
US$10,500,000 for the period ending December 31, 2008. The minimum purchase guarantees are allocated on an annual basis as follows: 2006$1,500,000; 2007$3,500,000; 2008$5,500,000. As at August 10, 2007, ABB has fulfilled
all of its commitments regarding the Exclusive Global Channel Partner Agreement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We expect that interest payments on our bank loan will
total approximately $150,000 during the year ending December 31, 2007 and approximately $80,000 during the year ending December 31, 2008. We are scheduled to make principal payments totalling $490,000 during the year ending
December 31, 2007 and $1,982,837 during the year ending December 31, 2008. We expect that the minimum purchase commitments by ABB during 2007 and 2008 ($3,500,000 and $5,500,000 respectively) will be more than sufficient to service these
debt requirements as well as produce an operating income and positive cash flow during 2007 and 2008.



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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. From January 1, 2005
to August 10, 2007 we obtained financing as follows:

Bank Loan and Loan Guarantee

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

The Royal Bank required that standby letters of credit securing the full amount of the loan be provided. Certain
accredited investors (the LC Providers) agreed to provide the letters of credit to the bank and as compensation we agreed to issue one Unit for each one dollar pledged as security for the bank loan. Each Unit consists of two
(2) shares of our common stock, three (3) share purchase warrants, each warrant entitling the holder to purchase one (1) additional share of common stock at a price of $0.30 per share for a period of five (5) years; and one and
one-half (11/2) share purchase warrants, each whole warrant entitling the holder to purchase one (1) additional share
of common stock at a price of $0.50 per share for a period of five (5) years. A general security agreement covering all of our real, personal and intangible property has been pledged as security to the LC Providers.

A total of $2,450,000 letters of credit have been obtained to secure the bank loan and accordingly we have issued 4,900,000 common shares, 7,350,000 warrants exercisable
at $0.30 and 3,675,000 warrants exercisable at $0.50. As further compensation, the exercise price of 312,500 share purchase warrants previously held by certain LC Providers have been reduced from $1.00 to $0.30 per share and the term of those
warrants has been extended by 24 months, so that they now expire May 2, 2010.

$2,150,000 of the letters of credit were received October 23, 2006
and, accordingly, we issued 4,300,000 common shares, 6,450,000 warrants exercisable at $0.30 and 3,225,000 warrants exercisable at $0.50. On October 23, 2007 we recorded as an expense, $1,376,000 on account of the fair value of the common
shares issuance and $2,350,617 on account of the fair value of the warrant issuance. The fair value of the common shares was calculated using the closing market price of the common stock on October 23, 2006 ($0.32) and the fair value of the
warrants was calculated using the Black-Scholes option valuation model and the following assumptions: dividend yield 0%, expected volatility 167%, risk-free interest rate 4.90%, and an expected term of two (2) years.

$300,000 of the letters of credit were received February 5, 2007 and, accordingly, we issued 600,000 common shares, 900,000 warrants exercisable at $0.30 and
450,000 warrants exercisable at $0.50. On February 5, 2007 we recorded as an expense, $180,000 on account of the fair value of the common shares issuance and $302,835 on account of the fair value of the warrant issuance. The fair value of the
common shares was calculated using the closing market price of the common stock on February 5, 2007 ($0.30) and the fair value of the warrants was calculated using the Black-Scholes option valuation model and the following assumptions: dividend
yield 0%, expected volatility 165%, risk-free interest rate 4.92%, and an expected term of two (2) years.



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The Agreement governing the LC Providers and the Loan Guarantee terms required that the Company file a Registration
Statement such that the securities issued to the LC Providers would qualify for resale pursuant to the Registration Statement. The Agreement contained penalty provisions if the Company did not file a Registration Statement, and if the Registration
Statement did not become effective, within certain time provisions. Upon review, the Company determined that the penalty provision clauses applied and the Company agreed to issue one additional common share to the LC Providers that delivered letters
of credit on or before October 23, 2006. Owen Jones, the Companys CEO and a director and James Speros, an independent director, both of whom delivered letters of credit on or before October 23, 2007, elected not to participate in the
additional share issuance. Accordingly, on August 8, 2007, the Company issued 1,625,000 common shares at a deemed price of $0.48 per share.

Prior to
the receipt of the final letters of credit, cash collateral had been pledged by accredited investors to allow the Royal Bank of Canada to fund the total amount of the loan. The receipt of the final letters of credit allowed for the release of the
cash collateral. As compensation for pledging the cash collateral, on March 22, 2007 we issued to one of the accredited investors 100,000 common shares and 100,000 share purchase warrants exercisable at $0.30 for a period of three years. On
March 22, 2007 we recorded as an expense, $36,000 on account of the fair value of the common shares issuance and $28,406 on account of the fair value of the warrant issuance. The fair value of the common shares was calculated using the closing
market price of the common stock on March 22, 2007 ($0.36) and the fair value of the warrants was calculated using the Black-Scholes option valuation model and the following assumptions: dividend yield 0%, expected volatility 165%, risk-free
interest rate 4.58%, and an expected term of two (2) years. As further compensation, the exercise price of 1,008,548 share purchase warrants previously held by the accredited investor were reduced from $0.60 to $0.30 per share and the term of
those warrants has been extended by 36 months, so that they now expire January 18, 2011.

Our Chief Executive Officer provided $400,000 in letters of
credit and also pledged a portion of the cash collateral. The Chief Executive Officer received no compensation for providing his portion of the cash collateral.

Private Placements

At directors meetings held October 13, 2004 and December 21, 2004, approval was given to a private
placement of 1,750,000 units at a price of $0.40 per unit for gross proceeds of $700,000. Each unit comprises one share and one-half (1/2) share purchase warrant. Each whole warrant has a five (5) year term and is exercisable at any time
into one common share at a price of $0.50 per share. The private placement closed on various dates between December 1, 2004 and March 4, 2005. In conjunction with this private placement, we paid $32,880 and issued 24,500 units as
finders fees.

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

At a directors meeting held October 5, 2005, approval was given to a private placement of up to 6,000,000 units at a price of $0.50 per unit for total
proceeds of $3,000,000. Each unit comprises one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional share for two (2) years at US$0.60 per share. On January 23, 2006 we
issued 1,008,548 units on account of this private placement.

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

By directors consent resolution dated November 24, 2006, approval was given to a private placement of up to $1,200,000. The financing term sheet executed to
implement the private placement offered 6,000,000 units at $0.20 per unit. Each Unit comprises one common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional share for three (3) years
at US$0.25 per share. On January 16, 2007



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we issued 1,895,000 units on account of this private placement representing $379,000. We also paid $1,500 and issued 30,000 units as a finders fee on
account of this private placement. On February 21, 2007 we issued 275,000 units on account of this private placement representing $55,000.

At a
directors meeting held March 22, 2007, approval was given to a private placement of up to $756,000. The financing term sheet executed to implement the private placement offered 2,700,000 units at $0.28 per unit. Each Unit comprises one
common share and one share purchase warrant. Each share purchase warrant entitles the holder to purchase one additional share for three (3) years at US$0.30 per share. On June 18, 2007 we issued 1,304,286 units on account of this private
placement representing gross proceeds of $365,200. A finders fee of $2,520 was paid in conjunction with this private placement.

Employee Stock
Options

The exercise of 175,000 employee stock options has generated $56,000 from January 1, 2005 to August 10, 2007.

Off-Balance Sheet Arrangements

We have no significant off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that is material to stockholders.

Going Concern Statement

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

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

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

RISK FACTORS

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

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



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We may need to raise additional funds through public or private debt or sale of equity to achieve our current business
strategy. The financing we need may not be available when needed. Even if this financing is available, it may be on terms that we deem unacceptable or are materially adverse to your interests with respect to dilution of book value, dividend
preferences, liquidation preferences, or other terms. Our inability to obtain financing will inhibit our ability to implement our business strategy, and as a result, could require us to diminish or suspend our business strategy and possibly cease
our operations. If we are unable to obtain financing on reasonable terms, we could be forced to delay, scale back or cease our operations, which could put your investment dollars at significant risk.

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

We have generated only $5,898,683 in revenues since our incorporation to June 30, 2007 and we expect to incur operating losses in the future. Our net loss from
inception on January 3, 1994 to June 30, 2007 was $28,265,055. We had cash in the amount of $939,327 as of June 30, 2007. We estimate our average monthly operating expenses to be approximately $225,000 each month. We cannot provide
assurances that we will be able to successfully develop our business. These circumstances raise substantial doubt about our ability to continue as a going concern as described in an explanatory paragraph to our independent auditors report on
our audited financial statements, dated February 28, 2007. If we are unable to continue as a going concern, investors will likely lose all of their investments in our company.

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

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

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

We are authorized to issue up to 200,000,000 common shares, of which 36,946,719 are issued and outstanding as of August 10, 2007. Our board of directors has the
authority to cause our company to issue additional shares of common stock without the consent of any of our shareholders. Consequently, our shareholders may experience more dilution in their ownership of our company in the future.

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

Our success and ability to compete depends to a significant degree on our proprietary
technology. If any of our competitors copy or otherwise gain access to our proprietary technology or develop similar products independently, we may not be able to compete as effectively. The measures we have implemented to protect our proprietary
technology and other intellectual property rights are currently based upon a combination of provisional patent applications, patents, trademarks and trade secrets. These measures, however, may not be adequate to prevent the unauthorized use of our
proprietary technology and our other intellectual property rights. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such
intellectual property rights. Any litigation, whether successful or unsuccessful, may result in substantial costs and a diversion of our companys resources. In addition, notwithstanding our rights to our intellectual property, other persons
may bring claims against us alleging that we have infringed on their intellectual property rights or claims that our intellectual property rights are not valid. Any claims against us, with or without merit, could be time consuming and costly to
defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our business or require us to make changes to our products.



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

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

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

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

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

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

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

The sale of a substantial number of shares of our common stock into the public market may result in significant downward pressure on the price of our common stock and could affect the ability of our stockholders to realize the current
trading price of our common stock.

The sale of a substantial number of shares of our common stock in the public market could cause a reduction in
the market price of our common stock. We had 36,946,719 shares of common stock issued and outstanding as of August 10, 2007. On April 20, 2007 we filed a registration statement under the Securities Act of 1933. The registration statement
relates to the resale by certain selling stockholders of up to 13,977,494 shares of common stock and 23,694,259 shares of common stock issuable to security holders upon exercise of share purchase warrants. On May 11, 2007, this registration
statement was declared effective and the selling stockholders may resell up to 37,671,753 shares of our common stock, representing 102% of our current issued and outstanding shares. The 13,977,494 shares registered by this registration statement are
included in the number of our issued and outstanding common shares as of August 10, 2007, shown above. Any significant downward pressure on the price of our



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common stock as the selling stockholders sell the shares of our common stock could encourage short sales by the selling stockholders or others. Any such
short sales could place further downward pressure on the price of our common stock. If the price of our common stock goes down, investors could lose most of the value of their investments.

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

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

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

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

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

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

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



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the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customers
account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with
the customers confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a
suitable investment for the purchaser and receive the purchasers written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is
subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our
common stock.

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

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



|PART II. | OTHER INFORMATION
|-------- | -----------------



|ITEM 6. | EXHIBITS
|------- | --------

INDEX TO EXHIBITS

Exhibits



|        |  |                                                                                                                         
|------- |  | ------------------------------------------------------------------------------------------------------------------------
|Number  |  | Exhibit                                                                                                                 
|3.1(1)  |  | Articles of Incorporation, dated February 27, 1987                                                                      
|        | 
|3.2(1)  |  | Articles of Amendment, dated July 14, 1998                                                                              
|        | 
|3.3(1)  |  | Articles of Amendment, dated June 28, 1990                                                                              
|        | 
|3.4(1)  |  | Articles Of Amendment of the Company, dated February 8, 1993                                                            
|        | 
|3.5(1)  |  | Articles of Amendment of the Company, dated April 6, 1993                                                               
|        | 
|3.6(1)  |  | Articles of Amendment of the Company, dated December 6, 1993                                                            
|        | 
|3.7(5)  |  | Restated Articles of Incorporation of the Company dated June 1, 2000                                                    
|        | 
|3.8(1)  |  | By-Laws of the Company                                                                                                  
|        | 
|3.9(6)  |  | Amendment to By-Laws of the Company                                                                                     
|        | 
|4.1(1)  |  | Specimen Stock Certificate                                                                                              
|        | 
|4.2(2)  |  | 1997 Stock Option Plan                                                                                                  
|        | 
|4.3(2)  |  | 2000 Stock Option Plan                                                                                                  
|        | 
|4.4(4)  |  | Amended 2000 Stock Option Plan dated November 1, 2000                                                                   
|        | 
|10.1(4) |  | Agreement for Escrow of Share Certificate & Promissory Note between Edward White and the Company dated February 27, 2001
|        | 
|10.2(5) |  | Agreement for Escrow of Share Certificate and Promissory Note between Babak Habibi and the Company dated June 21, 2001  



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|          |  |                                                                                                                    
|--------- |  | -------------------------------------------------------------------------------------------------------------------
|10.3(7)   |  | License Agreement with Marubeni Corporation                                                                        
|          | 
|10.4(8)   |  | Certificate of Reverse Stock Split                                                                                 
|          | 
|10.5(9)   |  | Corporate Governance Committee Charter                                                                             
|          | 
|10.6(9)   |  | Audit Committee Charter                                                                                            
|          | 
|10.7(9)   |  | Compensation Committee Charter                                                                                     
|          | 
|10.8(9)   |  | Code of Business Conduct and Ethics for Directors, Officers and Employees                                          
|          | 
|10.9(9)   |  | Corporate Governance Guidelines                                                                                    
|          | 
|10.10(10) |  | Loan Agreement                                                                                                     
|          | 
|10.11(10) |  | General Security Agreement                                                                                         
|          | 
|10.12(10) |  | Service Agreement with Elite Financial Communications Group                                                        
|          | 
|10.13(10) |  | 2003 Stock Option Plan                                                                                             
|          | 
|10.14(11) |  | Lease Agreement dated July 30, 2003 between Hoop Realty and Braintech Canada, Inc.                                 
|          | 
|10.15(12) |  | ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies                                  
|          | 
|10.16(13) |  | ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies                                  
|          | 
|10.17(14) |  | Marketing Communications Services Agreement with Baldacci Communications, LLC,                                     
|          | 
|10.18(15) |  | ABB Exclusive Global Channel Partner Agreement for Licensing of Braintechs Technologies                           
|          | 
|10.19(16) |  | Form of Loan Guarantee and Subscription Agreement                                                                  
|          | 
|10.20(16) |  | General Security Agreement dated October 18, 2006                                                                  
|          | 
|11.1*     |  | Computation of net loss per share                                                                                  
|          | 
|31.1*     |  | Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002               
|          | 
|31.2*     |  | Certificate of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|          | 
|32.1*     |  | Certificate of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               
|          | 
|32.2*     |  | Certificate of Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|* | Filed herewith
|- | --------------

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

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

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

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

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

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

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

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

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

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

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

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

|(13) | Exhibit already on fileexhibit to our Form 8-K filed January 19, 2005.
|---- | -----------------------------------------------------------------------

|(14) | Exhibit already on fileexhibit to our Form 8-K filed March 3, 2005.
|---- | --------------------------------------------------------------------

|(15) | Exhibit already on fileexhibit to our Form 10QSB covering the quarter ended March 31, 2006.
|---- | --------------------------------------------------------------------------------------------

|(16) | Exhibit already on fileexhibit to our Form 8-K filed October 26, 2006.
|---- | -----------------------------------------------------------------------

|(17) | Exhibit already on fileexhibit to our Form 10-QSB filed on August 14, 2007.
|---- | ----------------------------------------------------------------------------



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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this Amendment No. 1 to report to be signed on its behalf by the undersign, thereunto duly authorized



|                |  |                                             
|--------------- |  | --------------------------------------------
|BRAINTECH, INC.
|                | 
|By:             |  | /s/ Frederick Weidinger                     
|                |  | Frederick Weidinger                         
|                |  | Chief Executive Officer and Director        
|                |  | (Principal Executive Officer)               
|                |  | Date: March 18, 2008                        
|                | 
|By:             |  | /s/ Edward A. White                         
|                |  | Edward A. White                             
|                |  | Senior Vice President-Administration        
|                |  | (Principal Financial and Accounting Officer)
|                |  | Date: March 18, 2008                        



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