<PAGE>


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


                                   FORM 10-QSB


/X/   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

                For The Quarterly Period ended September 30, 1999
                                               ------------------

/ /   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                                             98-0168932
----------------------     ----------------------     ----------------------
(State or jurisdiction    (Commission File Number)        (IRS Employer
of incorporation)                                        Identification No.)

         930 West 1st St. #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


<PAGE>


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.

         Yes   x                                     No
             ----                                       ----

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 39,271,333 Common shares, par value
$0.001, as at November 12, 1999.


Transitional Small Business Disclosure Format (check one):

         Yes                                         No   x
             ----                                       ----


                           Index to Exhibits on Page 8


                                    ii
<PAGE>

                                 BrainTech, Inc.
                                   Form 10-QSB
                                TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                         Page
<S>                                                                      <C>
PART I.  FINANCIAL INFORMATION

Item 1.           Financial Statements......................................1

Item 2.           Management's Discussion and
                  Analysis or Plan of Operation.............................1

PART II.  OTHER INFORMATION

Item 1.           Legal Proceedings.........................................6

Item 2.           Changes in Securities and Use of Proceeds.................8

Item 3.           Defaults upon Senior Securities...........................8

Item 4.           Submission of Matters to a Vote of
                  Securities Holders........................................8

Item 5.           Other Matters.............................................8

Item 6.           Exhibits and Reports on Form 8-K..........................8

</TABLE>

                                     iii

<PAGE>


PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

          Each of the following items are contained in the Company's
Consolidated Financial Statements and are set forth herein.

       (i)   Consolidated Balance Sheets as of September 30, 1998 and 1999;

       (iii) Consolidated Statements of Operations for the nine month periods
       ended September 30, 1998 and 1999;

       (iv)  Statements of Stockholders' Deficit for the period beginning
       January 3, 1994 and ending September 30, 1999;

       (v)   Consolidated Statements of Cash Flows for the nine month periods
       ended September 30, 1998 and 1999; and

       (vi)  Notes to Financial Statements.


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION

OVERVIEW

           The Company was incorporated in 1987. Since the first quarter of
1994, the Company has been engaged in the development of products to be used in
creating visual recognition systems, and in designing visual recognition
systems.

          As of September 30, 1999 the Company had incurred an aggregate deficit
of approximately $6,691,531 during the development stage. The Company expects to
continue to incur significant additional operating losses over the foreseeable
future as its product development, research and development, and marketing
efforts continue to expand. Operating losses may fluctuate from quarter to
quarter as a result of differences in the timing of expenses incurred and
revenue recognised.


                                      1
<PAGE>


RESULTS OF OPERATIONS

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

NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999 COMPARED WITH THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1998

          During the nine month period ended September 30, 1999, the Company
did not receive any operating revenue. During the nine month period ended
September 30, 1998, the Company recorded revenue from operations totalling
$53,278. This amount included payments from Cordis, a Johnson & Johnson
company, for a feasibility study in respect of a shunt inspection system,
from NGI Technology Inc. for the purchase of a BrainTron processor, and from
Epson Portland Inc. for a demonstration print quality inspection system.

          Cost of sales for the nine month period ended September 30, 1998
were $27,006. This figure is an estimate, based on a pro rata portion of the
total cost of sales of $30,005 recorded for the fiscal year ended December
31, 1998. The Company recorded no cost of sales for the nine month period
ended September 30, 1999.

         Research and development expenses for the nine month period ended
September 30, 1999 were $442,790, compared with $114,631 for the nine month
period ended September 30, 1998. Research and development expenses (which are
reported net of government grants) were reduced during the period ended
September 30, 1998 by grant funds totalling approximately $44,983 from the
National Research Council of Canada. Those funds were used for the
development of the Odysee Development Studio. Salaries allocated to research
and development increased from approximately $122,716 for the nine month
period ended September 30, 1998 to approximately $286,368 (inclusive of bonus
payments and payments to contract workers) for the nine month period ended


                                       2
<PAGE>


September 30, 1999. In addition, research and development expenses for the
nine month period ended September 30, 1999 included approximately $141,400 in
payments to North Shore Circuit Design of Austin, Texas for work performed on
the IMPAC Accelerator board. There was no similar payment during the nine
month period ended September 30, 1998.

          Consulting and contractor expenses decreased to $4,210 for the nine
month period ended September 30, 1999 from $32,900 for the nine month period
ended September 30, 1998. Consulting and contractor expenses for the nine
month period ended September 30, 1998 included the cost of a business plan
prepared for the Company. There was no corresponding expense during the nine
month period ended September 30, 1999.

          Salaries and benefits, excluding compensation expenses in respect
of employee stock options, were $92,083 for the nine month period ended
September 30, 1999, compared with $202,517 for the nine month period ended
September 30, 1998. The principal reason for the decrease was the adjustment
made to our cost sharing agreement with Sideware Systems Inc., described
below. The Company's compensation expense for employee stock options was nil
for the nine month period ended September 30, 1999 and approximately $837,800
for the nine month period ended September 30, 1998. Inclusive of stock option
compensation expenses, salaries and benefits were approximately $92,083 for
the nine month period ended September 30, 1999 and $1,040,317 for the nine
month period ended September 30, 1998.

          General, selling, and administrative expenses increased to
approximately $396,879 for nine month period ended September 30, 1999 from
approximately $362,351 for the nine month period ended September 30, 1998.
Several factors contributed to the increase. The Company's recorded foreign
exchange expense increased from approximately $18,496 to approximately
$73,287. The Company's foreign exchange expense results principally from
adjusting entries made in respect of transactions recorded in United States
dollars, but actually carried out in Canadian dollars. Accounting costs
increased from approximately $22,528 to approximately $28,500, principally as
a result of costs incurred in resolving accounting issues relating to the
Company's incentive stock options and costs incurred in connection with the
Company becoming a reporting issuer pursuant to the Securities Exchange Act
of 1934. Rent expenses decreased from approximately $37,747 to approximately
$32,960, principally as a result of the adjustment made to our cost sharing
agreement with Sideware Systems Inc., described below. Travel and Promotion
expenses remained


                                       3
<PAGE>


consistent for the nine month periods ended September 30, 1999 and September 30,
1998, being approximately $91,298 and $93,481, respectively.

PLAN OF OPERATION

          Subsequent to June 30, 1999 the Company commenced work on the
following projects.

1. The Company entered into an agreement with Mercator Robotec Inc. and
Satisfied Brake Products Inc. to develop a brake shoe sorting system. The
Company will provide the vision system to be included in the brake shoe
sorting system and Mercator Robotec Inc. will provide system integration
services. The price for the system is approximately $66,000, of which the
Company will receive approximately half. As at November 12, 1999, the system
is approximately 50% complete.

2. The Company completed a feasibility study for Toyota Canada Inc. for the
development of a part identification system.

3. The Company entered into a contract with Sideware Systems Inc. to develop
"Wizmaster", an e-commerce software application which Sideware Systems Inc.
intends to incorporate into its Dr. Bean product.

          By a Cost Sharing and Allocation Agreement executed in October
1999, the Company agreed with Sideware Systems Inc. to re-allocate certain
common costs, previously shared equally with Sideware Systems Inc. Effective
January 1, 1999 the common costs will be borne by Sideware Systems Inc. as to
80% and by the Company as to 20%. The reason for the reallocation of costs
was the substantially greater level of business conducted by Sideware Systems
Inc., and its corresponding greater use of the common premises and personnel.

          By a Lease and Assignment of Lease effective July 1, 1999, the
Company also made arrangements for the use of certain office premises in
Vancouver, B.C. The cost of the premises will be shared with Sideware Systems
Inc. in accordance with the Cost Sharing and Allocation Agreement described
above.


                                       4
<PAGE>


          For the balance of its present fiscal year, the Company's efforts will
be directed towards the following projects:

1.        Completion of the brake shoe sorting system under development for
          Satisfied Brake Products Inc.

2.        Marketing and continued development of the Odysee Development Studio.

3.        Advancement of the part identification project with Toyota Canada Inc.

4.        Design and development of the next generation "Wizmaster"
          e-commerce application.

5.        Completing the IMPAC Accelerator Board and the BrainTron II processor.

6.        Development of the Sorting Precision Quality Recycling ("SPQR")
          system.

          The Company currently employs 7 full time and 9 part time officers or
employees. The Company's current monthly salary costs are approximately
$30,000.

          For the nine month period ended September 30, 1999 the Company's
average monthly cash expenses, inclusive of salary costs, were approximately
$105,000.

          As at the end of September 1999, the Company's cash balance was
approximately $134,000. By Press Release dated July 6, 1999 the Company
announced a private placement of 5,000,000 shares at a price of $0.20 per
share, which will be offered pursuant to Rule 506 of Regulation D to the
Securities Exchange Act of 1933. The Company has subsequently re-priced the
private placement at $0.15 per share. The Company has sold 2,350,000 of the
shares and expects to sell another 4,650,000 shares prior to December 31,
1999.

          The financing described above will provide the Company with
sufficient capital resources to pay ongoing operating expenses at their
present level for the balance of the current fiscal year, and the first
quarter of the Company's next fiscal year.


                                       5
<PAGE>


     During the nine month period ended September 30, 1999, the Company
incurred capital expenditures of approximately $38,006 for computer equipment
and software. The Company does not presently plan to incur significant
additional capital expenses or to increase its salary or other operating
costs significantly during the balance of the current fiscal year. Any
significant capital expenses or increases in operating costs will be
dependent on the Company raising additional capital or generating revenue
from the sales of its products or services.

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


PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS


     The Company is party to the following material legal proceedings.

     1.  JMF Management Inc. et al v. BrainTech, Inc. et al,
         British Columbia Supreme Court Action No. C990550
         -------------------------------------------------

     On February 1, 1999 JMF Management Inc. and Manfred Kurschner
commenced legal proceedings against the Company and TechWest Management Inc. Mr.
Kurschner is the Company's former Manager of Investor Relations and JMF
Management Inc. is Mr. Kurschner's personal management Company. The Plaintiffs
claim approximately $100,000 in damages for alleged breach of a stock option
agreement and approximately $7,500 alleged to be owing pursuant to a consulting
agreement. The Company has filed a defence and counterclaim. The Company's
counterclaim claims damages for breach of fiduciary duty and negligence. No
depositions have been conducted in the action and trial date has been set. The
outcome of the action is uncertain.


                                       6
<PAGE>


          2.  Cactus Consultants Co. Ltd. v. BrainTech, Inc. et al,
          British Columbia Supreme Court Action No. C991377
          ---------------------------------------------------------

          On March 16, 1999 Cactus Consultants Co. Ltd., Crystal Securities
Inc., and Elmswell Investments Inc. commenced legal proceedings against the
Company and certain of its present and former directors. The Plaintiffs claim
$606,000 as damages for breach of contract and conversion of stock certificates.
The Company's records show that during the fiscal year ending December 31, 1995,
a total of 3,000,000 shares of Common Stock were subscribed at a price of $0.25
per share, and that the Company received $606,000 of the subscription amount.
Prior to December 31, 1998 the Company recorded $606,000 as "Subscriptions
received" on its financial statements. Subsequent to the commencement of court
action, the Company has recorded the same amount as "Amounts in dispute". The
Company has filed a defence and counterclaim alleging that the plaintiffs and
Jan Olivier, a former promoter of the Company, caused share certificates of the
Defendant to be issued to the plaintiffs improperly, and caused funds of the
Company to be used for unauthorized and improper purposes. The outcome of the
action is uncertain.

          3.  BrainTech, Inc. v. John Kostiuk, District Court of Harris County
          Action 96-55978; British Columbia Supreme Court Action C972736;
          British Columbia Court of Appeal Action CA024459
          ---------------------------------------------------------------------

          On May 7, 1997 the Company obtained judgment for damages in the amount
of $300,000 in legal proceedings commenced in the District Court of Harris
County in the State of Texas against John Kostiuk, a resident of British
Columbia, for defamatory and injurious statements which Mr. Kostiuk caused to be
published about the Company over the Internet. On April 2, 1998 the Company
obtained a judgement of the Supreme Court of British Columbia enforcing the
Texas judgment.

          Effective October 31, 1998 Sideware Systems Inc. purchased a 50%
interest in the judgment for a purchase price of $200,000. The agreement between
the Company and Sideware Inc. provided that the purchase price would be adjusted
depending on the benefit ultimately received by Sideware Systems Inc. On March
18, 1999, the British Columbia Court of Appeal reversed the judgment of the
British Columbia Supreme Court, rendering the judgment


                                       7
<PAGE>


(subject to any further appeal) unenforceable against any assets of John Kostiuk
in British Columbia. Subsequent to the decision of the British Columbia Court of
Appeal, the Company returned the $200,000 paid by Sideware Systems Inc. The
Company has filed an Application for Leave to Appeal to the Supreme Court of
Canada. Any recovery in the proceeding must be considered speculative.


ITEM 2.       CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.       DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.       OTHER MATTERS

Not applicable.

ITEM 6.       EXHIBITS AND REPORTS ON FORM 8-K


INDEX TO EXHIBITS

<TABLE>
<CAPTION>

NUMBER                              EXHIBIT
------                              -------
<S>           <C>
 3.1(1)       Articles of Incorporation, dated February 27, 1987
 3.2(1)       Articles of Amendment, dated July 14,1998
 3.3(1)       Articles of Amendment, dated June 28, 1990
 3.4(1)       Articles Of Amendment of the Company, dated February 8, 1993
 3.5(1)       Articles of Amendment of the Company, dated April 6, 1993
 3.6(1)       Articles of Amendment of the Company, dated December 6, 1993
 3.7(1)       By-Laws of the Company
 4.1(1)       Specimen Stock Certificate
10.1(1)       License Agreement between the Company and Willard W. Olson,
              dated January 5, 1995.


                                       8
<PAGE>


10.2(1)       Product Development Agreement between the Company and
              United Technologies Microelectronic Systems Inc., dated
              July 6, 1998.
10.3(1)       Manufacturing and Sales Agreement between the Company and
              United Technologies Microelectronic Systems Inc., dated
              July 6, 1998.
10.4(1)       Operating Agreement between the Company and Sideware Systems
              Inc., dated November 1, 1995
10.5          Cost Sharing and Allocation Agreement between the Company and
              Sideware Systems Inc.
10.6(1)       Assignment of Lease and Modification of Lease Agreement dated
              August 17, 1998 between
              HOOPP Realty Inc., Techwest Management Inc., Sideware Systems
              Inc., and BrainTech, Inc.
10.7          Software Development and License Agreement dated September 20,
              1999 between the Company and Sideware Systems Inc.
10.8          Lease effective as of July 1, 1999 between the Company, Techwest
              Management Ltd., Sideware Systems Inc. and Pacific Centre
              Leaseholds Ltd.
10.9          Assignment Agreement effective as of July 1, 1999 between the
              Company, Techwest Management Ltd., Sideware Systems Inc., and
              SJM Management Ltd.
10.10         Agreement between the Company, Mercator Robotec Inc. and
              Satisfied Brake Products Inc.
11.1          Computation of net loss per share
21.1(1)       Subsidiaries of the Registrant
27.1          Summary Financial Data for the month nine month period ended
              September 30, 1999.

</TABLE>

(1) Exhibit already on file.

The Company did not file any reports on Form 8-K during the period covered by
this Quarterly Report.


                                       9
<PAGE>


                                   SIGNATURES

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


Dated:  November 12, 1999           BrainTech, Inc.




                                    "W. Grant Sutherland"
                                    ---------------------
                                     W. Grant Sutherland
                                     Director
                                     Chairman of the Board of Directors
                                     Chief Financial Officer

<PAGE>


                          Consolidated Financial Statements of


                          BRAINTECH, INC.

                          (Expressed in U.S. Dollars)

                          (Unaudited - prepared by management)

                          Nine months ended September 30, 1999 and 1998


<PAGE>

BRAINTECH, INC.

Consolidated Balance Sheets
(Expressed in U.S. Dollars)

(Unaudited - prepared by management)
September 30, 1999 and 1998
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
                                                                                  1999              1998
-----------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>
Assets

Current assets:
     Cash and cash equivalents                                             $   134,375       $    89,572
     Accounts receivable                                                        15,225            14,966
     Share subscriptions receivable                                               -              120,000
     Inventory                                                                   3,575            38,625
     Prepaid expenses                                                           16,596            26,904
     ------------------------------------------------------------------------------------------------------

                                                                               169,771           290,067

Due from directors and officers (note 5(a))                                     10,130            10,130

Capital assets (note 6)                                                         92,982            26,082
-----------------------------------------------------------------------------------------------------------

                                                                           $   272,883       $   326,279
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Deficit

Current liabilities:
     Accounts payable and accrued liabilities                              $    61,855       $    58,732
     Due to related companies (note 5(b))                                      134,708           158,756
     ------------------------------------------------------------------------------------------------------

                                                                               196,563           217,488

Subscriptions received                                                          20,270              -
Amounts in dispute (note 9(b))                                                 606,000           606,000
-----------------------------------------------------------------------------------------------------------

                                                                               822,833           823,488
Stockholders' deficit:
     Common stock (note 7):
       Authorized: 50,000,000 shares, with $0.001 par value
       Issued 39,721,333 shares (1998 - 30,371,333)                             39,721            30,371
     Additional paid-in capital (note 7)                                     6,160,660         4,703,760
     Accumulated deficit                                                       (58,800)          (58,800)
     Deficit accumulated during the development stage                       (6,691,531)       (5,172,540)
-----------------------------------------------------------------------------------------------------------

                                                                              (549,950)         (497,209)
Future operations (note 2)
Contingencies (note 9)
Commitments (note 10)

-----------------------------------------------------------------------------------------------------------

                                                                           $   272,883       $   326,279
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

On behalf of the Board:


--------------------                                       ------------------
Chairman                                                   President


<PAGE>

BRAINTECH, INC.
Consolidated Statements of Operations
(Expressed in U.S. Dollars)

(Unaudited - prepared by management)

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
                                                   Period from
                                                  inception on
                                               January 3, 1994                        Nine months ended September 30,
                                              to September 30,                        ---------------------------------
                                                          1999                                1999              1998
-----------------------------------------------------------------------------------------------------------------------
<S>                                           <C>                                     <C>                <C>
Sales                                              $    57,510                         $      -          $    53,278
Cost of sales                                           30,005                                -               27,006
-----------------------------------------------------------------------------------------------------------------------

Gross margin                                            27,505                                -               26,272
-----------------------------------------------------------------------------------------------------------------------


Expenses:
     Research and development                        1,582,350                             442,790           114,631
     Consulting and contractors                        740,771                               4,210            32,900
     Salaries and benefits (note 11)                 1,942,019                              92,083         1,040,317
     Selling, general and administrative             2,299,140                             396,879           362,351
     Non-operating expenses:
        Loss on disposal of capital assets              20,136                                -                 -
        Write-down of marketable securities            100,000                                -                3,600
        Write-down of intangible assets                 17,189                                -                 -
        Write-down of organization costs                17,431                                -                 -
-----------------------------------------------------------------------------------------------------------------------

                                                    (6,719,036)                           (935,962)       (1,553,799)
-----------------------------------------------------------------------------------------------------------------------

Net loss                                           $(6,691,531)                        $  (935,962)      $(1,527,527)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------

Loss per share information:
        Basic                                      $     (0.30)                        $     (0.03)      $    ( 0.05)
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------

Weighted average number of common
     shares outstanding:                            22,217,371                          33,470,783        27,892,117
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>


See accompanying notes to consolidated financial statements.


<PAGE>

BRAINTECH, INC.
Consolidated Statements of Stockholders' Deficit
(Expressed in U.S. Dollars)

(Unaudited - prepared by management)
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                                                                   Deficit
                                                                                                               accumulated
                                                                             Additional                         during the
                                                                 Common         paid-in       Accumulated      development
                                                  Shares          stock         capital           deficit            stage
-----------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>            <C>          <C>              <C>              <C>
Balance, January 3, 1994                         17,400,000     $17,400      $1,039,271          $(58,800)     $      -
Loss for the period                                    -           -               -               -            (1,006,716)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1994                       17,400,000      17,400       1,039,271           (58,800)      (1,006,716)
Loss for the period                                    -           -               -               -              (748,310)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1995                       17,400,000      17,400       1,039,271           (58,800)      (1,755,026)

Common stock transactions
  (net of issue costs):
     Issued for cash at $.1895 per share            950,000         950         173,440            -                  -
     Issued for cash at $.25 per share              733,333         733         183,167            -                  -
     Issued for cash at $.20 per share            3,000,000       3,000         592,500            -                  -
     Shares issued for services rendered          1,200,000       1,200         238,800            -                  -
Loss for the period                                    -           -               -               -              (959,945)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1996                       23,283,333      23,283       2,227,178           (58,800)      (2,714,971)

Common stock transactions
  (net of issue costs):
     Issued for cash at $.20 per share            2,000,000       2,000         396,991            -                  -
     Issued for cash at $.15 per share            1,000,000       1,000         148,279            -                  -
     Shares issued for services rendered            300,000         300          59,700            -                  -
Compensatory benefit of employee
   stock options                                       -           -            200,000            -                  -
Loss for the period                                    -           -               -               -              (930,042)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1997                       26,583,333      26,583       3,032,148           (58,800)      (3,645,013)

Common stock transactions
  (net of issue costs):
     Issued for cash at $.25 per share            1,600,000       1,600         398,400            -                  -
     Issued for cash at $.20 per share            2,188,000       2,188         435,412            -                  -
     Compensatory benefit of employee
       stock options                                   -           -            927,800            -                  -
Loss for the period                                    -           -              -                -            (2,110,556)
-----------------------------------------------------------------------------------------------------------------------------

Balance, December 31, 1998                       30,371,333      30,371       4,793,760           (58,800)      (5,755,569)

Common stock transactions
  (net of issue costs):
     Issued for cash at $0.15 per share           9,350,000       9,350       1,366,900              -                -
Loss for the period                                    -           -              -                  -            (935,962)
-----------------------------------------------------------------------------------------------------------------------------

Balance, September 30, 1999                   39,721,333        $39,721      $6,160,660          $(58,800)     $(6,691,531)
-----------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

BRAINTECH, INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)

(Unaudited - prepared by management)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
                                                Period from inception on
                                                          January 3, 1994   Nine months ended September 30,
                                                         to September 30,   -------------------------------
                                                                     1999            1999             1998
--------------------------------------------------------------------------------------------------------------
                                                                  (note 1)
<S>                                             <C>                         <C>                <C>
Cash flows from operating activities:
     Loss for the period                                      $(6,691,531)     $ (935,962)     $(1,527,527)
     Items not involving cash:
         Amortization                                              57,716          20,261            9,537
         Bad debt                                                  75,108            -                -
         Write-down of marketable securities                      100,000            -               3,600
         Write-down of intangible assets                           17,189            -                -
         Write-down of organization costs                          17,431            -                -
         Loss on disposal of capital assets                        20,136            -                -
         Shares issued for services rendered                      300,000            -                -
         Compensatory benefit of
           employee stock options                               1,127,800            -             837,800
     Change in operating assets and liabilities:
         Share subscriptions receivable                              -               -            (120,000)
         Inventory                                                 (3,575)         (3,575)         (38,625)
         Accounts receivable                                      (15,225)          7,208            6,496
         Prepaid expenses                                         (16,596)         (4,252)         (25,196)
         Accounts payable and accrued liabilities                  36,677         (22,146)          38,232
     ---------------------------------------------------------------------------------------------------------

     Net cash used for operating activities                    (4,974,870)       (938,466)        (815,683)
     ---------------------------------------------------------------------------------------------------------

Cash flows from investing activities:
     Purchase of marketable securities                           (100,000)           -                -
     Purchase of capital assets                                  (169,775)        (38,006)         (22,347)
     Proceeds from notes receivable                              (130,181)           -                -
     Proceeds from disposal of real estate                        306,752            -                -
     ---------------------------------------------------------------------------------------------------------

     Net cash provided by (used for) investing
       activities                                                 (93,204)        (38,006)         (22,347)
     ---------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Notes receivable                                              55,073            -                -
     Borrowings from directors and officers                        (2,826)           -                -
     Due to (from) related companies                              134,708        (308,152)         (52,686)
     Mortgages payable                                           (207,739)           -                -
     Share subscriptions received                                  20,270          20,270             -
     Common shares issued, net of issue costs                   4,958,851       1,376,250          837,600
     ---------------------------------------------------------------------------------------------------------

     Net cash provided by financing activities                  4,958,337       1,088,368          784,914
--------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents                 (109,737)        111,896          (53,116)

Cash and cash equivalents, beginning of period                    244,112          22,479          142,688
--------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period                      $   134,375      $  134,375      $    89,572
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Supplemental information:
     Interest paid                                            $     2,902      $     -         $     2,155
     Taxes paid                                               $      -         $     -         $      -
Non-cash financing activities:
     Shares issued for services rendered                      $   300,000      $     -         $      -
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Nine months ended September 30, 1999 and 1998
-------------------------------------------------------------------------------

1.   ORGANIZATION:

     Braintech, Inc. (the "Company") was incorporated on March 4, 1987 under
     the laws of the State of Nevada as Tome Capital, Inc. The Company sold
     1,500,000 shares to the public on May 11, 1987, pursuant to Rule 504 of
     the Security Act of 1933, as amended.

     The Company initially was in the business of real estate development. On
     January 3, 1994 the Company changed its name to Braintech Inc. and began
     operations as a high tech development Company, developing advanced video
     recognition software. All sales of its product and services are made in
     this industry segment.

2.   FUTURE OPERATIONS:

     During the nine months ended September 30, 1999, the Company incurred a
     loss of $935,962 and used cash for operating activities of $938,466. From
     inception of the business on January 3, 1994, the Company has incurred
     cumulative losses of $6,691,531 and used cash for operating activities of
     $4,974,870.

     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.
     Operations to date have been primarily financed by equity transactions. The
     Company's future operations are dependent upon continued support by
     shareholders, the achievement of profitable operations and the successful
     completion of management's plan to obtain additional equity financing,
     although there can be no assurances that the Company will be successful.
     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.

3.   SIGNIFICANT ACCOUNTING POLICIES:

     (a) Basis of presentation:

         These consolidated financial statements are prepared in accordance with
         generally accepted accounting principles in the United States and
         present the financial position, results of operations and cash flows of
         the Company and its wholly owned subsidiary Brainware Systems Inc.,
         incorporated under the Company Act of British Columbia on March 30,
         1994. All material inter-company balances and transactions have been
         eliminated.

         Through December 31, 1997, the consolidated financial statements of the
         Company issued to shareholders were presented in accordance with
         generally accepted accounting principles in Canada. The application of
         United States accounting principles to these consolidated financial
         statements has been made on a retroactive basis. In addition, to
         September 30, 1999, for United States accounting and reporting purposes
         the Company was considered to be in the development stage as it was
         devoting substantial efforts to developing its business operations.


<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Nine months ended September 30, 1999 and 1998
-------------------------------------------------------------------------------

3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (b) Cash and cash equivalents:

         Cash and cash equivalents include highly liquid investments, such as
         term deposits, having original maturities of six months or less at
         the date of acquisition, that are readily convertible to contracted
         amounts of cash.

     (c) Research and development costs:

         Research and development costs are expensed as incurred.

     (d) Revenue recognition:

         The Company recognizes revenue when title has passed to the customer,
         the collectibility of the consideration is reasonably assured and the
         Company has no significant remaining performance obligations. An
         allowance for estimated future returns is recorded at the time revenue
         is recognized.

     (e) Marketable securities:

         Marketable securities are comprised of equity securities available
         for sale and are stated at market value. Decreases in market value
         that are considered to be other than temporary are charged to
         operations.

     (f) Capital assets:

         Capital assets are carried at cost less accumulated amortization.
         Amortization is calculated annually as follows:

<TABLE>
<CAPTION>
         -------------------------------------------------------------------------
         -------------------------------------------------------------------------
         Asset                                       Basis                 Rate
         -------------------------------------------------------------------------
         <S>                             <C>                         <C>
         Furniture and fixtures          declining-balance                 20%
         Computer equipment              declining-balance                 30%
         Trade show assets               declining-balance                 20%
         Computer software                   straight-line                 50%
         Leasehold improvements              straight-line           lease term
         -------------------------------------------------------------------------
         -------------------------------------------------------------------------
</TABLE>

     (g) Use of estimates:

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and the reported amount of revenue and
         expenses during the reporting period. Actual amounts may differ from
         these estimates.


<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Nine months ended September 30, 1999 and 1998
-------------------------------------------------------------------------------

3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (h) Foreign currency:

         Transactions denominated in foreign currencies are translated in
         U.S. dollars at the rate prevailing at the time of the transactions.

         At the balance sheet date, monetary assets and liabilities denominated
         in a foreign currency are translated at the current rate of exchange.
         Exchange gains and losses arising on translation or settlement of
         foreign currency denominated monetary items are included in the
         determination of net income for the current period.

     (i) Stock-based compensation:

         The Company has elected to apply Accounting Principles Board Opinion
         No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and
         related interpretations in accounting for its stock options. Under APB
         25, compensation expense is only recorded to the extent that the
         exercise price is less than fair value on the date of grant. The
         Company has adopted the disclosure-only provisions of Statement of
         Financial Accounting Standards 123, "Accounting for Stock-Based
         Compensation" ("SFAS 123").

     (j) Income taxes:

         The Company follows the asset and liability method of accounting for
         income taxes. Deferred tax assets and liabilities are recognized based
         on the estimated future tax consequences attributable to differences
         between the financial statement carrying amounts of existing assets and
         liabilities and their respective tax basis. Deferred tax assets and
         liabilities are measured using enacted tax rates in effect for the year
         in which those temporary differences are expected to be recovered or
         settled. The effect on deferred tax assets and liabilities of a change
         in tax rates is recognized in income in the period that includes the
         enactment date.

     (k) Concentration of credit risk:

         Financial instruments that potentially subject the Company to
         significant concentrations of credit risk consist principally of
         cash equivalents.

         The Company maintains cash equivalents with various financial
         institutions located in Canada and the United States. The Company's
         policy is to limit the exposure at any one financial institution and to
         invest solely in highly liquid investments that are readily convertible
         to contracted amounts of cash.

     (l) Loss per share:

         Loss per share is calculated based on the weighted average number of
         shares outstanding.  Fully diluted loss per share has not been
         presented as outstanding options are anti-dilutive.

     (m) Comprehensive income:

         Net income for the Company is the same as comprehensive income.


<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Nine months ended September 30, 1999 and 1998
-------------------------------------------------------------------------------

4.   MARKETABLE SECURITIES:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
                                                              September 30,        September 30,
                                                                       1999                 1998
     ----------------------------------------------------------------------------------------------
     <S>                                                      <C>                  <C>
     1,600 shares of Beverage Stores Inc., at market              $    -                  $3,600
     ----------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------
</TABLE>

     The Company has recorded losses in prior years for permanent decreases
     in value.

5.   RELATED PARTY BALANCES AND TRANSACTIONS:

     (a) Due from directors and officers:

         The amounts due from directors and officers represent cash advances
         provided to current directors and officers of the Company.

     (b) Due to related companies:

         The amount due to related companies under common control results from
         inter-company expense allocations and cash advances. On October 29,
         1999 the Company agreed with Sideware Systems Inc. to re-allocate
         certain common costs effective January 1, 1999. The re-allocation has
         been reflected in these financial statements.

     (c) Transactions with directors and officers:

         During the nine month period ended September 30, 1999, the Company
         was charged $24,542 (September 30, 1998 - $21,306) for management
         and consulting services provided by directors and officers.

6.   CAPITAL ASSETS:

<TABLE>
<CAPTION>
     --------------------------------------------------------------------------------
     --------------------------------------------------------------------------------
                                                                     September 30,
                                                                              1999
     --------------------------------------------------------------------------------
                                                    Accumulated           Net book
                                         Cost      amortization              value
     --------------------------------------------------------------------------------
     <S>                             <C>           <C>               <C>
     Furniture and fixtures          $ 17,031           $ 4,030            $13,001
     Computer equipment                72,383            20,049             52,334
     Trade show assets                 13,337             2,349             10,988
     Computer software                 29,929            25,224              4,705
     Leasehold improvements            14,733             2,779             11,954
     --------------------------------------------------------------------------------

                                     $147,413           $54,431            $92,982
     --------------------------------------------------------------------------------
     --------------------------------------------------------------------------------
</TABLE>

<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Nine months ended September 3, 1999 and 1998
--------------------------------------------------------------------------------

6.   CAPITAL ASSETS (CONTINUED):

<TABLE>
<CAPTION>
     --------------------------------------------------------------------------------
                                                                     September 30,
                                                                              1998
     --------------------------------------------------------------------------------
                                                    Accumulated           Net book
                                         Cost      amortization              value
     --------------------------------------------------------------------------------
     <S>                             <C>           <C>               <C>

     Computer equipment              $22,283            $ 2,183            $20,100
     Computer software                23,623             17,641              5,982
     --------------------------------------------------------------------------------

                                     $45,906            $19,824            $26,082
     --------------------------------------------------------------------------------
</TABLE>

7.   COMMON STOCK:

     (a) Of the shares outstanding at September 30, 1999, 14,630,000 shares
         (September 30, 1998 - 6,830,000) are subject to trading restrictions.
         These include the 1,500,000 shares retained by the Company, as
         described in note 7(b). The Company believes that any hold periods
         relating to 3,780,000 shares have expired but the shareholders have not
         applied to remove the restrictive designation.

     (b) 5,500,000 shares were issued for technology in 1993 and recorded at
         par value of $5,500. 1,500,000 shares have been retained by the
         Company because the development of the technology had not been
         completed.

     (c) Additional paid-in capital arises on the issuance of common shares
         at a price in excess of par value.

     (d) As at September 30, 1999 the Company had received subscriptions for
         shares of common stock for aggregate proceeds of $20,270.

     (e) Stock options:

         The Company has reserved 7,500,000 common shares pursuant to a stock
         option plan.  Options to purchase common shares of the Company may
         be granted by the Board of Directors and vest immediately.

         Stock option activity during the nine month period ended September
         30, 1999 is as follows:

<TABLE>
<CAPTION>
         -------------------------------------------------------------------------------------------------------------
         -------------------------------------------------------------------------------------------------------------
                             Weighted
                              average     Weighted   Outstanding                                         Outstanding
         Expiry              exercise      average   December 31,                            Forfeited  September 30,
         dates                  price   fair value          1998     Granted     Exercised    /expired          1999
         -------------------------------------------------------------------------------------------------------------
         <S>                 <C>        <C>          <C>           <C>           <C>         <C>        <C>
         November 28, 2002     $0.20         $0.19     4,097,000        -             -          -         4,097,000
         November 28, 2002     $0.20         $0.76     1,210,000        -             -        35,000      1,175,000
         November 28, 2002     $0.20         $0.77       125,000        -             -          -           125,000
         April 19, 2004        $0.20         $0.20          -      1,700,000          -          -         1,700,000
         -------------------------------------------------------------------------------------------------------------

                                                       5,432,000   1,700,000          -        35,000      7,097,000
         -------------------------------------------------------------------------------------------------------------
         -------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
Nine months ended Sepember 30, 1999 and 1998
-------------------------------------------------------------------------------

7.   COMMON STOCK (CONTINUED):

         The Company has adopted the disclosure provisions of Statement of
         Financial Accounting Standards No. 123, "Accounting for Stock-based
         Compensation" ("FAS 123") but has elected to continue measuring
         compensation costs using the intrinsic value based method of
         accounting. Under the intrinsic value based method, employee stock
         option compensation is the excess, if any, of the quoted market value
         of the stock at the date of grant over the amount an optionee must pay
         to acquire the stock. Included in expenses for the nine month period
         ended September 30, 1999 is $Nil representing a compensatory benefit
         (nine months ended September 30, 1998 $837,800)

8.   INCOME TAXES:

     To December 31, 1996, the Company has incurred losses for income tax
     purposes in Canada and the United States of approximately $25,000, which
     are available to reduce income for tax purposes through the year 2000.

     The unrecorded benefit of these loss carry forwards is approximately
     $12,500.  Under the provisions of the Statement 109, the effect of this
     benefit has been fully offset by a valuation allowance due to the
     uncertainty of the realization of the benefits.

9.   CONTINGENCIES:

     The Company is engaged in the following legal disputes:

     (a) On February 1, 1999 a former employee of the Company commenced legal
         proceedings against the Company claiming approximately $100,000 in
         damages for alleged breach of a stock option agreement and
         approximately $7,500 alleged to be owing pursuant to a consulting
         agreement. The Company has filed a defence and counterclaim alleging
         breach of fiduciary duty and negligence. While the ultimate outcome is
         uncertain, management of the Company believes it will be successful in
         defending this action and accordingly no amount has been provided in
         these financial statements.

     (b) On March 16, 1999 three corporations commenced legal proceedings
         against the Company and certain of its present and former directors are
         claiming damages in the amount of $606,000 for breach of contract and
         conversion of stock certificates. The plaintiffs have not sought
         recovery of any shares of the Company. The Company has filed a defence
         and counterclaim alleging that the plaintiffs and a former promoter of
         the Company caused share certificates of the defendant to be issued to
         the plaintiffs improperly, and caused funds of the Company to be used
         for unauthorized and improper purposes. The Company has recorded the
         full amount of the $606,000 contingent claim.

<PAGE>

BRAINTECH, INC.
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
(Unaudited - prepared by management)
 Nine months ended September 30, 1999 and 1998
--------------------------------------------------------------------------------

10.  COMMITMENTS:

     The Company has the following minimum lease payments under operating
     leases for its premises:

<TABLE>
         <S>                                                         <C>
         Three month period to December 31, 1999                     $ 16,000

         Year ended December 31, 2000                                  64,500

         Year ended December 31, 2001                                  67,000

         Year ended December 31, 2002                                  61,500

         Year ended December 31, 2003                                  37,500
         --------------------------------------------------------------------

                                                                     $246,500
         --------------------------------------------------------------------
</TABLE>

11.  SALARIES AND BENEFITS:

     Salaries and benefits are comprised of the following:

<TABLE>
<CAPTION>
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
                                                         Period from
                                                        Inception on
                                                          January 3,
                                                                1994    Nine months ended September 30
                                                    to September 30,    ---------------------------------
                                                                1999             1999             1998
     ----------------------------------------------------------------------------------------------------
     <S>                                            <C>                 <C>                 <C>
     Payments and accrued liabilities                     $  814,219          $92,083       $  202,517
     Compensatory benefit of employee
     stock options                                         1,127,800             -             837,800
     ----------------------------------------------------------------------------------------------------

                                                          $1,942,019          $92,083       $1,040,317
     ----------------------------------------------------------------------------------------------------
     ----------------------------------------------------------------------------------------------------
</TABLE>