UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-QSB  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period endedJune 30, 2006  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from  BRAINTECH, INC. (Exact name of Registrant as specified in its charter)  Nevada(State or jurisdiction of incorporation)
        000-24911(Commission File Number)
        98-0168932(IRS Employer Identification No.)  930 West 1st Street, Unit #102, North Vancouver, B.C., Canada, V7P 3N4 (Address of Principal Executive offices)  Issuer's Telephone Number:(604) 988-6440  Securities registered pursuant to section 12(b) of the Act:  None  Securities registered pursuant to section 12(g) of the Act:  Common Stock, $0.001 par value (Title of Class)  Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YesxNo o  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o Nox  State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 24,883,101 Common shares, par value $0.001, as at August 11, 2006.  Transitional Small Business Disclosure Format (check one):  Yes o  Nox  Index to Exhibits on Page 30       Braintech, Inc.  Form 10-QSB  TABLE OF CONTENTS  PART I.  FINANCIAL INFORMATION  Item 1. Financial Statements page 3  Item 2. Management's Discussion and Analysis page 17  Item 3 Controls and Procedures page 29  PART II.  OTHER INFORMATION  Item 1. Legal Proceedings page 29  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds page 29  Item 3. Defaults upon Senior Securities page 30  Item 4. Submission of Matters to a Vote of Securities Holders page 30  Item 5. Other Information page 30  Item 6. Exhibits page 30        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, 2006 (unaudited) and December 31, 2005;  (ii) Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2005 and 2006;  (iii) Condensed Consolidated Statement of Stockholders' Deficiency (unaudited) for the six months ended June 30, 2006;  (iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2005 and 2006; and  (v) Notes to Condensed Consolidated Financial Statements (unaudited) for the six months ended June 30, 2005 and 2006.        Condensed Consolidated Financial Statements of
(Expressed in United States dollars)
BRAINTECH, INC.
Six months ended June 30, 2006 and 2005
Three months ended June 30, 2006 and 2005(Unaudited  Prepared by Management)          BRAINTECH, INC.Condensed Consolidated Balance Sheets(Expressed in United States dollars)June 30,
        December 31,2006
        2005(unaudited)AssetsCurrent assets:Cash and cash equivalents
        $
        69,017
        $
        522,943Accounts receivable
        136,466
        321,912Inventory
        10,555
        17,487Prepaid expenses
        48,668
        44,700264,706
        907,042Fixed assets
        35,062
        44,590$
        299,768
        $
        951,632Liabilities and Stockholders Equity (Deficiency)Current liabilities:Accounts payable
        $
        83,107
        $
        84,768Accrued liabilities
        247,447
        238,952Deferred leasehold inducements (note 3)
        40,821
        48,264Deferred revenue
        65,613
        98,551Due to related party
        62,495
        77,187Convertible debentures (note 4)
        2,286,557
        1,868,3872,786,040
        2,416,109Stockholders equity (deficiency):Common stockAuthorized: 200,000,000 shares, with $0.001 par valueIssued: 24,883,101 shares
        24,883
        23,354(December 31, 2005  23,353,689 shares)Additional paid-in capital
        19,036,783
        18,574,644Accumulated deficit
        (21,547,938)
        (20,062,475)(2,486,272)
        (1,464,477)$
        299,768
        $
        951,632  See accompanying notes to condensed consolidated financial statements.    1        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 302006
        2005
        2006
        2005Sales
        
        $
        560,547
        $
        642,869
        $
        326,629
        $
        540,039Cost of sales
        28,570
        28,921
        13,088
        25,727Gross margin
        531,977
        613,948
        313,541
        514,312Operating expenses:Research and development
        329,661
        285,454
        163,712
        151,886Selling, general and administration
        1,225,621
        1,100,642
        691,085
        592,3531,555,282
        1,386,096
        854,797
        744,239Operating loss
        (1,023,305)
        (772,148)
        (541,256)
        (229,927)Non-operating:Interest income
        274
        4
        -
        4Interest expense
        (4,274)
        -
        -
        -Interest on convertibledebentures (note 4)
        (79,557)
        (81,348)
        (39,861)
        (40,666)Accretion of convertibledebentures (note 4)
        (368,829)
        (390,896)
        (186,088)
        (202,777)Fair value of warrants issued onconversion of debentures (note 4)
        (9,772)
        (8,670)
        (9,772)
        (8,670)(462,158)
        (480,910)
        (235,721)
        (252,109)Loss for the period
        $
        (1,485,463)
        $
        (1,253,058)
        
        (776,977)
        $
        (482,036)Loss per share information:Basic and diluted
        $
        (0.06)
        $
        (0.06)
        
        (0.03)
        $
        (0.02)Weighted average number ofCommon shares outstanding
        24,105,980
        21,200,642
        24,324,479
        21,927,833  See accompanying notes to condensed consolidated financial statements.  2        BRAINTECH, INC.Condensed Consolidated Statement of Stockholders Equity (Deficiency)(Unaudited  Prepared by Management)(Expressed in United States dollars)  Common stock
        
        
        TotalNumber
        
        Additional
        Accumulated
        stockholdersof shares
        Amount
        paid-in capital
        deficit
        equityBalance, December 31, 2005
        23,353,689
        $
        23,354
        $
        18,574,644
        $
        (20,062,475)
        $
        (1,464,477)Common stock transactions:(net of share issue costs)Shares issued for cash on exerciseof share purchase warrants
        25,000
        25
        6,225
        -
        6,250Shares issued on conversion ofconvertible debentures
        120,864
        121
        30,095
        -
        30,216Shares issued for cash net ofsubscriptions received in 2005
        1,008,548
        1,008
        3,266
        -
        4,274Shares issued for services rendered
        375,000
        375
        173,375
        
        173,750Common stock subscriptions
        
        
        120,000
        
        120,000Fair value of stock options expensed
        -
        -
        119,406
        -
        119,406Fair value of warrants issued onconversion of debentures
        -
        -
        9,772
        -
        9,772Loss for the period
        -
        -
        -
        (1,485,463)
        (1,485,463)Balance, June 30, 2006
        24,883,101
        $
        24,883
        $
        19,036,783
        $
        (21,547,938)
        $
        (2,486,272)  See accompanying notes to condensed consolidated financial statements.  3        BRAINTECH, INC.Condensed Consolidated Statements of Cash Flows(Unaudited  Prepared by Management)(Expressed in United States dollars)  Six Months Ended June 302006
        2005Cash flows from operations:Loss for the period
        $
        (1,485,463)
        $
        (1,253,058)Items not involving cash:Amortization
        12,403
        11,914Shares issued for services rendered
        173,750
        -Accretion of convertible debentures
        368,829
        390,896Fair value of warrants issued on conversion of debentures
        9,772
        8,670Fair value of stock based compensation (note 2(d))
        119,406
        -Changes in non-cash operating working capital:Inventory
        6,932
        (17,662)Accounts receivable
        185,446
        (500,526)Prepaid expenses
        (3,968)
        (9,348)Accounts payable and accrued liabilities
        6,834
        (72,435)Accrued interest on convertible debentures
        79,557
        81,348Deferred leasehold inducements
        (7,443)
        (9,838)Deferred revenue
        (32,938)
        37,381Net cash used in operating activities
        (566,883)
        (1,332,658)Cash flows from investments:Purchase of fixed assets
        (2,875)
        (5,084)Net cash used in investing activities
        (2,875)
        (5,084)Cash flows from financing:Common shares issued, net of issue costs
        10,524
        1,546,000Repayment of amount due to related party
        (14,692)
        -Common share subscriptions received
        120,000
        -Net cash provided by financing activities
        115,832
        1,546,000Increase (decrease) in cash and cash equivalents
        (453,926)
        208,258Cash and cash equivalents, beginning of period
        522,943
        196,012Cash and cash equivalents, end of period
        $
        69,017
        $
        404,270Supplemental information:Non-cash financing and investing activities:Shares and warrants issued on conversion ofconvertible debentures
        $
        39,988
        $
        35,478  See accompanying notes to condensed consolidated financial statements.   4        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20051.
        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, 2006, 100% of sales revenue (2005  80%) was generated from a single customer, ABB Inc. (ABB).These consolidated financial statements have been prepared on the going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business.  The Company has generated only small amounts of revenues and is continuing to develop its business.  Operations to date have been primarily financed by equity transactions.  The Companys future operations and its continuation as a going concern are dependent upon its ability to raise additional capital, increase sales of its products by leveraging its Exclusive Global Channel Partner Agreement with a major supplier of robotic systems, generating positive cash flows from operations and ultimately attaining profitability.  It is the Companys intention to focus on developing
this partnership and continuing as their principal supplier of vision systems, raising financing and achieving profitable operations.  There can be no assurances that appropriate financings having favourable economic terms will be available as required.Based on its current financial position, the Company believes that its present and anticipated cash resources from operations and equity financing will be sufficient to pay ongoing cash operating expenses until approximately December 31, 2006.  There can be no assurance that the Company can or will obtain sufficient funds from operations or that an equity financing can be obtained as anticipated.  If the Company cannot do either, there is a risk that the business will fail.  The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.  Subsequent to December 31, 2006, the minimum revenue commitment by ABB pursuant to the
Exclusive Global Channel Partner Agreement dated May 5, 2006 should result in positive net earnings and cash flow.2.
        Basis of presentation:(a)
        Unaudited financial Information    1        These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States 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, 2006. 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 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, 2005, as filed in its annual report on Form 10-KSB.   2        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20052.
        Basis of presentation (continued):(b)
        Principles of consolidation:These consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary Braintech Canada, Inc., incorporated under the Company Act of 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 conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts may differ from these estimates.(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 and the Companys prior period pro-forma disclosures of net earnings.  The Black-Scholes valuation model requires the input of highly subjective assumptions, including the options expected life 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 the straight-line amortization approach with the following weighted average assumptions:Six Months EndedJune 30, 2006
        June 30, 2005Expected life (years)
        2.0
        2.0Risk free interest rate
        5.01%
        3.25%Expected volatility
        152%
        183%Dividend yield
        0%
        0%   1        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20052.
        Basis of presentation (continued)(d)
        Stock-based compensation (continued)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.Prior to the adoption of SFAS No. 123R, the Company applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and related interpretations and provided the required pro-forma disclosures of Financial Accounting Standards 123 Accounting for Stock-Based Compensation (SFAS 123).  Under APB 25, compensation expense is only recorded to the extent that the exercise price is less than fair value on the measurement date. Non-employee options are recognized at the fair value of the options as determined by an option pricing model as the services are performed and the options earned.  The pro-forma information for the six months ended June 30, 2005 was as follows:Six Months EndedJune 30, 2005Net loss for the period, as reported
        $
        (1,253,058)Stock-based employee compensation if fair-valuebased method applied
        
        (281,691)Pro forma net loss as if fair-value method had been applied
        $
        (1,534,749)Basic and diluted loss per share:As reported
        $
        (0.06)Pro forma
        $
        (0.07)The weighted average fair value of stock options granted during the six months ended June 30, 2005 was $0.51 per option.In applying the Modified Prospective Application method for the six months ended June 30, 2006, the Company recorded stock based compensation cost totaling the amount that would have been recognized had the fair value method been applied since the effective date of SFAS No. 123.  Previous amounts have not been restated.  Accordingly, the Company recorded stock based compensation of $119,406 for the six months ended June 30, 2006.    1        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20052.
        Basis of presentation (continued)(d)
        Stock-based compensation (continued)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.As of June 30, 2006, the unrecorded deferred stock based compensation balance related to stock options was $212,965 and will be recognized over an estimated weighted average amortization period of 1.11 years.(e)
        Deferred leasehold inducementsLeasehold inducement 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 shares outstanding.As the effect of all outstanding convertible debentures (note 4) options (note 5) and warrants (note 6) 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, 2006 and 2005 was reduced by 300,000 shares in each year for shares issued and held by the Company.3.
        Deferred leasehold inducements:Six Months Ended June 30,2006
        
        2005Balance, beginning of period
        $
        48,264
        $
        64,226Amortization
        
        (9,263)
        
        (8,545)Foreign exchange adjustment
        
        1,820
        
        (1,293)    2        Balance, end of period
        $
        40,821
        $
        54,388   3        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20054.
        Convertible debentures:Between September 5, 2003 and May 21, 2004, in accordance with the terms of Securities Purchase Agreements, the Company issued convertible debentures in the amount of $2,250,000.  A general security agreement covering all of the Companys real, personal and intangible property has been pledged as security for the debentures.  The debentures mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  All convertible debentures rankpari passuwith all convertible debentures issued.  The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a five
(5) year term and is exercisable at any time into one common share at a price of $0.25 per share.The debentures may be redeemed by repayment of all outstanding principal and accrued interest at any time on 7 days notice.  The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption.The Company may at its discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of the Companys shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.Finders fees were paid to investors, persons related to investors, and independent third parties by way of cash payment of $26,250 and by way of issuance of 595,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years.  The fair value of the cash finders fees and the fair value of the units underlying the finders fees have been recognized as a cost of issuance and in stockholders equity.On conversion of the debentures into common shares and share purchase warrants, the fair value of the share purchase warrants will be assigned and recognized as an expense.  To date, $262,500 of principal and $17,328 of accrued interest has been converted into 1,119,312 common shares and 559,656 share purchase warrants.  Accordingly, the Company has expensed $90,513 as the fair value of the warrants issued.   1        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20054.
        Convertible debentures: (continued)Because the conversion price was less than the closing trading prices of the Companys shares on the commitment date, the convertible debentures contain a beneficial conversion feature.  In accordance with Emerging Issues Task Force (EITF) Issue 98-5, the embedded beneficial conversion feature is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.  The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value.  Accordingly, the face value of the debt was allocated to additional paid-in capital on issuance and the convertible debentures are being accreted back to their face value over the term to maturity with a corresponding
charge to interest expense.  Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%).  The amount recorded on the balance sheet as at June 30, 2006 has been calculated as follows:Face value of convertible debentures issued (cash received)
        $
        2,250,000Beneficial conversion feature allocated to additional paid-in capital
        
        (2,249,995)Accretion of convertible debentures
        
        2,137,615Accrued interest payable
        
        428,764Conversion of debentures
        
        (279,827)Convertible debentures at June 30, 2006
        $
        2,286,5575.
        Stock options:A summary of the Companys stock option activity is as follows:WeightedNumber
        averageof shares
        exercise priceBalance, December 31, 2005
        3,366,000
        $0.48Options granted
        200,000
        $0.51Options exercised
        -
        -Vested options expired
        (55,000)
        $0.89Unvested options forfeited
        (75,000)
        $0.46Balance, June 30, 2006
        3,436,000
        $0.48Of those outstanding at June 30, 2006, 2,533,500 are exercisable (December 31, 2005  2,299,750), having a weighted average exercise price of $0.47 (December 31, 2005 - $0.47).    1        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20056.
        Share purchase warrants:On January 9, 2006, 250,000 unvested common share purchase warrants expired without being exercised.  These warrants had an exercise price of $0.25.On January 9, 2006, 25,000 share common purchase warrants were exercised at a price of $0.25 per share.On January 19, 2006, in conjunction with a private placement, the Company issued 1,008,548 common share purchase warrants (the purchaser received one common share purchase warrant for each common share purchased).  Each common share purchase warrant entitles the holder to purchase one additional share for two (2) years at a price of $0.60 per share.On April 7, 2006, 200,000 vested common share purchase warrants expired without being exercised.  These warrants had a weighted average exercise price of $0.87.On May 10, 2006, at the request of a debenture holder the Company converted $25,000 of principal and $5,216 of accrued interest into 120,864 common shares and 60,432 share purchase warrants.  Each warrant is exercisable at $0.25 into one common share for five (5) years.  The fair value of the warrants ($9,772) has been recorded as an expense.A summary of the Companys share purchase warrant activity is as follows:WeightedWeighted
        average remainingNumber
        average
        contractual lifeof shares
        exercise price
        (years)Balance, December 31, 2005
        6,258,197
        $0.46
        2.53Warrants grantedPrivate placement
        1,008,548
        $0.60
        1.6Debenture conversion
        60,432
        $0.25
        4.8Warrants exercised
        (25,000)
        $0.25Warrants expired
        (450,000)
        $0.53Balance, June 30, 2006
        6,852,177
        $0.48
        2.16Of the warrants outstanding at June 30, 2006, 2,941,324 were held by the Companys Chief Executive Officer (June 30, 2005  2,941,324).7.
        Commitments:Annual operating lease commitments are as follows:Period ending December 31:    2        2006
        $
        100,1192007
        $
        197,6392008
        $
        131,182    3        BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2006 and 20058.
        Common stock:On January 9, 2006 the Company issued 25,000 common shares on the exercise of common share purchase warrants at a price of $0.25 per share.On January 23, 2006 the Company issued 1,008,548 units at $0.50 per unit representing subscription proceeds of $500,000 and $4,274 of accrued interest paid from receipt date of the subscription amount.  Each unit comprises one common share and one share purchase warrant.  Each warrant has a two (2) year term and is exercisable at any time into one common share at a price of $0.60 per share.On February 2, 2006 the Company issued 100,000 common shares for services rendered at a deemed price of $0.50 per share.On May 10, 2006 the Company issued 120,864 units at $0.25 per unit representing the conversion of $25,000 of debenture principal and $5,216 of accrued interest.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a five year term and is exercisable at any time into one common share at a price of $0.25 per share.On June 7, 2006 the Company issued 275,000 common shares for services rendered at a deemed price of $0.45 per share.9.
        Exclusive Global Channel Partner Agreement:On May 5, 2006 the Company entered into a new Exclusive Global Channel Partner Agreement with ABB for the licensing of its vision guided robotics technologies and software products.  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 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 has agreed to provide US$300,000 for research and development of a vision guided robotic bin picking technology.  In exchange for ABB entering into this agreement and for providing the purchase and research commitments, the Company granted ABB an exclusive global channel partner license for the use of our software products in the automotive market and in specified general industry markets.    4       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 are in the business of developing technologies and products used in machine, or "computerized, vision.  Machine vision is the application of electronic imaging, image processing, and image analysis techniques to applications in the manufacturing industries for the purpose of control (process control, quality control, machine control, and robot control).  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.  On May 5, 2006 we entered into a new Exclusive Global Channel Partner Agreement with ABB for the licensing of our vision guided robotics technologies and software products.  The stated purpose of the agreement is to allow ABB to establish a leadership position in the global automobile and general manufacturing vision guided robotics markets by strategically marketing the TrueView family of vision guided robotic systems as their global standard.  As part of the new Exclusive Global Channel Partner Agreement, ABB has agreed to guarantee a minimum purchase of our eVF runtime licenses totaling US$10,500,000 for the period ending December 31, 2008.  The minimum guarantees are allocated on an annual basis as follows:  2006 - $1,500,000;  2007 - $3,500,000;  2008 - $5,500,000.  In addition to the purchase commitments, ABB Inc. has agreed to provide US$300,000 for research and development of a vision guided robotic
bin picking technology.  In exchange for ABB Inc. entering into this agreement and for providing the purchase and research commitments, we have granted ABB Inc. an exclusive global channel partner license for the use of our software products in the automotive market and in specified general industry markets.  In addition to supplying vision guided robotic systems to ABB 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.        In addition to our relationship with ABB Inc., we work with Talk Engineering Co., Ltd. in an effort to develop vision guided robotic solutions powered by our technologies specifically for the auto manufacturing industry in Japan.  Talk Engineering is a regional Japanese machine vision developer and integrator primarily serving Japanese automobile and foods manufacturers, and was introduced by us to ABB Japan as a regional resource for developing TrueView solutions for the Japanese market.  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, 2006, we have generated total revenues of only $3,434,264 and as of June 30, 2006, we have incurred an aggregate deficit of $21,547,938.  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 until approximately December 31, 2006.  There can be no assurance we can or will obtain sufficient funds from operations or that an equity financing can be obtained as anticipated.  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.  Our strategic operating priorities for the balance of 2006 focus primarily on our need to generate an operating profit by December 31, 2006.  We intend to achieve this revenue growth on several fronts as follows:  We have expanded our relationship with ABB Inc. and will assist them with their TrueView marketing and sales program throughout North America, Europe and Asia.  We also intend to continue to expand our product line to develop applications for each of the automotive business units within ABB Inc. and in doing so, utilize the sales personnel attached to each of these divisions.  We intend to continue to expand our revenue sources outside ABB Inc. and the automotive industry.  We intend to continue to pursue opportunities with the United States Government; particularly the Departments of Energy, Defense and Homeland Security.  We intend to promote our eVF Evaluation Kit, which we introduced in 2005.  We believe that once engineers realize the ease of use of eVF they will create and develop their own vision guided robotic applications for eVF.  Another priority for 2006 is to continue the development of CoBuss, our Internet-based service and support system.  This product has attracted interest outside of our original target market of the industrial manufacturing industry and we intend to pursue these markets throughout 2006.  Finally, we intend to continue to add functionality to eVF by developing additional components and features.  Critical Accounting Policies and Changes to Existing Accounting Policies  On December 12, 2001, the Securities and Exchange Commission issued cautionary advice regarding the disclosure of critical accounting policies.  Critical accounting policies are those that our management believes are both most important to the portrayal of our financial condition and results, and that require difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that involve uncertainty.  We believe the critical accounting policies we use in preparation of our financial statements are as follows:        Revenue Recognition.  We follow the software revenue recognition rules outlined in the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2.  We recognize revenue when there is a persuasive evidence of a contract, delivery has occurred, the fee is fixed or determinable, collection is reasonably assured, and there are no substantive performance obligations remaining.  Any cash received in advance of meeting these criteria is recorded as deferred revenue on our balance sheet.  Changes in contractual arrangements or customer relationships in the future could impact the extent or timing of revenue recognition.  Income Taxes.Our financial statements reflect a full valuation allowance against the net future income tax assets based on our assessment that we are not more likely than not to be able to utilize certain deductions before their expiry.  Our assessment is based on a judgment of estimated loss before such deductions.  Changes in the timing of the recognition and amount of revenues and expenses in the future may impact our ability to utilize these deductions.  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, 2006 we incurred a foreign exchange loss of $15,350.  The foreign exchange loss resulted principally from transactions recorded in United States dollars for reporting purposes, but actually carried out in Canadian dollars.  As at the date of this annual report, we have not engaged in exchange rate-hedging activities.  To the extent we implement such hedging activities in the future, we cannot assure that we will be successful.  In the year ended December 31, 2005 and the six months ended June 30, 2006 inflation has had a limited impact on our operations.  However, there can be no assurance that inflation will not have a material adverse effect on our results of operations in the future.  Quantitative and Qualitative Disclosures about Market Risk  As at June 30, 2006 we have not entered into or acquired financial instruments that have a material market risk.  We have no financial instruments for trading or other purposes or derivative or other financial instruments with off balance sheet risk.  All financial assets and liabilities are due within the next twelve months and are classified as current assets or liabilities in the consolidated balance sheet provided with this report.  The fair value of all financial instruments at June 30, 2006 approximate their carrying values.  To June 30, 2006, the majority of our cash costs have been realized or incurred in Canadian dollars.  To date we have not entered into foreign currency contracts to hedge against foreign currency risks between the Canadian dollar or other foreign currencies and our reporting currency, the United States dollar.  Generally, however, we attempt to manage our risk of exchange rate fluctuations by maintaining sufficient net assets in Canadian dollars to retire our liabilities as they come due.  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, 2006 compared with the six-month period ended June 30, 2005.        The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the six-month period ended June 30, 2006 was 1.13063.  For the six-month period ended June 30, 2005 the weighted average exchange was 1.22430.  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 $169,186 from $1,386,096 for the six-month period ended June 30, 2005 to $1,555,282 for the six-month period ended June 30, 2006.  However, when adjusted for the change in the foreign exchange rate (that is, by excluding the effect of the change in exchange rates from the comparative periods levels), the actual change in operating expense activity was an increase of approximately $50,200.  The foreign exchange adjustment accounted for an increase of $119,000 in 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, 2006 was $560,547 (June 30, 2005 - $642,869).  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.  Revenue for the six-month period ended June 30, 2006 included approximately $253,400 for 14 vision systems delivered to ABB for installation in automobile manufacturing plants, approximately $91,100 originally recorded as deferred revenue and amortized during the current period into revenue in accordance with SOP 97-2, approximately $62,700 for commissioning services, and $150,000 for engineering services related to the bin picking project.  Cost of sales for the six-month period ended June 30, 2006 was $28,570 or approximately 5.1% of revenue.  Revenue for the six-month period ended June 30, 2005 included approximately $470,800 for 23 vision systems delivered to ABB Inc. for installation in automobile manufacturing plants, approximately $84,300 for software delivered to Idaho National Laboratory, approximately $37,800 originally recorded as deferred revenue and amortized during the period into revenue in accordance with SOP 97-2, approximately $34,500 for eVF license sales (development and off-line licenses), and approximately $15,400 for training and other services.  Cost of sales for the six-month period ended June 30, 2005 was $28,921 or approximately 4.5% of revenue.  We reported that research and development expenses increased $44,207 from $285,454 for the six-month period ended June 30, 2005 to $329,661 for the six-month period ended June 30, 2006.  The foreign exchange differential accounted for approximately $25,200of the increase indicating that actual research and development activity increased by approximately $19,000.  The increase is accounted for by an increase in wage and benefit costs and the hiring of one additional vision scientist.  We reported that selling, general, and administrative expenses increased $124,979 from $1,100,642 for the six-month period ended June 30, 2005 to $1,225,621 for the six-month period ended June 30, 2006.  The foreign exchange differential accounted for an increase of approximately $93,800, indicating an actual decrease in activity of approximately $31,200.  The principal factors contributing to the changes were as follows:  
        Reported general and administrative salaries decreased $5,538 from $522,645 to $517,107.  The foreign exchange differential accounted for an increase of approximately $37,400, resulting in an actual decrease in activity of approximately $42,900.  The actual decrease resulted from the decrease of our staff by one employee.  
        Stock option expense in the amount of $119,406 was recorded for the six-month period ended June 30, 2006 in accordance with the requirements of SFAS No. 123R, Share-Based Payment adopted by the Company on January 1, 2006.  No stock option expense was recorded for the six-month period ended June 30, 2005.  
        Reported amortization expenses increased approximately $500 from $11,900 to $12,400.  The foreign exchange differential accounted for an increase of approximately $900, resulting in an actual decrease of approximately $400.  
        Reported legal expenses increased approximately $35,400 from $48,400 to $83,800.  The foreign exchange differential accounted for approximately $6,063 of the increase, resulting in an actual increase in activity of approximately $29,300. The actual increase is principally a result of an increase in patent application and registration expenses.        
        Reported accounting expenses decreased approximately $57,500 from $70,300 to $12,800.  The foreign exchange differential accounted for an increase of approximately $900, resulting in an actual decrease in activity of approximately $58,400.  The actual decrease related to the change in our independent registered public accounting firm and one time corporate income tax compliance expenses incurred during the six-month period ended June 30, 2005  
        Reported travel and marketing expenditures decreased approximately $5,200 from approximately $252,500 to approximately $247,300.  The foreign exchange differential accounted for an increase of approximately $17,800, resulting in an actual decrease in activity of approximately $23,100.  The individual components of the reported decrease are as follows: investor relations increased from $148,300 to $206,200, travel decreased from $33,600 to $25,100, and marketing materials decreased from $44,300 to $1,100.  
        Reported rent and premises cost increased approximately $13,200 from $103,900 to $117,100.  The foreign exchange differential accounted for approximately $8,500 of the increase, resulting in an actual increase in activity of approximately $4,700.  Three-month period ended June 30, 2006 compared with the three-month period ended June 30, 2005.  The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the three-month period ended June 30, 2006 was 1.10858.  For the three-month period ended June 30, 2005 the weighted average exchange was 1.23884.  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 $110,558 from $744,239 for the three-month period ended June 30, 2005 to $854,797 for the three-month period ended June 30, 2006.  However, when adjusted for the change in the foreign exchange rate (that is, by excluding the effect of the change in exchange rates from the comparative periods levels), the actual change in operating expense activity was an increase of approximately $20,700.  The foreign exchange adjustment accounted for an increase of $89,900 in 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, 2006 was $326,629 (June 30, 2005 - $540,039).  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.  Revenue for the three-month period ended June 30, 2006 included approximately $102,900 for 6 vision systems delivered to ABB Inc. for installation in automobile manufacturing plants, approximately $44,500 originally recorded as deferred revenue and amortized during the period into revenue in accordance with SOP 97-2, and approximately $23,400 for commissioning services.  Cost of sales for the three-month period ended June 30, 2006 was $13,088 or approximately 4.0% of revenue.  Revenue for the three-month period ended June 30, 2005 included approximately $417,900 for 21 vision systems delivered to ABB for installation in automobile manufacturing plants, approximately $84,300 for software delivered to Idaho National Laboratory, approximately $20,500 originally recorded as deferred revenue and amortized during the period into revenue in accordance with SOP 97-2, approximately $3,000 for eVF license sales (development and off-line licenses), and approximately $14,300 for training and other services.  Cost of sales for the three-month period ended June 30, 2005 was $25,727 or approximately 4.8% of revenue.  We reported that research and development expenses increased $11,826 from $151,886 for the three-month period ended June 30, 2005 to $163,712 for the three-month period ended June 30, 2006.  The foreign exchange differential accounted for an increase of approximately $17,200 indicating that actual research and development activity decreased by approximately $5,400.  We reported that selling, general, and administrative expenses increased $98,732 from $592,353 for the three-month period ended June 30, 2005 to $691,085 for the three-month period ended June 30, 2006.  The foreign exchange differential accounted for an increase of approximately $72,700, indicating an actual decrease in activity of approximately $26,000.  The principal factors contributing to the changes were as follows:        
        Reported general and administrative salaries increased $716 from $260,413 to $261,129.  The foreign exchange differential accounted for an increase of approximately $27,500, resulting in an actual decrease in activity of approximately $26,800.  The actual decrease resulted from the decrease of our staff by one employee.  
        Stock option expense in the amount of $60,294 was recorded for the three-month period ended June 30, 2006 in accordance with the requirements of SFAS No. 123R, Share-Based Payment which we adopted on January 1, 2006.  No stock option expense was recorded for the three-month period ended June 30, 2006.  
        Reported amortization expenses increased approximately $200 from $6,000 to $6,200.  The foreign exchange differential accounted for an increase of approximately $700, resulting in an actual decrease of approximately $500.  
        Reported legal expenses increased approximately $31,000 from $34,000 to $65,000.  The foreign exchange differential accounted for approximately $6,800 of the increase, resulting in an actual increase in activity of approximately $24,200. The actual increase is principally a result of an increase in patent application and registration expenses.  
        Reported accounting expenses decreased approximately $27,700 from $35,600 to $7,900.  The foreign exchange differential accounted for an increase of approximately $800, resulting in an actual decrease in activity of approximately $28,500.  The actual decrease related to the change in our independent registered public accounting firm and one time corporate income tax compliance expenses incurred during the three-month period ended June 30, 2005.  
        Reported travel and marketing expenditures increased approximately $11,100 from $157,400 to $168,500.  The foreign exchange differential accounted for an increase of approximately $17,700, resulting in an actual decrease in activity of approximately $6,600.  The individual components of the reported decrease are as follows: investor relations increased from $92,900 to $148,700, travel decreased from $19,000 to $14,500, and marketing materials decreased from $29,200 to $Nil.  
        Reported rent and premises cost increased approximately $8,100 from $50,700 to $58,700.  The foreign exchange differential accounted for approximately $6,200 of the increase, resulting in an actual increase in activity of approximately $1,900.  Liquidity and Capital Resources  Working Capital and Operations  Our accounts receivable as of August 11, 2006 is approximately $50,000 and our cash position is approximately $230,000.  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 11, 2006, we have 21 employees and our salary costs are approximately $125,000 per month.  - For the year ended December 31, 2005 and the first six months of 2006, our average monthly cash expenditures for general, overhead and administration, exclusive of salary costs, were approximately $100,000 per month.  We expect that our general overhead and administrative costs, exclusive of salary costs, will remain constant over the next six months.  - We do not expect to incur significant capital expenditures during the remainder of 2006 unless they result from an increase in our level of operation.  Based on our current financial position, we believe that our present and anticipated cash resources from operations and equity financing will be sufficient to pay ongoing cash operating expenses until approximately December 31, 2006.  There can be no assurance that we can or will obtain sufficient funds from operations or that an equity financing can be      obtained as anticipated.  If we cannot do either, there is a risk that our business and our company will fail.  The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.  Our Exclusive Global Channel Partner Agreement dated May 5, 2006 with ABB Inc. provides for a minimum purchase guarantee of $1,500,000 for the year ended December 31, 2006.  During the first six months of 2006, ABB Inc. has made purchases totalling approximately $400,000 towards this minimum purchase guarantee.  We expect that the balance of $1,100,000 of the minimum purchase guarantee will be weighted towards the 4th quarter of 2006 and, when compared to our anticipated expenses, we expect to report positive net earnings and cash flow for the 4th quarter.  Subsequent to December 31, 2006, the minimum revenue commitment by ABB Inc. pursuant to the Exclusive Global Channel Partner Agreement should result in positive net earnings and cash flow on a continuing basis.  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 debt and equity financing.  In the past twenty four months we have obtained financing as follows:  Convertible Debentures  On September 25, 2003, we executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures.  A general security agreement covering all of our real, personal and intangible property is pledged as security for the debentures.  The debentures mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  All convertible debentures rankpari passuwith all other convertible debentures issued pursuant to the term sheet.  The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.  The debentures may be redeemed by repayment of all
outstanding principal and accrued interest at any time on 21 days notice.  The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption.  We may at our discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of our shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.  Between September 5, 2003 and May 21, 2004, in accordance with the terms of Securities Purchase Agreements, we issued convertible debentures in the amount of $2,250,000.  Finders fees were paid to investors, persons related to investors, and independent third parties by way of cash payment of $26,250 and by way of issuance of 595,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years.  The fair value of the cash finders fees and the fair value of the units underlying the finders fees have been recognized in stockholders equity.  Because the conversion price was less than the closing trading prices of our shares on the commitment date, the convertible debentures contain a beneficial conversion feature.  In accordance with Emerging Issues Task Force (EITF) Issue 98-5, the embedded beneficial conversion feature is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.  The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value.  The face value of the debt has been allocated to additional paid-in capital and is being accreted to the face value of the convertible debentures over the term of the debentures by a charge to interest expense.  Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%).  The amount
recorded on the balance sheet as at June 30, 2006 has been calculated as follows:  Face value of convertible debentures issued (cash received)
        
        
        $
        2,250,000Beneficial conversion feature allocated to additional paid-in capital
        
        
        
        (2,249,995)Accretion of convertible debentures
        
        
        
        2,137,615Accrued interest payable
        
        
        
        428,764          Conversion of debentures
        
        
        
        (279,827)Convertible debentures at June 30, 2006
        
        
        $
        2,286,557  On conversion of the debentures into common shares and share purchase warrants, the fair value of the share purchase warrants will be assigned and recognized as an expense.  To June 30, 2006, $262,500 of principal and $17,327 of accrued interest has been converted into 1,119,312 common shares and 559,656 share purchase warrants.  Accordingly, we have expensed $90,513 as the fair value of the warrants issued.  The debentures provide that holders will be paid the principal sum together with interest on August 25, 2006 (the Scheduled Maturity Date).  The holders are entitled, at their option, to convert at any time until payment in full of the debenture, all or any part of the principal amount and accrued interest.  The degree to which holders will either convert their debentures into units of common shares and share purchase warrants or have their debentures redeemed for cash is unknown at this time.  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 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 $3,000,000.  The financing term sheet executed to implement the private placement offered 6,000,000 units at $0.50 per unit.  Each Unit comprises one common share and one share purchase warrant.  Each share purchase warrant entitles the holder to purchase one additional share for two (2) years at US$0.60 per share.  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.  To August 11, 2006 we have received subscription proceeds of $464,800 on account of this private placement.   Off-Balance Sheet Arrangements  Not Applicable  Going Concern Statement  Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our consolidated audited financial statements for the period ended December 31, 2005, 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 contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.        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  Investment in our common stock involves a high degree of risk.  Prospective investors should carefully consider the following risk factors in addition to other information in this annual report before purchasing our common stock.  Because we have had negative cash flows from operations from inception to June 30, 2006, if we are not able to obtain further financing we may become insolvent and investors could lose their entire investment.  We have never earned substantial operating revenue.  We have been dependent on equity financing to pay operating costs and to cover operating losses.  We have sufficient cash and accounts receivable to pay ongoing operating expenses, at their current level, to approximately September 30, 2006.To continue operation beyond that we will have to raise additional capital and/or generate significant revenue.  If we are unable to do so, we face a risk of insolvency.  The auditors report on our December 31, 2005 consolidated financial statements includes an additional paragraph that identifies conditions which raise substantial doubt about our ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.  Because we have accumulated losses of $21,547,938 from inception to June 30, 2006, we may not be able to raise the additional capital we need.  We have accumulated losses of $21,547,938 from inception to June 30, 2006 and have depended on sales of our equity securities and debt financing to meet our cash requirements. We will need to raise additional funds to continue the development of our products, to pay the costs of marketing those products and to cover operating losses until we are able to become profitable.  As we have never generated operating profits or significant sales revenue, investors may decide that other companies are more attractive investments and choose not to invest in our company.  Several other factors may also hinder our efforts to raise capital.  They include the following:  
        Our share price has been highly volatile during 2004, 2005 and 2006.  The volatility of our share price may deter potential investors. 
        Many technology companies have experienced financial difficulties and rapidly declining share prices.  As a result, potential investors may be less willing to invest in technology companies generally.  Because we will have to raise additional capital, the interests of shareholders may be diluted.  To raise additional capital we may have to issue additional shares, which may dilute the interests of existing shareholders substantially.  Alternatively, we may have to borrow large sums, and assume obligations to make substantial interest and capital payments.  We may also have to sell significant interests in some or all of our products.  If we are able to raise additional capital, we cannot assure that it will be on terms that enhance the value of our common shares.        Because the secured convertible debentures mature on August 25, 2006, we may have to provide approximately $2,500,000 to redeem the unconverted debentures.  The secured convertible debentures mature on August 25, 2006 and in accordance with the terms of the debentures the holders may elect to convert their debentures at a price of $0.25 per Unit. Each unit comprises one common share and one half-share purchase warrant.  Each whole warrant has a five year term and is exercisable at any time into one common share at a price of $0.25 per share.  To the extent that holders do not elect to convert, we will have to redeem the debentures for cash.  To date approximately $280,000 of principal and accrued interest has been converted into Units.  If no further conversions take place, the total outstanding principal and accrued interest as at August 25, 2006 will be approximately $2,500,000.  If we are unable to fund the repayment of the secured convertible debentures, we face a risk of insolvency.  Because we have no significant sales history and are substantially dependent on our Exclusive Global Channel Partner Agreement with ABB Inc. to generate future sales, our future is uncertain if our relationship with ABB fails or ABB is not successful in generating the amount of sales that we need.  We believe our exclusive global channel partner agreement with ABB is our best prospect for generating sales revenue.  We have no other established distribution channels or marketing arrangements.  If ABB does not generate sales for us, either as a result of unsuccessful sales efforts or a breakdown of our business relationship, we may not ever become profitable and our business may fail.  We are currently dependent on one channel partner for the sale of our products and if our channel partner is unable to generate significant sales of our products, our revenues may not increase significantly and our business and revenues may suffer.  We plan to market our vision guided robotic technologies, software products, and Internet based support and service system through our channel partner agreement with ABB. A channel partner is a party who will purchase our product for resale to end users.  Instead of selling and supporting the end user directly, we will utilize the channel partner to conduct the sales and support activities for our products. If ABB is unable to generate significant sales of our products, then we may not be able to significantly increase our revenues and our business, financial condition and results of operations would be materially and adversely affected.  Because our Internet based service and support system is in the development stage, we have no assurance that we will complete development successfully.  We commenced development of our Internet based service and support system during the fall of 2000.  That system is still in the development stage.  We have no assurance that we will be able to complete development of the system, or that any market will exist for the system when it is completed.  Because we develop and install customized vision guidance systems for specific customer needs, we may not be able to create a repeat customer base.  Most vision guidance systems are designed for the specific needs of a particular customer, and represent isolated purchases by the customers in question.  As a result, we have no assurance that we will be able to obtain additional contracts to supply our custom vision guidance systems, or that any customers we secure will become repeat customers.  Because our work force is small, with only 21 people employed either as officers, employees or contractors, we are vulnerable to the loss of key people or to rapid expansion.  We employ only 21 people either as officers, employees or contractors.  We try to employ people with skill sets that match the specific fields important to our business.  As a result, the departure of a single person or a small number of people could materially adversely affect our business.  We do not have key man insurance on any of the people we employ.  Qualified technical personnel are in great demand in all high technology industries.  Accordingly, it may be difficult for us to replace people who depart, or to hire additional people we may require if we are able to generate substantial sales.        Because we do not have patent protection for all of our products, our intellectual property may be copied or misappropriated.  On January 31, 2002, we filed an application in the Canadian Patent Office regarding theMethod And Apparatus For Single Camera 3D Vision Guided Roboticsand on May 24, 2002 we filed an identical application in the United States Patent Office.  On January 31, 2003 we filed an International Application according to the Patent Cooperation Treaty.  The Patent Cooperation Treaty provides a procedure enabling applicants to obtain patents in many countries.  On June 2, 2005 we filed an application in the Japanese Patent Office.  On November 9, 2004, the United States Patent Office issued U.S. Patent No. 6,816,755 regarding theMethod And Apparatus For Single Camera 3D Vision Guided Robotics.On June 23, 2005 we filed an Amendment and Supplemental Information Disclosure Statement with the US Patent and Trademark Office
regarding theMethod And Apparatus For Single Image 3D Vision Guided Robotics.  On July 14, 2004 we filed an application in the United States Patent Office regarding theMethod And Apparatus For Multi Camera Surround 3D Vision Guided Robotics.On July 14, 2005 we filed a Continuation in Part entitledMethod And Apparatus For Machine-Visionwhich referenced the application regarding the Method And Apparatus For Multi Camera Surround 3D Vision Guided Roboticsas the Parent Application.  These are the only instances in which we have applied for patent protection of our intellectual property. Accordingly, we have limited legal means to prevent other companies from developing products that perform similar functions in a similar way.  We believe that the software code that we have written for eVisionFactory and each of our custom vision guidance systems is protected by copyright law.  However, copyright law does not prevent other companies from developing their own software to perform the same functions as our products.  Because the market price of our common stock has been particularly volatile, purchasers of our common stock face a high degree of market risk.  The market price of our common stock has experienced extreme fluctuations.  Since January 1, 2005 the market price of our common stock has varied between $0.26 and $0.99.  As we have not announced any material changes to our operations, we believe that the fluctuations in our stock price have resulted primarily from market perceptions of the speculative value of our business opportunities.  The susceptibility of our stock price to fluctuation exposes purchasers of our stock to a high degree of risk.  Because a significant percentage of our issued shares has recently become free trading, and because of the size of anticipated share offerings, there is a risk of downward pressure on our stock price.  During 2004 and early 2005, we issued approximately 2.0 million shares in private placements and other transactions.  Many of those shares are now eligible for re-sale under Rule 144 to the Securities Act of 1933.  In addition, during 2003 and 2004 we issued $2,250,000 in convertible debentures bearing interest at 8% per annum.  The debenture principal and accrued interest are convertible into units at $0.25 per unit, each unit consisting of one common share and one-half share purchase warrant.  In conjunction with the convertible debentures, we issued 595,000 common shares and 297,500 share purchase warrants for finders fees.  During the balance of 2005 and early 2006, we issued approximately 3 million shares in private placement and other transactions.  We may register these shares for resale.  The market price of our stock could drop significantly if the owners of these shares sell all or a large
portion of the shares, or are perceived as intending to sell them.  Substantially all of our assets and a majority of our directors and officers are outside the United States, with the result that it may be difficult for investors to enforce within the United States any judgments obtained against us or any of our directors or officers.  Substantially all of our assets are located outside the United States and we do not currently maintain a permanent place of business within the United States. In addition, a majority of our directors and officers are nationals and/or residents of countries other than the United States, and all or a substantial portion of such persons' assets are located outside the United States. As a result, it may be difficult for investors to enforce within the United States any judgments obtained against us or our officers or directors, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state thereof. Consequently, you may be effectively prevented from pursuing remedies under U.S. federal securities laws against them.        Trading of our stock may be restricted by the SEC's penny stock regulations, which may limit a stockholder's ability to buy and sell our stock.  The Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors". The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure
requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.  NASD sales practice requirements may also limit a stockholder's ability to buy and sell our stock.  In addition to the "penny stock" rules described above, the National Association of Securities Dealers (NASD) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the NASD believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The NASD requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have
an adverse effect on the market for our shares.  ITEM 3. CONTROLS AND PROCEDURES  Evaluation of Disclosure Controls and Procedures  As required by Rule 13a-15 under the Exchange Act, as of the end of the period covered by this report, being June 30, 2006, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures.  This evaluation was carried out under the supervision and with the participation of our management, including our principal executive officer and principal financial officer.  Based upon that evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report.  There have been no changes in our internal controls over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our president and chief executive officer as appropriate, to allow timely decisions regarding required disclosure        Changes in Internal Control over Financial Reporting  There were no changes in our internal control over financial reporting during the quarter ended June 30, 2006 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.  PART II.  OTHER INFORMATION  ITEM 1.  LEGAL PROCEEDINGS  As of the date of this quarterly report, we are not involved in any legal proceedings.  ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS  There was no sale of our unregistered equity securities that has not been disclosed in a current report on Form 8-K prior to the filing of this report.  ITEM 3.  DEFAULTS UPON SENIOR SECURITIES  Not applicable.  ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS  On June 21, 2006 we held our annual general meeting of shareholders.  At the meeting the shareholders elected directors as follows:  Director
        Votes For
        Votes WithheldOwen Jones
        9,464,477
        1,505Babak Habibi
        9,463,765
        2,217Edward White
        8,941,341
        524,641James Speros
        8,909,431
        556,551Drew Miller
        2,781,714
        6,684,268Clifford Butler
        9,464,355
        1,627  At the meeting the shareholders ratified the selection of Smythe Ratcliffe, Chartered Accountants, as the Companys independent registered public accounting firm as follows:  For:
        9,370,075Against:
        1,505Abstain:
        94,402   ITEM 5.  OTHER INFORMATION  By consent resolution dates June 21, 2006, the Board determined that it would not populate the various committees (the Audit Committee, the Compensation Committee and the Corporate Governance Committee) until additional Board of Director members could be appointed.  Although it was expected that the additional Board members would be appointed shortly after the meeting, suitable candidates have not yet been identified.  As a consequence, this Form 10-QSB and related Financial Statements as at June 30, 2006 have not been reviewed by an Audit Committee.  However, by consent resolution dated August 9, 2006 the Board approved the Form 10-QSB and related Financial Statements for issuance.  The Board is currently conducting an aggressive search for suitable candidates for appointment to the Board of Director and to the various Committees of the Board.  ITEM 6.  EXHIBITS  INDEX TO EXHIBITS Exhibits Number
        Exhibit3.1(1)
        Articles of Incorporation, dated February 27, 19873.2(1)
        Articles of Amendment, dated July 14, 19983.3(1)
        Articles of Amendment, dated June 28, 19903.4(1)
        Articles Of Amendment of the Company, dated February 8, 19933.5(1)
        Articles of Amendment of the Company, dated April 6, 19933.6(1)
        Articles of Amendment of the Company, dated December 6, 19933.7(5)
        Restated Articles of Incorporation of the Company dated June 1, 20003.8(1)
        By-Laws of the Company3.9(6)
        Amendment to By-Laws of the Company4.1(1)
        Specimen Stock Certificate4.2(2)
        1997 Stock Option Plan4.3(2)
        2000 Stock Option Plan4.4(4)
        Amended 2000 Stock Option Plan dated November 1, 200010.1(4)
        Agreement for Escrow of Share Certificate & Promissory Note between Edward White and the Company dated February 27, 200110.2(5)
        Agreement for Escrow of Share Certificate and Promissory Note between Babak Habibi and the Company dated June 21, 200110.3(7)
        License Agreement with Marubeni Corporation10.4(8)
        Certificate of Reverse Stock Split10.5(9)
        Corporate Governance Committee Charter10.6(9)
        Audit Committee Charter10.7(9)
        Compensation Committee Charter10.8(9)
        Code of Business Conduct and Ethics for Directors, Officers and Employees10.9(9)
        Corporate Governance Guidelines10.10(10)
        Loan Agreement10.11(10)
        General Security Agreement10.12(10)
        Service Agreement with Elite Financial Communications Group10.13(10)
        2003 Stock Option Plan10.14(11)
        Lease Agreement dated July 30, 2003 between Hoop Realty and Braintech Canada, Inc.10.15(12)
        ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies10.16(13)
        ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies10.17(14)
        Marketing Communications Services Agreement with Baldacci Communications, LLC,10.18(15)
        ABB Exclusive Global Channel Partner Agreement for Licensing of Braintechs Technologies11.1
        Computation of net loss per share31.1
        Certificate of Owen L.J. Jones pursuant to Sec 302 of the Sarbanes-Oxley Act of 200231.2
        Certificate of Edward A. White pursuant to Sec 302 of the Sarbanes-Oxley Act of 200232.1
        Certificate of Owen L.J. Jones pursuant to Sec 906 of the Sarbanes-Oxley Act of 200232.2
        Certificate of Edward A. White pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002   (1) Exhibit already on file - exhibit to our Form 10-SB registration statement filed September 25, 1998. (2) Exhibit already on file - exhibit to our Schedule 14A proxy information filed March 1, 2000. (3) Exhibit already on file - exhibit to our Form S-1 registration statement filed February 11, 2000. (4) Exhibit already on file - exhibit to our Form 10-KSB for the year ended December 31, 2000. (5) Exhibit already on file - exhibit to our Form S-1/A registration statement filed July 3, 2001. (6) Exhibit already on file - exhibit to our Form 10-KSB for the year ended December 31, 2001 (7) Exhibit already on file - exhibit to our Form 8-K filed July 5, 2002. (8) Exhibit already on file  exhibit to our Form 8-K filed September 9, 2002. (9) Exhibit already on file  exhibit to our Form 10KSB for the year ended December 31, 2002. (10) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended March 31, 2003. (11) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended September 30, 2003. (12) Exhibit already on file - exhibit to our Form 8-K filed March 9, 2004. (13) Exhibit already on file - exhibit to our Form 8-K filed January 19, 2005. (14) Exhibit already on file - exhibit to our Form 8-K filed March 3, 2005. (15) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended March 31, 2006.  SIGNATURES  In accordance with Section 13 of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  Signature
        Title
        Date/s/ Owen L.J. JonesOwen L.J. Jones
        Chief Executive Officer, Director(Principal Executive Officer)
        August 11, 2006/s/ Babak HabibiBabak Habibi
        President, Director
        August 11, 2006/s/ Edward A. WhiteEdward A. White
        Chief Financial Officer, Director(Principal Financial and Accounting Officer)
        August 11, 2006