<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For The Quarterly Period ended SEPTEMBER 30, 2000
----------------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________
BRAINTECH, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 98-0168932
---------------------- ------------------- ----------------------------
(State or jurisdiction (Commission File (IRS Employer
of incorporation) Number) Identification No.)
930 WEST 1ST ST. #102, NORTH VANCOUVER, B.C., CANADA, V7P 3N4
-------------------------------------------------------------
(Address of Principal Executive offices)
Issuers Telephone Number: (604) 988-6440
--------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
-----------------------------------------------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
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Common Stock, $0.001 par value
(Title of Class)
<PAGE>
Check whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 45,599,333 Common shares, par value
$0.001, as at October 31, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
----- -----
Index to Exhibits on Page 6
ii
<PAGE>
BrainTech, Inc.
Form 10-QSB
TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.............................................. 1
Item 2. Management's Discussion and
Analysis or Plan of Operation..................................... 1
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 5
Item 2. Changes in Securities and Use of Proceeds......................... 6
Item 3. Defaults upon Senior Securities................................... 6
Item 4. Submission of Matters to a Vote of
Securities Holders................................................ 6
Item 5. Other Matters..................................................... 6
Item 6. Exhibits and Reports on Form 8-K.................................. 6
</TABLE>
iii
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Each of the following items are contained in our Consolidated Financial
Statements and are set forth herein.
(i) Consolidated Balance Sheets as of December 31, 1999 and September
30, 2000;
(ii) Consolidated Statements of Operations for the nine month periods
ended September 30, 1999 and 2000;
(iii) Consolidated Statements of Stockholders' Deficit for the period
beginning January 3, 1994 and ending September 30, 2000;
(iv) Consolidated Statements of Cash Flows for the nine month periods
ended September 30, 1999 and 2000; and
(v) Notes to Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
OVERVIEW
BrainTech, Inc. was incorporated in 1987. Since the first quarter of 1994, our
principal business has been the development of automated vision systems and
hardware and software products used in automated vision systems.
As of September 30, 2000 we have incurred an aggregate deficit of approximately
$7,766,297 during the development stage. We may continue to incur significant
additional operating losses as our product development, research and
development, and marketing efforts continue. Operating losses may fluctuate from
quarter to quarter as a result of differences in the timing of expenses incurred
and revenue recognized.
RESULTS OF OPERATIONS
We believe that our limited history of revenue generation and recent business
developments make the prediction of future results of operations difficult, and,
accordingly, that our operating results should not be relied upon as an
indication of future performance.
1
<PAGE>
NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000 COMPARED WITH THE NINE MONTH PERIOD
ENDED SEPTEMBER 30, 1999
During the nine month period ended September 30, 2000, we recorded revenue from
operations of $121,312. This amount included:
(a) $65,876 for a brake shoe sorting and inspection system developed for
Satisfied Brake Products Inc.;
(b) $11,387 for the Wizmaster program developed for Sideware Systems
Inc.; and
(c) approximately $44,000 from ABB Flexible Automation Group, Inc.,
principally for two vision systems used in the manufacture of plastic
fuel tanks.
We recorded no revenue from operations during the nine month period ended
September 30, 1999.
Cost of sales for the nine month period ended September 30, 2000, were $47,361.
This amount consisted of:
(a) $26,105 paid to a systems integrator working on the Satisfied Brake
Products Inc. project; and
(b) approximately $21,000 for equipment and expenses related to the
projects that generated revenue from operations.
As we had no revenue during the nine month period ended September 30, 1999, we
recorded no cost of sales during that period either.
Research and development expenses for the nine month period ended September 30,
2000 were $353,543, compared with $442,790 for the nine month period ended
September 30, 1999. This change resulted principally from the following factors:
(a) salaries allocated to research and development decreased from $245,598
to $218,295; and
(b) payments to North Shore Circuit Design for work on the IMPAC board
decreased from $141,601 to $87,751.
Selling, general and administrative expenses increased from $488,962 for the
nine month period ended September 30, 1999 to $495,062 for the nine month period
ended September 30, 2000. Several factors contributed to the change. The
principal factors were as follows.
(a) Amortization increased from $20,261 to $50,587, principally as a result
of amortization charges in respect of newly acquired leasehold
improvements and office furniture and equipment.
(b) Filing and transfer fees increased from $4,960 to $30,817, principally
as a result of costs incurred in filing a registration statement under
the Securities Act of 1933.
2
<PAGE>
(c) Accounting and auditing expenses increased from $28,500 to $54,096,
principally due to additional costs incurred in complying with the
filing requirements of the Securities and Exchange Commission and
in filing a registration statement under the Securities Act of 1933.
(d) Legal expenses increased from $62,509 to $86,123, principally due to
the costs of filing a registration statement under the Securities Act
of 1933, costs incurred in preparing proxy materials for our 2000
shareholders' meeing, and costs associated with holding our 2000
shareholders' meeting.
(e) Investor relations costs increased from $19,695 to $49,331, principally
as a result of costs incurred in distributing materials for our 2000
shareholders' meeting and in proxy tabulation costs.
(f) Sundry items decreased from $73,342 to $29,190. Sundry items include
trade show expenses, which decreased from $20,249 to $2,281. Sundry
items for the nine month period ended September 30, 2000 also reflected
a credit of $22,850 for interest revenue received. There was no
corresponding credit for the nine month period ended September 30,
1999.
(g) Rent costs decreased from $32,960 to $25,397.
(h) During the nine month period ended September 30, 1999, we incurred a
foreign exchange loss of $73,287. The comparative figure for 2000 was
$20,483. Our foreign exchange losses result principally from adjusting
entries made in respect of transactions recorded in United States
dollars, but actually carried out in Canadian dollars.
(i) Travel costs decreased from $19,766 to $981.
PLAN OF OPERATION
On March 26, 2000 we entered into an Alliance Agreement with ABB Flexible
Automation Group, Inc., part of the Canadian division of the ABB Group. Under
the Alliance Agreement we have agreed to co-operate with ABB Flexible Automation
Group, Inc. in identifying, developing, and pursuing business opportunities
which combine the expertise and technology of the two companies. Either party,
upon becoming aware of such an opportunity, will notify the other, and the
parties will co-operate in preparing proposals, specifications, and contracts.
Either party may terminate the Alliance Agreement on 120 days notice.
We received an initial purchase order from ABB to develop a vision system to
identify and sort automobile transmission casing parts. The price for the vision
system was approximately $18,000. We completed and installed the system in May
2000. As a result of administrative oversight, we have not yet received payment
for this vision system, but expect to receive payment shortly and to record this
revenue in the fourth quarter of 2000.
3
<PAGE>
In July 2000 we received a purchase order to develop two further vision systems
for ABB, to locate specified features on plastic blow-moulded automotive fuel
tanks, and to transmit that information to industrial robots operating on the
fuel tanks. The price for each system was approximately $20,000. We completed
and installed the systems in September 2000.
We believe that our Alliance Agreement with ABB represents our best prospect for
securing additional sales, and we intend to concentrate our efforts on advancing
our relationship with ABB.
We have also commenced development of a system for internet based service and
support of industrial systems. The principal components of the system will
include the following.
(a) a wireless device, to be used by on-site operating personnel at an
industrial site to send and receive messages;
(b) wireless transceivers, to transmit messages between on-site personnel
and a server operating at the industrial site;
(c) a server which controls wireless communication within the industrial
site, and which also connects to internet sites offering web based
technical support; and
(d) web based technical support systems, designed to respond to technical
inquiries over the internet.
We plan to implement the wireless communication components of the system through
Blue Tooth communications protocols. We plan to implement the web based
technical support component through third party internet communication software
and through the Wizmaster program which we developed. To complete development of
the system, we will have to develop software programs which create interfaces
between the wireless devices, the wireless transceivers, and the internet
communication software. To market the system, we will have to secure marketing
rights in respect of any third party software incorporated in the system.
We plan to develop the internet based service and support system initially for
vision systems which we develop and install. Once the system is developed, we
also plan to try to market it through our alliance with ABB, to users of
industrial robotic systems developed by ABB.
Investors are cautioned that our work on the internet based service and support
system is at a preliminary stage. We expect to complete prototype demonstration
versions of some of the software components by the end of the first quarter of
2001. However, we do not have a comprehensive timetable or budget for completion
of the system. There is no assurance that the system will be successfully
developed, or if it is, that it can be profitably marketed. It is unlikely that
we will be able to complete development of the system or market it successfully
if we do not receive support through our alliance with ABB.
We have presently halted development work on the IMPAC board. We may utilize the
IMPAC board in the future development of vision systems. However, we presently
have no specific plans for any further development or utilization of the IMPAC
board.
4
<PAGE>
We have recently increased our workforce. Our President now works for us full
time, and we have hired a new Chief Financial Officer, a new Vice President of
Strategic Relations, and two other employees. We have 9 full time employees. Our
monthly salary costs are approximately $45,000 per month.
We have historically shared our head office premises and certain personnel with
Sideware Systems Inc., but we are in the process of separating our operations
from those of Sideware Systems Inc. We have occupied separate premises, although
we will continue to occupy some space at the Sideware head office, and receive
some services from Sideware personnel, during a transition period.
During the nine month period ended September 30, 2000 our average monthly cash
expenses were approximately $90,000 per month, inclusive of salaries and
benefits. Some of the expenses during that period, such as legal expenses for
the preparation of shareholder meeting materials, will not be repeated during
the next six months. However, as set out above, we have also increased our work
force. We expect that with our current work force, our monthly expenditures
during the next six months will be approximately $120,000 per month.
As at November 9, 2000 our cash balance was approximately $400,000. Grant
Sutherland and Owen Jones, two of our directors, have committed to invest a
total of $500,000 by way of equity private placement. Inclusive of those funds,
we have sufficient cash resources to pay ongoing operating expenses for
at least 6 months. We are seeking additional financing, but do not yet have
specific commitments for additional funds.
We have not at any time been able to generate sufficient revenue from sales of
our products or services to sustain ongoing operations, and we do not have an
established record of sales or established distribution channels for our
products or services. In order to continue as a going concern, we will have to
begin generating significant sales revenue.
With respect to our cash resources, we will give priority to pursuing new vision
systems projects with ABB. Excess cash resources, if any, will be used to pursue
our other business objectives.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In October 2000, we settled our existing legal dispute with John Kostiuk, and we
have entered into a mutual release with Mr. Kostiuk. Otherwise, there has been
no change in the status of our legal proceedings.
5
<PAGE>
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
ITEM 5. OTHER MATTERS
CHANGE IN MANAGEMENT.
Prior to October 16, 2000 Owen Jones, our President, worked part time for
BrainTech, Inc. Effective October 16, 2000 Mr. Jones works full time for
BrainTech, Inc.
Effective November 1, 2000, Edward White has joined our board of directors, and
has also assumed the position of Chief Financial Officer.
Effective November 1, 2000 Vince Taylor has been appointed Vice President of
Strategic Relations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
We did not file any reports on Form 8-K during the quarter ended September
30, 2000. On November 3, 2000 we filed an report on Form 8-K advising of the
appointments of Mr. White and Mr. Taylor.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
NUMBER EXHIBIT
<C> <S>
3.1(1) Articles of Incorporation, dated February 27, 1987
3.2(1) Articles of Amendment, dated July 14,1998
3.3(1) Articles of Amendment, dated June 28, 1990
3.4(1) Articles Of Amendment of the Company, dated February 8, 1993
3.5(1) Articles of Amendment of the Company, dated April 6, 1993
3.6(1) Articles of Amendment of the Company, dated December 6, 1993
3.7(1) By-Laws of the Company
4.1(1) Specimen Stock Certificate
</TABLE>
6
<PAGE>
<TABLE>
<C> <S>
4.2(1) 1997 Stock Option Plan
4.3(1) 2000 Stock Option Plan
5.1(1) Opinion of William K. Ziering, Attorney-at-Law
10.1(1) License Agreement between the Company and Willard W. Olson, dated January 5, 1995.
10.2(1) Product Development Agreement between the Company and United Technologies
Microelectronic Systems Inc., dated July 6, 1998.
10.3(1) Manufacturing and Sales Agreement between the Company and
United Technologies Microelectronic Systems Inc., dated July
6, 1998.
10.4(1) Operating Agreement between the Company and Sideware Systems Inc., dated November 1,
1995
10.5(1) Cost Sharing and Allocation Agreement between the Company and Sideware Systems Inc.
10.6(1) Assignment of Lease and Modification of Lease Agreement dated August 17, 1998 between
HOOPP Realty Inc., Techwest Management Inc., Sideware Systems Inc., and BrainTech, Inc.
10.7(1) Software Development and License Agreement dated September 20, 1999 between the Company
and Sideware Systems Inc.
10.8(1) Lease effective as of July 1, 1999 between the Company, Techwest Management Inc.,
Sideware Systems Inc. and Pacific Centre Leaseholds Ltd.
10.9(1) Assignment Agreement effective as of July 1, 1999 between the
Company, Techwest Management Inc., Sideware Systems Inc., and
SJM Management Ltd.
10.10(1) Agreement between the Company, Mercator Robotec Inc. and Satisfied Brake Products Inc.
10.11(1) Alliance Agreement dated March 26, 2000 between the Company and ABB Flexible Automation
Group Inc.
10.12(1) Sublease and Consent to Lease between MGI International Marine Safety Solutions Inc.,
Techwest Management Inc. and HOOPP Realty Inc., and Offer to Lease
10.13 Letter agreement with Sideware Systems Inc.
11.1 Computation of net loss per share
21.1(1) Subsidiaries of the Registrant
27.1 Summary Financial Data for the nine month period ended September 30, 2000.
</TABLE>
(1) Exhibit already on file.
During the three month period covered by this Quarterly Report we did not
file any Reports on Form 8-K.
7
<PAGE>
SIGNATURES
In accordance with Section 13 of the Securities Exchange Act of 1934, the
registrant caused this Quarterly Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 9, 2000 BrainTech, Inc.
"Grant Sutherland"
------------------------------------
W. Grant Sutherland
Director
Chairman of the Board of Directors
8
<PAGE>
Consolidated Financial Statements of
BRAINTECH, INC.
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to
September 30, 2000
(Unaudited - Prepared by Management)
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
--------------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 379,250 $ 431,390
Accounts receivable 84,703 16,189
Inventory 3,369 3,369
Due from related companies (note 4(a)) 6,609 13,644
Prepaid expenses 12,266 7,392
---------------------------------------------------------------------------------------------------------
486,197 471,984
Deposit on lease 2,297 -
Due from directors and officers (note 4(b)) 35,635 10,130
Fixed assets (note 5) 157,845 134,210
--------------------------------------------------------------------------------------------------------------
$ 681,974 $ 616,324
==============================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 88,954 $ 87,710
Deferred revenue - 21,506
---------------------------------------------------------------------------------------------------------
88,954 109,216
Amounts in dispute (note 8(b)) 606,000 606,000
--------------------------------------------------------------------------------------------------------------
694,954 715,216
Stockholders' deficit:
Common stock (note 6):
Authorized: 200,000,000 shares, with $0.001 par value
Issued: 45,599,333 shares (1999 - 41,338,333) 45,599 41,228
Additional paid-in capital (note 6(c)) 7,766,518 6,910,323
Deficit accumulated prior to the development stage (58,800) (58,800)
Deficit accumulated during the development stage (7,766,297) (6,991,643)
---------------------------------------------------------------------------------------------------------
(12,980) (98,892)
Future operations (note 2)
Contingencies (note 8)
Commitments (note 9)
--------------------------------------------------------------------------------------------------------------
$ 681,974 $ 616,324
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
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Period from
inception on
January 3, 1994 Nine months ended September 30,
to September 30, -------------------------------
2000 2000 1999
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<S> <C> <C> <C>
Sales $ 178,822 $ 121,312 $ -
Cost of sales 77,366 47,361 -
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Gross margin 101,456 73,951 -
Expenses:
Consulting and contractors 736,561 - 4,210
Research and development (note 10) 2,511,244 353,543 442,790
Selling, general and administrative (note 11) 4,459,274 495,062 488,962
Non-operating expenses:
Loss on disposal of fixed assets 26,054 - -
Write-down of investments 100,000 - -
Write-down of intangible assets 17,189 - -
Write-down of organization costs 17,431 - -
---------------------------------------------------------------------------------------------------------
7,867,753 848,605 935,962
--------------------------------------------------------------------------------------------------------------
Loss for the period $ 7,766,297 $ 774,654 $ 935,962
--------------------------------------------------------------------------------------------------------------
Loss per share information:
Basic and diluted $ 0.31 $ 0.02 $ 0.03
==============================================================================================================
Weighted average number of common
shares outstanding 24,986,182 43,615,786 31,872,060
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Consolidated Statements of Stockholders' Deficit
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
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Deficit Deficit
accumulated accumulated
Additional prior to the during the
Common paid-in development development
Shares stock capital stage stage
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<S> <C> <C> <C> <C> <C>
Balance, January 3, 1994 17,400,000 $ 17,400 $ 1,039,271 $ (58,800) $ -
Loss for the period - - - - (1,006,716)
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Balance, December 31, 1994 17,400,000 17,400 1,039,271 (58,800) (1,006,716)
Loss for the period - - - - (748,310)
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Balance, December 31, 1995 17,400,000 17,400 1,039,271 (58,800) (1,755,026)
Common stock transactions (net of issue
costs):
Issued for cash at $.1895 per share 950,000 950 173,440 - -
Issued for cash at $.25 per share 733,333 733 183,167 - -
Issued for cash at $.20 per share 3,000,000 3,000 592,500 - -
Shares issued for services rendered 1,200,000 1,200 238,800 - -
Loss for the period - - - - (959,945)
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Balance, December 31, 1996 23,283,333 23,283 2,227,178 (58,800) (2,714,971)
Common stock transactions (net of issue
costs):
Issued for cash at $.20 per share 2,000,000 2,000 396,991 - -
Issued for cash at $.15 per share 1,000,000 1,000 148,279 - -
Shares issued for services rendered 300,000 300 59,700 - -
Compensatory benefit of employee stock
options - - 200,000 - -
Loss for the period - - - - (930,042)
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Balance, December 31, 1997 26,583,333 26,583 3,032,148 (58,800) (3,645,013)
Common stock transactions (net of issue
costs):
Issued for cash at $.25 per share 1,600,000 1,600 398,400 - -
Issued for cash at $.20 per share 2,188,000 2,188 435,412 - -
Compensatory benefit of employee stock
options - - 927,800 - -
Loss for the period - - - - (2,110,556)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 30,371,333 30,371 4,793,760 (58,800) (5,755,569)
Common stock transactions (net of issue
costs):
Issued for cash at $.15 per share 9,800,000 9,800 1,433,950 - -
Issued for cash at $.20 per share 157,000 157 31,243 - -
Issued for cash at $.60 per share 1,010,000 1,010 604,990 - -
Common stock subscriptions - - 110,270 - -
Subscriptions receivable - (110) (65,890) - -
Compensatory benefit of employee stock
options - - 2,000 - -
Loss for the period - - - - (1,236,074)
---------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 41,338,333 41,228 6,910,323 (58,800) (6,991,643)
Common stock transactions (net of issue
costs):
Issued for cash at $.20 per share 3,976,000 3,976 790,305 - -
Subscriptions received - 110 65,890 - -
Stock issued on subscriptions 285,000 285 - - -
Loss for the period - - - - (774,654)
---------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000 45,599,333 $ 45,599 $ 7,766,518 $ (58,800) $ (7,766,297)
=====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Period from
inception on
January 3, 1994 Nine months ended September 30,
to September 30, -------------------------------
2000 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $ (7,766,297) $ (774,654) $ (935,962)
Items not involving cash:
Amortization 130,545 50,587 20,261
Bad debt 77,234 2,126 -
Loss on disposal of fixed assets 26,054 - -
Write-down of investments 100,000 - -
Write-down of intangible assets 17,189 - -
Write-down of organization costs 17,431 - -
Shares issued for services rendered 300,000 - -
Compensatory benefit of employee
stock options 1,129,800 - -
Changes in non-cash operating working capital:
Inventory (3,369) - (3,575)
Accounts receivable (86,829) (70,640) 7,208
Prepaid expenses (12,266) (4,874) (4,252)
Accounts payable and accrued liabilities 76,015 1,837 (22,146)
Deferred revenue - (21,506) -
---------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,994,493) (817,124) (938,466)
Cash flows from investing activities:
Purchase of marketable securities (100,000) - -
Purchase of fixed assets (354,815) (115,652) (38,006)
Proceeds from notes receivable (130,181) - -
Proceeds from disposal of real estate 306,752 - -
Deposit on lease (2,297) (2,297)
---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (280,541) (117,949) (38,006)
Cash flows from financing activities:
Notes receivable 65,203 10,130 -
Loans to directors and officers (38,461) (35,635) -
Advances from related companies 22,602 47,872 (308,152)
Mortgages payable (207,739) - -
Share subscriptions received 110,270 - 20,270
Common shares issued, net of issue costs 6,458,297 860,566 1,376,250
---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,410,172 882,933 1,088,368
--------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 135,138 (52,140) 111,896
Cash and cash equivalents, beginning of period 244,112 431,390 22,479
--------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 379,250 $ 379,250 $ 134,375
==============================================================================================================
Supplemental information:
Cash paid for interest $ 3,797 $ - $ -
Cash paid for taxes - - -
Non-cash financing activities:
Shares issued for services rendered 300,000 - -
Sale of fixed assets for use of premises 41,430 41,430 -
--------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
1. ORGANIZATION:
Braintech, Inc. (the "Company") was incorporated on March 4, 1987 under the
laws of the State of Nevada as Tome Capital, Inc. The Company initially was
in the business of real estate development. On January 3, 1994, the Company
changed its name to Braintech, Inc. and began operations as a high tech
development company, developing advanced video recognition software. All
sales of its products and services are made in this industry segment.
2. FUTURE OPERATIONS:
During the nine months ended September 30, 2000, the Company incurred a
loss of $774,654 and used cash in operating activities of $817,124. From
inception of the business on January 3, 1994, the Company has incurred
cumulative losses of $7,766,297 and used cash for operating activities of
$5,994,493.
These consolidated financial statements have been prepared on the going
concern basis under which an entity is considered to be able to realize its
assets and satisfy its liabilities in the ordinary course of business.
Operations to date have been primarily financed by equity transactions. The
Company's future operations are dependent upon continued support by
shareholders, the achievement of profitable operations and the successful
completion of management's plan to obtain additional equity financing,
although there can be no assurances that the Company will be successful.
The consolidated financial statements do not include any adjustments
relating to the recoverability of assets and classification of assets and
liabilities that might be necessary should the Company be unable to
continue as a going concern.
3. SIGNIFICANT ACCOUNTING POLICIES:
(a) Basis of presentation:
These consolidated financial statements are prepared in accordance with
generally accepted accounting principles in the United States and
present the financial position, results of operations and cash flows of
the Company and its wholly-owned subsidiary Brainware Systems Inc.,
incorporated under the Company Act of British Columbia on March 30,
1994. All material intercompany balances and transactions have been
eliminated.
To September 30, 2000, for United States accounting and reporting
purposes, the Company is considered to be in a development stage as it
was devoting substantial efforts to developing its business operations.
Commencement of the development stage is considered to have occurred on
January 3, 1994 when the Company began operations as a high-technology
development company.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(b) Cash and cash equivalents:
Cash and cash equivalents include highly liquid investments, such as
term deposits, having terms to maturity of three months or less at the
date of acquisition and that are readily convertible to contracted
amounts of cash.
(c) Research and development costs:
Research and development costs are expensed as incurred.
(d) Inventory:
Inventory is valued at the lower of cost and net realizable value with
cost being determined on a first-in-first-out basis. Cost includes
laid-down cost which is the cost of materials and other applicable
direct costs.
(e) Revenue recognition:
The Company recognizes revenue when there is persuasive evidence of
an arrangement, delivery has occurred, the fee is fixed and
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, "Software Revenue Recognition", and are
consistent with the guidance contained within the SEC's Staff
Accounting Bulletin No. 101 - "Revenue Recognition in Financial
Statements".
Cash received in advance of meeting the revenue recognition criteria is
recorded as deferred revenue.
(f) Fixed assets:
Fixed assets are carried at cost less accumulated amortization.
Amortization is calculated annually as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Asset Basis Rate
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Furniture and fixtures declining-balance 20%
Computer equipment declining-balance 30%
Trade show assets declining-balance 20%
Computer software straight-line 50%
Leasehold improvements straight-line lease term
-----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(g) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual amounts may differ
from these estimates.
(h) Foreign currency:
The Company's functional currency is the United States dollar. Monetary
assets and liabilities denominated in a foreign currency have been
translated to the functional currency into United States dollars at
rates of exchange in effect at the balance sheet date. Non-monetary
assets and liabilities, and revenue and expense items are translated at
rates prevailing when they were acquired or incurred. Exchange gains
and losses are included in operations.
(i) Stock-based compensation:
The Company has elected to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations in accounting for
its stock options. Under APB 25, compensation expense is only recorded
to the extent that the exercise price is less than fair value on the
date of grant. The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). If option grants are made to
non-employees, compensation expense will be recognized equal to its
fair value over the vesting period.
(j) Income taxes:
The Company follows the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized based
on the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and
liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date. When the likelihood of realization of a deferred tax
asset is not considered to be more likely than not, a valuation
allowance is provided.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(k) Concentration of credit risk:
Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash
equivalents.
The Company maintains cash equivalents with various financial
institutions located in Canada and the United States. The Company's
policy is to limit the exposure at any one financial institution and to
invest solely in highly liquid investments that are readily convertible
to contracted amounts of cash.
(l) Loss per share:
Loss per share is calculated based on the weighted average number of
shares outstanding.
As the effect of outstanding options is anti-dilutive, diluted loss per
share does not differ from basic loss per share.
(m) Comprehensive income:
Net income for the Company is the same as comprehensive income.
(n) Unaudited interim financial information:
The financial information as at September 30, 2000 and for the nine
months ended September 30, 2000 and 1999 is unaudited; however, such
financial information reflects all adjustments (consisting solely of
normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the results presented.
4. RELATED PARTY BALANCES AND TRANSACTIONS:
(a) Due to (from) related companies:
The Company has had several transactions with Sideware Systems Inc.
("Sideware"). Sideware is under the control of common directors and
principal shareholders. However, the Companies' businesses are
separate. The Companies raise their financing separately and do not
share the proceeds from their separate issuances of securities. The
companies also own separate technology. Transactions with Sideware
during our last three fiscal years have been as follows:
(i) Cost sharing agreement:
The Company shares office premises and some personnel with
Sideware. Prior to 1999, costs were shared equally with Sideware.
In October 1999, a new agreement was made to reallocate common
costs 80% to Sideware and 20% to the Company calculated
retroactive to January 1, 1999.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
4. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED):
(a) Due to (from) related companies (continued):
(i) Cost sharing agreement (continued):
TechWest Management Inc. ("TechWest"), which is under the
control of common directors, is responsible for making regular
payments to suppliers on behalf of the Company and Sideware.
Cash is advanced to TechWest by the Company and Sideware to cover
these expenses. TechWest then allocates the expenses 80% to
Sideware and 20% to Braintech. Amounts due to (from) related
companies result from these intercompany expense allocations and
cash advances. The amounts due to (from) related companies are as
follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
September 30, December 31,
2000 1999
------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Sideware Systems Inc. $ (6,609) $ -
TechWest Management Inc. - (11,848)
Other related companies - (1,796)
------------------------------------------------------------------------------------------------
$ (6,609) $ (13,644)
=================================================================================================
</TABLE>
(b) Due from directors and officers:
The amounts due from directors and officers represent cash advances
provided to current directors and officers of the Company.
(c) Transactions with directors and officers:
During the nine month period ended September 30, 2000, the Company was
charged $88,359 (September 30, 1999 - $24,542) for management and
consulting services provided by directors and officers. These charges
are included in selling, general and administrative expenses.
(d) Sale to related company:
During the nine month period ended September 30, 2000, a sale of
$11,387 (September 30, 1999 - $nil) was made to a company with common
shareholders and directors. At September 30, 2000, the Company entered
into an agreement with Sideware Systems Inc. for the sale of leasehold
improvements at their net book value of $41,430. This amount will be
offset by usage fees which will be accrued to Sideware Systems Inc.
from the Company while sharing the premises in which Sideware Systems
Inc. resides.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
5. FIXED ASSETS:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Accumulated Net book
SEPTEMBER 30, 2000 Cost amortization value
---------------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C> <C>
Furniture and fixtures $ 58,247 $ 11,409 $ 46,838
Computer equipment 104,124 44,569 59,555
Trade show assets 17,306 5,147 12,159
Computer software 53,102 48,186 4,916
Leasehold improvements 40,823 6,446 34,377
---------------------------------------------------------------------------------------------------------
$ 273,602 $ 115,757 $ 157,845
=========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Accumulated Net book
DECEMBER 31, 1999 Cost amortization value
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 22,945 $ 5,320 $ 17,625
Computer equipment 80,745 23,771 56,974
Trade show assets 13,307 2,851 10,456
Computer software 50,795 36,898 13,897
Leasehold improvements 41,992 6,734 35,258
---------------------------------------------------------------------------------------------------------
$ 209,784 $ 75,574 $ 134,210
=========================================================================================================
</TABLE>
6. COMMON STOCK:
(a) At the annual general meeting of the Company on May 17, 2000, the
shareholders approved an increase in the authorized share capital of
the company from 50,000,000 to 200,000,000 shares.
(b) Of the shares issued at September 30, 2000, 3,245,000 shares (December
31, 1999 - 12,595,000) are subject to trading restrictions. These
include the 1,500,000 shares retained by the Company, as described in
note 6(c).
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
6. COMMON STOCK (CONTINUED):
(c) 5,500,000 shares were issued for technology in 1993 and recorded at a
par value of $5,500. 1,500,000 shares have been retained by the Company
because the development of the technology has not been completed.
(d) Additional paid-in capital arises on the issuance of common shares at a
price in excess of par value.
(e) Stock options:
The Company has reserved 7,500,000 common shares pursuant to the 1997
stock option plan and an additional 7,500,000 common shares pursuant to
the 2000 stock option plan. Options to purchase common shares of the
Company may be granted by the Board of Directors and vest immediately.
Stock option activity during the nine months ended September 30, 2000
is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Weighted Weighted
average average Outstanding Outstanding
exercise fair December 31, Forfeited/ September 30,
Expiry dates price value 1999 Granted Exercised expired 2000
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 16, 2002 $0.20 $0.19 4,012,000 - 2,529,000 100,000 1,383,000
May 13, 2003 $0.20 $0.76 1,103,000 - 802,000 - 301,000
July 2, 2003 $0.20 $0.77 125,000 - 125,000 - -
April 19, 2004 $0.20 $0.16 965,000 - 320,000 - 645,000
November 25, 2004 $0.20 $0.18 200,000 - 200,000 - -
------------------------------------------------------------------------------------------------------
6,405,000 - 3,976,000 100,000 2,329,000
======================================================================================================
</TABLE>
Stock option activity during the nine months ended September 30, 1999
is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Weighted Weighted
average average Outstanding Outstanding
exercise fair December 31, Forfeited/ September 30,
Expiry dates price value 1998 Granted Exercised expired 1999
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 16, 2002 $0.20 $0.19 4,097,000 - - - 4,097,000
May 13, 2003 $0.20 $0.76 1,210,000 - - 35,000 1,175,000
July 2, 2003 $0.20 $0.77 125,000 - - - 125,000
April 19, 2004 $0.20 $0.16 - 965,000 - - 965,000
------------------------------------------------------------------------------------------------------
5,432,000 965,000 - 35,000 6,362,000
======================================================================================================
</TABLE>
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 8
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
6. COMMON STOCK (CONTINUED):
(e) Stock options (continued):
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" ("FAS 123") and has elected to continue measuring
compensation costs using the intrinsic value based method of
accounting. Under the intrinsic value based method, employee stock
option compensation is the excess, if any, of the quoted market value
of the stock at the date of grant over the amount an optionee must pay
to acquire stock.
Had compensation cost been determined based on the fair value of
employee stock options at their grant date the charge to earnings
calculated over the vesting period would be as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Period from
inception on
January 31, 1994 Nine months ended September 30,
September 30, ---------------------------------
2000 2000 1999
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss for the period, as reported $ (7,766,297) $ (774,654) $ (935,962)
Estimated fair value of option grants (2,375,052) - (154,171)
-----------------------------------------------------------------------------------------------------
(10,141,349) (774,654) (1,090,133)
Less compensatory benefit included
in expenses 1,129,800 - -
-----------------------------------------------------------------------------------------------------
Pro forma loss $ (9,011,549) $ (774,654) $ (1,090,133)
======================================================================================================
Loss per share $ (0.36) $ (0.02) $ (0.03)
======================================================================================================
</TABLE>
The fair value of the stock option grants have been estimated using the
Black-Scholes option-pricing model with the following assumptions:
dividend yield - 0% (all periods), risk-free interest rate in 1999 -
5.88%, expected option life - five years (all periods); expected
volatility in 1999 - 120%. No options were granted during the nine
month period ended September 30, 2000.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 9
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
7. INCOME TAXES:
At September 30, 2000 the Company has non-capital loss carry forwards
for income tax purposes of approximately $5,196,000 which may be
deducted in the calculation of taxable income of future periods. The
unrecorded benefit of these losses carried forward is approximately
$2,150,000. The benefit has been fully offset by a valuation allowance
due to the uncertainty of the realization of the benefits.
The unrealized benefits of the carry forward losses expire as follows:
<TABLE>
<S> <C>
2010 $ 25,000
2011 972,500
2012 2,134,700
2013 1,246,400
2014 817,400
--------------------------------------------------------------
$ 5,196,000
==============================================================
</TABLE>
8. CONTINGENCIES:
The Company is engaged in the following legal disputes:
(a) On February 1, 1999, a former employee of the Company commenced legal
proceedings against the Company claiming approximately $100,000 in
damages for an alleged breach of a stock option agreement and
approximately $7,500 alleged to be owing pursuant to a consulting
agreement. The Company has filed a defense and counterclaim alleging
breach of fiduciary duty and negligence. While the ultimate outcome is
uncertain, management of the Company believes it will be successful in
defending this action and accordingly no amount has been provided in
these financial statements.
(b) On March 16, 1999, three corporations commenced legal proceeding
against the Company and certain of its present and former directors
claiming damages in the amount of $606,000 for breach of contract and
conversion of stock certificates. The plaintiffs have not sought
recovery of any shares of the Company. The Company has filed a defense
and counterclaim alleging that the plaintiffs and a former promoter of
the Company, caused share certificates of the defendant to be issued to
the plaintiffs improperly, and caused funds of the Company to be used
for unauthorized and improper purposes. As at September 30, 2000 and
December 31, 1999 the Company has recorded the full amount of the
$606,000 as a liability.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 10
(Expressed in U.S. Dollars)
(Unaudited)
Nine months ended September 30, 2000 and 1999
Period from inception on January 3, 1994 to September 30, 2000
-------------------------------------------------------------------------------
9. COMMITMENTS:
The Company has obligations under operating lease arrangements which
require the following minimum annual payments:
<TABLE>
<S> <C>
2000 $ 9,125
2001 36,501
2002 6,603
-------------------------------------------------------------
$ 52,229
=============================================================
</TABLE>
Of these amounts, $12,000 is recoverable pursuant to an agreement with
Sideware Systems Inc., a company with certain common shareholders and
directors as the Company.
10. RESEARCH AND DEVELOPMENT EXPENDITURES:
Included in cumulative research and development expenditures is $438,700
of compensatory benefit of employee stock options from the period of
inception on January 31, 1994 to September 30, 2000. No benefit was
recorded during the nine month periods ended September 30, 2000 and 1999.
11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses are comprised of the
following:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Period from
inception on
January 31, 1994 Nine months ended September 30,
September 30, ---------------------------------
2000 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Compensatory benefit of employee
stock options $ 691,100 $ - $ -
Salaries and benefits 961,546 95,545 92,083
Other 2,806,628 399,517 396,879
---------------------------------------------------------------------------------------------------------
$ 4,459,274 $ 495,062 $ 488,962
=========================================================================================================
</TABLE>
