<PAGE>

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


                                   FORM 10-QSB


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

                  For The Quarterly Period ended JUNE 30, 1999


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


            For the transition period from ________________


                                 BRAINTECH, INC.
             (Exact name of Registrant as specified in its charter)

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


          930 WEST 1ST ST. #102, NORTH VANCOUVER, B.C., CANADA, V7P 3N4
                    (Address of Principal Executive offices)


Issuer's Telephone Number: (604) 988-6440



           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      None

         SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                         Common Stock, $0.001 par value
                                (Title of Class)


Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities

<PAGE>

Exchange Act of 1934 during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.

         Yes   X                           No
             -----                            -----


State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 34,771,333 Common shares, par value
$0.001, as at August 12, 1999.


Transitional Small Business Disclosure Format (check one):

         Yes                               No   X
             -----                            -----



                           Index to Exhibits on Page 7


                                      ii
<PAGE>



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

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

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

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings...........................................5

Item 2.   Changes in Securities and Use of Proceeds...................7

Item 3.   Defaults upon Senior Securities.............................7

Item 4.   Submission of Matters to a Vote of
          Securities Holders..........................................7

Item 5.   Other Matters...............................................7

Item 6.   Exhibits and Reports on Form 8-K............................7
</TABLE>


                                      iii
<PAGE>

PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

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

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

     (ii)  Consolidated Statements of Operations for the six month periods
     ended June 30, 1998 and 1999;

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

     (iv)  Consolidated Statements of Cash Flows for the six month periods
     ended June 30, 1998 and 1999; and

     (v)   Notes to Financial Statements.


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

OVERVIEW

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

     As of June 30, 1999 the Company had incurred an aggregate deficit of
approximately $6,446,004 during the development stage. The Company expects to
continue to incur significant additional operating losses over the
foreseeable future as its product development, research and development, and
marketing efforts continue to expand. Operating losses may fluctuate from
quarter to quarter as a result of differences in the timing of expenses
incurred and revenue recognised.


                                      1
<PAGE>

RESULTS OF OPERATIONS

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

SIX MONTH PERIOD ENDED JUNE 30, 1999 COMPARED WITH THE SIX MONTH PERIOD ENDED
JUNE 30, 1998

     During the six month period ended June 30, 1999, the Company did not
receive any operating revenue. During the six month period ending June 30,
1998, the Company recorded revenue from operations totalling $50,010. This
amount consisted of $30,000 charged to Cordis, a Johnson & Johnson company,
for a feasibility study in respect of a shunt inspection system, $2,010
charged to NGI Technology Inc. for the purchase of a BrainTron processor, and
$18,000 charged to Epson Portland Inc. for a demonstration print quality
inspection system.

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

     Research and development expenses for the six month period ended June
30, 1999 were $259,934, compared with $46,280 for the six month period ended
June 30, 1998. Research and development expenses (which are reported net of
government grants) were reduced during the period ended June 30, 1998 by
grant funds totalling approximately $38,000 from the National Research
Council of Canada. Those funds were used for the development of the Odysee
Development Studio, the Company's principal project. Salaries allocated to
research and development increased from approximately $69,000 for the six
month period ended June 30, 1998 to approximately $199,000 (inclusive of
bonus payments totalling $40,000) for the six month period ended June 30,
1999. In addition, research and development expenses for the six month period
ended June 30, 1999 included approximately $55,000 in payments to North Shore
Circuit Design of Austin, Texas for work performed on the


                                      2
<PAGE>

IMPAC Accelerator board. There was no similar payment during the six month
period ended June 30, 1998.

     Consulting and contractor expenses decreased to $5,313 for the six month
period ended June 30, 1999 from $16,163 for the six month period ended June
30, 1998. The magnitude of the decrease is not material.

     Salaries and benefits, excluding compensation expenses in respect of
employee stock options, were consistent for the six month periods ended June
30, 1999 and June 30, 1998, being approximately $130,938 and $131,322
respectively. The compensation expense for employee stock options was nil for
the six month period ended June 30, 1999 and approximately $837,800 for the
six month period ended June 30, 1998. Inclusive of stock option compensation
expenses, salaries and benefits were approximately $130,938 for the six month
period ended June 30, 1999 and $969,122 for the six month period ended June
30, 1998.

     General, selling, and administrative expenses increased to approximately
$314,250 for six month period ended June 30, 1999 from approximately
$213,408 for the six month period ended June 30, 1998. Several factors
contributed to the increase. The Company's recorded foreign exchange expense
increased from approximately $23,000 to approximately $46,000. The Company's
foreign exchange expense results principally from adjusting entries made in
respect of transactions recorded in United States dollars, but actually
carried out in Canadian dollars. Accounting costs increased from
approximately $3,300 to approximately $16,800, principally as a result of
costs incurred in resolving accounting issues relating to the Company's
incentive stock options and costs incurred in connection with the Company
becoming a reporting issuer pursuant to the Securities Exchange Act of 1934.
Rent expenses increased from approximately $23,100 to approximately $50,200,
principally as a result of increased lease space occupied by the Company
beginning September, 1998. Travel and Promotion expenses remained consistent
for the six month periods ended June 30, 1999 and June 30, 1998, being
approximately $65,600 and $69,500 respectively.


                                      3
<PAGE>

PLAN OF OPERATION

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

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

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

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

4.   Marketing of quality control systems.

     Marketing and continued development of the Odysee Development Studio is
the Company's top priority. To the extent that the Company's resources are
limited, they will be directed to Odysee in preference to other projects.

     The Company currently employs 6 full time and 11 part time officers or
employees. The Company's current monthly salary costs are approximately
$45,000.

     For the six month period ended June 30, 1999 the Company's average
monthly cash expenses, inclusive of salary costs, were approximately $116,000.

     As at the end of July 1999, the Company had utilized substantially all
of its available cash. By Press Release dated July 6, 1999 the Company
announced a private placement of 5,000,000 shares at a price of $0.20 per
share, which will be offered pursuant to Rule 506 of Regulation D to the
Securities Exchange Act of 1933. The Company expects to close the private
placement on or before August 31, 1999.

     The financing described above will provide the Company with sufficient
capital resources to pay ongoing operating expenses at their present level
for the balance of the current fiscal year, and part of the first quarter of
the Company's next fiscal year. While the Company is in the process of
completing the financing, its operations are being financed by funds borrowed
on an interim basis. If the Company is unable to generate sufficient funds to


                                      4
<PAGE>

pursue all of the projects identified above, the Company's first priority
will be the marketing and development of the Odysee Development Studio.

     During the six month period ended June 30, 1999, the Company incurred
capital expenditures of approximately $60,000 for computer equipment and
software. The Company does not presently plan to incur significant additional
capital expenses or to increase its salary or other operating costs
significantly during the balance of the current fiscal year. Any significant
capital expenses or increases in operating costs will be dependent on the
Company raising additional capital or generating revenue from the sales of
its products or services.

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


PART II.  OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

     The Company is party to the following material legal proceedings.

     1.   JMF MANAGEMENT INC. ET AL V. BRAINTECH, INC. ET AL, BRITISH
     COLUMBIA SUPREME COURT ACTION NO. C990550

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


                                      5
<PAGE>

date has been set. The outcome of the action is uncertain.

     2.   CACTUS CONSULTANTS CO. LTD. V. BRAINTECH, INC. ET AL, BRITISH
     COLUMBIA SUPREME COURT ACTION NO. C991377

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

     3.   BRAINTECH, INC. V. JOHN KOSTIUK, DISTRICT COURT OF HARRIS COUNTY
     ACTION 96-55978; BRITISH COLUMBIA SUPREME COURT ACTION C972736; BRITISH
     COLUMBIA COURT OF APPEAL ACTION CA024459

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

     Effective October 31, 1998 Sideware Systems Inc. purchased a 50%
interest in the judgment for a purchase price of $200,000. The agreement
between the Company and Sideware Inc. provided that the purchase price would
be adjusted depending on the benefit ultimately received by


                                      6
<PAGE>

Sideware Systems Inc. On March 18, 1999, the British Columbia Court of Appeal
reversed the judgment of the British Columbia Supreme Court, rendering the
judgment (subject to any further appeal) unenforceable against any assets of
John Kostiuk in British Columbia. Subsequent to the decision of the British
Columbia Court of Appeal, the Company returned the $200,000 paid by Sideware
Systems Inc. The Company has filed an Application for Leave to Appeal to the
Supreme Court of Canada. Any recovery in the proceeding must be considered
speculative.

ITEM 2.   CHANGES IN SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES

Not applicable.

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

Not applicable.

ITEM 5.   OTHER MATTERS

Not applicable.

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K


INDEX TO EXHIBITS

<TABLE>
<CAPTION>
NUMBER                              EXHIBIT
<S>       <C>
 3.1      Articles of Incorporation, dated February 27, 1987
 3.2      Articles of Amendment, dated July 14, 1998
 3.3      Articles of Amendment, dated June 28, 1990
 3.4      Articles Of Amendment of the Company, dated February 8, 1993
 3.5      Articles of Amendment of the Company, dated April 6, 1993
 3.6      Articles of Amendment of the Company, dated December 6, 1993
 3.7      By-Laws of the Company


                                      7
<PAGE>

 4.1      Specimen Stock Certificate
 10.1     License Agreement between the Company and Willard W. Olson, dated
          January 5, 1995.
 10.2     Product Development Agreement between the Company and United
          Technologies Microelectronic Systems Inc., dated July 6, 1998.
 10.3     Manufacturing and Sales Agreement between the Company and United
          Technologies Microelectronic Systems Inc., dated July 6, 1998.
 10.4     Operating Agreement between the Company and Sideware Systems Inc.,
          dated November 1, 1995
 10.5     Worldwide Non-Exclusive License Agreement between the Company and
          NetMedia Systems Inc., dated November 2, 1995.
 10.6     Joint Venture Agreement by and among the Company, Sideware Systems
          Inc., and NetMedia Systems Inc., dated November 23, 1995.
 10.6     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.
 11.1     Computation of net loss per share
 21.1     Subsidiaries of the Registrant
 27.1     Summary Financial Data for the three month period ended March 31,
          1999.
</TABLE>

All of the above Exhibits with the exception of Exhibits 11.1 and 27.1 are
already on file as a result of the Company filing a Form 10-SB.

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


                                      8
<PAGE>

SIGNATURES

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

Dated:    August 12, 1999             BrainTech, Inc.




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


                                      9
<PAGE>

                          Consolidated Financial Statements of


                          BRAINTECH,  INC.

                          (Expressed in U.S. Dollars)

                          (Unaudited - prepared by management)

                          Six months ended June 30, 1999 and 1998

<PAGE>



BRAINTECH, INC.

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

(Unaudited - prepared by management)
June 30, 1999 and 1998

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
                                                                                  1999              1998
-------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>               <C>
ASSETS

Current assets:
     Cash and cash equivalents                                             $    91,417       $    26,990
     Accounts receivable                                                        10,852             5,063
     Marketable securities (note 4)                                               -                3,600
     Prepaid expenses                                                           23,018            15,123
     --------------------------------------------------------------------------------------------------------

                                                                               125,287            50,776

Due from directors and officers (note 5(a))                                     10,130            10,130
Capital assets (note 6)                                                        122,320             9,812
-------------------------------------------------------------------------------------------------------------

                                                                           $   257,737       $    70,718
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Bank indebtedness                                                     $      -          $      -
     Accounts payable and accrued liabilities                                   50,466            11,291
     Due to related companies (note 5(b))                                      278,194            82,678
     --------------------------------------------------------------------------------------------------------

                                                                               328,660            93,969

Subscriptions received, net of issue costs (note 7(d))                         363,750              -
Amounts in dispute (note 9(b))                                                 606,000           606,000
-------------------------------------------------------------------------------------------------------------

                                                                             1,298,410           699,969
Stockholders' deficit:
     Common stock (note 7):
       Authorized:  50,000,000 shares, with $0.001 par value
       Issued 34,771,333 shares (1998 - 28,183,333)                             34,771            28,183
     Additional paid-in capital (note 7)                                     5,449,360         3,430,548
     Accumulated deficit                                                       (58,800)          (58,800)
     Deficit accumulated during the development stage                       (6,466,004)       (4,029,182)
     --------------------------------------------------------------------------------------------------------

                                                                            (1,040,673)         (629,251)
Future operations (note 2)
Contingencies (note 9)
Commitments (note 10)
Subsequent events (note 12)

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

                                                                           $   257,737       $    70,718
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

On behalf of the Board:

____________________                          ____________________
Chairman                                      President


<PAGE>

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

(Unaudited - prepared by management)

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
                                                 Period from
                                                inception on
                                             January 3, 1994              Six months ended June 30,
                                                 to June 30,           ---------------------------------
                                                        1999                   1999             1998
--------------------------------------------------------------------------------------------------------
<S>                                          <C>                          <C>            <C>
Sales                                            $    57,510              $    -         $    50,010
Cost of sales                                         30,005                   -              27,006
--------------------------------------------------------------------------------------------------------

Gross margin                                          27,505                   -              23,004
--------------------------------------------------------------------------------------------------------

Expenses:
     Research and development                      1,399,494                259,934           46,280
     Consulting and contractors                      741,874                  5,313           16,163
     Salaries and benefits (note 11)               1,980,874                130,938          969,122
     Selling, general and administrative           2,216,511                314,250          213,408
     Non-operating expenses:
        Loss on disposal of capital assets            20,136                   -                -
        Write-down of marketable securities          100,000                   -                -
        Write-down of intangible assets               17,189                   -                -
        Write-down of organization costs              17,431                   -                -
--------------------------------------------------------------------------------------------------------

                                                  (6,493,509)              (710,435)      (1,244,973)
--------------------------------------------------------------------------------------------------------

Net loss                                         $(6,466,004)             $(710,435)     $(1,221,969)
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------

Loss per share information:
        Basic                                    $     (0.27)             $   (0.02)     $    ( 0.04)
--------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

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

(Unaudited - prepared by management)

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

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

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

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

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

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

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

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

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

Common stock transactions
  (net of issue costs):
     Issued for cash at $0.15 per share           4,400,000        4,400         655,600              -            -
Loss for the period                                    -            -              -                  -        (710,435)
---------------------------------------------------------------------------------------------------------------------------

Balance, June 30, 1999                           34,771,333      $34,771      $5,449,360     $  (58,800)      $(6,466,004)
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

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

(Unaudited - prepared by management)

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------
                                                             Period from
                                                            inception on
                                                         January 3, 1994    Six months ended June 30,
                                                             to June 30,   ----------------------------
                                                                    1999        1999           1998
-------------------------------------------------------------------------------------------------------
<S>                                                      <C>               <C>          <C>
                                                                (note 1)
Cash flows from operating activities:
     Loss for the period                                    $(6,466,004)   $(710,435)   $(1,221,969)
     Items not involving cash:
         Amortization                                            51,269       13,814          5,734
         Bad debt                                                75,108         -              -
         Write-down of marketable securities                    100,000         -              -
         Write-down of intangible assets                         17,189         -              -
         Write-down of organization costs                        17,431         -              -
         Loss on disposal of capital assets                      20,136         -              -
         Shares issued for services rendered                    300,000         -              -
         Compensatory benefit of
           employee stock options                             1,127,800         -           837,800
     Change in operating assets and liabilities:
         Accounts receivable                                    (10,852)      11,581         16,399
         Prepaid expenses                                       (23,018)     (10,674)       (13,415)
         Accounts payable and accrued liabilities                25,288      (33,535)        (9,209)
     --------------------------------------------------------------------------------------------------

     Net cash used for operating activities                  (4,765,653)    (729,249)      (384,660)
     --------------------------------------------------------------------------------------------------

Cash flows from investing activities:
     Purchase of marketable securities                         (100,000)        -              -
     Purchase of capital assets                                (192,666)     (60,897)        (2,274)
     Proceeds from notes receivable                            (130,181)        -              -
     Proceeds from disposal of real estate                      306,752         -              -
     --------------------------------------------------------------------------------------------------

     Net cash provided by (used for) investing activities      (116,095)     (60,897)        (2,274)
     --------------------------------------------------------------------------------------------------

Cash flows from financing activities:
     Notes receivable                                            55,073         -              -
     Borrowings from directors and officers                      (2,826)        -              -
     Due to (from) related companies                            278,194     (164,666)      (128,764)
     Mortgages payable                                         (207,739)        -              -
     Share subscriptions received, net of issue costs           363,750      363,750           -
     Common shares issued for cash                            4,242,601      660,000        400,000
     --------------------------------------------------------------------------------------------------

     Net cash provided by financing activities                4,729,053      859,084        271,236
-------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents               (152,695)      68,938       (115,698)

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

Cash and cash equivalents, end of period                    $    91,417    $  91,417    $    26,990
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------

Supplemental information:
     Interest paid                                          $     2,902    $    -       $     2,155
     Taxes paid                                             $      -       $    -       $      -
Non-cash financing activities:
     Shares issued for services rendered                    $   300,000    $    -       $      -
-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------

</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

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


1.   ORGANIZATION:

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

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

2.   FUTURE OPERATIONS:

     During the six months ended June 30, 1999, the Company incurred a loss
     of $710,435 and used cash for operating activities of $729,249. From
     inception of the business on January 3, 1994, the Company has incurred
     cumulative losses of $6,466,004 and used cash for operating activities
     of $4,765,653.

     These consolidated financial statements have been prepared on the going
     concern basis under which an entity is considered to be able to realize
     its assets and satisfy its liabilities in the ordinary course of
     business. Operations to date have been primarily financed by equity
     transactions. The Company's future operations are dependent upon
     continued support by shareholders, the achievement of profitable
     operations and the successful completion of management's plan to obtain
     additional equity financing, although there can be no assurances that
     the Company will be successful. The consolidated financial statements do
     not include any adjustments relating to the recoverability of assets and
     classification of assets and liabilities that might be necessary should
     the Company be unable to continue as a going concern.

3.   SIGNIFICANT ACCOUNTING POLICIES:

     (a)  Basis of presentation:

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

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

<PAGE>

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


3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (b)  Cash and cash equivalents:

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

     (c)  Research and development costs:

          Research and development costs are expensed as incurred.

     (d)  Revenue recognition:

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

     (e)  Marketable securities:

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

     (f)  Capital assets:

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

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

     (g)  Use of estimates:

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

<PAGE>

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


3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (h)  Foreign currency:

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

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

     (i)  Stock-based compensation:

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

     (j)  Income taxes:

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

     (k)  Concentration of credit risk:

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

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

     (l)  Loss per share:

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

     (m)  Comprehensive income:

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

<PAGE>

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


4.   MARKETABLE SECURITIES:

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

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


5.   RELATED PARTY BALANCES AND TRANSACTIONS:

     (a)  Due from directors and officers:

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

     (b)  Due to related companies:

          The amount due to related companies under common control results from
          inter-company expense allocations and cash advances.

     (c)  Transactions with directors and officers:

          During the six month period ended June 30, 1999, the Company was
          charged $45,205 (June 30, 1998 - $21,306) for management and
          consulting services provided by directors and officers.



6.   CAPITAL ASSETS:

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------
                                                                                        June 30,
                                                                                            1999
     ------------------------------------------------------------------------------------------------
                                                                    Accumulated         Net book
                                                      Cost         amortization            value
     ------------------------------------------------------------------------------------------------
     <S>                                          <C>               <C>                 <C>
     Furniture and fixtures                       $ 16,897              $ 3,265         $ 13,632
     Computer equipment                             90,317               16,606           73,711
     Trade show assets                               8,966                1,617            7,349
     Computer software                              40,367               24,520           15,847
     Leasehold improvements                         14,008                2,227           11,781
     ------------------------------------------------------------------------------------------------

                                                  $170,555              $48,235         $122,320
     ------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

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


6.   CAPITAL ASSETS (CONTINUED):

<TABLE>
<CAPTION>
     ------------------------------------------------------------------------------------------------
                                                                                        June 30,
                                                                                            1998
     ------------------------------------------------------------------------------------------------
                                                                    Accumulated         Net book
                                                      Cost         amortization            value
     ------------------------------------------------------------------------------------------------
     <S>                                          <C>              <C>                  <C>
     Computer equipment                           $  5,886              $ 1,258         $  4,628
     Computer software                              19,946               14,762            5,184
     ------------------------------------------------------------------------------------------------

                                                  $ 25,832              $16,020         $  9,812
     ------------------------------------------------------------------------------------------------
</TABLE>

7.   COMMON STOCK:

     (a)  Of the shares outstanding at June 30, 1999, 9,680,000 shares (June
          30, 1998 - 6,830,000) are subject to trading restrictions. These
          include the 1,500,000 shares retained by the Company, as described
          in note 7(b). The Company believes that any hold periods relating
          to 3,780,000 shares have expired but the shareholders have not
          applied to remove the restrictive designation.

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

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

     (d)  As at June 30, 1999 the Company had received subscriptions for
          2,600,000 shares of common stock at $0.15 per share for aggregate
          proceeds of $390,000 less share issue costs of $26,250 for net
          proceeds of $363,750.

     (e)  Stock options:

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

          Stock option activity during the six month period ended June 30,
          1999 is as follows:
<TABLE>
<CAPTION>
          -------------------------------------------------------------------------------------------------------------
                              Weighted
                               average      Weighted   Outstanding                                          Outstanding
          Expiry              exercise       average   December 31,                            Forfeited       June 30,
          dates                  price    fair value          1998     Granted     Exercised    /expired           1999
          -------------------------------------------------------------------------------------------------------------
          <S>                 <C>         <C>          <C>           <C>           <C>         <C>          <C>
          November 28, 2002      $0.20         $0.19     4,097,000        -             -           -         4,097,000
          November 28, 2002      $0.20         $0.76     1,210,000        -             -         35,000      1,175,000
          November 28, 2002      $0.20         $0.77       125,000        -             -           -           125,000
          April 19, 2004         $0.20         $0.20          -      1,700,000          -           -         1,700,000
          -------------------------------------------------------------------------------------------------------------

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

<PAGE>

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


7.   COMMON STOCK (CONTINUED):

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

8.   INCOME TAXES:

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

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

9.   CONTINGENCIES:

     The Company is engaged in the following legal disputes:

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

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

<PAGE>

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


10.  COMMITMENTS:

     The Company has the following minimum lease payments under operating leases
for its premises:
<TABLE>
     <S>                                                               <C>
     Six month period to December 31, 1999                             $ 97,000

     Year ended December 31, 2000                                       198,000

     Year ended December 31, 2001                                       202,000

     Year ended December 31, 2002                                       206,000

     Year ended December 31, 2003                                       139,000
     --------------------------------------------------------------------------

                                                                       $842,000
     --------------------------------------------------------------------------
</TABLE>

11.  SALARIES AND BENEFITS:

     Salaries and benefits are comprised of the following:

<TABLE>
<CAPTION>
     --------------------------------------------------------------------------------------------------------------
                                                             Period from
                                                            Inception on
                                                              January 3,
                                                                    1994             Six months ended June 30
                                                              to June 30,      ------------------------------------
                                                                    1999             1999                 1998
     --------------------------------------------------------------------------------------------------------------
     <S>                                                      <C>                <C>                  <C>
     Payments and accrued liabilities                         $  853,074         $130,938             $131,322
     Compensatory benefit of employee
     stock options                                             1,127,800                -              837,800
     --------------------------------------------------------------------------------------------------------------

                                                              $1,980,874         $130,938             $969,122

     --------------------------------------------------------------------------------------------------------------
</TABLE>

12.  SUBSEQUENT EVENT:

     On July 6, 1999 the Company announced a private placement of $1,000,000
     being 5,000,000 shares at $0.20 per share. The company expects to close
     this financing on or before August 31, 1999.