----

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| x | QUARTERLY      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934For      the QUARTERLY PERIOD ENDED June 30,2008 |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------|

|  ̈ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934For      the transition period from______to |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

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| Nevada(State      or other jurisdiction of incorporation or organization) |   | 98-0168932(I.R.S.      Employer Identification No.) |
|---------------------------------------------------------------------------|--------|-----------------------------------------------------|

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|   | Accelerated      filer     ̈     | Large      accelerated filer     ̈ |
|--------|----------------------------------------------------------|------------------------------------------------------------|
|   | Non-accelerated      filer     ̈ | Smaller reporting      company   x          |
|   | (Do      not check if a smaller reporting company)       |                                                       |

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| PART I                                      | FINANCIAL INFORMATION                                                                            | 1      |
|---------------------------------------------|--------------------------------------------------------------------------------------------------|--------|
|                                        |                                                                                             |   |
| Item 1.                                     | Financial Statements                                                                             | 1      |
| Item 2.                                     | Management’s Discussion and Analysis of Financial Condition      and Results of Operations | 17     |
| Item 3.                                     | Quantitative and Qualitative Disclosures About Market      Risk                                  | 22     |
| Item 4.                                     | Controls and Procedures                                                                          | 22     |
|                                        |                                                                                             |   |
| PART II       | OTHER  INFORMATION                                                                          | 23     |
|                                        |                                                                                             |   |
| Item 1.                                     | Legal Proceedings                                                                                | 23     |
| Item 1A.                                    | Risk Factors                                                                                     | 23     |
| Item 2.                                     | Unregistered Sales of Equity Securities and Use of      Proceeds                                 | 27     |
| Item 3.                                     | Defaults Upon Senior Securities                                                                  | 27     |
| Item 4.                                     | Submission of Matters to a Vote of Security      Holders                                         | 27     |
| Item 5.                                     | Other Information                                                                                | 28     |
| Item 6.                                     | Exhibits                                                                                         | 28     |

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PART I - FINANCIAL INFORMATION

Item 1.   Financial Statements

|   | (i)    | Condensed      Consolidated Balance sheets as at June 30, 2008 (unaudited) and December      31, 2007;                           |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                             |
|   | (ii)   | Condensed      Consolidated Statements of Operations (unaudited) for the three and six      months ended June 30, 2008 and 2007; |
|   |   |                                                                                                                             |
|   | (iii)  | Condensed      Consolidated statement of Stockholders’ Deficiency (unaudited) for the six      months ended June 30, 2008; |
|   |   |                                                                                                                             |
|   | (iv)   | Condensed      Consolidated Statements of Cash Flows (unaudited) for the six months ended      June 30, 2008 and 2007; and       |
|   |   |                                                                                                                             |
|   | (v)    | Notes      to Condensed Consolidated Financial statements (unaudited) for the six      months ended June 30, 2008 and2007.       |

----

|   | Condensed      Consolidated Financial Statements |
|--------|--------------------------------------------------|
|   | (Expressed      in United States dollars)        |
|   | BRAINTECH,      INC.                             |
|   |                                             |
|   | Six      months ended June 30, 2008 and 2007     |
|   | Three      months ended June 30, 2008 and 2007   |
|   | (Unaudited      – Prepared by Management)  |

----

| BRAINTECH,      INC.                                         |   |
|--------------------------------------------------------------|--------|
|                                                         |   |
| Condensed      Consolidated Balance Sheets                   |   |
| (Expressed      in United States dollars)                    |   |
|                                                         |   |
|                                                         |   |
|                                                         |   | June      30,2008 |   |   | December      31,2007 |   |
|                                                         |   | (unaudited) |   |   |   |   |
| Assets                                                       |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |
| Current      assets:                                         |   |   |   |   |   |   |
| Cash      and cash equivalents                               |   | $ | 980,495 |   |   | $ | 921,367 |   |
| Accounts      receivable                                     |   |   | 1,332,674 |   |   |   | 1,239,106 |   |
| Promissory      note receivable (note 10)               |   |   | 100,000 |   |   |   | - |   |
| Inventory                                                    |   |   | 17,763 |   |   |   | 8,680 |   |
| Prepaid      expenses                                        |   |   | 30,804 |   |   |   | 60,721 |   |
|                                                         |   |   | 2,461,736 |   |   |   | 2,229,874 |   |
|                                                         |   |   |   |   |   |   |   |   |
| Fixed      assets                                            |   |   | 49,040 |   |   |   | 47,468 |   |
|                                                         |   |   |   |   |   |   |   |   |
|                                                         |   | $ | 2,510,776 |   |   | $ | 2,277,342 |   |
|                                                         |   |   |   |   |   |   |   |   |
| Liabilities      and Stockholders’ Equity (Deficiency) |   |   |   |   |   |   |   |   |
|                                                         |   |   |   |   |   |   |   |   |
| Current      liabilities:                                    |   |   |   |   |   |   |   |   |
| Accounts      payable                                        |   | $ | 339,228 |   |   | $ | 106,588 |   |
| Accrued      liabilities                                     |   |   | 729,345 |   |   |   | 610,001 |   |
| Deferred      leasehold inducements (note 3)                 |   |   | 3,479 |   |   |   | 14,327 |   |
| Deferred      revenue (note 4)                               |   |   | 921,628 |   |   |   | 622,971 |   |
| Due      to related party                                    |   |   | 124,067 |   |   |   | 126,558 |   |
| Promissory      notes payable (note 10)                      |   |   | 100,000 |   |   |   | - |   |
| Bank      loan (note 5)                                      |   |   | 1,392,837 |   |   |   | 2,052,837 |   |
|                                                         |   |   | 3,610,584 |   |   |   | 3,533,282 |   |
|                                                         |   |   |   |   |   |   |   |   |
| Stockholders’      equity (deficiency):                |   |   |   |   |   |   |   |   |
| Common      stock (note 6):                                  |   |   |   |   |   |   |   |   |
| Authorized:      200,000,000 shares, with $0.001 par value   |   |   |   |   |   |   |   |   |
| Issued:      45,797,335 shares                               |   |   | 45,797 |   |   |   | 45,797 |   |
| (December 31, 2007 –      45,797,335)                  |   |   |   |   |   |   |   |   |
| Additional      paid-in capital                              |   |   | 30,963,795 |   |   |   | 29,485,476 |   |
| Accumulated      deficit                                     |   |   | (32,109,400 | ) |   |   | (30,787,213 | ) |
|                                                         |   |   | (1,099,808 | ) |   |   | (1,255,940 | ) |
|                                                         |   |   |   |   |   |   |   |   |
|                                                         |   | $ | 2,510,776 |   |   | $ | 2,277,342 |   |

----

| 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 30 |   |
|                                                 | 2008   |   |   | 2007 |   |   | 2008 |   |   | 2007 |   |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |
| Sales                                                |   | $ | 2,206,370 |   |   | $ | 1,268,934 |   |   | $ | 1,100,406 |   |   | $ | 600,562 |   |
| Cost      of sales                                   |   |   | 220,313 |   |   |   | 99,893 |   |   |   | 103,115 |   |   |   | 55,852 |   |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross      margin                                    |   |   | 1,986,057 |   |   |   | 1,169,041 |   |   |   | 997,291 |   |   |   | 544,710 |   |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      expenses:                             |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Research      and development                        |   |   | 313,099 |   |   |   | 289,220 |   |   |   | 137,967 |   |   |   | 144,856 |   |
| Selling,      general and administration             |   |   | 2,967,853 |   |   |   | 1,509,660 |   |   |   | 2,150,300 |   |   |   | 706,048 |   |
|                                                 |   |   | 3,280,952 |   |   |   | 1,798,880 |   |   |   | 2,288,267 |   |   |   | 850,904 |   |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      loss                                  |   |   | (1,294,895 | ) |   |   | (629,839 | ) |   |   | (1,290,976 | ) |   |   | (306,194 | ) |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Non-operating:                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                 |   |   | 463 |   |   |   | 589 |   |   |   | 243 |   |   |   | 44 |   |
| Gain      on settlement of debt                      |   |   | 25,750 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Financing      expenses                              |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest      on bank loan                           |   |   | (41,967 | ) |   |   | (89,858 | ) |   |   | (16,065 | ) |   |   | (50,072 | ) |
| Fair      value of equity issued as                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| compensation      to bank loan guarantors            |   |   | - |   |   |   | (1,424,741 | ) |   |   | - |   |   |   | (877,500 | ) |
| Bank      loan guarantee expenses                    |   |   | (11,538 | ) |   |   | (7,039 | ) |   |   | (5,584 | ) |   |   | (313 | ) |
| Fair      value of equity issued as                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| compensation      for financing services             |   |   | - |   |   |   | (90,000 | ) |   |   | - |   |   |   | - |   |
|                                                 |   |   | (27,292 | ) |   |   | (1,611,049 | ) |   |   | (21,406 | ) |   |   | (927,841 | ) |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net      loss and comprehensive loss for the period  |   | $ | (1,322,187 | ) |   | $ | (2,240,888 | ) |   | $ | (1,312,382 | ) |   | $ | (1,234,035 | ) |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Loss      per share information:                     |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic      and diluted                               |   | $ | (0.03 | ) |   | $ | (0.07 | ) |   | $ | (0.03 | ) |   | $ | (0.04 | ) |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted      average number of                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common      shares outstanding                       |   |   | 45,497,335 |   |   |   | 33,152,054 |   |   |   | 45,497,335 |   |   |   | 33,771,206 |   |
|                                                 |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

| BRAINTECH,      INC.                                                                 |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |
|--------------------------------------------------------------------------------------|--------|-------------------|------------|--------|--------|--------|--------|----------------------|--------|--------|-------------|--------|--------|-----------------------|-------------|
|                                                                                 |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |
| Condensed      Consolidated Statements of Stockholders’ Equity    (Deficiency) |
| (Unaudited      – Prepared by Management)                                      |
| (Expressed      in United States dollars)                                            |
|                                                                                 |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |
|                                                                                 |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |
|                                                                                 |   | Common      stock |       |   |   |   |   |                 |   |   | Total       |   |
|                                                                                 |   | Number            |       |   |   |   |   | Additional           |   |   | Accumulated |   |   | stockholders’   |        |
|                                                                                 |   | of      shares    |       |   | Amount |   |   | paid-in      capital |   |   | deficit     |   |   | equity      (deficit) |        |
| Balance,      December 31, 2007                                                      |   |              | 45,797,335 |   |   | $      | 45,797 |                 |   | $      | 29,485,476  |   |   | $                     | (30,787,213 | ) |   | $ | (1,255,940 | ) |
|                                                                                 |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |   |   |   |   |   |
| Fair      value of stock options expensed                                            |   |              |       |   |   |   |   |                 |   |   | 188,319     |   |   |                  | -           |   |   |   | 188,319 |   |
| Fair      value of shares earned pursuant to the                                     |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |   |   |   |   |   |
| bonus      stock plan                                                                |   |              |       |   |   |   |   |                 |   |   | 1,290,000   |   |   |                  |        |   |   |   | 1,290,000 |   |
| Loss      for the period                                                             |   |              | -          |   |   |   | -      |                 |   |   | -           |   |   |                  | (1,322,187  | ) |   |   | (1,322,187 | ) |
|                                                                                 |   |              |       |   |   |   |   |                 |   |   |        |   |   |                  |        |   |   |   |   |   |
| Balance,      June 30, 2008                                                          |   |              | 45,797,335 |   |   | $      | 45,797 |                 |   | $      | 30,963,795  |   |   | $                     | (32,109,400 | ) |   | $ | (1,099,808 | ) |

----

| BRAINTECH,      INC.                                        |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| Condensed      Consolidated Statements of Cash Flows        |   |
| (Unaudited      – Prepared by Management)             |   |
| (Expressed      in United States dollars)                   |   |
|                                                        |   |
|                                                        |   |
|                                                        |   | Six      months ended June 30 |   |
|                                                        |   | 2008 |   |   | 2007 |   |
|                                                        |   |   |   |   |   |   |
| Cash      flows from operations:                            |   |   |   |   |   |   |
| Loss      for the period                                    |   | $ | (1,322,187 | ) |   | $ | (2,240,888 | ) |
| Items      not involving cash:                              |   |   |   |   |   |   |   |   |
| Amortization                                                |   |   | 17,022 |   |   |   | 9,245 |   |
| Shares      issued for services rendered                    |   |   | - |   |   |   | 95,400 |   |
| Stock      option expense                                   |   |   | 188,319 |   |   |   | 542,972 |   |
| Fair      value of warrants and common shares issued and to |   |   |   |   |   |   |   |   |
| be      issued as compensation to loan guarantors           |   |   | - |   |   |   | 1,424,741 |   |
| Fair      value of shares earned pursuant to the            |   |   |   |   |   |   |   |   |
| bonus      stock plan                                       |   |   | 1,290,000 |   |   |   | - |   |
| Changes      in non-cash operating working capital:         |   |   |   |   |   |   |   |   |
| Accounts      receivable                                    |   |   | (93,568 | ) |   |   | 486,828 |   |
| Inventory                                                   |   |   | (9,083 | ) |   |   | 5,519 |   |
| Prepaid      expenses                                       |   |   | 29,917 |   |   |   | 3,315 |   |
| Accounts      payable and accrued liabilities               |   |   | 351,984 |   |   |   | (41,396 | ) |
| Due      to related party                                   |   |   | (2,491 | ) |   |   | 7,368 |   |
| Deferred      leasehold inducements                         |   |   | (10,848 | ) |   |   | (6,913 | ) |
| Deferred      revenue                                       |   |   | 298,657 |   |   |   | 186,340 |   |
| Net      cash provided by operations                        |   |   | 737,722 |   |   |   | 472,531 |   |
|                                                        |   |   |   |   |   |   |   |   |
| Cash      flows from investments:                           |   |   |   |   |   |   |   |   |
| Promissory      note receivable                             |   |   | (100,000 | ) |   |   | - |   |
| Purchase      of fixed assets                               |   |   | (18,594 | ) |   |   | (16,334 | ) |
| Net      cash used in investments                           |   |   | (118,594 | ) |   |   | (16,334 | ) |
|                                                        |   |   |   |   |   |   |   |   |
| Cash      flows from financing:                             |   |   |   |   |   |   |   |   |
| Common      shares issued, net of issue costs               |   |   | - |   |   |   | 536,180 |   |
| Promissory      notes payable                               |   |   | 100,000 |   |   |   | - |   |
| Repayment      of bank loan                                 |   |   | (660,000 | ) |   |   | (70,000 | ) |
| Net      cash provided by (used in) financing               |   |   | (560,000 | ) |   |   | 466,180 |   |
|                                                        |   |   |   |   |   |   |   |   |
| Increase      in cash and cash equivalents                  |   |   | 59,128 |   |   |   | 922,377 |   |
|                                                        |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, beginning of period         |   |   | 921,367 |   |   |   | 16,950 |   |
|                                                        |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents, end of period               |   | $ | 980,495 |   |   | $ | 939,327 |   |
|                                                        |   |   |   |   |   |   |   |   |
| Supplemental      information:                              |   |   |   |   |   |   |   |   |
| Non-cash      financing:                                    |   |   |   |   |   |   |   |   |
| Shares      issued for services rendered                    |   | $ | - |   |   |   | 95,400 |   |
| Shares      and warrants issued to bank loan guarantors     |   | $ | - |   |   | $ | 1,424,741 |   |

----

----

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1.     | Description      of business and future operations:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Braintech,      Inc. (the “Company”) together with its wholly owned subsidiaries 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, 2008, 100% of sales revenue was generated from ABB Inc.      (“ABB”), and for the six months ended June 30, 2007, 99% of sales revenue      was generated from ABB.                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | These      condensed 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      Exclusive Global Channel Partner Agreement with ABB, generating positive      cash flows from operations and ultimately attaining      profitability.    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 financing will      be sufficient to satisfy its current liabilities and pay ongoing cash      operating expenses throughout 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | There      can be no assurance that an equity financing can be obtained as      anticipated and there can be no assurance that revenue from ABB will      increase as anticipated.  If the Company cannot do either, there      is a risk that the business will fail.  These condensed      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 information: |
|   |                        |   |
|   |                        | These      condensed consolidated financial statements have been prepared in      accordance with accounting principles generally accepted in the United      States of America 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, 2008. 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, 2007, as filed in its annual report on Form      10-KSB. |

----

----

| 2.     | Basis      of presentation (continued): |
|--------|-----------------------------------------|
|   |                                    |
|   | (b)                                     | Principals      of consolidation: |
|   |                                    |   |
|   |                                    | These      condensed consolidated financial statements include the accounts of the      Company, and its wholly-owned subsidiary Braintech Canada,      Inc.  All material inter-company balances and transactions have      been eliminated. |
|   |                                    |   |
|   | (c)                                     | Use      of estimates: |
|   |                                    |   |
|   |                                    | The      preparation of financial statements in accordance with accounting      principles generally accepted in the United States of America requires      management to make estimates and assumptions that affect the reported      amounts of assets and liabilities and disclosure of contingent assets and      liabilities as at the date of the financial statements, and the reported      amounts of revenues and expenses during the reporting      period.  Significant areas requiring the use of estimates relate      to the impairment of assets and rates for amortization, amount of income      tax balances, the valuation of accrued liabilities, and the calculation of      stock-based compensation.  Actual amounts may differ from these      estimates. |
|   |                                    |   |
|   | (d)                                     | Stock      based compensation: |
|   |                                    |   |
|   |                                    | In      December 2004, the Financial Accounting Standards Board (“FASB”) issued      Statement of Financial Accounting Standards No. 123R, “Share Based      Payment” (“SFAS 123R”). SFAS 123R requires companies to estimate the fair      value of share-based payment awards on the date of grant using an option      pricing model. The value of the portion of the award that is ultimately      expected to vest is recognized as an expense over the requisite service      period in the Company’s financial statements. Stock-based compensation      recognized during the period is based on the value of the portion of the      stock-based payment awards that are ultimately expected to vest during the      period. The Company estimates the fair value of stock options using the      Black-Scholes valuation model, consistent with the provisions of SFAS      123R. The Black-Scholes valuation model requires the input of highly      subjective assumptions, including the option’s expected life and the price      volatility of the underlying stock. The expected stock price volatility      assumption was determined using historical volatility of the Company’s      common stock. |

----

----

| 2.     | 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, 2008 was $0.29 per option (2007 - $0.34).  The      fair value of each option grant is estimated on the date of grant using      the Black-Scholes valuation model and the straight-line amortization      approach with the following weighted average  assumptions: |

|                         |   | Six      Months Ended |   |
|------------------------------|--------|-----------------------|--------|
|                         |   | June      30, 2008    |   |   | June      30, 2007 |   |
| Expected      life (years)   |   |                  | 2.0    |   |   |   | 2.0 |   |
| Risk      free interest rate |   |                  | 1.80   | % |   |   | 4.69 | % |
| Expected      volatility     |   |                  | 179    | % |   |   | 167 | % |
| Dividend      yield          |   |                  | 0      | % |   |   | 0 | % |

|   |   | The      Company adopted SFAS 123R effective January 1, 2006, using the modified      prospective method.  This method requires that awards granted,      modified, repurchased or cancelled in the quarter beginning after the      adoption date use the fair value method to recognize stock-based      compensation.  Also any unvested options, where compensation was      amortized over the vesting period, and was previously disclosed in the      notes to financial statements as pro-forma, shall now be expensed over the      same amortization period.                                                                                                                                                                                                                                                                    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | In      applying the modified prospective application method for the six month      periods ended June 30, 2008 and 2007, the Company recorded stock-based      compensation totaling the amount that would have been recognized had the      fair value method been applied since the effective date of SFAS      123.  Previous amounts have not been      restated.  Accordingly, the Company recorded stock-based      compensation related to stock options of $188,319 for the six month period      ended June 30, 2008 and stock-based compensation related to stock options      of $542,972 for the six month period ended June 30,  2007.                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | As      at January 1, 2006, the Company had an unrecorded deferred stock-based      compensation balance related to stock options of $263,132 before estimated      forfeitures.  In the Company’s pro-forma disclosures prior to      the adoption of SFAS 123R, the Company accounted for forfeitures upon      occurrence.  SFAS 123R requires forfeitures to be estimated at      the time of grant and revised if necessary in subsequent periods if actual      forfeitures differ from those estimates.  Accordingly, as of      January 1, 2006, the Company estimated that the stock-based compensation      for the awards not expected to vest was nil and, therefore, the unrecorded      deferred stock-based compensation balance related to stock options was not      adjusted for estimated forfeitures. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |   | As      of June 30, 2008, the unrecorded deferred stock-based compensation balance      related to stock options was $599,591 (2007 - $324,157) and will be      recognized over an estimated weighted average amortization period of 1.19      years (2007 – 1.44 years).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

----

----

| 2.     | Basis      of presentation (continued): |
|--------|-----------------------------------------|
|   |                                    |
|   | (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 common      shares outstanding. |
|   |                                    |   |
|   |                                    | As      the effect of all outstanding stock options (note 7) and share purchase      warrants (note 8) 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 six month      periods ended June 30, 2008 and 2007 was reduced by 300,000 shares in each      period for shares issued and held by the Company. |
|   |                                    |   |
|   | (g)                                     | Revenue      recognition: |
|   |                                    |   |
|   |                                    | The      Company recognizes revenue when there is persuasive evidence of an      arrangement, the fee is fixed or determinable, collectibility is      reasonably assured, and there are no substantive performance obligations      remaining.  The Company’s revenue recognition policies are in      conformity with the AICPA’s Statement of Position No. 97-2      (“SOP 97-2”), “Software Revenue Recognition”. |
|   |                                    |   |
|   |                                    | Cash      received or accounts receivable recorded in advance of meeting the revenue      recognition criteria are recorded as deferred revenue and the costs      related to that revenue are recorded as deferred  costs. |

|   |                                 |   |
|--------|--------------------------------------|--------|
| 3.     | Deferred      leasehold inducements: |

|                              |   | Six      Months Ended June 30 |    |
|-----------------------------------|--------|-------------------------------|---------|
|                              |   | 2008                          |    |   | 2007 |   |
| Balance,      beginning of period |   | $                             | 14,327  |   |   | $ | 30,155 |   |
| Amortization                      |   |                          | (10,473 | ) |   |   | (9,297 | ) |
| Foreign      exchange adjustment  |   |                          | (375    | ) |   |   | 2,384 |   |
| Balance,      end of period       |   | $                             | 3,479   |   |   | $ | 23,242 |   |

----

----

| 4. | Deferred      revenue: |
|----|------------------------|

|                                                          |   | Six      Months Ended June 30 |    |
|---------------------------------------------------------------|--------|-------------------------------|---------|
|                                                          |   | 2008                          |    |   | 2007 |   |
| Balance,      beginning of period                             |   | $                             | 622,971 |   |   | $ | 197,383 |   |
| Revenue      invoiced and deferred for future recognition     |   |                          | 361,255 |   |   |   | 227,730 |   |
| Previously      deferred revenue recognized in current period |   |                          | (62,598 | ) |   |   | (41,390 | ) |
| Balance,      end of period                                   |   | $                             | 921,628 |   |   | $ | 383,723 |   |

| 5.     | Bank      loan and loan guarantee:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | On      October 23, 2006 the Company completed a transaction redeeming all of the      outstanding secured convertible debentures. To facilitate the transaction,      a bank loan of $2,473,000 was obtained from the Royal Bank of Canada. The      loan was repayable as to interest only at the floating 30 day Libor rate      plus 1.50% until June 30, 2007.  Monthly principal payments plus      interest at the floating 30 day Libor rate plus 1.50% are due as follows:      June 30, 2007 to December 31, 2007, $70,000; January 31, 2008 to June 30,      2008, $110,000; July 31, 2008 to November 30, 2008, $195,000; December 31,      2008, remaining balance due. The Company’s management anticipates that,      unless business expands significantly, the minimum purchases guaranteed in      accordance with the ABB Exclusive Global Channel Partner Agreement will      provide sufficient cash flow to service these interest and principal      payments.                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | The      Royal Bank required that standby letters of credit securing the full      amount of the loan be provided. Certain accredited investors (the “LC      Providers”) agreed to provide the letters of credit to the bank and as      compensation the Company agreed to issue one Unit for each one dollar      pledged as security for the bank loan.  Each Unit consists of      two shares of the common stock of the Company, three share purchase      warrants, each warrant entitling the holder to purchase one additional      share of common stock at a price of $0.30 per share for a period of five      years; and one and one-half share purchase warrants, each whole warrant      entitling the holder to purchase one additional share of common stock at a      price of $0.50 per share for a period of five years. A general security      agreement covering all of the Company’s real, personal and intangible      property has been pledged as security to the LC  Providers. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|   | A      total of $2,450,000 letters of credit have been obtained to secure the      bank loan and accordingly the Company has issued 4,900,000 common shares,      7,350,000 warrants exercisable at $0.30 and 3,675,000 warrants exercisable      at $0.50.  As further compensation, the exercise price of      332,500 share purchase warrants previously held by certain LC Providers      has been reduced from $1.00 to $0.30 per share and the term of those      warrants has been extended by 24 months to expire May 2,    2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

----

----

| 5.     | Bank      loan and loan guarantee (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Of      the letters of credit, $2,150,000 was received October 23, 2006 and,      accordingly, 4,300,000 common shares were issued, 6,450,000 warrants were      exercisable at $0.30 and 3,225,000 warrants were exercisable at $0.50. On      October 23, 2006 $1,376,000 was recorded as an expense on account of the      fair value of the common shares issuance and $2,350,617 on account of the      fair value of the warrant issuance. The fair value of the common shares      was calculated using the closing market price of the common stock on      October 23, 2006 ($0.32) and the fair value of the warrants was calculated      using the Black-Scholes valuation model and the following assumptions:      dividend yield 0%, expected volatility 167%, risk-free interest rate      4.90%, and an expected term of two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Of      the letters of credit, $300,000 was received February 5, 2007 and,      accordingly, 600,000 common shares were issued, 900,000 warrants were      exercisable at $0.30 and 450,000 warrants were exercisable at $0.50. On      February 5, 2007, $180,000 was recorded as an expense on account of the      fair value of the common shares issuance and $302,835 on account of the      fair value of the warrant issuance. The fair value of the common shares      was calculated using the closing market price of the common stock on      February 5, 2007 ($0.30) and the fair value of the warrants was calculated      using the Black-Scholes valuation model and the following assumptions:      dividend yield 0%, expected volatility 165%, risk-free interest rate      4.92%, and an expected term of two years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | The      agreement governing the LC Providers and the Loan Guarantee terms required      that the Company file a Registration Statement such that the securities      issued to the LC Providers would qualify for resale pursuant to the      Registration Statement.  The Agreement contained penalty      provisions if the Company did not file a Registration Statement, and if      the Registration Statement did not become effective, within certain time      provisions.  Upon review, it was determined that the penalty      provision clauses applied and the Company agreed to issue one additional      common share to the LC Providers that delivered letters of credit on or      before October 23, 2006.  On August 10, 2007, the Company issued      1,625,000 common shares at a deemed price of $0.48 per    share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | Prior      to the receipt of the final letters of credit, cash collateral had been      pledged by accredited investors to allow the Royal Bank of Canada to fund      the total amount of the loan. The receipt of the final letters of credit      allowed for the release of the cash collateral.  As compensation      for pledging the cash collateral, on March 22, 2007 the Company issued to      one of the accredited investors 100,000 common shares and 100,000 share      purchase warrants exercisable at $0.30 for a period of three years. On      March 22, 2007 the Company recorded as an expense, $36,000 on account of      the fair value of the common shares issuance and $28,406 on account of the      fair value of the warrant issuance. The fair value of the common shares      was calculated using the closing market price of the common stock on March      22, 2007 ($0.36) and the fair value of the warrants was calculated using      the Black-Scholes valuation model and the following assumptions: dividend      yield 0%, expected volatility 165%, risk-free interest rate 4.58%, and an      expected term of two years.  As further compensation, the      exercise price of 1,008,548 share purchase warrants previously held by the      accredited investor was reduced from $0.60 to $0.30 per share and the term      of those warrants was extended by 36 months to expire January 18,      2011. |

----

----

| 6.     | Common      stock: |
|--------|--------------------|
|   |               |
|   | (a)                | During      the six month period ended June 30, 2008, no common shares were      issued.  As at June 30, 2008, 45,797,335 common shares were      issued. |
|   |               |   |
|   | (b)                | Bonus      stock and bonus stock option incentive plan: |
|   |               |   |
|   |               | At a      meeting of the Board of Directors held October 22, 2007, the Company      approved the Bonus Stock and Bonus Stock Option Plan (the “Bonus Plan”).      The Bonus Plan provides for the issuance of common stock of the Company      (“Bonus Stock”) and options to acquire common stock of the Company (“Bonus      Stock Options”) to the participants upon the Company reaching certain      identifiable milestones in its business plan. The aggregate amount of      shares that may be issued under the Bonus Plan shall not exceed 30 million      shares. The aggregate amount of shares to be issued as Bonus Stock shall      not exceed 20 million shares and the aggregate amount of shares to be      issued pursuant to the exercise of Bonus Stock Options shall not exceed 10      million shares. |
|   |               |   |
|   |               | On      October 29, 2007, the Company issued 1,000,000 shares of Bonus Stock for      the purchase price of $0.01 per share to the Company’s CEO. The Company      recorded an expense of $430,000 relating to the issuance of these shares.      The Company also issued to the CEO 7,000,000 shares of Bonus Stock for the      purchase price of $0.01 per share and in accordance with the terms of his      employment agreement, these shares were placed in escrow pending      completion of eight individual milestones. When management determines that      it is likely that the milestones will be met, the corresponding shares      will be released from escrow and the Company will record an expense equal      to $0.43 per share. If the milestones are not completed, the Company will      repurchase the shares for the purchase price of $0.01 per      share. |
|   |               |   |
|   |               | At a      meeting held March 12, 2008, the Directors approved a resolution amending      the employment agreement to alter the individual milestones and escrow      restrictions to more closely conform to the Company’s current objects and      strategic plan.  The number of milestones the CEO needs to      achieve in order to fully vest all Bonus Stock and Bonus Stock Options is      now six. Under certain conditions, all unvested Bonus Stock and Bonus      Stock Options would vest immediately. |
|   |               |   |
|   |               | On      May 1, 2008, Milestone #1 was achieved and, accordingly, 1,000,000 shares      of Bonus Stock were released from escrow and the Company recognized an      expense of $430,000.  Milestone #1 was the six month anniversary      of the CEO’s employment. |
|   |               |   |
|   |               | On      June 25, 2008, Milestone #3 was achieved and, accordingly, 2,000,000      shares of Bonus Stock were released from escrow and the Company recognized      an expense of $860,000.  Milestone #3 was the establishment of a      new strategic relationship in a specified  industry. |

----

----

| 6.     | Common      stock (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | On      December 18, 2007, the Company issued 750,000 shares of Bonus Stock for      the purchase price of $0.01 per shares in accordance with the terms of an      Independent Contractor Agreement. These shares are being held in escrow      pending completion of three individual milestones. When management      determines that it is likely that the milestones will be met, the      corresponding shares will be released from escrow and the Company will      record an expense equal to $0.32 per share. If the milestones are not      completed, the Company will repurchase the shares for the purchase price      of $0.01 per share. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 7.     | Stock      options:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   | A      summary of the Company’s stock option activity is as    follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

|                            |   |           |       |   |                |   |
|---------------------------------|--------|----------------|------------|--------|---------------------|--------|
|                            |   |           |       |   | Weighted            |   |
|                            |   | Number         |       |   | average             |   |
|                            |   | of      shares |       |   | exercise      price |   |
|                            |   |           |       |   |                |   |
| Balance,      December 31, 2007 |   |           | 13,092,000 |   |                | $      | 0.43 |   |
| Options      granted            |   |           | 250,000    |   |                | $      | 0.37 |   |
| Options      exercised          |   |           | -          |   |                |   | - |   |
| Vested      options expired     |   |           | (190,000   | )      |                | $      | 0.49 |   |
| Unvested      options forfeited |   |           | -          |   |                |   | - |   |
|                            |   |           |       |   |                |   |   |   |
| Balance,      June 30, 2008     |   |           | 13,152,000 |   |                | $      | 0.43 |   |

|   | Of      those outstanding at June 30, 2008, 11,329,500 are exercisable (December      31, 2007 – 11,224,500), having a weighted average exercise price of $0.43      (December 31, 2007 - $0.43).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The      outstanding options as at June 30, 2008 have a weighted average remaining      contractual life of 3.85 years (December 31, 2007 – 4.36      years)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | The      Company has reserved 1,500,000 common shares pursuant to the 2000 Stock      Option Plan, 2,500,000 common shares pursuant to the 2003 Stock Option      Plan, and 10,000,000 common shares pursuant to the 2007 Stock Option      Plan.  Subject to the requirements of any stock exchange on      which the Company’s shares are listed, the Company’s Board of Directors      has discretion to set the price, term, vesting schedules, and other terms      and conditions for options granted under the 2000 plan and the Company’s      Compensation Committee has discretion to set the price, terms, vesting      schedules, and other terms and conditions for options granted under the      2003 and 2007 plans.  The Company’s board of directors has      granted the Company’s Chief Executive Officer authority to grant awards      pursuant to the 2000 Stock Option Plan, 2003 Stock option Plan and 2007      Stock Option Plan.  The Company has also reserved 10,000,000      common shares pursuant to the Bonus Plan (note 6(b)). The Company’s Board      of Directors and CEO have discretion to set the price, term, vesting      schedules, and other terms and conditions for options granted under the      Bonus Plan. |

----

----

| 8.       | Share      purchase warrants:                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | During      the six month period ended June 30, 2008 no share purchase warrants were      issued, no share purchase warrants were exercised and no share purchase      warrants expired.  As at June 30, 2008, 25,177,179 share      purchase warrants were outstanding with a weighted average exercise price      of $0.34 and a weighted average remaining contractual life of 3.55 years      (December 31, 2007 – 4.05 years). |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | Of      the share purchase warrants outstanding at June 30, 2008, 5,961,324 were      held by the Company’s former CEO and 3,611,250 were held by the Company’s      current CEO.                                                                                                                                                                                                                                                       |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 9.  | Commitments:                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|     | The      Company has obligations under operating lease arrangements that require      the following minimum annualpayments:                                                                                                                                                                                                                                                                                                                    |

|                          |   |   |    |
|-------------------------------|--------|--------|---------|
| Year      ending December 31: |   |   |    |
| 2008                          |   | $      | 66,762  |   |
| 2009                          |   |   | 131,906 |   |
| 2010                          |   |   | 144,849 |   |
| 2011                          |   |   | 144,642 |   |
| 2012                          |   |   | 141,269 |   |
|                          |   | $      | 629,428 |   |

| 10.    | Subsequent      event:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | On      August 12, 2008, the Company acquired 100% of the outstanding shares of      SHAFI, Inc. and 80% of the shares of SHAFI Innovation, Inc. (together      “Shafi”) from Adil Shafi pursuant to a Share Purchase Agreement (“Shafi      Purchase Agreement”).  Total consideration for the purchase was      3,000,000 shares of the common stock of Braintech, Inc. (the “Closing      Purchase Shares”) paid at the closing of the acquisition (“Shafi Closing”)      and 1,000,000 shares of Braintech, Inc. common stock payable quarterly      over the next 12 months upon the achievement of specified performance      criteria (the “Contingent Purchase Shares”). The performance criteria includes      certain revenue related goals of $2.85 million, comprised of $450,000      during the quarter ending December 31, 2008, $900,000 during the quarter      ending March 31, 2009 and $1.5 million during the quarter ending June 30,      2009.  This $2.85 million in revenue related goals for the      period ending with the second quarter of 2009 are separate from the $3.7      million in revenue related goals for the third and fourth quarters of 2009      under a separate employment agreement the Company entered into with      Mr. Shafi in connection with the acquisition.  The aggregate      revenue related goals with respect to the Contingent Purchase Shares and      the stock options that may be earned under Mr. Shafi’s employment      agreement is $6.55 million for the quarter ending December 31, 2008      through the quarter ending December 31,  2009. |

----

----

| 10.    | Subsequent      event (continued):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | The      Closing Purchase Shares and Contingent Purchase Shares are subject to a      lock-up agreement that restricts the sale thereof for 6 months and      thereafter places      volume restrictions on the number of such shares that may be sold during      any weekly period.  In addition, the Contingent Purchase Shares,      as and when earned, will be placed in escrow during the 12 months      following the Shafi Closing to serve as a fund against      which indemnification claims of the Company under the Shafi Purchase      Agreement may be made. The Company also      agreed to register for resale the shares of Company common stock paid to Adil      Shafi and to cause the related registration statement to be effective not      later than six months after the Shafi Closing.  Mr. Shafi’s      sales under the registration statement will be subject to compliance with      his lock-up agreement. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | As      part of the Shafi acquisition, the parties agreed that any debt of Shafi      in excess of certain identified debt would be fully and timely satisfied      by Adil Shafi without liability to the Company or the Shafi      companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | Prior      to the completion of the purchase transaction, on June 5, 2008, the      Company advanced $100,000 to Shafi to meet its working capital      needs.  This advance was secured by all of the assets of Shafi,      and was memorialized at the Shafi Closing by a demand promissory note      bearing an annual interest rate of 2.54%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | In      order to finance the $100,000 advance, the Company’s Chief Executive      Officer and former Chief Executive Officer each advanced to the Company      $50,000 against delivery by the Company of promissory      notes.  The promissory notes provide for interest at 6% per      annum and for repayment within 14 days of the Company receiving funding      from a financing greater than $1,000,000 or after June 6, 2009, whichever      comes first.  The promissory notes also provide that upon      completion of the Shafi acquisition, each of the promissory note holders      will be issued 50,000 common share purchase warrants.  Each      common share purchase warrant entitles the holder to purchase one share      for three years at a price of $0.36 pershare.                                                                                                                                        |

----

Item2.                      Management’sDiscussion and Analysis of Financial Conditions and Results ofOperations

----

|                                     |   | Three      Months Ended |    |
|------------------------------------------|--------|-------------------------|---------|
|                                     |   | June      30            |    |   | June      30 |   |
|                                     |   | 2008                    |    |   | 2007 |   |
| Statement      of Operations Data:       |   |                    |    |   |   |   |
| Sales                                    |   |                    | 100.00  | % |   |   | 100.00 | % |
| Cost      of sales                       |   |                    | (9.37   | )        |   |   | (9.30 | )        |
| Gross      profit                        |   |                    | 90.63   |   |   |   | 90.70 |   |
| Research      and development            |   |                    | (12.54  | )        |   |   | (24.12 | )        |
| Selling,      general and administration |   |                    | (195.41 | )        |   |   | (117.56 | )        |
| Operation      income/(loss)             |   |                    | (117.32 | )        |   |   | (50.98 | )        |
| Financing      expenses                  |   |                    | (1.96   | )        |   |   | (154.50 | )        |
| Other      income (expense), net         |   |                    | 0.02    |   |   |   | 0.00 |   |
| Income/(loss)      for the period        |   |                    | (119.26 | )        |   |   | (205.48 | )        |

----

| Sales  |   | Three      Months Ended |      |   |         |   |
|--------|--------|-------------------------|-----------|--------|--------------|--------|
|   |   | June      30            |      |   | June      30 |   |   | % |   |
|   |   | 2008                    |      |   | 2007         |   |   | Change |   |
|   |   |                    |      |   |         |   |   |   |   |
|   |   | $                       | 1,100,406 |   |         | $      | 600,562 |   |   |   | 83.2% |   |

| Research      and Development Expenses |   | Three      Months Ended |    |   |         |   |
|----------------------------------------|--------|-------------------------|---------|--------|--------------|--------|
|                                   |   | June      30            |    |   | June      30 |   |   | % |   |
|                                   |   | 2008                    |    |   | 2007         |   |   | Change |   |
|                                   |   |                    |    |   |         |   |   |   |   |
|                                   |   | $                       | 137,967 |   |         | $      | 144,856 |   |   |   | (4.8%) |   |

| Selling, General and      Administrative Expenses |   | Three      Months Ended |      |   |         |   |
|---------------------------------------------------|--------|-------------------------|-----------|--------|--------------|--------|
|                                              |   | June      30            |      |   | June      30 |   |   | % |   |
|                                              |   | 2008                    |      |   | 2007         |   |   | Change |   |
|                                              |   |                    |      |   |         |   |   |   |   |
|                                              |   | $                       | 2,150,300 |   |         | $      | 706,048 |   |   |   | 204.6% |   |

| FinancingExpenses |   | Three      Months Ended |   |   |         |   |
|-------------------|--------|-------------------------|--------|--------|--------------|--------|
|              |   | June      30            |   |   | June      30 |   |   | % |   |
|              |   | 2008                    |   |   | 2007         |   |   | Change |   |
|              |   |                    |   |   |         |   |   |   |   |
|              |   | $                       | 21,649 |   |         | $      | 927,885 |   |   |   | (97.7%) |   |

----

|                                     |   | Six      Months Ended |    |
|------------------------------------------|--------|-----------------------|---------|
|                                     |   | June      30          |    |   | June      30 |   |
|                                     |   | 2008                  |    |   | 2007 |   |
| Statement      of Operations Data:       |   |                  |    |   |   |   |
| Sales                                    |   |                  | 100.00  | % |   |   | 100.00 | % |
| Cost      of sales                       |   |                  | (9.99   | )        |   |   | (7.87 | )        |
| Gross      profit                        |   |                  | 90.01   |   |   |   | 92.13 |   |
| Research      and development            |   |                  | (14.19  | )        |   |   | (22.79 | )        |
| Selling,      general and administration |   |                  | (134.51 | )        |   |   | (118.97 | )        |
| Operation      income/(loss)             |   |                  | (58.69  | )        |   |   | (49.63 | )        |
| Interest      and financing expenses     |   |                  | (2.43   | )        |   |   | (127.02 | )        |
| Other      income (expense), net         |   |                  | 1.19    |   |   |   | 0.05 |   |
| Income/(loss)      for the period        |   |                  | (59.93  | )        |   |   | (176.60 | )        |

| Sales  |   | Six      Months Ended |      |   |         |   |
|--------|--------|-----------------------|-----------|--------|--------------|--------|
|   |   | June      30          |      |   | June      30 |   |   | % |   |
|   |   | 2008                  |      |   | 2007         |   |   | Change |   |
|   |   |                  |      |   |         |   |   |   |   |
|   |   | $                     | 2,206,370 |   |         | $      | 1,268,934 |   |   |   | 73.88% |   |

| Research      and Development Expenses |   | Six      Months Ended |    |   |         |   |
|----------------------------------------|--------|-----------------------|---------|--------|--------------|--------|
|                                   |   | June      30          |    |   | June      30 |   |   | % |   |
|                                   |   | 2008                  |    |   | 2007         |   |   | Change |   |
|                                   |   |                  |    |   |         |   |   |   |   |
|                                   |   | $                     | 313,099 |   |         | $      | 289,220 |   |   |   | 8.3% |   |

| Selling, General and      Administrative Expenses |   | Six      Months Ended |      |   |         |   |
|---------------------------------------------------|--------|-----------------------|-----------|--------|--------------|--------|
|                                              |   | June      30          |      |   | June      30 |   |   | % |   |
|                                              |   | 2008                  |      |   | 2007         |   |   | Change |   |
|                                              |   |                  |      |   |         |   |   |   |   |
|                                              |   | $                     | 2,967,853 |   |         | $      | 1,509,660 |   |   |   | 96.6% |   |

----

| FinancingExpenses |   | Six      Months Ended |   |   |         |   |
|-------------------|--------|-----------------------|--------|--------|--------------|--------|
|              |   | June      30          |   |   | June      30 |   |   | % |   |
|              |   | 2008                  |   |   | 2007         |   |   | Change |   |
|              |   |                  |   |   |         |   |   |   |   |
|              |   | $                     | 53,505 |   |         | $      | 1,611,638 |   |   |   | (96.7%) |   |

| • | As      of August 18, 2008, we had 22 employees and our salary costs are      approximately $200,000 per month. For the three month period ended June      30, 2008, our average monthly cash expenditures for general, overhead and      administration, exclusive of salary costs, were approximately $150,000 per      month. We expect that our general overhead and administrative costs,      exclusive of salary costs, will remain constant over the next three      months. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| • | We      do not expect to incur significant capital expenditures during 2008 unless      they result from an increase in our level of  operation. |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------|

Item 3.    Quantitative and QualitativeDisclosures about Market Risk

Item 4.   Controls and Procedures

----

PART II – OTHER INFORMATION

Item 1.    Legal Proceedings

Item 1A.    Risk Factors

----

----

|   |          |                                                                                                                               |
|--------|---------------|------------------------------------------------------------------------------------------------------------------------------------|
|   | •  | issue      additional equity securities that would dilute the ownership of our      stockholders;                                  |
|   |          |                                                                                                                               |
|   | •  | use      cash that we may need in the future to operate our    business;                                                           |
|   |          |                                                                                                                               |
|   | •  | incur      or assume debt on terms unfavorable to us or that we are unable to      repay;                                          |
|   |          |                                                                                                                               |
|   | •  | incur      large charges or substantial liabilities;                                                                               |
|   |          |                                                                                                                               |
|   | •  | encounter      difficulties retaining key employees of an acquired company or integrating      diverse business cultures; and |
|   |          |                                                                                                                               |
|   | •  | become      subject to adverse tax consequences, substantial depreciation or deferred      compensation charges.                   |

----

----

Item 2.    Unregistered Sales of EquitySecurities and Use of Proceeds

Item 3.    Defaults upon SeniorSecurities

Item 4.    Submission of Matters to a Voteof Security Holders

----

Item 5.    Other Information

Item 6.    Exhibts

| Number  | Exhibit                                                                                                                                                        |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1(1)  | Restated      Articles of Incorporation of the Company dated June 1,  2000                                                                                     |
|    |                                                                                                                                                           |
| 3.2*    | By-Laws      of the Company                                                                                                                                    |
|    |                                                                                                                                                           |
| 3.3(2)  | Amendment      to By-Laws of the Company                                                                                                                       |
|    |                                                                                                                                                           |
| 10.0(3) | Amendment      No. 1 dated May 12, 2008 to the Executive Employment Agreement dated      October 22, 2007 between Braintech, Inc. and Frederick      Weidinger |
|    |                                                                                                                                                           |
| 31.1*   | Certificate      of the Principal Executive Officer pursuant to Sec 302 of the      Sarbanes-Oxley Act of 2002                                                 |
|    |                                                                                                                                                           |
| 31.2*   | Certificate      of Principal Financial and Accounting Officer pursuant to Sec 302 of the      Sarbanes-Oxley Act of 2002                                      |
|    |                                                                                                                                                           |
| 32.1*   | Certificate      of Principal Executive Officer pursuant to Sec 906 of the Sarbanes-Oxley      Act of 2002                                                     |
|    |                                                                                                                                                           |
| 32.2*   | Certificate      of Principal Financial and Accounting Officer pursuant to Sec 906 of the      Sarbanes-Oxley Act of 2002                                      |

----

| BRAINTECH, INC. (the      Registrant) |   |                               |   |                 |
|---------------------------------------|--------|------------------------------------|--------|----------------------|
|                                  |   |                               |   |                 |
| Signature                             |   | Title                              |   | Date                 |
|                                  |   |                               |   |                 |
| /s/ Frederick Weidinger               |   | Chief      Executive Officer,      |   | August      19, 2008 |
| Frederick      Weidinger              |   | (Principal      Executive Officer) |   |                 |
|                                  |   |                               |   |                 |
|                                  |   |                               |   |                 |
| /s/ Edward A. White                   |   | Secretary/Treasurer,               |   | August      19, 2008 |
| Edward      A. White                  |   | (Principal      Financial Officer) |   |                 |

----

| Number  | Exhibit                                                                                                                                                        |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                           |
| 3.1(1)  | Restated      Articles of Incorporation of the Company dated June 1,  2000                                                                                     |
|    |                                                                                                                                                           |
| 3.2*    | By-Laws      of the Company                                                                                                                                    |
|    |                                                                                                                                                           |
| 3.3(2)  | Amendment      to By-Laws of the Company                                                                                                                       |
|    |                                                                                                                                                           |
| 10.1(3) | Amendment      No. 1 dated May 12, 2008 to the Executive Employment Agreement dated      October 22, 2007 between Braintech, Inc. and Frederick      Weidinger |
|    |                                                                                                                                                           |
| 31.1*   | Certificate      of the Principal Executive Officer pursuant to Sec 302 of the      Sarbanes-Oxley Act of 2002                                                 |
|    |                                                                                                                                                           |
| 31.2*   | Certificate      of Principal Financial and Accounting Officer pursuant to Sec 302 of the      Sarbanes-Oxley Act of 2002                                      |
|    |                                                                                                                                                           |
| 32.1*   | Certificate      of Principal Executive Officer pursuant to Sec 906 of the Sarbanes-Oxley      Act of 2002                                                     |
|    |                                                                                                                                                           |
| 32.2*   | Certificate      of Principal Financial and Accounting Officer pursuant to Sec 906 of the      Sarbanes-Oxley Act of 2002                                      |