UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-QSB  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period endedJune 30, 2005  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the transition period from  BRAINTECH, INC. (Exact name of Registrant as specified in its charter)  Nevada(State or jurisdiction of incorporation)
        000-24911(Commission File Number)
        98-0168932(IRS Employer Identification No.)  930 West 1st Street, Unit #102, North Vancouver, B.C., Canada, V7P 3N4 (Address of Principal Executive offices)  Issuer's Telephone Number:(604) 988-6440  Securities registered pursuant to section 12(b) of the Act:  None  Securities registered pursuant to section 12(g) of the Act:  Common Stock, $0.001 par value (Title of Class)  Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YesxNo o  State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 22,845,989 Common shares, par value $0.001, as at August 10, 2005.  Transitional Small Business Disclosure Format (check one):  Yes o  Nox  Index to Exhibits on Page33.     Braintech, Inc.



Form 10-QSB



TABLE OF CONTENTS



Page #

PART I.  FINANCIAL INFORMATION




Item 1. Financial Statements
        3


Item 2. Management's Discussion and Analysis page
        19


Item 3 Controls and Procedures page
        32



PART II.  OTHER INFORMATION




Item 1. Legal Proceedings
        32


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
        32


Item 3. Defaults upon Senior Securities
        32


Item 4. Submission of Matters to a Vote of Securities Holders
        33


Item 5. Other Information
        33


Item 6. Exhibits and Reports on Form 8-K
        33






2



PART I - FINANCIAL INFORMATION



ITEM 1.  FINANCIAL STATEMENTS



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



(i) Condensed Consolidated Balance Sheets as at June 30, 2005 (unaudited) and December 31, 2004;



(ii) Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended June 30, 2004 and 2005;



(iii) Condensed Consolidated Statements of Stockholders' Equity (unaudited) for the six months ended June 30, 2005;



(iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2004 and 2005; and



(v) Notes to Condensed Consolidated Financial Statements (unaudited) for the six months ended June 30, 2004 and 2005.





3



Condensed Consolidated Financial Statements of
(Expressed in United States dollars)
BRAINTECH,
INC.
Six months ended June 30, 2005 and 2004
Three months ended June 30, 2005 and 2004(Unaudited  Prepared by Management)






4



BRAINTECH, INC.Condensed Consolidated Balance Sheets(Expressed in United States dollars)June 30,
        December 31,2005
        2004(unaudited)AssetsCurrent assets:Cash and cash equivalents
        $
        404,270
        $
        196,012Accounts receivable
        585,169
        84,643Inventory
        24,231
        6,569Prepaid expenses
        62,898
        53,5501,076,568
        340,774Fixed assets
        53,808
        60,638$
        1,130,376
        $
        401,412Liabilities and Stockholders Equity (Deficiency)Current liabilities:Accounts payable
        $
        72,771
        $
        123,210Accrued liabilities
        200,604
        222,600Deferred leasehold inducements (note 3)
        54,388
        64,226Deferred revenue
        72,514
        35,133400,277
        445,169Non-current liabilities:Convertible debentures (note 4)
        1,428,331
        982,895Total liabilities
        1,828,608
        1,428,064Stockholders equity (deficiency):Common stockAuthorized: 200,000,000 shares, with $0.001 par valueIssued: 22,845,989 shares
        22,846
        20,294(December 31, 2004  20,294,257 shares)Additional paid-in capital
        17,878,447
        16,299,521Accumulated deficit
        (18,599,525)
        (17,346,467)(698,232)
        (1,026,652)1,130,376
        $
        401,412

See accompanying notes to condensed consolidated financial statements.







5



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


Six Months Ended June 30
        Three Months Ended June 302005
        2004
        2005
        2004Sales
        
        $
        642,869
        $
        304,271
        $
        540,039
        $
        18,007Cost of sales
        28,921
        18,641
        25,727
        2,311Gross margin
        613,948
        285,630
        514,312
        15,696Operating expenses:Research and development
        285,454
        246,581
        151,886
        127,618Selling, general and administration
        1,100,642
        828,323
        592,353
        399,854Software license settlement (note 8)
        -
        103,883
        -
        103,8831,386,096
        1,178,787
        744,239
        631,355Operating loss
        (772,148)
        (893,157)
        (229,927)
        (615,659)Non-operating:Interest income
        4
        20
        4
        8Interest on convertibledebentures (note 4)
        (81,348)
        (72,059)
        (40,666)
        (37,739)Accretion of convertibledebentures (note 4)
        (390,896)
        (394,634)
        (202,777)
        (245,576)Fair value of warrants issued onconversion of debentures (note 4)
        (8,670)
        (42,170)
        (8,670)
        (42,170)(480,910)
        (508,843)
        (252,109)
        (325,477)Loss for the period
        $
        (1,253,058)
        $
        (1,402,000)
        $
        (482,036)
        $
        (941,136)Loss per share information:Basic and diluted
        $
        (0.06)
        $
        (0.08)
        $
        (0.02)
        $
        (0.05)Weighted average number ofCommon shares outstanding
        21,200,642
        18,153,822
        21,927,833
        18,408,067

See accompanying notes to condensed consolidated financial statements.





6



BRAINTECH, INC.Condensed Consolidated Statement of Stockholders Equity (Deficiency)(Unaudited  Prepared by Management)(Expressed in United States dollars)


Common stock
        
        
        TotalNumber
        
        Additional
        Accumulated
        stockholdersof shares
        Amount
        paid-in capital
        deficit
        equityBalance, December 31, 2004
        20,294,257
        $
        20,294
        $
        16,299,521
        $
        (17,346,467)
        $
        (1,026,652)Common stock transactions:(net of share issue costs)Shares issued for cash
        2,351,250
        2,352
        1,591,648
        -
        1,594,000Shares issued for cash on exerciseof employee stock options
        25,000
        25
        4,975
        -
        5,000Shares issued on conversion ofconvertible debentures
        107,232
        107
        26,701
        -
        26,808Shares issued for finders fees
        68,250
        68
        (68)
        -
        -Cash paid for finders fees
        -
        -
        (53,000)
        -
        (53,000)Fair value of warrants issued onconversion of debentures
        -
        -
        8,670
        -
        8,670Loss for the period
        -
        -
        -
        (1,253,058)
        (1,253,058)Balance, June 30, 2005
        22,845,989
        $
        22,846
        $
        17,878,447
        $
        (18,599,525)
        $
        (698,232)

See accompanying notes to condensed consolidated financial statements.







7



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


Six Months Ended June 302005
        2004Cash flows from operations:Loss for the period
        $
        (1,253,058)
        $
        (1,402,000)Items not involving cash:Amortization
        11,914
        15,632Compensatory benefit of warrants issued to contractors
        -
        11,406Accretion of convertible debentures
        390,896
        394,634Fair value of warrants issued on conversion of debentures
        8,670
        42,170Changes in non-cash operating working capital:Inventory
        (17,662)
        (26,822)Accounts receivable
        (500,526)
        (34,318)Prepaid expenses
        (9,348)
        (48,214)Accounts payable and accrued liabilities
        (72,435)
        74,525Accrued interest on convertible debentures
        81,348
        72,059Deferred leasehold inducements
        (9,838)
        11,687Deferred revenue
        37,381
        925Net cash used in operating activities
        (1,332,658)
        (888,316)Cash flows from investments:Purchase of fixed assets
        (5,084)
        (18,220)Net cash used in investing activities
        (5,084)
        (18,220)Cash flows from financing:Convertible debentures issued
        -
        525,000Debenture issue costs
        -
        (1,408)Common shares issued, net of issue costs
        1,546,000
        13,100Net cash provided by financing activities
        1,546,000
        536,692Increase (decrease) in cash and cash equivalents
        208,258
        (369,844)Cash and cash equivalents, beginning of period
        196,012
        741,474Cash and cash equivalents, end of period
        $
        404,270
        $
        371,630Supplemental information:Non-cash financing and investing activities:Shares and warrants issued on conversion ofconvertible debentures
        $
        35,478
        $
        172,567

See accompanying notes to condensed consolidated financial statements.







8



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 20041.
        Description of business and future operations:Braintech, Inc. (the Company) together with its wholly owned subsidiary, Braintech Canada, Inc. is a high tech development company, developing advanced software for the vision guidance of robotic systems.  All sales of its products and services are made in this industry segment.  In the six months ended June 30, 2005, 80% of sales revenue (2004100%) was generated from a single customer.These consolidated financial statements have been prepared on the going concern basis under which an entity is considered to be able to realize its assets and satisfy its liabilities in the ordinary course of business.  The Company has generated only small amounts of revenues and is continuing to develop its business.  Operations to date have been primarily financed by equity transactions.  The Companys future operations and its continuation as a going concern are dependent upon its ability to raise additional capital, increase sales of its products by leveraging its Channel Partner Agreement and Sales and Marketing Agreement with a major supplier of robotic systems, generating positive cash flows from operations and ultimately attaining profitability.  It is the Companys intention to focus on developing
this partnership and continuing as their principal supplier of vision systems, raising financing and achieving profitable operations.  There can be no assurances that appropriate financings having favourable economic terms will be available as required.Based on its current financial position, the Company believes that its present and anticipated cash resources from operations and equity and debt financings will be sufficient to pay ongoing cash operating expenses until approximately October 31, 2005.  However, there can be no assurance that the Company can or will obtain sufficient funds from operations or additional financings on terms acceptable to the Company.  To continue as a going concern, the Company will either have to raise additional capital or begin to generate substantial sales revenue.  If the Company cannot do either by the end of October 2005, there is a risk that the business will fail.  The consolidated financial statements do not include any adjustments relating to the recoverability of assets and classification of assets and liabilities that
might be necessary should the Company be unable to continue as a going concern.2.
        Basis of presentation:(a)
        Unaudited financial InformationThese consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and reflect all adjustments (all of which are normal and recurring in nature) that, in the opinion of management, are necessary for fair presentation of the interim financial information.  The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2005. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements and notes included herein have been prepared on a
basis consistent with and should be read in conjunction with the Companys audited consolidated financial statements and notes for the year ended December 31, 2004, as filed in its annual report on Form 10-KSB.



9



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 20042.
        Basis of presentation (continued):(b)
        Principles of consolidation:These consolidated financial statements include the accounts of the Company, and its wholly-owned subsidiary Braintech Canada, Inc., incorporated under the Company Act of British Columbia on March 30, 1994.  All material inter-company balances and transactions have been eliminated.(c)
        Use of estimates:The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts may differ from these estimates.(d)
        Stock-based compensation:The Company has elected to apply the provision of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its stock options granted to employees.  Under APB 25, compensation expense is only recorded to the extent that the exercise price is less than fair value on the measurement date.  The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards 123 Accounting for Stock-Based Compensation (SFAS 123).  Non-employee options are recognized at the fair value of the options as determined by an option pricing model as the services are performed and the options earned.  Had compensation cost been determined based on the fair value of employee stock options at
their grant date, the Companys net loss and net loss per share would have been as follows:Six Months Ended June 30,2005
        2004Net loss for the period, as reported
        $
        (1,253,058)
        $
        (1,402,000)Stock-based employee compensation if fair-valuebased method applied
        
        (281,691)
        
        (154,305)Pro forma net loss as if fair-value method had been applied
        $
        (1,534,749)
        $
        (1,556,305)Basic and diluted loss per share:As reported
        $
        (0.06)
        $
        (0.08)Pro forma
        $
        (0.07)
        $
        (0.09)



10



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 20042.
        Basis of presentation (continued)(d)
        Stock-based compensation (continued):The weighted average fair value of stock options granted during the six months ended June 30, 2005 was $0.51 per option (2004 - $0.45per option).The fair value for the options granted during the six-month period ended June 30, 2005 was estimated using the Black-Scholes option-pricing model and the following weighted-average assumptions:  dividend yield 0% (2004  0%), expected volatility 183% (2004  256%), risk-free interest rate 3.25% (2004  1.66%), and an expected term of 2 years (2004  2 years).(e)
        Deferred leasehold inducements:Leasehold inducements are deferred and amortized to reduce rent expense on a straight-line basis over the term of the lease.(f)
        Loss per share:Loss per share is calculated based on the weighted average number of shares outstanding.As the effect of all outstanding convertible debentures (note 4) options (note 5) and warrants (note 6) is anti-dilutive, diluted loss per share does not differ from basic loss per share.The number of shares used to calculate loss per share for the three and six month periods ended June 30, 2005 and 2004 was reduced by 300,000 shares in each period for shares issued and held by the Company.3.
        Deferred leasehold inducements:Six Months Ended June 30,2005
        
        2004Balance, beginning of period
        $
        64,226
        $
        49,629Leasehold inducements received during the period
        
        -
        
        21,253Amortization
        
        (8,545)
        
        (7,418)Loss on foreign exchange
        
        (1,293)
        
        (2,148)Balance, end of period
        $
        54,388
        $
        61,316



11



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


4.
        Convertible debentures: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.  A general security agreement covering all of the Companys real, personal and intangible property is pledged as security for the debentures.  The debentures are to mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  All convertible debentures rankpari passuwith 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.Between September 5, 2003 and May 21, 2004, in accordance with the terms of Securities Purchase Agreements, the Company issued convertible debentures in the amount of $2,250,000.  Finders fees were paid to investors, persons related to investors, and independent third parties by way of cash payment of $26,250 and by way of issuance of 595,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years.  The fair value of the cash finders fees and the fair value of the units underlying the finders fees have been recognized as a cost of issuance and in stockholders equity.On conversion of the debentures into common shares and share purchase warrants, the fair value of the share purchase warrants will be assigned and recognized as an expense.  On April 15, 2004, $125,000 of principal and $5,397 of accrued interest was converted into 521,588 common shares and 260,794 share purchase warrants.  Accordingly, the Company expensed $42,170 as the fair value of the warrants issued.  On September 10, 2004, $62,500 of principal and $2,101 of accrued interest was converted into 258,404 common shares and 129,202 share purchase warrants.  Accordingly, the Company expensed $20,892 as the fair value of the warrants issued.  On April 5, 2005, $25,000 of principal and $1,808 of accrued interest was converted into 107,232 common shares and 53,616 share purchase warrants.  Accordingly, the Company expensed
$8,670 as the fair value of the warrants issued.



12



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


4.
        Convertible debentures (continued):Because the conversion price was less than the closing trading prices of the Companys shares on the commitment date, the convertible debentures contain a beneficial conversion feature.  In accordance with Emerging Issues Task Force (EITF) Issue 98-5, the embedded beneficial conversion feature is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.  The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value.  Accordingly, the face value of the debt was allocated to additional paid-in capital on issuance and the convertible debentures are being accreted back to their face value over the term to maturity with a corresponding charge to
interest expense.  Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%).  The amount recorded on the balance sheet as at June 30, 2005 has been calculated as follows:Face value of convertible debentures issued (cash received)
        $
        2,250,000Beneficial conversion feature allocated to additional paid-in capital
        
        (2,249,995)Accretion of convertible debentures
        
        1,382,615Accrued interest payable
        
        267,517Conversion of debentures
        
        (221,806)Convertible debentures at June 30, 2005
        $
        1,428,3315.
        Stock options:A summary of the Companys stock option activity is as follows:WeightedNumber
        averageof shares
        exercise priceBalance, December 31, 2004
        2,522,000
        $0.55Options granted
        961,000
        0.65Options exercised
        (25,000)
        0.20Options expired
        -
        -Options forfeited
        (50,000)
        0.66Balance, June 30, 2005
        3,408,000
        $0.58Of those outstanding at June 30, 2005, 2,355,500 are exercisable (December 31, 2004  1,867,000), having a weighted average exercise price of $0.57 (2004 - $0.56).



13



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


6.
        Share purchase warrants:During the year ended December 31, 2002, in conjunction with private placements, the Company issued 1,880,358 common share purchase warrants (the purchasers received one common share purchase warrant for each two common shares purchased).  Each common share purchase warrant entitles the holder to purchase one additional share for one year at prices of $0.20 to $1.00 per share.  By a directors resolution dated March 20, 2003, the Company extended the expiry date of 564,319 of the warrants to February 28, 2004.  These warrants expired on February 28, 2004 and none of these warrants were exercised prior to expiry.  By a directors resolution dated November 5, 2003, the Company extendedthe expiry date of the share purchase warrants which expired on October 28, 2003 to
October 28, 2005 and extended the expiry date of the remaining 1,316,039 share purchase warrants which were to expire on December 17, 2003 to December 17, 2005.  The Companys Chief Executive Officer and a former director hold all of the share purchase warrants issued during the year ended December 31, 2002.  None of these warrants have been exercised or cancelled.On October 17, 2002, the Company authorized the issuance of 500,000 common share purchase warrants to the Companys Chief Executive Officer pursuant to an agreement dated September 30, 2002, whereby the officer agreed to accept the warrants in settlement of salary owed for the period from January 1, 2002 to September 30, 2002.  Each share purchase warrant entitles the holder to purchase one common share for two years at $0.31 per share, which was the fair market value of the common shares on September 30, 2002, therefore the intrinsic market value of the warrants was nil.  The fair value of the warrants as calculated by the Black-Scholes option pricing model of $39,409 has been recorded as an expense and additional paid-in capital in the year ended December 31, 2002.As partial consideration for finders fees relating to the issuance of convertible debentures (note 4), the Company issued a total of 241,000 share purchase warrants exercisable at $0.25 per share for a period of five (5) years.As partial consideration for an investor relations service agreement, the Company issued share purchase warrants as follows:50,000 warrants exercisable at $0.50 vesting on April 8, 200350,000 warrants exercisable at $0.75 vesting on July 7, 200350,000 warrants exercisable at $1.00 vesting on October 6, 200350,000 warrants exercisable at $1.25 vesting on January 4, 2004The fair value of the warrants ($4,121) has been recorded as an expense and additional paid-in capital in the year ended December 31, 2003.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 95%, risk free rate interest rate 2.61%, and an expected term of 1 year.



14



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


6.
        Share purchase warrants (continued):Pursuant to the agreements governing the issuance of convertible debentures (note 4), the Company executed a consulting agreement with one of the investors for strategic introductions and general consulting in the manufacturing industry.  The consulting agreement is for a period of two (2) years commencing December 22, 2003.  As consideration for entering into the consulting agreement the Company issued 500,000 share purchase warrants exercisable at $0.45 per share for a period of five (5) years.  The fair value of the warrants ($185,400) has been recorded as an expense and additional paid-in capital in the year ended December 31, 2003.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 256%, risk free rate interest
rate 1.84%, and an expected term of 2 years.On November 5, 2003, as partial repayment of promissory notes payable, the Company issued to its Chief Executive Officer, 1,177,310 share purchase warrants exercisable at $0.25 per share for a period of five (5) years.As consideration for a consulting agreement, on January 9, 2004, the Company issued share purchase warrants as follows:25,000 warrants exercisable at $0.25 vesting on January 9, 2004250,000 warrants exercisable at $0.25 vesting in accordance with certain performance criteria.The fair value of the 25,000 warrants ($11,406) has been recorded as an expense and additional paid-in capital in the six months ended June 30, 2004.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 256%, risk free rate interest rate 1.68%, and an expected term of 2 years.  The fair value of the 250,000 warrants will be recorded when management determines that it is likely that the warrants will become exercisable in accordance with the performance criteria.At the request of certain debenture holders (note 4), on April 15, 2004 the Company converted $125,000 of principal and $5,397 of accrued interest into 521,588 common shares and 260,794 share purchase warrants.  Each warrant is exercisable at $0.25 into one common share for five (5) years.  The fair value of the warrants ($42,170) has been recorded as an expense.At the request of certain debenture holders (note 4), on September 10, 2004 the Company converted $62,500 of principal and $2,101 of accrued interest into 258,404 common shares and 129,202 share purchase warrants.  Each warrant is exercisable at $0.25 into one common share for five (5) years.  The fair value of the warrants ($20,892) has been recorded as an expense.



15



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


6.
        Share purchase warrants (continued):On September 24, 2004, as partial consideration for an investor relations service agreement, the Company issued 50,000 share purchase warrants exercisable at $0.50 into one common share for a period not to exceed three (3) years.  The fair value of the warrants ($21,632) has been recorded as an expense.  The fair value was calculated using the Black-Scholes optionpricing model and the following assumptions: dividend yield 0%, expected volatility 233%, risk free rate interest rate 2.62%, and an expected term of 2 years.Between December 1, 2004 and March 4, 2005, in conjunction with private placements the Company issued 875,000 common share purchase warrants (the purchasers received one common share purchase warrant for each two common shares purchased).  Each common share purchase warrant entitles the holder to purchase one additional share for five (5) years at a price of $0.50 per share.  In conjunction with this private placement, the Company issued 24,500 common shares and 12,250 common share purchase warrants as a finders fee.  Each of these common share purchase warrants entitles the holder to purchase one additional share for five (5) years at a price of $0.50 per share.At the request of certain debenture holders (note 4), on April 5, 2005 the Company converted $25,000 of principal and $1,808 of accrued interest into 107,232 common shares and 53,616 share purchase warrants.  Each warrant is exercisable at $0.25 into one common share for five (5) years.  The fair value of the warrants ($8,670) has been recorded as an expense.On May 3, 2005, in conjunction with private placements the Company issued 816,875 common share purchase warrants (the purchasers received one common share purchase warrant for each two common shares purchased).  Each common share purchase warrant entitles the holder to purchase one additional share for three (3) years at a price of $1.00 per share.Of the warrants outstanding at June 30, 2005, 2,941,324 were held by the Companys Chief Executive Officer (June 30, 2004  2,941,324).



16



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


6.
        Share purchase warrants (continued):A summary of the Companys share purchase warrants outstanding as at June 30, 2005 is as follows:Expiry
        ExerciseNumber of warrants
        date
        price427,797
        
        October 28, 2005
        $0.85133,553
        
        October 28, 2005
        $0.36500,000
        
        October 28, 2005
        $0.3152,500
        
        December 1, 2005
        $0.25148,667
        
        December 17, 2005
        $0.32113,740
        
        December 17, 2005
        $0.26203,820
        
        December 17, 2005
        $0.20288,462
        
        December 17, 2005
        $0.25275,000
        
        January 9, 2006
        $0.2550,000
        
        April 7, 2006
        $0.5050,000
        
        April 7, 2006
        $0.7550,000
        
        April 7, 2006
        $1.0050,000
        
        April 7, 2006
        $1.2550,000
        
        September 23, 2007
        $0.50816,875
        
        May 2, 2008
        $1.0075,000
        
        September 5, 2008
        $0.2556,000
        
        October 1, 2008
        $0.251,177,310
        
        November 8, 2008
        $0.2557,500
        
        December 22, 2008
        $0.25500,000
        
        December 22, 2008
        $0.45260,794
        
        April 14, 2009
        $0.2556,500
        
        May 27, 2009
        $0.25129,202
        
        September 9, 2009
        $0.25197,500
        
        November 30, 2009
        $0.5093,750
        
        December 19, 2009
        $0.504,375
        
        December 20, 2009
        $0.50225,000
        
        December 28, 2009
        $0.50214,125
        
        January 11, 2010
        $0.50152,500
        
        March 3, 2010
        $0.5053,616
        
        April 4, 2010
        $0.256,463,586
        
        
        Weighted average exercise price
        $0.46





17



BRAINTECH, INC.Notes to Condensed Consolidated Financial Statements(Unaudited  Prepared by Management)(Expressed in United States dollars)Six months ended June 30, 2005 and 2004


7.
        Commitments:Annual operating lease commitments are as follows:Period ending December 31:2005
        88,4662006
        176,9322007
        174,5622008
        115,848




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ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS



CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS



This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act.  Forward-looking statements deal with our current plans, intentions, beliefs and expectations and are statements of future economic performance.  Statements containing terms like "believes", "does not believe", "plans", "expects", "intends", "estimates", "anticipates", and other phrases of similar meaning are considered to imply uncertainty and are forward-looking statements.



Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from what is currently anticipated.  We make cautionary statements throughout this report and the documents we have incorporated by reference, including those stated under the heading "Risk Factors".  You should read these cautionary statements as being applicable to all related forward-looking statements wherever they appear in this report, the materials referred to in this report, and the materials incorporated by reference into this report.



We cannot guarantee our future results, levels of activity, performance or achievements.  Neither we nor any other person assumes responsibility for the accuracy and completeness of these forward-looking statements.  We are under no duty to update any of the forward-looking statements after the date of this report.



Where we say "we", "us", "our", or "the Company", we mean Braintech Inc. and 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 machine vision or "computerized vision".  Machine vision refers to the technology 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 robots 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.



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 did not include our Internet based service and support system.  We included eVisionFactory software with all of the systems that we have delivered since the commercial version was completed.





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In the 2ndquarter 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 images 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 to operate on or manipulate the object.  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.



We have delivered all 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.



Effective February 1, 2004, we entered into an Exclusive Channel Partner Agreement with ABB for the licensing of our Vision Guided Robotics Technologies And Software Products to develop and market vision guided robotic systems to ABBs North American automotive customers.  This agreement resulted in the receipt of purchase orders for fourteen additional vision guided robotic systems.  These systems were completed and installed in the second, third and fourth quarters of 2004 and the first quarter of 2005.



The success of these orders and installations convinced ABB to create a marketing strategy centred on a brand called TrueView.  TrueView Vision Guided Robotics systems fully integrate SC3D vision guidance technology and the eVF software platform.



As a result of achieving market acceptance for TrueView through 2004, the two companies initiated a significant sales program that started in January 2005.  Accordingly in January 2005, the February 1, 2004 agreement was amended to allow ABB to market TrueView, exclusively powered by our technology, to the countries of the European Economic Union and sub-license TrueView to their business partners on a worldwide basis.



As at May 11, 2004, we have received purchase orders for over thirty additional TrueView systems as a result of the acceptance by end users of TrueView Vision Guided Robotics systems.



In addition to supplying vision guided robotic systems to ABB, we have provided them with eVF upgrades for previously installed systems, we have held training seminars for their technical staff and we have provided engineering services to assist them in design of vision guided robotic systems.  We expect this type of revenue to continue especially in light of our amended Exclusive Channel Partner Agreement.



In July 2001, we entered into a Memorandum of Understanding with Marubeni Corporation, pursuant to which the two companies have agreed to cooperate in developing and marketing vision systems for industrial applications including vision guided robots in Japanese and Asian markets.  During the 1sthalf of 2002, we continued the development of our relationship with Marubeni Corporation and that culminated in the signing of a Marketing and Development Agreement on June 24, 2002.  The agreement, which covers Southeast Asia and Australia, provided for mutual exclusivity, whereby Marubeni was granted an exclusive license to manufacture and distribute our Vision Guided Robotic systems and Marubeni agreed that it would not deal with any competitive technology or products.  In March 2002, Marubeni placed an order for two eVF development licenses and these licenses
were delivered upon completion of the Marketing and Development Agreement.  In December 2002, Marubeni placed an order for two run-time licenses and those licenses were delivered in March 2003.



On November 4, 2004, Marubeni agreed to remove the exclusivity clauses on the condition that we repurchase from Marubeni one of the eVF development licenses and one of the run-time licenses for $20,000.



The June 24, 2002 agreement was for a period of three years and in accordance with the terms of the agreement, we have given notice to Marubeni that the agreement will be allowed to terminate on June 24, 2005.



On December 2, 2004, we signed a non-exclusive developer's agreement with Talk Engineering Co., Ltd. to develop Vision Guided Robotic solutions powered by our eVisionFactory technologies specifically for the auto manufacturing industry in Japan.  Talk is a regional Japanese machine vision developer and integrator primarily



20



serving Japanese automobile and foods manufacturers, and was introduced by us to ABB Japan as a regional resource for developing TrueView solutions for the Japanese market.



Talk ordered one eVF Developers license and two eVF run-time licenses.  One of the run-time licenses is for installation at Toyota Motor Corporation's auto production plant located in Tsutsumi, Japan, where the automaker produces the Camry, ES 300 and Prius.



Since 2002 we have 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 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.



IDM 2.5D (Inferential Depth Measurement):  IDM 2.5D is targeted for processes that do not require or allow for complete 3D part location variance, but that are more complex than basic 2D tasks.  IDM 2.5D exploits visual cues such as size and shape variations among parts to compute not only the planar x, y and rotation of a given part but also its height, or z coordinate, relative to the robots coordinate system.



On January 31, 2002, we filed an application in the Canadian Patent Office regarding theMethod And Apparatus For Single Camera 3D Vision Guided Roboticsand on May 24, 2002 we filed an identical application in the United States Patent Office.  On January 31, 2003 we filed an International Application according to the Patent Cooperation Treaty.  The Patent Cooperation Treaty provides a procedure enabling applicants to obtain patents in many countries.  On November 9, 2004, the United States Patent Office issued U.S. Patent No. 6,816,755 regarding theMethod And Apparatus For Single Camera 3D Vision Guided Robotics.On July 14, 2004 We filed another application in the United States Patent Office regarding theMethod And Apparatus For Multi Camera Surround 3D Vision Guided
Robotics.



We generate the majority of our revenues from the sale of computer software that we have developed and that we believe constitutes intellectual property belonging to us.  Our software sales have principally involved computerized vision systems used for the guidance of industrial robots performing automated assembly, material handling, and part identification and inspection functions.  We have generated total revenues, from inception on January 3, 1994 to June 30, 2005, in the amount of $2,313,416.



We have incurred aggregate net losses of approximately $18.6 million during the period from our inception on January 3, 1994, to June 30, 2005.  We will likely 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 recognized.



Our strategic operating priorities for fiscal 2005 include the following:





21



Our first and major priority for 2005 is to significantly grow our revenue so that we may eventually reduce our reliance on equity financing to fund our operations.  We intend to achieve this revenue growth on several fronts as follows:



We intend to assist ABB with their TrueView marketing and sales program to expand their sales in North America, Europe and Asia.  We intend to expand the product line of eVF application solutions for ABBs automotive customers.  The eVF application solutions developed for ABB now center on rigid part handling in power train applications.  We intend to expand our product line beyond power train into body panel handling, adhesive application and inspection, and real time visual tracking.  It is our plan to eventually develop applications for each of the automotive business units within ABB.  In doing so, we will be able to take utilize the sales personnel attached to each of these divisions.  We also intend to explore the possibility of developing eVF application solutions for ABBs channel partners in non-manufacturing industries.



We also intend to expand our revenue sources outside ABB and the automotive industry.  We are pursuing opportunities with the United States Government and are intending to develop a version of eVF suitable for sale to the research and educational markets, both private and public.



During the second quarter of 2005, we started to achieve our priority of growing revenues.  During the second quarter, we invoiced approximately $590,000 and, in accordance with the software revenue recognition rules, we recorded approximately $540,000 in revenues.  These numbers far exceed any quarterly results since inception.  We recognize that our revenue streams are still quite variable and, in the near term, these significant increases may not be repeatable.  However, as at August 10, 2005, we have already received purchase orders for installations during the third and forth quarters in the amount of approximately $500,000.



We were also successful in obtaining purchase orders from ABB for VGR installations in Japan.



Our provision of vision guidance software for Nuclear Waste Handling systems for the Idaho National Laboratory demonstrates our successful pursuit of United States Government contracts.



Another priority for 2005 is to develop a commercialized version of Cobuss, our Internet-based service and support system.  Once developed, we intend to leverage our Channel Partner Agreement with ABB so that full operating systems can be set up to demonstrate to potential end users the value and flexibility of both the Internet-based service and support system and the eVF platform on which it is built.  We anticipate that our first sales of Cobuss will occur during 2005 and will be in the automobile manufacturing industry.  We also intend to seek out potential end users outside the automobile manufacturing industry.



In 2005 we also intend to continue the development of our business in Asia through our relationship with Talk Engineering Co., Ltd.  We intend to facilitate a marketing strategy that combines the strength of ABBs TrueView brand of Vision Guided Robotics and the strength of Talks relationship with the Japanese automotive industry.



Another priority for 2005 is to increase the public and investor visibility of our company and our products.  In order to accomplish this, we have engaged a number of marketing and communications companies to assist us.  Our director, James Speros, is also engaged full time in public and investor relations activities.



We also intend to continue to add functionality to eVF by developing additional components and features.



Critical Accounting Policies and Changes to Existing Accounting Policies



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



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





22



Revenue Recognition.  We follow the software revenue recognition rules outlined in the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2.  We recognize revenue when there is a persuasive evidence of a contract, delivery has occurred, the fee is fixed or determinable, collection is reasonably assured, and there are no substantive performance obligations remaining.  Any cash received in advance of meeting these criteria is recorded as deferred revenue on our balance sheet.  Changes in contractual arrangements or customer relationships in the future could impact the extent or timing of revenue recognition.



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



Effects of Foreign Currency Exchange Rates and Inflation



While we record our financial statements in United States dollars, many of our expenses are incurred in Canadian dollars.  As a result, fluctuations in the Canadian dollar exchange rate can affect our expenses, and thus our profit or loss.  During the six months ended June 30, 2005 we incurred a foreign exchange gain of $2,544.  The foreign exchange gain resulted principally from transactions recorded in United States dollars for reporting purposes, but actually carried out in Canadian dollars.  As at the date of this 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 years ended December 31, 2004 and the six months ended June 30, 2005 inflation has had a limited impact on our operations.  However, there can be no assurance that inflation will not have a material adverse effect on our results of operations in the future.



Quantitative and Qualitative Disclosures about Market Risk



As at June 30, 2005 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 annual report.  The fair value of all financial instruments at June 30, 2005 approximate their carrying values.



To June 30, 2005, the majority of our cash costs have been realized or incurred in Canadian dollars.  To date we have not entered into foreign currency contracts to hedge against foreign currency risks between the Canadian dollar or other foreign currencies and our reporting currency, the United States dollar.  Generally, however, we attempt to manage our risk of exchange rate fluctuations by maintaining sufficient net assets in Canadian dollars to retire our liabilities as they come due.



Results of Operations



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



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





23



Six-month period ended June 30, 2005 compared with the six-month period ended June 30, 2004.



The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the six-month period ended June 30, 2005 was 1.22430.  For the six-month period ended June 30, 2004 the weighted average exchange was 1.33984.  The change in our operating expenses (net of software license settlement) illustrates the effect of fluctuating foreign exchange rates have on our reported results.  We reported an increase in operating expenses of $311,192 from $1,074,904 for the six-month period ended June 30, 2004 to $1,386,096 for the six-month period ended June 30, 2005.  However, when adjusted for the change in the foreign exchange rate (that is, by excluding the effect of the change in exchange rates from the comparative periods levels), the actual change in operating expense activity was an increase of approximately $191,662.  The foreign exchange adjustment accounted for an
increase of $119,529 in reported operating expenses.  We have isolated the effect the fluctuating foreign exchange rate had on our reported results in the discussion below.



Sales revenue from operations for the six-month period ended June 30, 2005 was $642,869 (June 30, 2004 - $304,271).  The amount of our sales 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 above.



Sales revenue for the six-month period ended June 30, 2005 included approximately $470,800 for 23 vision systems delivered to ABB for installation in automobile manufacturing plants, approximately $84,300 for software delivered to Idaho National Laboratory, approximately $37,800 previously recorded as deferred revenue and amortized during the period into revenue in accordance with SOP 97-2, approximately $34,500 for eVF license sales, and approximately $15,400 for training and other services.



Cost of sales revenue for the six-month period ended June 30, 2005 was $28,921 or approximately 4.5%.



Sales revenue for the six-month period ended June 30, 2004, included approximately $233,400 for eight vision systems delivered to ABB for installation in engine assembly plants, approximately $22,300 previously recorded as deferred revenue and now recognized as revenue, approximately $20,000 for engineering services, and approximately $28,500 for training and commissioning.



Cost of sales revenue for the six-month period ended June 30, 2004 was $18,641 or approximately 6.1%.



Reported research and development expenses increased $38,873 from $246,581 for the six-month period ended June 30, 2004 to $285,454 for the six-month period ended June 30, 2005.  The foreign exchange differential accounted for an increase of approximately $24,600 indicating that actual research and development activity increased by approximately $14,300.  The increase is accounted for by an increase in wage and benefit costs.



Reported selling, general, and administrative expenses increased $272,319 from $828,323 for the six-month period ended June 30, 2004 to $1,100,642 for the six-month period ended June 30, 2005.  The foreign exchange differential accounted for an increase of approximately $94,900 indicating an actual increase in activity of approximately $177,400.  The principal factors contributing to the increase were as follows:





        Actual general and administrative salaries increased approximately $19,800 from $457,800 to $477,600.  The foreign exchange differential accounted for an increase of approximately $45,100 resulting in a net reported increase of approximately $64,900.  The actual increase resulted from minor salary increases, the increase of our staff by two employees.



        Actual amortization expenses decreased approximately $4,700 from $15,600 to $10,900 principally as a result of the diminishing value of our fixed assets and the full amortization of certain fixed assets.  The foreign exchange differential accounted for an increase of approximately $1,000 resulting in a net reported decrease of approximately $3,700.



        Actual legal expenses increased approximately $11,000 from $33,300 to $44,300 principally as a result of filing registration statements under the Securities Act of 1933 and a general increase in corporate activities.

24



The foreign exchange differential accounted for an increase of approximately $4,200 resulting in a net reported increase of approximately $15,200.





        Actual accounting expenses increased approximately $39,600 from $24,600 to $64,200.  The foreign exchange differential accounted for an increase of approximately $6,100 resulting in a net reported increase of approximately $45,700.  The increase related to corporate income tax compliance expenses, an increase in fees relating to the audit of the December 31, 2004 financial statements, and fees related to the filing of a registration statement under the Securities Act of 1933.



        Actual travel and marketing expenditures increased approximately $129,800 from approximately $100,900 to approximately $230,800.  The foreign exchange differential accounted for an increase of approximately $21,800 resulting in a net reported increase of approximately $150,600.  The individual components of the actual increase are as follows: trade shows decreased from $34,800 to $Nil, investor relations increased from $34,700 to $135,500, travel increased from $8,600 to $31,600, and marketing materials increased from $5,400 to $41,500.  The increase in investor relations relates mainly to the engagement of Baldacci Communication, LLC for the provision of investor relations and market communications services.



        Actual rent and premises cost increased $4,200 from $90,800 to $95,000.  The foreign exchange differential accounted for an increase of approximately $9,000 resulting in a net reported increase of approximately $13,100.  The increase relates to the occupation of additional office space.



Three-month period ended June 30, 2005 compared with the three-month period ended June 30, 2004.



The weighted average exchange rate used to translate the Canadian Dollar into the United States Dollar for the three-month period ended June 30, 2005 was 1.23884.  For the three-month period ended June 30, 2004 the weighted average exchange was 1.35483.  We reported an increase in operating expenses (net of software license settlement) of $216,767 from $527,472 for the three-month period ended June 30, 2004 to $744,239 for the three-month period ended June 30, 2005.  However, when adjusted for the change in the foreign exchange rate (that is, by excluding the effect of the change in exchange rates from the comparative periods levels), the actual change in operating expense activity was an increase of approximately $153,100.  The foreign exchange adjustment accounted for an increase of $63,700 in reported operating expenses.  We have isolated the effect the fluctuating foreign exchange rate had on our
reported results in the discussion below.



Sales revenue from operations for the three-month period ended June 30, 2005 was $540,039 (March 31, 2004 - $18,007).



Sales revenue for the three-month period ended June 30, 2005 included approximately $417,900 for 21 vision systems delivered to ABB for installation in automobile manufacturing plants, approximately $84,300 for software delivered to Idaho National Laboratory, approximately $20,500 previously recorded as deferred revenue and amortized during the period into revenue in accordance with SOP 97-2, approximately $3,000 for eVF license sales, and approximately $14,300 for training and other services.



Cost of sales revenue for the three-month period ended June 30, 2005 was $25,727 or approximately 4.8%.



Sales revenue for the three-month period ended June 30, 2004, included approximately $12,600 previously recorded as deferred revenue and now recognized as revenue and approximately $5,400 for training and commissioning.



Cost of sales revenue for the three-month period ended March 31, 2004 was $2,311 or approximately 12.8%.



Reported research and development expenses increased $24,268 from $127,618 for the three-month period ended June 30, 2004 to $151,886 for the three-month period ended June 30, 2005.  The foreign exchange differential accounted for an increase of approximately $13,000 indicating that actual research and development activity increased by approximately $11,300.  The increase is accounted for by an increase in wage and benefit costs.





25



Reported selling, general, and administrative expenses increased $192,499 from $399,854 for the three-month period ended June 30, 2004 to $592,353 for the three-month period ended June 30, 2005.  The foreign exchange differential accounted for an increase of approximately $50,700 indicating an actual increase in activity of approximately $141,800.  The principal factors contributing to the increase were as follows:





        Actual general and administrative salaries increased approximately $21,100 from $217,000 to $238,100.  The foreign exchange differential accounted for an increase of approximately $22,300 resulting in a net reported increase of approximately $43,400.  The actual increase resulted from minor salary increases and the increase of our staff by two employees.



        Actual amortization expenses decreased approximately $2,200 from $7,700 to $5,500 principally as a result of the diminishing value of our fixed assets and the full amortization of certain fixed assets.  The foreign exchange differential accounted for an increase of approximately $500 resulting in a net reported decrease of approximately $1,700.



        Actual legal expenses increased approximately $10,300 from $20,800 to $31,100 principally as a result of filing registration statements under the Securities Act of 1933 and a general increase in corporate activities.  The foreign exchange differential accounted for an increase of approximately $2,900 resulting in a net reported increase of approximately $13,200.



        Actual accounting expenses increased approximately $19,000 from $13,600 to $32,600.  The foreign exchange differential accounted for an increase of approximately $3,100 resulting in a net reported increase of approximately $22,100.  The increase related to corporate income tax compliance expenses, an increase in fees relating audit of the December 31, 2004 financial statements, and fees related to the filing of a registration statement under the Securities Act of 1933.



        Actual travel and marketing expenditures increased approximately $101,100 from approximately $42,800 to approximately $143,900.  The foreign exchange differential accounted for an increase of approximately $13,500 resulting in a net reported increase of approximately $114,500.  The individual components of the actual increase are as follows: trade shows decreased from $2,100 to $Nil, investor relations increased from $20,900 to $84,900, travel increased from $5,800 to $17,300, and marketing materials increased from $5,400 to $26,700.  The increase in investor relations relates mainly to the engagement of Baldacci Communication, LLC for the provision of investor relations and market communications services.



        Actual rent and premises cost decreased $300 from $46,600 to $46,300.  The foreign exchange differential accounted for an increase of approximately $4,300 resulting in a net reported increase of approximately $4,000.

Liquidity and Capital Resources



Working Capital and Operations



Our accounts receivable as at August 10, 2005 is approximately $500,000 and our cash position is approximately $150,000.  In addition, we have received purchase orders totalling approximately $500,000 and expect that these purchase orders will be completed prior to the end of 2005.



We estimate that, at our current level of operation, our cash expenses are approximately $230,000 per month.  We base this estimate on the following data:



- As at August 10, 2005, we have 23 employees and our salary costs are approximately $130,000 per month.



- For the first six months of 2005, our average monthly cash expenditures for general, overhead and administration, exclusive of salary costs, were approximately $100,000 per month.  We expect that our general overhead and administrative costs, exclusive of salary costs, will remain constant over the next six months.





26



- We do not expect to incur significant capital expenditures during the remainder of 2005 unless they result from an increase in our level of operation.



Based on the foregoing, we estimate that our total cash expenditures for the period from August 10, 2005 to October 31, 2005 will be approximately $600,000.  Accordingly, at our anticipated level of operation, our existing cash balances and our existing accounts receivable should be sufficient to pay our anticipated cash expenditures to approximately October 31, 2005.  To continue beyond October 31, 2005 as a going concern, we will either have to raise additional capital or generate substantial sales revenue.  If we cannot do either by October 31, 2005, we face the risk that our business will fail.



Financing Activities



Because our business has not been profitable we have been required to finance the development of our products, to pay the costs of marketing those products, and to cover operating losses by way of equity financing.  In the past twenty four months we have obtained financing as follows:



Convertible Debentures



On September 25, 2003, we executed a funding term sheet whereby investors agreed to provide up to $2,250,000 in exchange for convertible debentures.  A general security agreement covering all of our real, personal and intangible property is pledged as security for the debentures.  The debentures mature on August 25, 2006 and bear interest at eight percent (8%) per annum.  All convertible debentures rankpari passuwith all other convertible debentures issued pursuant to the term sheet.  The principal amount and accrued interest are convertible until maturity into units at a price of $0.25 per unit.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.25 per share.  The debentures may be redeemed by repayment of all
outstanding principal and accrued interest at any time on 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 at our discretion require the debenture holders to convert the outstanding principal and accrued interest into units if the closing trading price of our shares on the OTCBB or other principal trading market is $1.00 or greater for any 30 consecutive trading days after the shares issuable pursuant to conversion of the debentures are registered under the Securities Act of 1933.



Between September 5, 2003 and May 21, 2004, in accordance with the terms of Securities Purchase Agreements, we issued convertible debentures in the amount of $2,250,000.  Finders fees were paid to investors, persons related to investors, and independent third parties by way of cash payment of $26,250 and by way of issuance of 595,000 units at $0.25 per unit each unit comprised of one share and one-half (1/2) share purchase warrant, with each whole warrant exercisable at $0.25 into one common share for five (5) years.  The fair value of the cash finders fees and the fair value of the units underlying the finders fees have been recognized in stockholders equity.



Because the conversion price was less than the closing trading prices of our shares on the commitment date, the convertible debentures contain a beneficial conversion feature.  In accordance with Emerging Issues Task Force (EITF) Issue 98-5, the embedded beneficial conversion feature is recognized and measured by allocating a portion of the proceeds equal to the intrinsic value of that feature to additional paid-in capital.  The intrinsic value of the beneficial conversion feature exceeds the face value of the debentures and is therefore limited to the face value.  The face value of the debt has been allocated to additional paid-in capital and is being accreted to the face value of the convertible debentures over the term of the debentures by a charge to interest expense.  Accrued interest is also recorded based on the face value of the debentures at the stated interest rate (8%).  The amount
recorded on the balance sheet as at June 30, 2005 has been calculated as follows:



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Face value of convertible debentures issued (cash received)
        
        
        $
        2,250,000Beneficial conversion feature allocated to additional paid-in capital
        
        
        
        (2,249,995)Accretion of convertible debentures
        
        
        
        1,382,615Accrued interest payable
        
        
        
        267,517Conversion of debentures
        
        
        
        (221,806)Convertible debentures at June 30, 2005
        
        
        $
        1,428,331

On conversion of the debentures into common shares and share purchase warrants, the fair value of the share purchase warrants will be assigned and recognized as an expense.  On April 15, 2004, $125,000 of principal and $5,397 of accrued interest was converted into 521,588 common shares and 260,794 share purchase warrants.  Accordingly, we expensed $42,170 as the fair value of the warrants issued.  On September 10, 2004, $62,500 of principal and $2,101 of accrued interest was converted into 258,404 common shares and 129,202 share purchase warrants.  Accordingly, we expensed $20,892 as the fair value of the warrants issued.  On April 5, 2005, $25,000 of principal and $1,808 of accrued interest was converted into 107,232 common shares and 53,616 share purchase warrants.  Accordingly, we expensed $8,670 as the fair value of the warrants issued.



Private Placements



At directors meetings held October 13, 2004 and December 21, 2004, approval was given to a private placement of 1,750,000 units at a price of $0.40 per unit for gross proceeds of $700,000.  Each unit comprises one share and one-half (1/2) share purchase warrant.  Each whole warrant has a five (5) year term and is exercisable at any time into one common share at a price of $0.50 per share.  The private placement closed on various dates between December 1, 2004 and March 4, 2005.  In conjunction with this private placement, we paid $32,880 and issued 24,500 units as finders fees.



At a directors meeting held March 10, 2005, approval was given to a private placement of 1,875,000 units at a price of $0.80 per unit for total proceeds of $1,500,000.  Each unit comprises one common share and one half-share (1/2) share purchase warrant.  Each whole warrant has a three (3) year term and is exercisable at any time into one common share at a price of $1.00 per share.  On May 3 we closed $1,307,000 of the private placement.  In conjunction with this portion of the private placement, we paid $39,210 and issued 52,500 shares as finders fees.



Employee Stock Options



The exercise of 100,000 employee stock options has generated $21,700 from January 1, 2004 to August 10, 2005.



Off-Balance Sheet Arrangements



Not Applicable



Going Concern Statement



Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on the consolidated audited financial statements for the period ended December 31, 2004, our independent registered public accounting firm included an explanatory paragraph regarding concerns about our ability to continue as a going concern.  Our consolidated audited financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.





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There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further financing, successful and sufficient market acceptance of our software products, the continuing successful development of our computerized vision systems and, finally, achieving a profitable level of operations.  The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders.  Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.



There are no assurances that we will be able to obtain further funds required for our continued operations.  We are pursuing various financing alternatives to meet our immediate and long-term financial requirements.  There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms.  If we are not able to obtain the additional financing on a timely basis, we will not be able to proceed with our expansion program and may not be able to meet our other obligations as they become due.



RISK FACTORS



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



Because we have earned revenue of only $2,313,416 from inception to June 30, 2005, we face a risk of insolvency.



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



We have sufficient cash to pay ongoing operating expenses, at their current level, to approximately August 31, 2005.  To continue operation beyond that we will have to raise additional capital and/or generate significant revenue.  If we are unable to do so, we face a risk of insolvency.



The report of the independent registered public accounting firm on our December 31, 2004 consolidated financial statements includes an additional paragraph that identifies conditions which raise substantial doubt about our ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Because we have no significant sales history and are substantially dependent on our Exclusive Channel Partner Agreement with ABB Inc. to generate future sales, our future is uncertain if our relationship with ABB fails.



We plan to market our vision guided robotic technologies, software products, and Internet based support and service system through our channel partner agreement with ABB.  We believe our channel partner agreement 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 agreement with ABB is new, we have no assurance that it will lead to additional sales.



We made our original alliance agreement with ABB in March 2000.  In February 2004, we entered into an exclusive channel partner agreement with ABB to try to make additional sales through that relationship.



In January 2005, the agreement was amended allowing ABB to marketTrueView, a vision guided robotic technology exclusively powered by our eVF software, to the countries of the European Economic Union and sub-licenseTrueViewto their business partners on a worldwide basis.





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Together we have been awarded contracts for over 85 vision guided robotic systems to date.



However, our channel partner agreement with ABB is new and our prospects for generating sales under the ABB agreement 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 still under development, 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 under development.  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 23 people employed either as officers, employees or contractors, we are vulnerable to the loss of key people or to rapid expansion.



We employ only 23 people either as officers, employees or contractors.  We try to employ people with skill sets that match the specific fields important to our business.  As a result, the departure of a single person or a small number of people could materially adversely affect our business.  We do not have key man insurance on any of the people we employ.



Qualified technical personnel are in great demand in all high technology industries.  Accordingly, it may be difficult for us to replace people who depart, or to hire additional people we may require if we are able to generate substantial sales.



Because we do not have patent protection for all of our products, our intellectual property may be copied or misappropriated.



On January 31, 2002, we filed an application in the Canadian Patent Office regarding theMethod And Apparatus For Single Camera 3D Vision Guided Roboticsand on May 24, 2002 we filed an identical application in the United States Patent Office.  On January 31, 2003 we filed an International Application according to the Patent Cooperation Treaty.  The Patent Cooperation Treaty provides a procedure enabling applicants to obtain patents in many countries.  On November 9, 2004, the United States Patent Office issued U.S. Patent No. 6,816,755 regarding theMethod And Apparatus For Single Camera 3D Vision Guided Robotics.On July 14, 2004 We filed an application in the United States Patent Office regarding theMethod And Apparatus For Multi Camera Surround 3D Vision Guided Robotics.





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These are the only instances in which we have applied for patent protection of our intellectual property.  Accordingly, we have limited legal means to prevent other companies from developing products that perform similar functions in a similar way.



We believe that the software code that we have written for eVisionFactory, 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, 2004 the market price of our common stock has varied between $0.32 and $0.99.  As we have not announced any material changes to our operations, we believe that the fluctuations in our stock price have resulted primarily from market perceptions of the speculative value of our business opportunities.  The susceptibility of our stock price to fluctuation exposes purchasers of our stock to a high degree of risk.



Because we have generated revenue of only $2,313,416 from inception to June 30, 2005, and our business has not been profitable with accumulated losses of $18,599,525 from inception to June 30, 2005, 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 2003, 2004 and 2005.  The volatility of our share price may deter potential investors.
        Subsequent to the beginning of 2000, many technology companies have experienced financial difficulties and rapidly declining share prices.  As a result, potential investors may be less willing to invest in technology companies generally.
        Subsequent to the beginning of 2000, capital markets have become tighter generally, with less financing available for technology companies.

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 2002, we issued approximately 6.1 million shares in private placements and other transactions.  In 2003 we issued 2,354,621 common shares and 1,177,310 share purchase warrants for settlement of promissory notes payable.  Those shares are now eligible for re-sale under Rule 144 to the Securities Act of 1933.   In addition, during 2003 and 2004 we issued $2,250,000 in convertible debentures bearing interest at 8% per annum.  The debenture principal and accrued interest are convertible into units at $0.25 per unit, each unit consisting of one common share and one-half share purchase warrant.  In conjunction with the convertible debentures, we issued 595,000 common shares and 297,500 share purchase warrants for finders fees.  During 2004 and 2005, we issued 3,383,750 shares and 1,691,875 share purchase warrants in private placement transactions.  We may register these shares and share



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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



As required by Rule 13a-15 under the Exchange Act, we have carried out an evaluation of the effectiveness of the design and operation of our company's disclosure controls and procedures as of the end of the period covered by this quarterly report, being June 30, 2005.  This evaluation was carried out under the supervision and with the participation of our company's management, including our company's Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our company's disclosure controls and procedures are effective.



Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our company's reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our company's reports filed under the Exchange Act is accumulated and communicated to management, including our company's Chief Executive Officer and Chief Financial Officer as appropriate, to allow timely decisions regarding required disclosure.



Changes in Internal Controls



During the quarter ended June 30, 2005, there were no changes in our "internal controls over financial reporting" (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.



PART II.  OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS



As of the date of this quarterly report, we are not involved in any legal proceedings.



ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



There was no sale of our unregistered equity securities that has not been disclosed in a current report on Form 8-K prior to the filing of this report.



ITEM 3.  DEFAULTS UPON SENIOR SECURITIES



Not applicable.



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



On June 15, 2005 we held our annual general meeting of shareholders.  Prior to the election of directors, the meeting Chairman advised that George Joseph, a management nominee for re-election, had withdrawn his name as a director nominee.  The shareholders approved a motion that the number of directors be set at five.  At the meeting the shareholders elected directors as follows:




Director
        Votes For
        Votes WithheldOwen Jones
        17,671,607
        10,127Babak Habibi
        17,671,597
        10,137Edward White
        17,671,607
        10,127Frederick Weidinger
        17,670,642
        11,092James Speros
        17,621,773
        59,961

ITEM 5.  OTHER INFORMATION



At the Board of Directors meeting held immediately after our annual general meeting of shareholders on June 15, 2005, the Board determined that it would not populate the various committees until additional Board of Director members could be appointed.  Although it was expected that the additional Board members would be appointed shortly after the meeting, suitable candidates have not yet been identified.  As a consequence, this Form 10-QSB and related Financial Statements as at June 30, 2005 have not been reviewed by an Audit Committee.  However, at the Board of Directors meeting held August 10, 2005 the Board unanimously approved the Form 10-QSB and related Financial Statements for issuance.  The Board is currently conducting an aggressive search for suitable candidates for appointment to the Board of Director and to the various Committees of the Board.



ITEM 6.  EXHIBITS



INDEX TO EXHIBITS

Exhibits


Number
        Exhibit3.1(1)
        Articles of Incorporation, dated February 27, 19873.2(1)
        Articles of Amendment, dated July 14, 19983.3(1)
        Articles of Amendment, dated June 28, 19903.4(1)
        Articles Of Amendment of the Company, dated February 8, 19933.5(1)
        Articles of Amendment of the Company, dated April 6, 19933.6(1)
        Articles of Amendment of the Company, dated December 6, 19933.7(5)
        Restated Articles of Incorporation of the Company dated June 1, 20003.8(1)
        By-Laws of the Company3.9(6)
        Amendment to By-Laws of the Company4.1(1)
        Specimen Stock Certificate4.2(2)
        1997 Stock Option Plan4.3(2)
        2000 Stock Option Plan4.4(4)
        Amended 2000 Stock Option Plan dated November 1, 2000



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10.1(4)
        Agreement for Escrow of Share Certificate & Promissory Note between Edward White and the Company dated February 27, 200110.2(5)
        Agreement for Escrow of Share Certificate and Promissory Note between Babak Habibi and the Company dated June 21, 200110.3(7)
        License Agreement with Marubeni Corporation10.4(8)
        Certificate of Reverse Stock Split10.5(9)
        Corporate Governance Committee Charter10.6(9)
        Audit Committee Charter10.7(9)
        Compensation Committee Charter10.8(9)
        Code of Business Conduct and Ethics for Directors, Officers and Employees10.9(9)
        Corporate Governance Guidelines10.10(10)
        Loan Agreement10.11(10)
        General Security Agreement10.12(10)
        Service Agreement with Elite Financial Communications Group10.13(10)
        2003 Stock Option Plan10.14(11)
        Lease Agreement dated July 30, 2003 between Hoop Realty and Braintech Canada, Inc.10.15(12)
        ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies10.16(13)
        ABB Exclusive Channel Partner Agreement for Licensing of Braintechs Technologies10.17(14)
        Marketing Communications Services Agreement with Baldacci Communications, LLC,11.1
        Computation of net loss per share31.1
        Certificate of Owen L.J. Jones pursuant to Sec 302 of the Sarbanes-Oxley Act of 200231.2
        Certificate of Edward A. White pursuant to Sec 302 of the Sarbanes-Oxley Act of 200232.1
        Certificate of Owen L.J. Jones pursuant to Sec 906 of the Sarbanes-Oxley Act of 200232.2
        Certificate of Edward A. White pursuant to Sec 906 of the Sarbanes-Oxley Act of 2002

(1) Exhibit already on file - exhibit to our Form 10-SB registration statement filed September 25, 1998.

(2) Exhibit already on file - exhibit to our Schedule 14A proxy information filed March 1, 2000.

(3) Exhibit already on file - exhibit to our Form S-1 registration statement filed February 11, 2000.

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

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

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

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

(8) Exhibit already on file  exhibit to our Form 8-K filed September 9, 2002.

(9) Exhibit already on file  exhibit to our Form 10KSB for the year ended December 31, 2002.

(10) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended March 31, 2003.

(11) Exhibit already on file  exhibit to our Form 10QSB covering the quarter ended September 30, 2003.

(12) Exhibit already on file - exhibit to our Form 8-K filed March 9, 2004.

(13) Exhibit already on file - exhibit to our Form 8-K filed January 19, 2005.

(14) Exhibit already on file - exhibit to our Form 8-K filed March 3, 2005.







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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
        Chief Executive Officer,
        August 10, 2005Owen L.J. Jones
        Director(Principal Executive Officer)




/s/ Babak Habibi
        President, Director,
        August 10, 2005Babak Habibi






/s/ Edward A. White
        Chief Financial Officer,
        August 10, 2005Edward A. White
        Director(Principal Financial and AccountingOfficer)



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