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 September 30, 2003

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: 15,453,394 Common shares, par value $0.001, as at November 12, 2003

Transitional Small Business Disclosure Format (check one):

Yes [ ] No [x]

Index to Exhibits on Page 31

ii

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 16

Item 3 Controls and Procedures page 29



PART II. OTHER INFORMATION

Item 1. Legal Proceedings page 30

Item 2. Changes in Securities page 30

Item 3. Defaults upon Senior Securities page 30

Item 4. Submission of Matters to a Vote of Securities Holders page 30

Item 5. Other Information page 30

Item 6. Exhibits and Reports on Form 8-K page 30

1

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

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

(i) Condensed Consolidated Balance Sheets as at September 30, 2003 (unaudited) and December 31, 2002;

(ii) Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended September 30, 2002 and 2003;

(iii) Condensed Consolidated Statements of Stockholders' Equity (Deficiency) (unaudited) for the nine months ended September 30, 2003;

(iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2002 and 2003; and

(v) Notes to Condensed Consolidated Financial Statements (unaudited) for the nine months ended September 30, 2002 and 2003.

2



|Condensed Consolidated Financial Statements of
(Expressed in United States dollars)BRAINTECH, INC.Nine months ended September 30, 2003 and 2002
Three months ended September 30, 2003 and 2002
(Unaudited - Prepared by Management)
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3

|BRAINTECH, INC.                                                           
|--------------------------------------------------------------------------
|Condensed Consolidated Balance Sheets
(Expressed in United States dollars)
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Assets                                                                    
|                                                                          
|Current assets:                                                           
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Fixed assets                                                              
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Liabilities and Stockholders' Equity (Deficiency)                         
|                                                                          
|Current liabilities:                                                      
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|Non-current liabilities                                                   
|                                                                          
|                                                                          
|                                                                          
|Total liabilities                                                         
|                                                                          
|                                                                          
|Stockholders' equity (deficiency) (note 7):                               
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          
|                                                                          

Subsequent events (notes 6 and 12)

See accompanying notes to condensed consolidated financial statements.

4

|BRAINTECH, INC.                                                                                                          
|-------------------------------------------------------------------------------------------------------------------------
|Condensed Consolidated Statements of Operations
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|                                                                                                                         

|                                                                        | Nine Months Ended
September 30                                         | Three Months Ended
September 30
|----------------------------------------------------------------------- | ---------------------------------------------------------------------- | -------------------------------
|                                                                       
|2003                                                                    | 2002                                                                   | 2003                           
|                                                                       
|                                                                        |                                                                        |                                
|Sales                                                                   |                                                                        | $                              
|Cost of sales                                                           | 19,430                                                                 | 25,487                         
|                                                                       
|                                                                        |                                                                        |                                
|Gross margin                                                            | 136,795                                                                | 243,106                        
|                                                                        |                                                                        |                                
|Operating expenses:                                                     |                                                                        |                                
|                                                                        | Research and development                                               | 355,984                        
|                                                                        | Selling, general and administration                                    | 1,063,952                      
|                                                                       
|                                                                        |                                                                        | 1,419,936                      
|                                                                       
|                                                                        |                                                                        |                                
|Operating loss                                                          | (1,283,141)                                                            | (1,327,921)                    
|                                                                        |                                                                        |                                
|Non-operating income (expense):                                         |                                                                        |                                
|                                                                        | Interest income                                                        | 59                             
|                                                                        | Interest on promissory notes (note 5)                                  | (24,053)                       
|                                                                        | Interest accretion on debenture
beneficial conversion feature (note 6) | (20,833)                       
|                                                                        | Interest on convertible debenture (note 6)                             | (4,110)                        
|                                                                       
|                                                                        |                                                                        | (48,937)                       
|                                                                       
|                                                                        |                                                                        |                                
|Loss for the period                                                     | $                                                                      | (1,332,078)                    
|                                                                       
|                                                                        |                                                                        |                                
|Loss per share information:                                             |                                                                        |                                
|                                                                        | Basic and diluted                                                      | $                              
|                                                                       
|                                                                        |                                                                        |                                
|Weighted average number of common
shares outstanding, basic and diluted | 14,959,614                                                             | 11,825,387                     
|                                                                       
|                                                                        |                                                                        |                                

See accompanying condensed notes to consolidated financial statements.

5

|BRAINTECH, INC.                                                                                                                                 
|------------------------------------------------------------------------------------------------------------------------------------------------
|Condensed Consolidated Statements of Stockholders' Equity (Deficiency)
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|                                                                                                                                                

|                            | Common stock                                          |         |                            | Total
stockholders'
equity (deficit)
|--------------------------- | ----------------------------------------------------- | ------- | -------------------------- | ------------------------------------
|                            | Number of
shares                                      | Amount  | Additional
paid-in capital | Accumulated
deficit                 
|                           
|Balance, December 31, 2002  | 15,219,394                                            | $       | 15,219                     | $                                   
|                            | Shares issued for services rendered                   | 20,000  | 20                         | 5,380                               
|                            | Shares issued on exercise of
employee stock options   | 64,000  | 64                         | 12,736                              
|                            | Compensatory benefit of
warrants issued to contractor | -       | -                          | 4,121                               
|                            | Shares issued for finders fee                         | 150,000 | 150                        | (150)                               
|                            | Value of debenture
beneficial conversion feature      | -       | -                          | 749,999                             
|                            | Debenture issue expenses                              | -       | -                          | (19,379)                            
|                            | Loss for the period                                   | -       | -                          | -                                   
|                           
|Balance, September 30, 2003 | 15,453,394                                            | $       | 15,453                     | $                                   
|                           

See accompanying condensed notes to consolidated financial statements.

6

|BRAINTECH, INC.                                                                                                          
|-------------------------------------------------------------------------------------------------------------------------
|Condensed Consolidated Statements of Cash Flows
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|                                                                                                                         

|                                               | Nine Months Ended September 30                
|---------------------------------------------- | ----------------------------------------------
|                                               | 2003                                          
|                                              
|                                               |                                               
|Cash flows from operating activities           |                                               
|                                               | Loss for the period                           
|                                               | Items not involving cash:                     
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               | Changes in non-cash operating working capital:
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                               |                                               
|                                              
|                                               | Net cash used in operating activities         
|                                               |                                               
|Cash flows from investing activities           |                                               
|                                               | Purchase of fixed assets                      
|                                              
|                                               | Net cash used in investing activities         
|                                               |                                               
|Cash flows from financing activities           |                                               
|                                               | Promissory notes payable (note 5)             
|                                               | Promissory notes repayment (note 5)           
|                                               | Subscription deposits (note 6)                
|                                               | Convertible debenture payable (note 6)        
|                                               | Debenture issue costs                         
|                                               | Share subscriptions received                  
|                                               | Common shares issued, net of issue costs      
|                                              
|                                               | Net cash provided by financing activities     
|                                              
|                                               |                                               
|Increase in cash and cash equivalents          | 405,868                                       
|                                               |                                               
|Cash and cash equivalents, beginning of period | 51,688                                        
|                                              
|                                               |                                               
|Cash and cash equivalents, end of period       | $                                             
|                                              
|                                               |                                               
|Supplemental information:                      |                                               
|                                               | Non-cash financing and investing activities:  
|                                               |                                               
|                                               |                                               
|                                              

See accompanying condensed notes to consolidated financial statements.

7

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              
|                                                                                                                              
|1.                                                                                                                            
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|2.                                                                                                                            
|                                                                                                                              
|                                                                                                                              

8

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              
|                                                                                                                              
|2.                                                                                                                            
|                                                                                                                              
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|                                                                                                                              
|                                                                                                                              

9

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              
|                                                                                                                              
|2.                                                                                                                            
|                                                                                                                              
|                                                                                                                              
|2003                                                                                                                          
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              
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| |                                                                                                                        | The weighted average fair-value of stock options granted during the nine months ended September 30, 2003 was $0.32 per option (2002 - $0.23 per option).                                                                                                                                                                                                               
| | ---------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                        | The fair-value for the options granted during the nine months ended September 30, 2003 was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions: dividend yield 0% (2002 - 0%), expected volatility 175% (2002 - 80%), risk-free interest rate 1.47% (2002 - 2.75%), and an expected term of 2 years (2002 - 2 Years).
| | (g)                                                                                                                    | Deferred leasehold inducements:                                                                                                                                                                                                                                                                                                                                        
| |                                                                                                                        | Leasehold inducements are deferred and amortized to reduce rent expense on a straight-line basis over the term of the lease.                                                                                                                                                                                                                                           
| | (h)                                                                                                                    | Comparative figures:                                                                                                                                                                                                                                                                                                                                                   
| | Certain figures have been reclassified to conform to the financial statement presentation adopted in the current year.

10

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              
|                                                                                                                              
|3.                                                                                                                            
|                                                                                                                              
|                                                                                                                              
|                                                                                                                              

11

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              

|4. | Deferred lease inducements:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|5. | Promissory notes payable:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In January and March, 2003, the Company's Chief Executive Officer advanced CAD $235,000 (USD $155,838) in return for unsecured demand promissory notes with an annual interest rate of 8%. The advances are repayable in Canadian Dollars and as such the Company has recorded a foreign exchange loss of $17,923 being the difference between the exchange rate at the time of the advances and September 30, 2003. As at September 30, 2003, the Company has incurred and accrued $7,993 in interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Between April 12, 2003 and July 29, 2003, the Company's Chief Executive Officer advanced a further CAD $833,000 (USD $594,355) to the Company. These additional financings bear interest at 8% per annum and are repayable on demand. A general security agreement covering all of the Company's real, personal and intangible property was pledged as security for the advances. The additional advances are repayable in Canadian Dollars and as such the Company has recorded a foreign exchange loss of $21,376 being the difference between the exchange rate at the time of the advances and September 30, 2003. As at September 30, 2003, the Company has incurred and accrued $16,060 in interest.                                                                                                                                                                                                                                                                      
|6. | Convertible debenture:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | On September 25, 2003, the Company executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures. This document superseded a term sheet dated August 13, 2003 that provided for funding of $1,500,000. A general security agreement covering all of our real, personal and intangible property is to be pledged as security for the debentures. The debentures are to mature on August 25, 2006 and bear interest at eight percent (8%) per year. All convertible debentures are to rank pari passu with all convertible debentures to be issued pursuant to the term sheet. The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit. Each unit comprises one common share and one half-share (1/2) share purchase warrant. Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.
|   | The debentures may be redeemed by repayment of all outstanding principal and accrued interest at any time on 7 days notice. The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | The Company may at its discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of the Company's shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

12

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              

|6. | Convertible debenture (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | On September 5, 2003, in accordance with the terms of a Securities Purchase Agreement, the Company issued a convertible debenture in the amount of $750,000. A finder's fee was paid by way of issuance of 150,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. The fair value of the units underlying the finder's fee has been recognized in shareholders' equity. Because the conversion price was less than the closing trading price of the Company's shares on the date of issuance, the convertible debenture contains a beneficial conversion feature. In accordance with Emerging Issues Task Force ("EITF") Issue 98-5, the embedded beneficial conversion feature should be recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital. The intrinsic value of the beneficial conversion feature exceeds the face value of the debenture and is therefore limited to the face value. The face value of the debt has been allocated to additional paid-in capital and is being accreted to the convertible debenture over the term of the debenture. Accrued interest is recorded based on the face value of the debenture at the stated interest rate (8%). The amount recorded on the balance sheet as at September 30, 2003 has been calculated as follows:
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Beneficial conversion feature allocated to additional paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Beneficial conversion feature accreted to convertible debenture                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Accrued interest payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Convertible debenture at September 30, 2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|   | On October 1, 2003, in accordance with the terms of Securities Purchase Agreements dated September 17, 2003, the Company issued convertible debentures in the amount of $400,000. A finder's fee was paid by way of issuance of 112,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. These debentures have a beneficial conversion feature and will be accounted for similar to the above treatment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | The Company has received $50,000 in deposits relating to convertible debentures to be issued subsequent to the period end in the estimated aggregate amount of $600,000. A finder's fee will be paid by way of issuance of 120,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years. It is likely that these debentures will have a beneficial conversion feature.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The balance of the convertible debentures to be issued pursuant to the September 25, 2003 term sheet are subject to an investor option to purchase convertible debentures up to an aggregate principal amount of $500,000 on or before March 1, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

13

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              

|7. | Shareholders' equity (deficiency):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|8. | Share purchase warrants:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | During the years ended December 31, 2002 and 2001, 1,066,902 and 564,319 share purchase warrants respectively were issued in conjunction with private placements of common shares. As at December 31, 2002, the holders of the 1,066,902 warrants were entitled to purchase one additional common share of the Company for $0.75 per share to February 28, 2003. The holders of the 564,319 warrants were entitled to purchase one additional common share of the Company for $1.00 per share to April 16, 2003. By a board of directors' resolution dated March 20, 2003, the Company extended the expiry date on the 1,066,902 and 564,319 warrants to February 28, 2004.
|   | As partial consideration for an investor relations service agreement, the Company issued share purchase warrants as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

14

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              
|                                                                                                                              
|8.                                                                                                                            
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|9.                                                                                                                            
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15

|BRAINTECH, INC.                                                                                                               
|------------------------------------------------------------------------------------------------------------------------------
|Notes to Condensed Consolidated Financial Statements
(Unaudited - Prepared by Management)
(Expressed in United States dollars)
|Nine months ended September 30, 2003 and 2002                                                                                 
|                                                                                                                              
|                                                                                                                              
|10.                                                                                                                           
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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". 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 technologies and products to be used in developing machine vision or "computerized vision". 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 robotics as well as manufacturing automation 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 automobile manufacturing industry.

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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 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 or non-industrial machinery and systems.

Early in 2002 we completed a commercial version of eVisionFactory that does not include our Internet based service and support system. We included eVisionFactory software with the systems we delivered in 2002.

In the 2nd quarter of 2001, at the request of Ford Motor Company, 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 a single from the camera mounted on the robot arm or stationary position to determine the position and orientation of an object of interest. That information is used to guide the robot or other machine to operate on or manipulate the object. Applications for the SC3D system include, among others, automated assembly, material handling, spot welding, machining operations, adhesive and sealant application, spray painting, and part identification and inspection. As a result of our completion of the development of the SC3D proof of concept, we received from ABB an order for 19 vision guidance systems for installation into two engine assembly plants of Ford Motor Company.

To date, we have delivered 15 of the 19 SC3D vision systems ordered by ABB. All of these systems include the commercialized version of eVF, SC3D and AutoCal-3D. These systems are integrated with ABB robots and are currently operating in Ford's automotive power train assembly lines. The remaining 4 systems are to be installed during 2003, although the actual installation dates have not been determined.

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 the 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 ranking of the world's largest corporations, based on 2001 revenues.

During 2002, we continued the development of our relationship with Marubeni Corporation and 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 the 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 Kawasaki robots. We have also set up the demonstration/training models 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.

During 2002 we continued to add functionality to eVF by developing additional components as follows:

AutoCal-3D; AutoCal-3D is a fully automated process for 3D calibration of a stationary or robot-mounted camera. Calibration refers to the process whereby the mathematical relationship between pixel

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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.

AutoTrain-3D; AutoTrain-3D is a fully automated process that facilitates the introduction or "training" of new parts into a given eVF-based system running the SC3D technology.

Xi2D (Single/Multi-Camera 2D); Xi2D consists of a single or multi-camera arrangement that views various features of interest.

DD3D (Direct Depth 3D); DD3D uses stereo vision for direct measurement and consists of a binocular camera arrangement to view a part or feature.

SR3D (Surround Vision 3D); SR3D is similar to SC3D but involves multiple cameras configured to view different areas of the same part.

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

As of September 30, 2003, we have incurred an aggregate deficit of approximately $12.9 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 September 30, 2003, in the amount of $863,219.

Results of Operations

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

The majority of our cash costs have been incurred in Canadian dollars. Our reporting currency is the United States dollar. At the end of each quarter, we translate our expenses incurred in Canadian dollars into United States dollars at the average exchange rate for the quarter. Fluctuations in the foreign exchange rate can have a substantial influence on reported expenses even though the actual expenditure has not increased or decreased to the same extent.

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Nine-month period ended September 30, 2003 compared with the nine-month period ended September 30, 2002.

The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the nine-month period ended September 30, 2003 was 1.42657. For the nine-month period ended September 30, 2002, the exchange rate was 1.57315. We reported a decrease in total expenses of approximately $101,400 from $1,570,300 for the nine-month period ended September 30, 2002 to $1,468,900 for the nine-month period ended September 30, 2003. However, when adjusted for the change in the foreign exchange rate, the actual decrease in expense activity was approximately $238,300. The foreign exchange adjustment reduced this amount by $136,900 to the reported change of $101,400

Revenue from operations for the nine-month period ended September 30, 2003 was $156,225 (September 30, 2002 - $268,593). 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 24.

Revenue for the nine-month period ended September 30, 2003, included approximately $27,250 for a vision system delivered to ABB for Ford Motor Company, approximately $20,000 for eVF run time licenses for Marubeni, approximately $7,400 for training and consulting revenue, approximately $38,000 for a vision system delivered to General Motors, Massena Powertrain plant, and approximately $60,000 previously recorded as deferred revenue and now recognized as revenue.

Cost of sales for the nine-month period ended September 30, 2003 was $19,430.

Revenue for the nine-month period ended September 30, 2002, includes approximately $205,300 for the seven vision systems delivered to ABB for installation into two engine assembly plants of Ford Motor Company, approximately $20,500 for two eVF development systems for Marubeni, and approximately $42,000 for two vision systems used in the manufacture of plastic fuel tanks that were delivered in December 2001 and March 2002. 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 nine-month period ended September 30, 2002 were $25,487.

We reported that research and development expenses increased $27,951 from $328,033 for the nine-month period ended September 30, 2002 to $355,984 for the nine-month period ended September 30, 2003. The foreign exchange differential accounted for an increase of approximately $33,000 indicating a minor decrease in activity.

We reported that selling, general, and administrative expenses decreased $179,042 from $1,242,994 for the nine-month period ended September 30, 2002 to $1,063,952 for the nine-month period ended September 30, 2003. The foreign exchange differential accounted for an increase of approximately $99,000 indicating an actual decrease in activity of approximately $278,000. Several factors contributed to the decrease and in discussing these factors, the foreign exchange element has been indicated. The principal factors were as follows:

- Actual general and administrative salaries decreased approximately $25,000 from $496,000 to $471,000. The foreign exchange differential accounted for an increase of approximately $48,000 resulting in a net increase of approximately $23,000.

- As at September 30, 2002, the Company recorded a stock based compensation charge of $49,899 in accordance with the application of the Black-Scholes option pricing model on the

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authorized issuance of 500,000 share purchase warrants to be granted to Mr. Owen Jones, our Chief Executive Officer in lieu of salary for the period from January 1, 2002 to September 30, 2002. There was no similar charge during the nine month period ended September 30, 2003.

- Actual amortization expenses decreased approximately $14,700 from $58,800 to $44,100 principally as a result of the diminishing value of our capital assets and the full amortization of capital assets amortized on the straight-line basis. The foreign exchange differential accounted for an increase of approximately $4,500 resulting in a net reported decrease of approximately $10,200.

- Actual legal expenses decreased approximately $60,200 from $98,400 to $38,200, principally due to a reduction in the use of outside legal counsel. The foreign exchange differential accounted for an increase of approximately $3,900 resulting in a net reported decrease of approximately $56,300.

- Actual overall travel and marketing expenditures decreased approximately $109,600 from approximately $268,600 to approximately $159,000. The foreign exchange differential accounted for an increase of approximately $16,300 resulting in a net reported decrease of approximately $93,300. The individual components of the actual decrease are as follows: Expenditures for marketing materials decreased from $58,100 to $140, trade shows decreased from $86,300 to $82,100, investor relations decreased from $91,300 to $43,600, travel decreased from $21,800 to $16,900, and web site expenditures increased from $3,600 to $4,000.

- Actual rent and premises cost decreased $600 from $102,200 to $101,600. The foreign exchange differential accounted for an increase of approximately $10,500 resulting in a net reported increase of approximately $9,900.

- Annual general meeting costs increased from nil to $21,130 because no meeting was held in 2002.

Three-month period ended September 30, 2003 compared with the three-month period ended September 30, 2002.

The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the three-month period ended September 30, 2003 was 1.37943. For the three-month period ended September 30, 2002, the exchange rate was 1.56203. We reported a decrease in total expenses of approximately $71,900 from $540,300 the nine-month period ended September 30, 2002 to $468,400 for the three-month period ended September 30, 2003. However, when adjusted for the change in the foreign exchange rate, the actual decrease in expense activity was approximately $126,600. The foreign exchange adjustment reduced this amount by $54,800 to the reported change of $71,900.

Revenue from operations for the three-month period ended September 30, 2003 was $55,758 (September 30, 2002 - $155,042).

Revenue for the three-month period ended September 30, 2003, includes approximately $38,000 for a vision system delivered to General Motors, Massena Powertrain plant, and approximately $17,500 previously recorded as deferred revenue and now recognized as revenue.

Cost of sales for the three-month period ended September 30, 2003 was $15,187.

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Revenue for the three-month period ended September 30, 2002, includes approximately $116,800 for the four vision systems delivered to ABB for installation into two engine assembly plants of Ford Motor Company, approximately $20,500 for two eVF development systems for Marubeni, and approximately $17,000 for two vision systems used in the manufacture of plastic fuel tanks that were delivered in December 2001 and March 2002. We are recognizing the revenue from the plastic fuel tanks systems over the twelve-month periods commencing on the delivery dates.

Cost of sales for the three-month period ended September 30, 2002 were $11,239.

We reported that research and development expenses increased approximately $2,000 from $108,900 for the three-month period ended September 30, 2002 to $110,900 for the three-month period ended September 30, 2003. However, the foreign exchange differential accounted for an increase of approximately $13,000 indicating an actual decrease form activity of approximately $11,000. The decrease is a result of a small reduction in personnel.

We reported that selling, general, and administrative expenses decreased approximately $114,000 from $431,400 for the three-month period ended September 30, 2002 to $317,400 for the three-month period ended September 30, 2003. The foreign exchange differential accounted for an increase of approximately $37,000 indicating an actual decrease in activity of approximately $151,000. Several factors contributed to the decrease and in discussing these factors, the foreign exchange element has been indicated. The principal factors were as follows:

- Actual general and administrative salaries increased from approximately $6,100 from $144,800 to $150,900. The foreign exchange differential accounted for an increase of approximately 20,000 resulting in a net reported increase of $26,100.

- As at September 30, 2002, the Company recorded a stock based compensation charge of $49,899 in accordance with the application of the Black-Scholes option pricing model on the authorized issuance of 500,000 share purchase warrants to be granted to Mr. Owen Jones, our Chief Executive Officer in lieu of salary for the period from January 1, 2002 to September 30, 2002. There was no similar charge during the nine month period ended September 30, 2003.

- Actual amortization expenses decreased approximately $7,000 from $19,700 to $12,700, principally as a result of the diminishing value of our capital assets and the full amortization of capital assets amortized on the straight-line basis. The foreign exchange differential accounted for an increase of approximately $1,700 resulting in a net reported decrease of $5,300.

- Actual legal expenses decreased approximately $6,600 from $18,000 to $11,400, principally due to a reduction in the use of outside legal counsel. The foreign exchange differential accounted for an increase of approximately $1,500 resulting in a net reported decrease of approximately $5,100.

- Actual overall travel and marketing expenditures decreased approximately $25,300 from approximately $78,700 to approximately $53,400. The foreign exchange differential accounted for an increase of approximately $7,100 resulting in a net reported decrease of approximately $18,200. The individual components of the actual decrease are as follows: Expenditures for trade shows decreased from $32,600 to $27,200, investor relations decreased from $35,600 to $17,900, travel increased from $5,200 to $5,800, and web site expenditures were unchanged at approximately 1,300.

- Actual rent and premises cost decreased $3,700 from $34,300 to $30,600 mainly as a result of the leasehold inducements received for entering into a new premises lease. The foreign exchange

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differential accounted for an increase of approximately $4,100 resulting in a net reported increase of approximately $400.

Liquidity and Capital Resources

Between January 13, 2003 and July 29, 2003 Mr. Owen Jones, our Chief Executive Officer, advanced CDN $1,068,000 (US $750,193) in return for secured and unsecured demand promissory notes with an annual interest rate of 8%. A general security agreement covering all of the Company's real, personal and intangible property was pledged as security for the secured promissory notes.

On September 25, 2003, we executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures. This document superseded a term sheet dated August 13, 2003 that provided for funding of $1,500,000. A general security agreement covering all of our real, personal and intangible property is to be pledged as security for the debentures. The debentures are to mature on August 25, 2006 and bear interest at eight percent (8%) per year. All convertible debentures issued are to rank pari passu with all convertible debentures issued pursuant to the term sheet. The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit. Each unit comprises one common share and one half-share purchase warrant. Each whole warrant has a five year term and is exercisable into one common share at a price of $0.25 per share.

We issued the debentures in a private transaction, exempt from the registration requirements of the Securities Act of 1933, as amended. The debentures, and the common stock issuable upon conversion of the debentures, were not registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States without registration under, or applicable exemption from, the registration requirements of the Securities Act.

The debentures may be redeemed by repayment of all outstanding principal and accrued interest at any time on 7 days notice. The debenture holders have a first right to convert all or any portion of the principal and accrued interest into units prior to redemption.

We may in our discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of our shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.

On September 5, 2003, in accordance with the terms of a Securities Purchase Agreement, we issued a convertible debenture in the amount of $750,000. A finder's fee was paid by way of issuance of 150,000 units at $0.25 per unit each unit comprised of one share and one-half share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five years. Because the conversion price was less than the closing trading price of our shares on the date of issuance, the convertible debenture contains a beneficial conversion feature. The notes to our condensed consolidated financial statements for the nine months ended September 20, 2003 and 2002 (attached herewith) outline in detail the accounting treatment of this debenture issue.

On October 1, 2003, in accordance with the terms of Securities Purchase Agreements dated September 17, 2003, we issued convertible debentures in the amount of $400,000. A finder's fee was paid by way of issuance of 112,000 units at $0.25 per unit each unit comprised of one share and one-half share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five years. These debentures have a beneficial conversion feature and will be accounted for similar to the above treatment.

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We have received $50,000 in deposits relating to convertible debentures to be issued subsequent to the November 12, 2003 in the amount of $600,000. A finder's fee will be paid by way of issuance of 120,000 units at $0.25 per unit each unit comprised of one share and one-half share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five years. It is likely that these debentures will have a beneficial conversion feature.

The balance of the convertible debentures to be issued pursuant to the September 25, 2003 term sheet are subject to an investor option to purchase convertible debentures up to an aggregate principal amount of $500,000 on or before March 1, 2004.

To November 12, 2003, we have issued convertible debentures totalling $1,150,000 and paid finders' fees of $65,500 by way of issuance of 262,000 units at $0.25 per unit.

The agreements governing the issuance of the convertible debentures provide that the general security agreement pledged as security for the promissory notes issued to Mr. Owen Jones be discharged, provide that USD $250,000 of the proceeds is used to repay the notes, and further provided that the unpaid balance of the notes and accrued interest is converted into units at a deemed price of $0.25 per unit. A partial repayment of US $50,000 was made on September 22, 2003 and on November 3, 2003, the remaining USD $200,000 was repaid.

All of the promissory notes were repayable in Canadian Dollars and as such as at November 3, 2003 a foreign exchange loss of $58,855 and $29,607 of interest was accrued.

On November 3, 2003, the unpaid balance of the promissory notes was converted into 2,354,621 units at a deemed price of $0.25 per unit. Each unit comprises one common share and one-half share purchase warrant.

As of November 12, 2003 our cash balance is approximately $500,000. Apart from our cash balance, the funding arrangement described above, and any revenue we receive from operations, we have no other sources of liquidity or capital resources.

At our current and anticipated level of operations, we estimate that our cash expenses will increase over the next six months from approximately $160,000 to approximately $175,000 per month. We base this estimate on the following data:

- As at November 12, 2003, we have 20 employees. Our salary costs are approximately $99,000 per month;

- For the nine months ended September 30, 2003, our average monthly general, overhead and administrative costs, exclusive of salary costs, were approximately $60,000 per month. We expect that our general overhead and administrative costs, exclusive of salary costs, will increase to approximately $75,000 per month over the next six months, because of an anticipated increase in general business activity;

- During the year ended December 31, 2002, we incurred capital expenditures of approximately $9,500, principally for computer equipment and computer software. Between December 31, 2002, and November 12, 2003, we only incurred minor capital expenditures and we do not expect to incur significant capital expenditures during the remainder of 2003 unless they result from an increase in our level of operation.

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Based on the foregoing, we estimate that our total cash expenditures for the period from November 12, 2003 to March 31, 2004 will be approximately $775,000. Accordingly, at our anticipated level of operation, our existing cash balances and the funding agreement described above should be sufficient to pay our anticipated cash expenditures to approximately July 31, 2004. To continue beyond July 31, 2004 as a going concern, we will either have to raise additional capital or generate substantial sales revenue. If we cannot do either by July 31, 2004, we face the risk that our business will fail.

Critical Accounting Policies and Changes to Existing Accounting Policies

On December 12, 2001, the Securities and Exchange Commission issued cautionary advice regarding the disclosure of critical accounting policies. Critical accounting policies are those that our management believes are both most important to the portrayal of our financial condition and results, and that require difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that involve uncertainty.

We believe the "critical" accounting policies we use in preparation of our financial statements are as follows:

Revenue Recognition. We are required to follow the software revenue recognition rules outlined in the American Institute of Certified Public Accountant's Statement of Position (SOP) 97-2. We recognize revenue when there is a persuasive evidence of a contract, delivery has occurred, the fee is fixed or 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. Changes in contractual arrangements or customer relationships in the future could impact the extent or timing of revenue recognition.

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

Effects of Foreign Currency Exchange Rates and Inflation

While we record our financial statements in United States dollars, many of our expenses are incurred in Canadian dollars. As a result, fluctuations in the Canadian dollar exchange rate can affect our expenses, and thus our profit or loss. During the nine months ended September 30, 2003 we incurred a foreign exchange loss of $50,702. The foreign exchange loss resulted principally from monitory obligations arising from the translation of transactions carried out in Canadian dollars into United States dollars. As at the date of this quarterly report, we have not engaged in exchange rate-hedging activities. To the extent we implement such hedging activities in the future, we cannot assure that we will be successful.

In the year ended December 31, 2002 and the nine months ended September 30, 2003 inflation has had a limited impact on our operations. However, there can be no assurance that inflation will not have a material adverse effect on our results of operations in the future.

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Quantitative and Qualitative Disclosures about Market Risk

As at September 30, 2003 we have not entered into or acquired financial instruments that have a material market risk. We have no financial instruments for trading or other purposes or derivative or other financial instruments with off balance sheet risk. All financial assets and liabilities are due within the next twelve months and are classified as current assets or liabilities in the consolidated balance sheet provided with this quarterly report. The fair value of all financial instruments at September 30, 2003 approximate their carrying values.

To September 30, 2003, 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.

Plan of Operation

Our strategic operating priorities for fiscal 2003 include the following:

A major priority is to leverage the success of the installations in the Ford Motor Company's engine assembly plants by informing the automotive industry of how the intelligent processing of vision guided robotics allows for greater creativity and flexibility in vehicle design and assembly. In March 2003, we attended the Society of Automotive Engineers World Congress trade show in Detroit Michigan, in June 2003, we attended the International Robots and Vision Show in Rosemont Illinois, and in September 2003 we attended the Assembly Technology Expo in Rosemont Illinois. We exhibited the vision guidance technology currently being used in Ford's new engine plants at each of these trade shows. We have generated substantial interest in our technology and this is reflected in the number of requests for proposal we have received. During fiscal 2003, we have issued approximately 14 quotations representing approximately 23 vision systems. Of these proposals, we have received purchase orders for 9 systems and anticipate receiving purchase orders for 4 additional systems. There can be no assurance of the extent to which requests for quotations will result in future sales. We have established a formal procedure for the management of sales and marketing process.

On September 25, 2003 we received the distinguished Henry Ford Technology Award in recognition of our 3D-Vision Guided Robotics parts handling technology currently in operation at Ford's Windsor and Essex automobile manufacturing plants. As a result of this success, we have received many requests for proposal from both Ford and other automobile manufacturing companies. However, we believe that our road to success lies in delivering our message to the senior management such that the automotive industry needs to fully adopt Vision Guided Robotics, powered by Braintech technology, as a means of competing in the global automotive industry. To this end, we have initiated meetings and discussions of this nature with senior managers and, although there can be no assurance of the adoption of Braintech's technologies, we believe that we will achieve the desired result.

The terms of the debenture financing described above provide that the investors may appoint two persons to the Board of Directors, subject to certain conditions. The terms of the financing also provide that upon closing, we will execute a consulting agreement with one of the investors for strategic introductions and general consulting in the manufacturing industry for two years for which the Consultant will be issued 500,000 warrants, each warrant exercisable into one common share at any time, for five years at $0.45 per share.

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We believe that the directors to be appointed and the consulting agreement to be entered into will assist in the adoption of our Vision Guided Robotic technologies by the North American automotive industry.

We are continuing the development of our relationship with ABB and intend to expand our sales and management presence in the automotive assembly concentrations of Southern Ontario and Detroit, Michigan.

To continue the development of our relationship with Marubeni, we intend to continue to assist in their sale process by providing engineering solution assistance. In this regard, Marubeni arranged for the loan of a Kawasaki robot so that we could integrate the Kawasaki robot controller into the eVF platform. Marubeni also assisted in arranging the loan of a Denso robot in order to integrate the Denso robot with eVF. We have shipped the first run-time licenses to Marubeni and expect that more orders for run-time licenses will occur throughout fiscal 2003.

We intend to continue to add functionality to eVF by developing additional components. We expect that during fiscal 2003 our Internet based service and support system will have completed field-testing and be available for commercial installation.

Presently, our revenues are not sufficient to meet operating and capital expenditures. We have incurred operating losses since inception, and this is likely to continue during the remainder of fiscal 2003 and into 2004. Management projects that our annual operating cost is approximately $2,000,000. At our anticipated level of operations, our existing cash balance together with the expected funding from the previously described financing arrangement should be sufficient to pay our operating costs to approximately July 31, 2004. The receipt of funds from the sale of our products, if any, will extend our cash expiration date beyond July 31, 2004.

The auditors' report on our December 31, 2002 consolidated financial statements includes an additional paragraph that identifies conditions that raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

RISK FACTORS

Investment in our common stock involves a high degree of risk. Prospective investors should carefully consider the following risk factors in addition to other information in this annual report before purchasing our common stock.

Because we have earned revenue of only $863,219 from inception to September 30, 2003, we face a risk of insolvency.

We have never earned sufficient operating revenue to pay our operating expenses. We have been dependent on equity financing to pay operating costs and to cover operating losses.

We have sufficient cash and financing commitments to pay ongoing operating expenses, at their current level, to approximately July 31, 2004. To continue operation beyond that we will have to raise additional capital. If we are unable to do so, we face a risk of insolvency.

The auditors' report on our December 31, 2002 consolidated financial statements includes an additional paragraph that identifies conditions that raise substantial doubt about our ability to continue as a going

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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 vision guidance systems and also our Internet based support and service system through our alliance with ABB Inc. ("ABB"). 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 25 vision guided robotic systems to date. We intend to develop our relationship with ABB to try to 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 guidance systems for specific customer needs, we may not be able to create a repeat customer base.

Most vision guidance systems are designed for the specific needs of a particular customer, and represent isolated purchases by the customers in question. As a result, we have no assurance that we will be able to obtain additional contracts to supply our custom vision guidance systems, or that any customers we secure will become repeat customers.

Because our work force is small, with only 20 people employed either as officers, employees or contractors, we are vulnerable to the loss of key people or to rapid expansion.

We employ only 20 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

28

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 and on May 24, 2002 we filed an identical application in the United States Patent Office. On January 31, 2003 we filed an International Application according to the Patent Cooperation Treaty. The Patent Cooperation Treaty provides a procedure enabling applicants to obtain patents in many countries. On August 6, 2003 we filed in the United States Patent Office a continuation-in-part application regarding the Method And Apparatus For Single Image 3D Vision Guided Robotics. These are the only instances 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 vision guidance systems is protected by copyright law. However, copyright law does not prevent other companies from developing their own software to perform the same functions as our products.

Because the market price of our common stock has been particularly volatile, purchasers of our common stock face a high degree of market risk.

The market price of our common stock has experienced extreme fluctuations. Since January 1, 2002 the market price of our common stock has varied between $0.11 and $1.05. 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 $863,219 from inception to September 30, 2003, and our business has not been profitable with accumulated losses of $12,931,644 from inception to September 30, 2003, 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, 2002 and 2003. 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.

29

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

- 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 has recently become free trading, and because of the size of anticipated share offerings, there is a risk of downward pressure on our stock price.

During 2001 and early 2002, we issued approximately 2.3 million shares in private placements and other transactions. Those shares are now eligible for re-sale under Rule 144 to the Securities Act of 1933. In addition, during the remainder of 2002, we raised further funds in private placements for which we issued 3,760,716 shares and 1,880,358 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.

ITEM 3. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Within the 90 days prior to the date of this report, our Chief Executive officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that information required to be disclosed in periodic Securities and Exchange Commission ("SEC") filings is recorded, processed and reported within the time periods specified in the SEC's rules and forms. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective as at the end of the period covered by this report in timely alerting them to material information (including consolidated subsidiaries) required to be included in periodic SEC filings.

Changes in Internal Controls

There were no significant changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation.

30

We maintain a system of internal accounting controls designed to provide reasonable assurance that transactions are properly recorded and summarized so that reliable financial records and reports can be prepared and assets safeguarded. There are inherent limitations in the effectiveness of any system of internal control, including the possibility of human error and the circumvention or overriding of controls. Additionally, the cost of a particular accounting control should not exceed the benefit expected to be derived.

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

Recent Sales of Unregistered Securities

On September 8, 2003, we issued 150,000 unregistered common shares at a deemed price of $0.55 per share for a finder's fee. We also issued 56,000 share purchase warrants. Each warrant has a five-year term and is exercisable into one common share at a price of $0.25 per share.

On October 2, 2003, we issued 112,000 unregistered common shares at a deemed price of $0.65 per share for a finder's fee. We also issued 75,000 share purchase warrants. Each warrant has a five-year term and is exercisable into one common share at a price of $0.25 per share.

On November 3, 2003, we issued 2,354,621 unregistered common shares at a price of $0.25 per share on the repayment of promissory notes. We also issued 1,177,310 share purchase warrants. Each warrant has a five-year term and is exercisable into one common share at a price of $0.25 per share.

All of these securities 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 INFORMATION

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

31

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                                                     
|32       
|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                                                                                                                                  
|10.20(11) | Certificate of Reverse Stock Split                                                                                                                                           
|10.21(12) | Corporate Governance Committee Charter                                                                                                                                       
|10.22(12) | Audit Committee Charter                                                                                                                                                      
|10.23(12) | Compensation Committee Charter                                                                                                                                               
|10.24(12) | Code of Business Conduct and Ethics for Directors, Officers and Employees                                                                                                    
|10.25(12) | Corporate Governance Guidelines                                                                                                                                              
|10.26(13) | Loan Agreement                                                                                                                                                               
|10.27(13) | General Security Agreement                                                                                                                                                   
|10.28(13) | Service Agreement with Elite Financial Communications Group                                                                                                                  
|10.29(13) | 2003 Stock Option Plan                                                                                                                                                       
|10.30     | Lease Agreement dated July 30, 2003 between Hoop Realty and Braintech Canada, Inc.                                                                                           
|11.1      | Computation of net loss per share                                                                                                                                            
|31.1      | Certificate of Owen L.J. Jones pursuant to Sec 302 of the Sarbanes-Oxley Act of 2002                                                                                         
|31.2      | Certificate of Edward A. White pursuant to Sec 302 of the Sarbanes-Oxley Act of 2002                                                                                         
|32.1      | Certificate of Owen L.J. Jones pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002                                                                                         
|32.2      | Certificate of Edward A. White pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002                                                                                         

(1) Exhibit already on file - exhibit to our Form 10-SB registration statement filed September 25, 1998.
(2) Exhibit already on file - exhibit to our Schedule 14A proxy information filed March 1, 2000.
(3) Exhibit already on file - exhibit to our Form S-1 registration statement filed February 11, 2000.
(4) Exhibit already on file - exhibit to our Form 10-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.
(11) Exhibit already on file - exhibit to our Form 8-K filed September 9, 2002.
(12) Exhibit already on file - exhibit to our Form 10KSB for the year ended December 31, 2002.
(13) Exhibit already on file - exhibit to our Form 10QSB covering the quarter ended March 31, 2003.

REPORTS ON FORM 8-K

None

33

SIGNATURES

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

|Signature                           | Title                                                                           | Date             
|----------------------------------- | ------------------------------------------------------------------------------- | -----------------
|/s/ Owen L.J. Jones	Owen L.J. Jones | Chief Executive Officer,
Director
(Principal Executive Officer)                 | November 12, 2003
|/s/ Babak Habibi	Babak Habibi       | President, Director,                                                            | November 12, 2003
|/s/ Edward A. White	Edward A. White | Chief Financial Officer,
Director
(Principal Financial and Accounting 
Officer) | November 12, 2003