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 ended June 30, 2002



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.



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: 62,936,498 Common shares, par value $0.001, as at August 9, 2002.



Transitional Small Business Disclosure Format (check one):



Yes [ ]  No [x]



Index to Exhibits on Page 13



Braintech, Inc.



Form 10-QSB



TABLE OF CONTENTS



PART I.  FINANCIAL INFORMATION



Item 1. Financial Statements page 1



Item 2. Management's Discussion and Analysis or Plan of Operation page 14



Item 3 Quantitative and Qualitative Disclosure about Market Risk page 24





PART II.  OTHER INFORMATION



Item 1. Legal Proceedings page 24



Item 2. Changes in Securities and Use of Proceeds	 page 24



Item 3. Defaults upon Senior Securities page 25



Item 4. Submission of Matters to a Vote of Securities Holders page 25



Item 5. Other Matters page 25



Item 6. Exhibits and Reports on Form 8-K page 25





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 of June 30, 2002 (unaudited) and December 31, 2001;



(ii) Condensed Consolidated Statements of Operations (unaudited) for the period from inception on January 3, 1994 to June 30, 2002 and for the three and six month periods ended June 30, 2001 and 2002;



(iii) Condensed Consolidated Statements of Stockholders' Equity (Deficit) (unaudited) for the period from inception on January 3, 1994 to June 30, 2002;



(iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the period from inception on January 3, 1994 to June 30, 2002 and for the six month periods ended June 30, 2001 and 2002; and



(v) Condensed notes to Consolidated Financial Statements (unaudited).





















Condensed Consolidated Financial Statements
(Expressed in United States dollars)



BRAINTECH, INC.



Six months ended June 30, 2002 and 2001
Three months ended June 30, 2002 and 2001
Period from inception on January 3, 1994 to June 30, 2002.



(Unaudited - Prepared by Management)





BRAINTECH, INC.

Condensed Consolidated Balance Sheets
(Expressed in United States dollars)



|                                                           | June 30,
2002 | December 31,
2002
|---------------------------------------------------------- | ------------- | -----------------
|                                                           | (unaudited)   |                  
|Assets                                                     |               |                  
|                                                           |               |                  
|Current assets:                                            |               |                  
|Cash and cash equivalents                                  | $43,783       | $101,880         
|Accounts receivable less allowance of $28,035 (2001 - Nil) | 148,189       | 72,215           
|Inventory                                                  | 42,929        | 35,467           
|Prepaid expenses                                           | 40,356        | 28,247           
|Deferred costs                                             | 8,677         | 7,765            
|                                                           | 283,934       | 245,574          
|                                                           |               |                  
|Fixed assets                                               | 143,100       | 175,047          
|                                                           |               |                  
|                                                           | $427,034      | $420,621         
|                                                           |               |                  
|Liabilities and Stockholders' Equity                       |               |                  
|Current liabilities:                                       |               |                  
|Accounts payable and accrued liabilities                   | $89,692       | $127,664         
|Deferred revenue                                           | $107,973      | $32,500          
|                                                           | $197,665      | $160,164         
|Stockholders' equity:                                      |               |                  
|Common stock                                               |               |                  
|Authorized:  200,000,000 shares, with $0.001 par value     |               |                  
|Issued:  62,936,498 shares (2001 - 56,793,311)             |               |                  
|To be issued:  nil shares (2001 - 100,000)                 | 62,936        | 56,793           
|Additional paid-in capital                                 | 11,118,089    | 10,234,640       
|Deferred stock-based compensation                          | -             | (10,000)         
|Deficit accumulated prior to the development stage         | (58,800)      | (58,800)         
|Deficit accumulated during the development stage           | (10,892,856)  | (9,962,176)      
|                                                           | 229,369       | 260,457          
|                                                           |               |                  
|                                                           | $427,034      | $420,621         



See accompanying condensed notes to consolidated financial statements.

BRAINTECH, INC.

Condensed Consolidated Statements of Operations
(Unaudited)
(Expressed in United States dollars)

|                                                                        | Period from
inception on
January 3,
1994
to June 30, | Six months ended
June 30, |            | Three months ended
June 30,
|----------------------------------------------------------------------- | ---------------------------------------------------- | ------------------------- | ---------- | ---------------------------
|                                                                        | 2002                                                 | 2002                      | 2001       |                            
|                                                                        |                                                      |                           |            |                            
|Sales                                                                   | $360,453                                             | $113,551                  | $24,802    | $105,552                   
|Cost of sales                                                           | 111,664                                              | 14,248                    | 7,475      | 12,323                     
|                                                                        |                                                      |                           |            |                            
|Gross margin                                                            | 248,789                                              | 99,303                    | 17,327     | 93,229                     
|                                                                        |                                                      |                           |            |                            
|Operating expenses:                                                     |                                                      |                           |            |                            
|Consulting and contractors                                              | 736,561                                              | -                         | -          | -                          
|Research and development                                                | 3,216,341                                            | 219,087                   | 203,839    | 107,282                    
|Selling, general and administrative                                     | 6,930,752                                            | 811,609                   | 755,704    | 328,792                    
|                                                                        | 10,883,654                                           | 1,030,696                 | 968,023    | 436,074                    
|                                                                        |                                                      |                           |            |                            
|Operating loss                                                          | (10,634,865)                                         | (931,393)                 | (950,023)  | (342,845)                  
|                                                                        |                                                      |                           |            |                            
|Non-operating:                                                          |                                                      |                           |            |                            
|Interest income                                                         | 45,651                                               | 713                       | 15,375     | 530                        
|Loss on settlement of litigation                                        | (100,000)                                            | -                         | -          | -                          
|Loss on disposal of fixed assets                                        | (69,022)                                             | -                         | 8,480      | -                          
|Write-down of investments                                               | (100,000)                                            | -                         | -          | -                          
|Write-down of intangible assets                                         | (17,189)                                             | -                         | -          | -                          
|Write-down of organization costs                                        | (17,431)                                             | -                         | -          | -                          
|                                                                        |                                                      |                           |            |                            
|Net loss for the period                                                 | $(10,892,856)                                        | $(930,680)                | $(935,321) | $(342,315)                 
|                                                                        |                                                      |                           |            |                            
|Loss per share:                                                         |                                                      |                           |            |                            
|Basic and diluted                                                       | $(0.36)                                              | $(0.02)                   | $(0.02)    | $(0.01)                    
|                                                                        |                                                      |                           |            |                            
|Weighted average number of common shares outstanding: Basic and diluted | 30,682,811                                           | 57,952,956                | 49,268,805 | 61,882,276                 







See accompanying condensed notes to consolidated financial statements.

BRAINTECH, INC.

Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited)
(Expressed in United States dollars)

|                                                |              |            |            |              | Deficit     | Deficit       |            
|----------------------------------------------- | ------------ | ---------- | ---------- | ------------ | ----------- | ------------- | -----------
|                                                |              |            |            |              | accumulated | accumulated   | Total      
|                                                | Common stock | Additional | Deferred   | prior to the | during the  | stockholders'
|                                                | Number       |            | paid-in    | stock-based  | development | development   | equity     
|                                                | of shares    | Amount     | capital    | compensation | stage       | stage         | (deficit)  
|                                                |              |            |            |              |             |               |            
|Balance, January 3, 1994                        | 17,400,000   | $17,400    | $1,039,271 | $-           | $(58,800)   | $-            | $997,871   
|                                                |              |            |            |              |             |               |            
|Loss for the period                             | -            | -          | -          | -            | -           | (1,006,716)   | (1,006,716)
|Balance, December 31, 1994                      | 17,400,000   | 17,400     | 1,039,271  | -            | (58,800)    | (1,006,716)   | (8,845)    
|                                                |              |            |            |              |             |               |            
|Loss for the year                               | -            | -          | -          | -            | -           | (748,310)     | (748,310)  
|Balance, December 31, 1995                      | 17,400,000   | 17,400     | 1,039,271  | -            | (58,800)    | (1,755,026)   | (757,155)  
|                                                |              |            |            |              |             |               |            
|Common stock transactions (net of issue
costs): |              |            |            |              |             |               |            
|Issued for cash at $0.1895 per share            | 950,000      | 950        | 173,440    | -            | -           | -             | 174,390    
|Issued for cash at $0.25 per share              | 733,333      | 733        | 183,167    | -            | -           | -             | 183,900    
|Issued for cash at $0.20 per share              | 3,000,000    | 3,000      | 592,500    | -            | -           | -             | 595,500    
|Shares issued for services rendered             | 1,200,000    | 1,200      | 238,800    | -            | -           | -             | 240,000    
|Loss for the year                               | -            | -          | -          | -            | -           | (959,945)     | (959,945)  
|Balance, December 31, 1996                      | 23,283,333   | 23,283     | 2,227,178  | -            | (58,800)    | (2,714,971)   | (523,310)  
|                                                |              |            |            |              |             |               |            
|Common stock transactions (net of issue
costs): |              |            |            |              |             |               |            
|Issued for cash at $0.20 per share              | 2,000,000    | 2,000      | 396,991    | -            | -           | -             | 398,991    
|Issued for cash at $0.15 per share              | 1,000,000    | 1,000      | 148,279    | -            | -           | -             | 149,279    
|Shares issued for services rendered             | 300,000      | 300        | 59,700     | -            | -           | -             | 60,000     
|Compensatory benefit of employee stock
ptions   | -            | -          | 200,000    | -            | -           | -             | 200,000    
|Loss for the year                               | -            | -          | -          | -            | -           | (930,042)     | (930,042)  
|Balance, December 31, 1997                      | 26,583,333   | 26,583     | 3,032,148  | -            | (58,800)    | (3,645,013)   | (645,082)  
|                                                |              |            |            |              |             |               |            
|Common stock transactions (net of issue
costs): |              |            |            |              |             |               |            
|Issued for cash at $0.25 per share              | 1,600,000    | 1,600      | 398,400    | -            | -           | -             | 400,000    
|Issued for cash at $0.20 per share              | 2,188,000    | 2,188      | 435,412    | -            | -           | -             | 437,600    
|Compensatory benefit of employee stock
options  | -            | -          | 927,800    | -            | -           | -             | 927,800    
|Loss for the year                               | -            | -          | -          | -            | -           | (2,110,556)   | (2,110,556)
|Balance, December 31, 1998                      | 30,371,333   | 30,371     | 4,793,760  | -            | (58,800)    | (5,755,569)   | (990,238)  
|                                                |              |            |            |              |             |               |            
|Common stock transactions (net of issue
costs): |              |            |            |              |             |               |            
|Issued for cash at $0.15 per share              | 9,800,000    | 9,800      | 1,433,950  | -            | -           | -             | 1,443,750  
|Issued for cash at $0.20 per share              | 157,000      | 157        | 31,243     | -            | -           | -             | 31,400     
|Issued for cash at $0.60 per share              | 1,010,000    | 1,010      | 604,990    | -            | -           | -             | 606,000    
|Common stock subscriptions                      | -            | -          | 110,270    | -            | -           | -             | 110,270    
|Subscriptions receivable                        | -            | (110)      | (65,890)   | -            | -           | -             | (66,000)   
|Compensatory benefit of employee stock options  | -            | -          | 2,000      | -            | -           | -             | 2,000      
|Loss for the year                               | -            | -          | -          | -            | -           | (1,236,074)   | (1,236,074)
|                                                |              |            |            |              |             |               |            
|Balance, December 31, 1999, carried forward     | 41,338,333   | 41,228     | 6,910,323  | -            | (58,800)    | (6,991,643)   | (98,892)   

BRAINTECH, INC.

Condensed Consolidated Statements of Stockholders' Equity (Deficit) (Unaudited) (Continued)
(Expressed in United States dollars)

|                                                                                                                    |              |            |             |              | Deficit     | Deficit       |            
|------------------------------------------------------------------------------------------------------------------- | ------------ | ---------- | ----------- | ------------ | ----------- | ------------- | -----------
|                                                                                                                    |              |            |             |              | accumulated | accumulated   | Total      
|                                                                                                                    | Common stock | Additional | Deferred    | prior to the | during the  | stockholders'
|                                                                                                                    | Number       |            | paid-in     | stock-based  | development | development   | equity     
|                                                                                                                    | of shares    | Amount     | capital     | compensation | stage       | stage         | (deficit)  
|                                                                                                                    |              |            |             |              |             |               |            
|Balance, December 31, 1999, carried
forward                                                                         | 41,338,333   | $41,228    | $6,910,323  | $-           | $(58,800)   | $(6,991,643)  | $(98,892)  
|                                                                                                                    |              |            |             |              |             |               |            
|Common stock issued for cash at $0.20
per share (net of share issue costs)                                          | 3,976,000    | 3,976      | 790,305     | -            | -           | -             | 794,281    
|Subscriptions received in cash                                                                                      | -            | 110        | 65,890      | -            | -           | -             | 66,000     
|Settlement of litigation                                                                                            | -            | -          | 606,000     | -            | -           | -             | 606,000    
|Common stock issued for cash on
subscriptions                                                                       | 285,000      | 285        | (285)       | -            | -           | -             | -          
|Common stock subscriptions received in
cash                                                                         | -            | -          | 730,000     | -            | -           | -             | 730,000    
|Common stock to be issued in settlement
of legal claim                                                              | -            | -          | 100,000     | -            | -           | -             | 100,000    
|Loss for the year                                                                                                   | -            | -          | -           | -            | -           | (1,114,003)   | (1,114,003)
|                                                                                                                    |              |            |             |              |             |               |            
|Balance, December 31, 2000,                                                                                         | 45,599,333   | 45,599     | 9,202,233   | -            | (58,800)    | (8,105,646)   | 1,083,386  
|                                                                                                                    |              |            |             |              |             |               |            
|Common stock issued for promissory
notes                                                                            | 1,333,334    | 1,334      | 198,666     | -            | -           | -             | 200,000    
|Less: Promissory notes receivable for
subscription of common shares                                                 | -            | -          | (200,000)   | -            | -           | -             | (200,000)  
|Common stock issued for settlement of
legal claim                                                                   | 400,000      | 400        | (400)       | -            | -           | -             | -          
|Common stock issued for cash at $0.15
per share (net of share issue costs and
share subscriptions received in 2000) | 9,040,189    | 9,040      | 607,685     | -            | -           | -             | 616,725    
|Common stock issued for cash at $0.22
per share (net of share issue costs)                                          | 295,455      | 295        | 60,065      | -            | -           | -             | 60,360     
|Shares issued for services rendered                                                                                 | 125,000      | 125        | 23,875      | -            | -           | -             | 24,000     
|Common stock subscriptions received in
cash                                                                         | -            | -          | 314,516     | -            | -           | -             | 314,516    
|Common stock to be issued for services
rendered                                                                     | -            | -          | 16,000      |              |             |               | 16,000     
|Deferred stock-based compensation                                                                                   | -            | -          | 12,000      | (12,000)     | -           | -             | -          
|Amortization of deferred stock-based
compensation                                                                   | -            | -          | -           | 2,000        | -           | -             | 2,000      
|Loss for the year                                                                                                   | -            | -          | -           | -            | -           | (1,856,530)   | (1,856,530)
|                                                                                                                    |              |            |             |              |             |               |            
|Balance, December 31, 2001                                                                                          | 56,793,311   | $56,793    | $10,234,640 | $(10,000)    | $(58,800)   | $(9,962,176)  | $260,457   
|                                                                                                                    |              |            |             |              |             |               |            
|Shares subsequently issued for prior year services rendered                                                         | 100,000      | 100        | (100)       | -            | -           | -             | -          
|Common stock issued for cash at $0.15 per share (net of share subscriptions received in 2001)                       | 5,643,187    | 5,643      | 526,319     | -            | -           | -             | 531,962    
|Shares issued for services rendered                                                                                 | 400,000      | 400        | 63,600      | -            | -           | -             | 64,000     
|Common stock subscriptions received in cash                                                                         | -            | -          | 303,630     | -            | -           | -             | 303,630    
|Deferred stock-based compensation                                                                                   | -            | -          | (10,000)    | 10,000       | -           | -             | -          
|Loss for the period                                                                                                 | -            | -          | -           | -            | -           | (930,680)     | (930,680)  
|                                                                                                                    |              |            |             |              |             |               |            
|Balance, June 30, 2002                                                                                              | 62,936,498   | $62,936    | $11,118,089 | $-           | $(58,800)   | $(10,892,856) | $229,369   

See accompanying condensed notes to consolidated financial statements.

BRAINTECH, INC.

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

|                                                    | Period from
inception on
January 3, 1994
to June 30, | Six months ended
June 30,
|--------------------------------------------------- | ---------------------------------------------------- | -------------------------
|                                                    | 2002                                                 | 2002                     
|                                                    |                                                      |                          
|Cash flows from operating activities:               |                                                      |                          
|Loss for the period                                 | $(10,892,856)                                        | $(930,680)               
|Items not involving cash:                           |                                                      |                          
|Amortization                                        | 284,464                                              | 39,065                   
|Bad debt                                            | 103,143                                              | 28,035                   
|Loss on disposal of fixed assets                    | 69,022                                               | -                        
|Write-down of investments                           | 100,000                                              | -                        
|Write-down of intangible assets                     | 17,189                                               | -                        
|Write-down of organization costs                    | 17,431                                               | -                        
|Shares issued for services rendered                 | 404,000                                              | 64,000                   
|Shares issued for satisfaction of legal claim       | 100,000                                              | -                        
|Compensatory benefit of employee stock options      | 1,131,800                                            | -                        
|Changes in non-cash operating working capital:      |                                                      |                          
|Inventory                                           | (42,929)                                             | (7,462)                  
|Accounts receivable                                 | (176,224)                                            | (104,009)                
|Prepaid expenses                                    | (40,356)                                             | (12,109)                 
|Deferred cost of sales                              | (8,677)                                              | (912)                    
|Accounts payable and accrued liabilities            | 76,160                                               | (37,972)                 
|Deferred revenue                                    | 107,973                                              | 75,473                   
|Net cash used in operating activities               | (8,749,860)                                          | (886,571)                
|                                                    |                                                      |                          
|Cash flows from investing activities:               |                                                      |                          
|Purchase of marketable securities                   | (100,000)                                            | -                        
|Purchase of fixed assets                            | (537,033)                                            | (7,118)                  
|Proceeds from notes receivable                      | (130,181)                                            | -                        
|Proceeds from disposal of real estate               | 306,752                                              | -                        
|Proceeds from disposal of fixed assets              | 41,506                                               | -                        
|Net cash used in investing activities               | (418,956)                                            | (7,118)                  
|                                                    |                                                      |                          
|Cash flows from financing activities:               |                                                      |                          
|Notes receivable                                    | 55,073                                               | -                        
|Loans to directors and officers                     | 7,304                                                | -                        
|Due to (from) related companies                     | (11,626)                                             | -                        
|Mortgages payable                                   | (207,739)                                            | -                        
|Share subscriptions received                        | 303,630                                              | 303,630                  
|Common shares issued, net of issue costs            | 8,821,845                                            | 531,962                  
|Net cash provided by (used in) financing activities | 8,968,487                                            | 835,592                  
|                                                    |                                                      |                          
|Increase (decrease) in cash and cash equivalents    | (200,329)                                            | (58,097)                 
|                                                    |                                                      |                          
|Cash and cash equivalents, beginning of period      | 244,112                                              | 101,880                  
|                                                    |                                                      |                          
|Cash and cash equivalents, end of period            | $43,783                                              | $43,783                  
|                                                    |                                                      |                          
|Supplemental information:                           |                                                      |                          
|Cash paid for interest                              | $3,797                                               | $-                       
|Cash paid for taxes                                 | -                                                    | -                        
|Non-cash financing and investing activities:        |                                                      |                          
|Shares issued for services rendered                 | 404,000                                              | 64,000                   
|Shares issued for promissory notes                  | 200,000                                              | -                        
|Shares issued for satisfaction of legal claim       | 100,000                                              | -                        

See accompanying condensed notes to consolidated financial statements.

BRAINTECH, INC.
(A Development Stage Enterprise)

Condensed Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Six months ended June 30, 2002 and 2001
Three month ended June 30, 2002 and 2001
Period from inception on January 3, 1994 to June 30, 2002

|
|



1.	Description of business and future operations:

Braintech, Inc. (the "Company") together with its wholly owned subsidiary, Braintech Canada, Inc., is a high tech development company, developing advanced software for the vision guidance of robotic systems.  All sales of its products and services are made in this industry segment.

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 not generated significant 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 maintaining its strategic sales alliances 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 alliance and on becoming their principal supplier of vision systems, raising financing and achieving profitable operations.

Based on its current financial position, the Company believes that its present and anticipated cash resources will be sufficient to pay ongoing cash operating expenses until approximately August 31, 2002.  To continue as a going concern, the Company will either have to raise additional capital or begin to generate substantial sales revenue.  If the Company cannot do either by the end of August 2002, there is a risk that the business will fail.  The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.



2.	Basis of presentation:

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, 2002. Certain information and footnote disclosures normally included in 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, 2001, as filed in its annual report on Form 10-KSB.

BRAINTECH, INC.

Condensed Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Six months ended June 30, 2002 and 2001
Three month ended June 30, 2002 and 2001
Period from inception on January 3, 1994 to June 30, 2002

|
|



2.	Basis of presentation (continued):

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 intercompany balances and transactions have been eliminated.

Certain figures have been reclassified to conform to the financial statement presentation adopted in the current year.



3.	Promissory notes:

In conjunction with a private placement completed during the first quarter of 2001, a director and Chief Financial Officer of the Company issued a promissory note in the amount of $100,000 in payment for 666,667 common shares and 333,334 common share purchase warrants.  This note receivable has been recorded as a deduction from additional paid-in capital in stockholders' equity.  Each common share purchase warrant entitles the holder to purchase one additional share for one year at $0.20 per share.  In accordance with an Agreement for Escrow of Share Certificates dated February 27, 2001, the common share certificate and warrant certificate issued will remain in escrow until the Company receives full payment of the $100,000 note receivable.  The amount is due upon demand, unsecured and no interest is payable on this note.

In conjunction with a private placement completed during the second quarter of 2001, the Chief Operating Officer and President of the Company issued a promissory note in the amount of $100,000 in payment for 666,667 common shares and 333,334 common share purchase warrants.  This note receivable has been recorded as a deduction from additional paid-in capital in stockholders' equity.  Each common share purchase warrant entitles the holder to purchase one additional share for one year at $0.20 per share.  In accordance with an Agreement for Escrow of Share Certificates dated June 26, 2001, the common share certificate and warrant certificate issued will remain in escrow until the Company receives full payment of the $100,000 note receivable.  The amount is due upon demand, unsecured and no interest is payable on this note.



BRAINTECH, INC.

Condensed Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Six months ended June 30, 2002 and 2001
Three month ended June 30, 2002 and 2001
Period from inception on January 3, 1994 to June 30, 2002

|
|



4.	Stock options:

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





|                           | Number
of shares | Weighted
average
exercise price
|-------------------------- | ---------------- | -------------------------------
|                           |                  |                                
|Balance, December 31, 2001 | 5,302,500        | $0.23                          
|                           |                  |                                
|Options granted            | 195,000          | 0.25                           
|Options cancelled/expired  | (462,500)        | 0.24                           
|                           |                  |                                
|Balance June 30, 2002      | 5,035,000        | $0.23                          

Of those outstanding at June 30, 2002, 4,128,750 are exercisable (December 31, 2001 - 3,588,750).



5.	Share purchase warrants:

During the year ended December 31, 2001, the Company completed private placements of 10,373,523 common shares at a price of $0.15 per share and 295,455 common shares at a price of $0.22 per share.  In conjunction with the private placements, the Company issued 5,334,494 common share purchase warrants (each purchaser received one common share purchase warrant for each two common shares purchased).  Each common share purchase warrant entitles the holder to purchase one additional share for one year at $0.20 per share for 5,186,766 of the warrants and at $0.27 per share for 147,728 of the warrants.  None of the warrants were issued to employees, officers or directors in their capacity as such.  At a directors' meeting held June 27, 2002, the Company extended the expiry date on these share purchase warrants to August 31, 2002 and reduced the exercise price to $0.15 per share.  During the quarter ended June 30, 2002, the Company completed a private placement of 5,643,187 common shares at a price of $0.15 per share.  In conjunction with the private placement, the Company issued 2,821,594 common share purchase warrants (the purchasers received on common share purchase warrant for each two common shares purchased).  Each common share purchase warrant entitles the holder to purchase one additional share for one year at $0.20 per share.  There were no cancellations, exercise or expiration of warrants during the period.

BRAINTECH, INC.

Condensed Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Six months ended June 30, 2002 and 2001
Three month ended June 30, 2002 and 2001
Period from inception on January 3, 1994 to June 30, 2002

|
|



5.	Share purchase warrants (continued):



A summary of the Company's share purchase warrants outstanding as at June 30, 2002 is as follows:





|Number of warrants | Expiry
date     | Exercise
price
|------------------ | --------------- | --------------
|                   |                 |               
|5,186,766          | August 31, 2002 | $0.15         
|147,728            | August 31, 2002 | $0.15         
|2,821,594          | April 17, 2003  | $0.20         
|                   |                 |               
|8,156,088          |                 | $0.17         



6.	Commitments:

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







|2002 | $67,993 
|---- | --------
|2003 | 94,794  
|2004 | 12,761  
|2005 | 5,107   
|2006 | 2,556   
|     |         
|     | $183,211





7.	Contingencies

The Company is a co-covenanter on a lease that includes the premises where the Company resides.  The part of the premises not occupied by the Company is currently being sub-leased to a third party.  As co-covenanter on the original lease, the Company is legally responsible for the rent relating to the portion of the premises let to the third party.  The contingent additional rent totals approximately $64,000 per year with the lease expiring August 31, 2003.



BRAINTECH, INC.

Condensed Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in United States dollars)

Six months ended June 30, 2002 and 2001
Three month ended June 30, 2002 and 2001
Period from inception on January 3, 1994 to June 30, 2002

|
|



8.	Subsequent Events

(a)	Private placement

Subsequent to June 30, 2002, the Company received $147,296 with respect to a future private placement that has not yet been finalized.

(b)	Stock options

Subsequent to June 30, 2002 12,500 stock options were cancelled on termination of employment.  The Company's stock option plan specifies that an optionee may exercise vested options up to thirty days subsequent to termination or such other period as the directors may determine.  The terminated employees' options had vested, however the exercise period expired on July 11, 2002.  Subsequent to June 30, 2002, effective July 2, 2002, the Company granted 25,000 stock options having an exercise price of $0.25 per share.  The options vest periodically over a two year period and expire on July 1, 2007.





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



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" at page 8.  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 its subsidiaries.



OVERVIEW



We entered the technology field in the first quarter of 1994.  Since then, the majority of our efforts have been devoted to developing products to be used in creating machine vision systems or "computerized vision", and in developing machine vision systems.  Machine vision refers to the technology base that employs any number of electro-optical or non-contact techniques to acquire image data, process that data and analyze it to draw conclusions with little or no operator intervention.  Basically, machine vision is the application of electronic imaging, image processing, and image analysis techniques to applications in the manufacturing industries for the purpose of control (process control, quality control, machine control, and robot control).



In 1998, we began to apply our technology and expertise to the development of machine vision systems for industrial applications.  We have developed machine vision systems used in product inspection, location analysis, and parts handling and assembly.



In March 2000, we entered into a strategic alliance with ABB Inc. ("ABB").  ABB is a major supplier of industrial robotic systems.  Since entering into our alliance with ABB, we have focused on the development and implementation of vision guidance systems for robots used in the automotive manufacturing industry.



In 2000, we commenced the development of eVisionFactory ("eVF"), a software environment whose main components are: e - Real-Time Internet Support, V - Vision Science & Engineering, and F - Application Development & Operation.  eVF combines vision technology, systems engineering, and a wireless Internet based service and support system.  The Internet-based service and support system is designed to provide technical support through the Internet to purchasers of our vision guidance systems.  The Internet-based support system could also be used to provide technical support to companies operating other types of industrial machinery and manufacturing systems.



In July 2001, we entered into a Memorandum of Understanding with Marubeni Corporation, pursuant to which the two companies agreed to cooperate in developing and marketing of the Braintech technology for industrial applications including vision guided robots in Japanese and Asian markets.  Marubeni is a Japanese trading company with offices and subsidiaries throughout the world.  Marubeni is ranked 25th on the 2002 Fortune Global 500 of the world's largest corporations, based on 2001 revenues.



In the 2nd quarter of 2001, at the request of a major automaker, we completed the development of a 3D single camera vision guidance system for robots used in automotive manufacturing systems ("SC3D").  The SC3D system uses a single conventional CCD (Charge Coupled Device) camera.  Software algorithms use images from the camera mounted on the robot arm to determine the position and orientation of an object.  That information is used to guide the robot operating on or manipulating the object.  Applications for the SC3D system include automated assembly, material handling, spot welding, machining operations, adhesive and sealant application, spray painting, and part identification and inspection.



DEVELOPMENTS IN 2002



In the 1st quarter of 2002, we completed a commercial version of eVF that does not include the Internet based service and support system as that system remains under development.



In the 1st quarter of 2002, we also developed a fully automated process for 3D calibration of a stationary or robot-mounted camera ("AutoCal-3D").  Calibration refers to the process whereby the mathematical relationship between pixel coordinates of objects in digital images and real-world coordinates such as inches and millimeters is calculated. In contrast to the manual calibration process, AutoCal-3D eliminates all steps involving operator input thereby increasing both efficiency and accuracy.  AutoCal-3D is a component of eVF.



In April 2002, we delivered the first three of the 19 SC3D vision systems ordered by ABB in the fall of 2001 for a major automaker.  The three systems include the commercialized version of eVF, SC3D and AutoCal-3D.  The systems are integrated with ABB's robots and are currently used in an automotive power train assembly line.  From April to June, 2002, six additional systems have been delivered and installed in a pre-deployment assembly line and the automaker's engineers have confirmed that these systems meet the required specifications under normal plant conditions.  It is expected that these systems will be transferred to the engine assembly plants in August and September 2002.  The first three systems have been invoiced and we have received payment in full.  The six additional systems will be invoiced at the time of transfer to the assembly plant.  The remaining 10 systems are scheduled for delivery throughout the remainder of 2002.  However, the installation dates for these systems are dependent on the requirements of the customer and these dates have constantly shifted.



During the 1st half of 2002, we continued the development of our relationship with Marubeni Corporation that culminated in the signing of a Marketing and Development Agreement.  The agreement, which covers Southeast Asia and Australia, provides for mutual exclusivity, whereby Marubeni is granted an exclusive license to manufacture and distribute Braintech's vision guided robotic systems and Marubeni agrees that it will not deal with any competitive technology or products during a three year term.  Marubeni placed an order for two eVF development systems and these systems were delivered upon completion of the Marketing and Development Agreement.  We have completed the integration work for utilization of eVF with Kowasaki robots.  We have also set up a demonstration/training model of eVF in the Marubeni Vision Techno Centre in Nagoya, Japan and have provided onsite training to Marubeni engineers.  In addition, Mr. Babak Habibi, our President, gave a presentation to senior level executives of Marubeni at the Techno Centre.  We have also hired a Vice President Marketing and Business Relations - Asian Region to oversee and manage our relationship with Marubeni.



As of June 30, 2002, we have incurred an aggregate deficit of approximately $10.9 million during our development and operations stage.  We may continue to incur significant additional operating losses as our product development, research and development, and marketing efforts continue.  Operating losses may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenue recognised.



We have generated total revenues, from inception on January 3, 1994 to June 30, 2002, in the amount of $360,453.



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.



Six-month period ended June 30, 2002 compared with the six-month period ended June 30, 2001.



Revenue from operations for the six-month period ended June 30, 2002 was $113,551.  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.  More detail on how we apply SOP 97-2 is provided at page 7.



Revenue for the six-month period ended June30, 2002, included $88,453 for the three vision systems delivered to ABB for a major automaker and $25,098 for two vision systems used in the manufacture of plastic fuel tanks that were delivered in December 2001 and March 2002.  In accordance with SOP 97-2, we are recognizing the revenue from the plastic fuel tanks systems over the twelve-month periods commencing on the delivery date.



Cost of sales for the six-month period ended June 30, 2002 were $14,248.  This amount also is calculated in accordance with SOP 97-2.



During the six-month period ended June 30, 2001, we recorded revenue from operations of $24,802.  We received this amount from ABB Flexible Automation for a vision system used in the manufacture of plastic fuel tanks.



Cost of sales for the six-month period ended June 30, 2001 were $7,475.  This amount consisted of equipment used in, and installation costs relating to, the fuel tank project.



Research and development expenses increased from $203,839 for the six-month period ended June 30, 2001 to $219,087 for the six-month period ended June 30, 2002 principally from a small increase in personnel involved in research and development.



Selling, general, and administrative expenses increased from $755,704 for the six-month period ended June 30, 2001 to $811,609 for the six-month period ended June 30, 2002.  Several factors contributed to the increase.  The principal factors were as follows:



- General and administrative salaries increased from approximately $287,000 to approximately $351,000, due to the hiring of approximately 3 additional general and administrative employees.

- Amortization expenses decreased from $62,092 to $39,065, principally as a result of reduced amortization charges relating the write-off of the leasehold improvements of our old offices and the write-off of other fixed assets considered obsolete.

- Legal expenses decreased from $118,724 to $80,460, principally due to the cost incurred in 2001 for filing a registration statement under the Securities Act of 1933.

- Overall travel and marketing expenditures increased from approximately $136,000 to approximately $190,000 principally as a result of efforts to increase our exposure and the exposure of our products.  The individual components of this increase are as follows:  Expenditures for marketing materials increased from $48,562 to $58,008, trade shows increased from $37,786 to $53,722, investor relations increased from $9,755 to $55,752, travel increased from $14,383 to $16,616, and web site expenditures decreased from $23,345 to $2,247.

- Rent and premises cost increased from $21,200 to $67,946, principally as a result of the move to our expanded premises.



Three-month period ended June 30, 2002 compared with the three-month period ended June 30, 2001.



Revenue from operations for the three-month period ended June 30, 2002 was $105,552.  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.  More detail on how we apply SOP 97-2 is provided at page 7.



Revenue for the three-month period ended June30, 2002, included $88,453 for the three vision systems delivered to ABB for a major automaker and $17,099 for two vision systems used in the manufacture of plastic fuel tanks that were delivered in December 2001 and March 2002.  In accordance with SOP 97-2, we are recognizing the revenue from the plastic fuel tanks systems over the twelve-month periods commencing on the delivery date.



Cost of sales for the three-month period ended June 30, 2002 were $12,323.  This amount also is calculated in accordance with SOP 97-2.



During the three-month period ended June 30, 2001, we recorded revenue from operations of $24,802.  We received this amount from ABB Flexible Automation for a vision system used in the manufacture of plastic fuel tanks.



Cost of sales for the three-month period ended June 30, 2001 were $7,475.  This amount consisted of equipment used in, and installation costs relating to, the fuel tank project.



Research and development expenses increased from $85,567 for the three-month period ended June 30, 2001 to $107,282 for the three-month period ended June 30, 2002 principally from a small increase in personnel involved in research and development.



Selling, general, and administrative expenses decreased from $463,522 for the three-month period ended June 30, 2001 to $328,792 for the three-month period ended June 30, 2002.  Several factors contributed to the decrease.  The principal factors were as follows:



- General and administrative salaries decreased from approximately $194,000 to approximately $157,000, due to a reduction of approximately 2 general and administrative employees.

- Amortization expenses decreased from $30,759 to $19,789, principally as a result of reduced amortization charges relating the write-off of the leasehold improvements of our old offices and the write-off of other fixed assets considered obsolete.

- Legal expenses decreased from $71,544 to $50,288, principally due to the cost incurred in 2001 for filing a registration statement under the Securities Act of 1933.

- Overall travel and marketing expenditures decreased from approximately $96,000 to approximately $33,000.  The individual components of this decrease are as follows:  Expenditures for marketing materials decreased from $19,242 to $73, trade shows decreased from $37,786 to $2,750, investor relations increased from $2,041 to $23,256, travel decreased from $12,766 to $4,657, and web site expenditures decreased from $23,345 to $904.

- Rent and premises cost increased from $11,153 to $33,101, principally as a result of the move to our expanded premises.



Liquidity and Capital Resources



As of June 30, 2002, our accounts receivable balance was $148,783.  We have since collected $98,246 of this balance.  Of the remaining $50,537 balance, $47,975 relates to two invoices to Axium Automation Inc.  The first invoice of $34,224 was issued in December 2001.  We have recorded a 78% allowance for non-collection of this invoice as Axium filed for protection under Canadian bankruptcy laws on March 27, 2002.  At a meeting held May 23, 2002 Axium's creditors accepted a proposal to receive a payment of $0.22 on each $1.00 owed to trade creditors such as Braintech.  Under the proposal, Axium would make payments to trade creditors at 6, 12 and 18 months after the proposal is approved.  We rendered the second invoice for $37,585 to Axium after March 27, 2002 and at this time expect this invoice to be paid in full.



On April 17, 2002, we completed a private placement of 5,643,187 common shares at a price of $0.15 per share.  In addition, for every two shares purchased, the purchasers received one share purchase warrant.  Each share purchase warrant entitles the holder to purchase one additional share for 12 months at $0.20 per share.  Net proceeds from the private placement were $846,478.  Of these proceeds, $314,516 was received prior to December 31, 2001, and $531,962 was received between January 1, 2002 and March 31, 2002.



In addition to this private placement, between April 10, 2002 and August 9, 2002, we received $450,926 on account of a private placement to be completed in the future.



As of August 9, 2002, inclusive of the private placement proceeds described above, our cash balance is approximately $110,000.  Apart from our cash balance and any revenue we receive from operations, we have no other sources of liquidity or capital resources.



At our current level of operation, we estimate that our cash expenses are approximately $160,000 per month.  We base this estimate on the following data:



- As at August 9, 2002, we have 21 employees.  Our salary costs are approximately $78,000 per month;

- For the six months ended June 30, 2002, our average monthly general, overhead and administrative costs, exclusive of salary costs, were approximately $78,000 per month.  We expect that our general overhead and administrative costs, exclusive of salary costs, will continue to be approximately $78,000 per month for the second half of 2002;

- During the year ended December 31, 2001, we incurred capital expenditures of approximately $154,000, principally for leasehold improvements, furniture and fixtures, and computer equipment.  Between December 31, 2001, and August 9, 2002, we incurred capital expenditures of approximately $8,000, for computer equipment.  We do not expect to incur significant capital expenditures during the remainder of 2002 unless they result from an increase in our level of operation.



Based on the foregoing, we estimate that our total cash expenditures for the period August 9, 2002 to December 31, 2002 will be approximately $750,000.  Accordingly, at our current level of operation, our existing cash balances, together with the anticipated realization of our accounts receivable and anticipated proceeds of future private placements, should be sufficient to pay our anticipated cash expenditures to approximately September 30, 2002.  To continue as a going concern, we will either have to raise additional capital or generate substantial sales revenue.  If we cannot do either by September 30, 2002, we face the risk that our business will fail.



We do not plan to increase our operating expenses significantly, or to incur substantial capital expenditures, unless we begin to generate sales revenue or unless we raise additional capital.  At present, while we do not have specific plans to raise additional capital, we will need to do so to continue operations.



Critical Accounting Policies



On December 12, 2001, the Securities and Exchange Commission issued a 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 judgements, 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 recognize revenue in accordance with the software revenue recognition rules outlined in the American Institute of Certified Public Accountant's Statement of Position (SOP) 97-2.  That is, we recognize revenue when there is a persuasive evidence of a contract, delivery has occurred, the fee is fixed or determinative, 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.  We are in the process of establishing our policies regarding warranties and future service and support.  These items are considered future performance obligations and as such may affect the timing of revenue recognition.  As our policies evolve and as we are able to attach a value to these future services (i.e. establishing a fee for future services and support), the timing of our recognition of revenue will also change.  As a result, our revenues may fluctuate from period to period based on the mix of current and future deliverables.



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



Stock-based Compensation.  We have elected to apply the provision of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), and related interpretations in accounting for stock options granted to employees.  Under APB 25, compensation expense is only recorded to the extent that the exercise price is less than fair value on the measurement date.  We have adopted the disclosure-only provisions of Statement of Financial Accounting Standards 123, "Accounting for Stock-Based Compensation" ("SFAS 123").  Non-employee options are recognized at the fair value of the options as determined by an option pricing model as the services are performed and the options earned.



Plan of Operation



Our first priority for the balance of 2002 is to complete the remaining ten of the nineteen systems ordered by ABB in the fall of 2001.  If we are successful in completing these orders, the revenues from these systems, together with the revenue from the six systems delivered but not invoiced, should provide the operating cash requirements for approximately 3 months.



Our second priority for the balance of 2002 is to continue to build upon our relationship with ABB, to become the principal supplier of vision systems to ABB and their customers.  If we are able to obtain additional multi-order contracts for the design and installation of our vision systems, we believe we could generate sufficient sales revenue to achieve positive cash flow.



We are taking the following steps to secure additional contracts with ABB.



- We have hired a sales engineer in the Province of Ontario, Canada, where the Canadian automotive manufacturing industry is concentrated.  Our Ontario sales engineer provides support to ABB sales representatives in Ontario, through presentations to potential customers of industrial vision guided robotic systems.

- We have installed a single camera 3D demonstration unit in the ABB plant in Brampton, Ontario for purposes of displaying our vision system technology to ABB's customers.

- We provide proposals to ABB for the vision system components for robotic systems being sold to ABB customers.  As of August 9, 2002 we have several proposals outstanding, some of which involve multiple systems.

- We have begun negotiations with ABB's US subsidiary to establish an alliance similar to the one we have with ABB's Canadian subsidiary

- We have contracted a sales consultant based in the north eastern United States to provide sales support to ABB - USA and to be responsible for direct sales to US automakers and their Tie



Our third priority during the balance of 2002 is to continue the development of eVisionFactory, including our Internet based service and support system.  We have completed a commercial version of eVisionFactory and the nine systems delivered to ABB for a major auto manufacturer include a version of eVisionFactory.  We have not yet completed the Internet based service and support system but anticipate having a demonstration version available later in 2002.



Our fourth priority is to support Marubeni Corporation in its endeavours to market our products throughout south east Asia in accordance with the mutually exclusive Marketing and Development Agreement.  In this regard, we have hired a Vice President Marketing and Business Relations - Asian Region to oversee and manage our relationship with Marubeni.



There is no assurance that our plan of operation will succeed.  We have no assurance of when, if ever, we will secure further contracts for the sale of vision guided robotic systems.  In addition, we have no assurance that we will be able to complete development of the eVisionFactory program, or that we will be able to obtain new contracts, or generate sales revenue, through use of that program.



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 report before purchasing our common stock.



Because we have earned insignificant revenue of only $360,453 from inception to June 30, 2002, we face a risk of insolvency.



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 to pay ongoing operating expenses, at their current level, to approximately August 31, 2002.  To continue operation beyond that we will have to raise additional capital and/or generate substantial revenues.  If we are unable to do so, we face a risk of insolvency.



The auditors' report on our December 31, 2001 consolidated financial statements includes an additional paragraph that identifies conditions which raise substantial doubt about our abilities 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 no significant sales history and are substantially dependent on our alliance with ABB to generate future sales, our future is uncertain if our alliance with ABB fails.



We plan to market our machine vision systems and also our Internet based support and service system through our alliance with ABB Inc.  We believe our alliance with ABB is our best prospect for generating sales revenue.  We have no other established distribution channels or marketing arrangements, and if we are unable to generate sales through ABB, our prospects for generating revenue are highly speculative.



Because our alliance with ABB is new, we have no assurance that it will lead to additional sales.



We made our alliance agreement with ABB in March 2000 and together we have been awarded contracts for more than 20 vision guided robotic systems.  We intend to develop our relationship with ABB to try and make additional sales through that relationship.  However, our relationship with ABB is new and our prospects for generating sales under the ABB alliance are uncertain.  Furthermore, additional sales through ABB will be dependent upon our products and services meeting customer demands.



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 of our limited operating and sales history, we cannot make reliable projections of our future operating costs.



If we are able to generate sales, we may have to hire additional personnel to service our customers and to continue development of our technology.  We may also have to incur additional marketing and overhead expenses.  As a result of our lack of historical sales, we cannot make reliable projections of the number of additional personnel we will require, the cost of employing those personnel, or the level of marketing and overhead expenses we will incur.  We thus have no assurance that any revenue we earn will be sufficient to cover the cost of earning that revenue, or to generate operating profits.



Because we develop and install customized vision systems for specific customer needs, we may not be able to create a repeat customer base.



Most vision 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 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 any of our products, our intellectual property may be copied or misappropriated.



We do not hold any patents on any of our products.  Accordingly, we have no legal means to prevent other companies from developing products that perform similar functions in a similar way.  On January 31, 2002, we filed an application in the Canadian Patent Office regarding the Method And Apparatus For Single Camera 3D Vision Guided Robotics.  This is the only instance in which we have applied for patent protection of our intellectual property.



We believe that the software code that we have written for eVisionFactory, the BrainTron processor, the Odysee Development Studio, and each of our custom machine vision 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.  As well, copyright law varies from country to country and may be unenforceable in a jurisdiction where software may be copied.



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, 2000 the market price of our common stock has varied between $0.10 and $6.12.  As we have not announced any material changes to our earnings, 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 we have generated revenue of only $360,453 from inception to June 30, 2002, and our business has not been profitable with accumulated losses of $10,892,856 from inception to June 30, 2002, we may not be able to raise the additional capital we need.



We will require additional capital to continue the development of our products, to pay the costs of marketing those products, or to cover operating losses until we are able to become profitable.  As we have never generated operating profits or significant sales revenue, we may not be able to raise the amount of capital we require.



Several other factors may also hinder our efforts to raise capital.  They include the following:



- Our share price has been highly volatile during 2000, 2001 and 2002.  The volatility of our share price may deter potential investors.

- Subsequent to the first quarter of 2000, 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.

- Subsequent to the first quarter of 2000, capital markets have become tighter generally, with less financing available for technology companies generally.

- Capital markets have become tighter due to international tensions beginning on September 11, 2001.



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 a significant percentage of our issued shares have recently become free trading, and because we may register additional share offerings, there is a risk of downward pressure on our stock price.



During the first 3 months of 2001, we issued approximately 8.1 million shares in private placements.  Those shares have recently become eligible for re-sale under Rule 144 to the Securities Act of 1933.  In addition, we raised further funds late in 2001 and early 2002 in private placements and other transactions for which we have issued 6,143,187 shares and 2,821,593 share purchase warrants for one share each.  We may register these shares and share purchase warrants 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.



Because our stock may be subject to "low price stock" rules, the market for our stock may be limited.



The Securities and Exchange Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price less than $5.00.  Our stock is presently covered by those rules, and may continue to be so.  The penny stock rules require broker-dealers to make a special suitability determination before selling our stock to investors who are not either regular customers or accredited investors.  As a result, the potential market for our stock may be limited.



Because the National Association of Securities Dealers has announced that the OTC Bulletin Board will cease operations in 2003, the market for trading of our securities may be adversely affected.



The National Association of Securities Dealers, Inc., has announced that it intends to make certain changes to its system for trading shares electronically other than through NASDAQ, including establishing a new electronic trading system known as the Bulletin Board Exchange ("BBX") which will eventually supersede the OTC Bulletin Board.  We are unable to determine the effect of any such change on the Company and the trading market for our securities, or whether our common stock will be eligible for listing on the BBX.  The inability of our common stock to be listed on the BBX could have a material adverse impact on the market price for our common stock.



ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK



As at June 30, 2002, 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 included in the financial statements included in this Form 10-QSB.  The fair value of all financial instruments as at June 30, 2002 approximate their carrying values.



To June 30, 2002, the majority of our revenues and 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.



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.  CHANGES IN SECURITIES AND USE OF PROCEEDS



Recent Sales of Unregistered Securities



On April 17, 2002, we issued 5,643,187 common shares at a price of $0.15 per share pursuant to a private placement.  Owen Jones, our C.E.O. and director purchased 4,166,667 of the shares and Grant Sutherland, our Chairman and director purchased 1,476,520 of the shares.  In addition, for every two shares purchased, the purchaser received one share purchase warrant.  Each share purchase warrant entitles the holder to purchase one additional share for one year at $0.20 per share.  The shares and warrants were issued pursuant to exemptions from registration as set out in Rule 506 of Regulation D under the Securities Act.



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



On July 5, 2002 we filed a report on Form 8-K concerning the Marketing and Development Agreement we entered into with Marubeni Corporation.



On August 9, 2002, we filed a Form 8-K with respect to the appointment of Lionel Dodd to our board of directors.



INDEX TO EXHIBITS

Exhibits





|Number    | Exhibit                                                                                                                                                                      
|--------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1(1)    | Articles of Incorporation, dated February 27, 1987                                                                                                                           
|3.2(1)    | Articles of Amendment, dated July 14, 1998                                                                                                                                   
|3.3(1)    | Articles of Amendment, dated June 28, 1990                                                                                                                                   
|3.4(1)    | Articles Of Amendment of the Company, dated February 8, 1993                                                                                                                 
|3.5(1)    | Articles of Amendment of the Company, dated April 6, 1993                                                                                                                    
|3.6(1)    | Articles of Amendment of the Company, dated December 6, 1993                                                                                                                 
|3.7(8)    | Restated Articles of Incorporation of the Company dated June 1, 2000                                                                                                         
|3.8(1)    | By-Laws of the Company                                                                                                                                                       
|3.9(9)    | Amendment to By-Laws of the Company                                                                                                                                          
|4.1(1)    | Specimen Stock Certificate                                                                                                                                                   
|4.2(2)    | 1997 Stock Option Plan                                                                                                                                                       
|4.3(2)    | 2000 Stock Option Plan                                                                                                                                                       
|4.4(7)    | Amended 2000 Stock Option Plan dated November 1, 2000                                                                                                                        
|10.1(1)   | License Agreement between the Company and Willard W. Olson, dated January 5, 1995.                                                                                           
|10.2(4)   | Cost Sharing and Allocation Agreement between the Company and Sideware Systems Inc.                                                                                          
|10.3(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.
|10.4(4)   | Software Development and License Agreement dated September 20, 1999 between the Company and Sideware Systems Inc.                                                            
|10.5(4)   | Lease effective as of July 1, 1999 between the Company, Techwest Management Inc., Sideware Systems Inc. and Pacific Centre Leaseholds Ltd.                                   
|10.6(4)   | Assignment Agreement effective as of July 1, 1999 between the Company, Techwest Management Inc., Sideware Systems Inc., and SJM Management Ltd.                              
|10.7(5)   | Alliance Agreement dated March 26, 2000 between the Company and ABB Flexible Automation Group Inc.                                                                           
|10.8(6)   | Letter agreement with Sideware Systems Inc. dated November 1, 2000                                                                                                           
|10.9(7)   | Bluetooth Specification Early Adopters Agreement between IBM and the Company dated December 15, 2000                                                                         
|10.10(7)  | Support and Equipment Lease Agreement between Tactel AB and the Company dated December 19, 2000                                                                              
|10.11(7)  | Assignment Agreement between Pacific Centre Leaseholds Ltd., Techwest Management Inc., Sideware Systems Inc. and the Company dated January 1, 2001                           
|10.12(7)  | Mutual Release and Settlement Agreement between Manfred Kurschner, JMF Management Inc, Techwest Management Inc. and the Company dated February 1, 2001                       
|10.13(7)  | Agreement between Axis Communications Inc. and the Company dated January 29, 2001                                                                                            
|10.14(7)  | Agreement for Escrow of Share Certificate & Promissory Note between Edward White and the Company dated February 27, 2001                                                     
|10.15(8)  | Agreement for Escrow of Share Certificate and Promissory Note between Babak Habibi and the Company dated June 21, 2001                                                       
|10.16(9)  | Letter for Resumption of Premises at 102-105 930 W. 1st Street, North Vancouver, June 14, 2001                                                                               
|10.17(9)  | Partial Surrender of Lease for 100-101 A & B 930 W. 1st Street, North Vancouver, June 25, 2001                                                                               
|10.18(9)  | Memorandum of Understanding with Marubeni Corporation                                                                                                                        
|10.19(10) | License Agreement with Marubeni Corporation                                                                                                                                  
|11.1      | Computation of net loss per share                                                                                                                                            





(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-QSB covering the quarter ended September 30, 1999 filed November 15, 1999.

(5) Exhibit already on file - exhibit to our Form 10-QSB covering the quarter ended March 31, 2000 filed May 15, 2000.

(6) Exhibit already on file - exhibit to our Form 10-QSB covering the quarter ended September 30, 2000 dated November 9, 2000.

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

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

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

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



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.





BRAINTECH, INC.



/s/ Owen L.J. JonesOwen L.J. Jones
Chief Executive Officer, Director
Dated: August 12, 2002

/s/ Babak HabibiBabak Habibi
President, Director
Dated: August 12, 2002

/s/ Edward A. WhiteEdward A. White
Chief Financial Officer (Principal Financial and
Accounting Officer), Director
Dated: August 12, 2002