<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 MARCH 31, 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)
Issuer/ /s Telephone Number: (604) 988-6440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $0.001 par value
(Title of Class)
<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: 45,589,333 Common shares, par value
$0.001, as at May 11, 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 CONTENT S
Page
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.................................4
Item 2. Changes in Securities and Use of Proceeds.........5
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
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 March 31, 2000 and December 31,
2000;
(iii) Consolidated Statements of Operations for the three month periods
ended March 31, 1999 and 2000;
(iv) Statements of Stockholders' Deficit for the period beginning January
3, 1994 and ending March 31, 2000;
(v) Consolidated Statements of Cash Flows for the three month periods
ended March 31, 1999 and 2000; and
(vi) Notes to Consolidated Financial Statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR 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 March 31, 2000 we have incurred an aggregate deficit of approximately
$7,317,369 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 recognised.
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
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THREE MONTH PERIOD ENDED MARCH 31, 2000 COMPARED WITH THE THREE MONTH PERIOD
ENDED MARCH 31, 1999
During the three month period ended March 31, 2000, we recorded revenue from
operations of $69,886. This amount included:
(a) $58,429 for a brake shoe sorting and inspection system developed for
Satisfied Brake Products Inc.; and
(b) $11,387 for the Wizmaster program developed for Sideware Systems Inc.
We recorded no revenue from operations during the three month period ended March
31, 1999.
Cost of sales for the three month period ended March 31, 2000 were $31,199.
This amount consisted of:
(a) $26,105 paid to a systems integrator working on the Satisfied Brake
Products Inc. project; and
(b) approximately $5,000 for equipment for our transmission casing
inspection project with ABB.
As we had no revenue during the three month period ended March 31,1999, we
recorded no cost of sales during that period either.
Research and development expenses for the three month period ended March 31,
2000 were $151,027, compared with $123,492 for the three month period ended
March 31, 1999. Salaries allocated to research and development decreased from
approximately $98,000 for the three month period ended March 31, 1999 to
approximately $90,000 for the three month period ended March 31, 2000.
Payments to North Shore Circuit Design for work on the IMPAC accelerator
board increased from approximately $20,000 to approximately $47,000.
Selling, general, and administrative expenses decreased from $229,338 for the
three month period ended March 31, 1999 to $215,512 for the three month period
ended March 31, 2000. Several factors contributed to the change. The principal
factors were as follows:
(a) Legal expenses increased from $18,800 to $56,400, principally due to
the cost of filing a registration statement under the Securities Act of
1933, and the cost of preparing proxy materials for our shareholders'
meeting.
(b) Filing and transfer fees increased from $687 to $11,307, principally as
a result of fees paid on the filing of a registration statement under
the Securities Act of 1933.
(c) During the three month period ended March 31, 1999 we incurred a
foreign exchange loss of $46,595. The comparative figure for 2000 was
$18,903. Our foreign exchange losses result principally from adjusting
entries made in
2
<PAGE>
respect of transactions recorded in United States dollars, but actually
carried out in Canadian dollars.
(d) During the three month period ended March 31, 1999 we paid $12,238 for
public relations services. There were no similar payments during the
three month period ended March 31, 2000.
(e) Travel and promotion expenses decreased from $23,127 to $10,331,
principally as a result of reduced trade show participation.
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 terminate the Alliance Agreement on 120 days notice.
We received an initial purchase order from ABB Flexible Automation Group, Inc.
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.
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 also intend to continue our investigation into potential applications for the
IMPAC accelerator board. Through North Shore Circuit Design of Austin Texas, we
are developing a preliminary version of a software application which will
conduct data lookup and searching operations using the IMPAC board. We expect
that that preliminary software application will become available for testing and
research purposes within the next two weeks. Once we have received that
software, we expect to begin testing the IMPAC board for potential applications.
Readers are cautioned that our investigation into potential applications for the
IMPAC board are at a preliminary stage. We have no assurance that we will be
able to identify or develop any application for the IMPAC board which can
profitably exploited.
We are also developing enhancements to the Wizmaster program which we developed
for Sideware Systems Inc.
We currently employ 5 full time and 9 part time officers or employees. Our
current monthly salary costs are approximately $35,000.
3
<PAGE>
During the three month period ended March 31, 2000 our average monthly cash
expenses were approximately $120,000 per month, inclusive of salaries and
benefits. However, certain expenses during that period, such as legal expenses
for the preparation of shareholder meeting materials, will not be repeated
during the remainder of the current fiscal year. We expect that with our current
work force, our average monthly expenses will be approximately $100,000 per
month for the balance of this fiscal year.
As at May 11, 2000 our cash balance was approximately $725,000. Accordingly,
with our present work force, we expect that we have sufficient cash on hand to
pay operating expenses for substantially all of the remainder of this fiscal
year. We do not plan to increase our work force significantly unless we are able
to generate significant sales. Our best prospect for doing so is through our
alliance with ABB.
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in the following material court proceedings.
1. JMF MANAGEMENT INC. ET AL V. BRAINTECH, INC. ET AL, BRITISH COLUMBIA
SUPREME COURT ACTION NO. C990550
On February 1, 1999 JMF Management Inc. and Manfred Kurschner commenced legal
proceedings against us and TechWest Management Inc. Mr. Kurschner is our former
Manager of Investor Relations and JMF Management Inc. is Mr. Kurschner's
personal management company. The Plaintiffs claim approximately $100,000 in
damages for alleged breach of a stock option agreement and approximately $7,500
alleged to be owing pursuant to a consulting agreement. We have filed a defence
and counterclaim. Our counterclaim claims damages for breach of fiduciary duty
and negligence. No depositions have been conducted in the action and no trial
date has been set. The outcome of the action is uncertain.
2. CACTUS CONSULTANTS CO. LTD. V. BRAINTECH, INC. ET AL, BRITISH COLUMBIA
SUPREME COURT ACTION NO. C991377
On March 16, 1999 Cactus Consultants Co. Ltd., Crystal Securities Inc., and
Elmswell Investments Inc. commenced legal proceedings against us and certain of
our present and former directors. The Plaintiffs claim $606,000 as damages for
breach of contract and conversion of stock certificates. Our records show that
during the fiscal year ending
4
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December 31, 1995, a total of 3,000,000 shares of common stock were subscribed
at a price of $0.25 per share, and that we received $606,000 of the subscription
amount. Prior to December 31, 1998 we recorded $606,000 as "subscriptions
received" on our financial statements. Subsequent to the commencement of court
action, we have recorded the same amount as "amounts in dispute". We have filed
a defence and counterclaim alleging that the plaintiffs and Jan Olivier, a
former promoter of our company, caused share certificates to be issued to the
plaintiffs improperly, and caused our funds to be used for unauthorized and
improper purposes.
The action has been set for trial in July 2001. In addition, on March 9, 2000,
the Plaintiffs served an application for summary trial. The summary trial
procedure permits a party to try to obtain a streamlined, expedited trial, and
thus to achieve an earlier verdict. If successful, the application for summary
trial could result in a determination of the case well in advance of the
scheduled trial date in July 2001. Note date has yet been set for the summary
trial hearing. The outcome of this action is uncertain.
3. BRAINTECH, INC. V. JOHN KOSTIUK, DISTRICT COURT OF HARRIS COUNTY ACTION
96-55978; BRITISH COLUMBIA SUPREME COURT ACTION C972736 - COURT OF
APPEAL ACTION CA024459
On May 7, 1997 we obtained judgment for damages in the amount of $300,000 in
legal proceedings commenced in the District Court of Harris County in the State
of Texas against John Kostiuk, a resident of British Columbia, for defamatory
and injurious statements which Mr. Kostiuk caused to be published about us over
the Internet. On April 2, 1998 we obtained a judgement of the Supreme Court of
British Columbia enforcing the Texas judgment.
Effective October 31, 1998 Sideware Systems Inc. purchased a 50% interest in the
judgment for a purchase price of $136,000. Our agreement with Sideware Systems
Inc. provided that the purchase price would be adjusted depending on the benefit
ultimately received by Sideware Systems Inc. On March 18, 1999 the British
Columbia Court of Appeal reversed the judgment of the British Columbia Supreme
Court, rendering the judgment unenforceable against any assets of John Kostiuk
in British Columbia. Subsequent to the decision of the British Columbia Court of
Appeal, we returned the $136,000 paid by Sideware Systems Inc. On March 9, 2000
the Supreme Court of Canada dismissed our application for leave to appeal from
the Court of Appeal for British Columbia, thus ending the proceedings in Canada.
Our Texas judgment is enforceable in the United States, but as far as we are
aware, Mr. Kostiuk has no assets there. The Texas judgment is not enforceable in
British Columbia, where Mr. Kositiuk lives. Accordingly, our prospects for any
recovery on the judgment are negligible.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
5
<PAGE>
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable.
ITEM 5. OTHER MATTERS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
INDEX TO EXHIBITS
NUMBER EXHIBIT
------ -------
3.1(1) Articles of Incorporation, dated February 27, 1987
3.2(1) Articles of Amendment, dated July 14,1998
3.3(1) Articles of Amendment, dated June 28, 1990
3.4(1) Articles Of Amendment of the Company, dated February 8, 1993
3.5(1) Articles of Amendment of the Company, dated April 6, 1993
3.6(1) Articles of Amendment of the Company, dated December 6, 1993
3.7(1) By-Laws of the Company
4.1(1) Specimen Stock Certificate
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
6
<PAGE>
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 Alliance Agreement dated March 26, 2000 between the Company
and ABB Flexible Automation Group Inc.
11.1 Computation of net loss per share
21.1(1) Subsidiaries of the Registrant
27.1 Summary Financial Data for the three month period ended March
31, 2000.
(1) Exhibit already on file.
During the period covered by this Quarterly Report we filed one Report on Form
8-K dated March 30, 2000.
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: May 15, 2000 BrainTech, Inc.
"Grant Sutherland"
------------------------------------
W. Grant Sutherland
Director
Chairman of the Board of Directors
Chief Financial Officer
8
<PAGE>
Consolidated Financial Statements of
BRAINTECH, INC.
(A Development Stage Enterprise)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 2000
(Unaudited)
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 930,861 $ 431,390
Accounts receivable 22,889 16,189
Inventory 3,369 3,369
Due from related companies (note 4(a)) - 13,644
Prepaid expenses 21,350 7,392
- ---------------------------------------------------------------------------------------------------------------
978,469 471,984
Due from directors and officers (note 4(b)) - 10,130
Fixed assets (note 5) 137,378 134,210
- ---------------------------------------------------------------------------------------------------------------
$ 1,115,847 $ 616,324
- ---------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 78,025 $ 87,710
Due to related companies (note 4(a)) - 21,506
- ---------------------------------------------------------------------------------------------------------------
78,025 109,216
Amounts in dispute (note 8(b)) 606,000 606,000
- ---------------------------------------------------------------------------------------------------------------
684,025 715,216
Stockholders' deficit:
Common stock (note 6):
Authorized: 50,000,000 shares, with $0.001 par value
Issued: 45,589,333 shares (1999 - 41,338,333) 45,589 41,228
Additional paid-in capital (note 6(c)) 7,764,528 6,910,323
Accumulated deficit (58,800) (58,800)
Deficit accumulated during the development stage (7,319,495) (6,991,643)
- ---------------------------------------------------------------------------------------------------------------
431,822 (98,892)
Future operations (note 2)
Contingencies (note 8)
Commitments (note 9)
- ---------------------------------------------------------------------------------------------------------------
$ 1,115,847 $ 616,324
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
On behalf of the Board:
"Owen Jones" President "Grant Sutherland" Chairman
- ----------------------------- -----------------------------
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Period from
inception on
January 3, 1994 Three Months Ended March 31,
to March 31, ----------------------------
2000 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Sales $ 127,396 $ 69,886 $ -
Cost of sales 61,204 31,199 -
- ---------------------------------------------------------------------------------------------------------------
Gross margin 66,192 38,687 -
Expenses:
Consulting and contractors 736,561 - 4,045
Research and development 1,870,028 151,027 123,492
Selling, general and administrative (note 10) 4,618,424 215,512 229,388
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 - -
- ---------------------------------------------------------------------------------------------------------------
7,385,687 366,539 356,925
- ---------------------------------------------------------------------------------------------------------------
Loss for the period $ (7,319,495) $ (327,852) $ (356,925)
- ---------------------------------------------------------------------------------------------------------------
Loss per share information:
Basic and diluted $ (0.29) $ (0.01) $ (0.01)
- ---------------------------------------------------------------------------------------------------------------
Weighted average number of common
shares outstanding 24,953,163 44,153,926 30,566,888
- ---------------------------------------------------------------------------------------------------------------
</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)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Deficit
accumulated
Additional during the
Common paid-in Accumulated development
Shares stock capital deficit stage
- ----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1994 17,400,000 $ 17,400 $ 1,039,271 $ (58,800) $ -
Loss for the period - - - - (1,006,716)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 17,400,000 17,400 1,039,271 (58,800) (1,006,716)
Loss for the period - - - - (748,310)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 17,400,000 17,400 1,039,271 (58,800) (1,755,026)
Common stock transactions (net of issue costs):
Issued for cash at $.1895 per share 950,000 950 173,440 - -
Issued for cash at $.25 per share 733,333 733 183,167 - -
Issued for cash at $.20 per share 3,000,000 3,000 592,500 - -
Shares issued for services rendered 1,200,000 1,200 238,800 - -
Loss for the period - - - - (959,945)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 23,283,333 23,283 2,227,178 (58,800) (2,714,971)
Common stock transactions (net of issue costs):
Issued for cash at $.20 per share 2,000,000 2,000 396,991 - -
Issued for cash at $.15 per share 1,000,000 1,000 148,279 - -
Shares issued for services rendered 300,000 300 59,700 - -
Compensatory benefit of employee stock options - - 200,000 - -
Loss for the period - - - - (930,042)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 26,583,333 26,583 3,032,148 (58,800) (3,645,013)
Common stock transactions (net of issue costs):
Issued for cash at $.25 per share 1,600,000 1,600 398,400 - -
Issued for cash at $.20 per share 2,188,000 2,188 435,412 - -
Compensatory benefit of employee stock options - - 927,800 - -
Loss for the period - - - - (2,110,556)
- ----------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 30,371,333 30,371 4,793,760 (58,800) (5,755,569)
Common stock transactions (net of issue costs):
Issued for cash at $.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 3,966,000 3,966 788,315 - -
Subscriptions received - 110 65,890 - -
Stock issued on subscriptions 285,000 285 - - -
Loss for the period - - - - (327,852)
- ----------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2000 (Unaudited) 45,589,333 $ 45,589 $ 7,764,528 $ (58,800) $ (7,319,495)
- ----------------------------------------------------------------------------------------------------------------------
</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)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Period from
inception on
January 3, 1994 Three Months Ended March 31,
to March 31, ----------------------------
2000 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Loss for the period $ (7,319,495) $ (327,852) $ (356,925)
Items not involving cash:
Amortization 94,233 14,275 5,220
Bad debt 75,108 - -
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) - -
Accounts receivable (22,889) (6,700) (2,757)
Prepaid expenses (21,350) (13,958) (6,930)
Accounts payable and accrued liabilities 64,493 (9,685) (23,542)
Deferred revenue - (21,506) -
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (5,542,795) (365,426) (384,934)
Cash flows from investing activities:
Purchase of marketable securities (100,000) - -
Purchase of fixed assets (256,606) (17,443) (16,298)
Proceeds from notes receivable (130,181) - -
Proceeds from disposal of real estate 306,752 - -
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (180,035) (17,443) (16,298)
Cash flows from financing activities:
Notes receivable 55,073 10,130 -
Borrowings from directors and officers 7,304 - -
Due to (from) related companies (11,626) 13,644 (4,374)
Mortgages payable (207,739) - -
Share subscriptions received 110,270 - (285,000)
Subscriptions receivable - 66,000 -
Common shares issued, net of issue costs 6,456,297 792,566 660,000
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 6,409,579 882,340 379,374
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 686,749 499,471 (21,858)
Cash and cash equivalents, beginning of period 244,112 431,390 22,479
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 930,861 $ 930,861 $ 621
- ---------------------------------------------------------------------------------------------------------------
Supplemental information:
Cash paid for interest $ 3,797 $ - $ -
Cash paid for taxes $ - $ - $ -
Non-cash financing activities:
Shares issued for services rendered $ 300,000 $ - $ -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 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 three months ended March 31, 2000, the Company incurred a
loss of $327,852 and used cash in operating activities of $365,426. From
inception of the development stage on January 3, 1994, the Company has
incurred cumulative losses of $7,319,495 and used cash for operating
activities of $5,542,795.
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 December 31, 1999, 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
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 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 is
defined as the cost paid to third parties for materials plus other
applicable direct costs.
(e) Revenue recognition:
The Company recognizes revenue when title has passed to the customer,
the collectibility of the consideration is reasonably assured and the
Company has no significant remaining performance obligations. An
allowance for estimated future returns is recorded at the time revenue
is recognized.
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>
(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.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 3
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 2000
- --------------------------------------------------------------------------------
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(h) Foreign currency:
The functional currency of the Company and all of its operations is
the United States dollar. Monetary assets and liabilities
denominated in a foreign currency have been translated 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 provision of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), and related interpretations in accounting for
its stock options granted to employees. Under APB 25, compensation
expense is only recorded to the extent that the exercise price is
less than fair value on the 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
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 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 March 31, 2000 and for the three
months ended March 31, 2000 and 1999 is unaudited however, such
financial information reflects all adjustments (consisting of normal
recurring adjustments) which are necessary for a fair presentation
of the results for the periods presented.
4. RELATED PARTY BALANCES AND TRANSACTIONS:
(a) Due to (from) related companies:
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 Systems Inc.
("Sideware"), which is also under the control of common directors. Cash
is advanced to TechWest by the Company and Sideware to cover these
expenses. TechWest then allocates 80% of the expenses to Sideware and
20% to the Company. 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>
- ---------------------------------------------------------------------------------------------------------------
March 31, December 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
Netmedia Systems Inc. $ - $ (2,126)
TechWest Management Inc. - 23,632
- ---------------------------------------------------------------------------------------------------------------
$ - $ 21,506
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
During the period, the Company recorded sales of $11,387 to Sideware.
(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.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 5
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 2000
- --------------------------------------------------------------------------------
4. RELATED PARTY BALANCES AND TRANSACTIONS (CONTINUED):
(c) Transactions with directors and officers:
During the three month period ended March 31, 2000, the Company was
charged $73,808 (March 31, 1999 - $52,849) for management and
consulting services provided by directors and officers. These charges
are included in selling, general and administrative expenses.
5. FIXED ASSETS:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Accumulated Net book
MARCH 31, 2000 (Unaudited) Cost amortization value
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and fixtures $ 23,726 $ 6,495 $ 17,231
Computer equipment 85,345 30,025 55,320
Trade show assets 17,306 3,622 13,684
Computer software 51,196 40,457 10,739
Leasehold improvements 49,654 9,250 40,404
- ---------------------------------------------------------------------------------------------------------------
$ 227,227 $ 89,849 $ 137,378
- ---------------------------------------------------------------------------------------------------------------
</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) Of the shares issued at March 31, 2000, 6,595,000 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(b).
(b) 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.
The 1,500,000 shares are included in the total outstanding number of
shares of 45,589,333 disclosed in the statements of stockholders'
deficit.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 6
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 2000
- --------------------------------------------------------------------------------
6. COMMON STOCK (CONTINUED):
(c) Additional paid-in capital arises on the issuance of common shares at a
price in excess of par value.
(d) Stock options:
The Company has reserved 7,500,000 common shares pursuant to a stock
option plan. The Company has also reserved an additional 7,500,000
common shares, subject to shareholder approval, pursuant to a new 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 three months ended March 31, 2000 is
as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Weighted
average Weighted Outstanding Outstanding
exercise average December 31, Forfeited/ March 31,
Expiry dates price fair value 1999 Granted Exercised expired 2000
--------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
December 16, 2002 $0.20 $0.19 4,012,000 - 2,529,000 - 1,483,000
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 - 310,000 - 655,000
November 25, 2004 $0.20 $0.18 200,000 - 200,000 - -
--------------------------------------------------------------------------------------------------------
6,405,000 - 3,966,000 - 2,439,000
--------------------------------------------------------------------------------------------------------
</TABLE>
Stock option activity during the three month period ended March 31,
1999 is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------
Weighted
average Weighted Outstanding Outstanding
exercise average December 31, Forfeited/ March 31,
Expiry dates price fair value 1998 Granted Exercised expired 1999
--------------------------------------------------------------------------------------------------------
(Unaudited)
<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
--------------------------------------------------------------------------------------------------------
5,432,000 - - 35,000 5,397,000
--------------------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options was calculated using the
Black-Scholes option pricing formula.
The Company has adopted the disclosure provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" ("FAS 123") but has elected to continue measuring
compensation costs using the intrinsic value based method of
accounting. Under the intrinsic value based method, employee stock
option compensation is the excess, if any, of the quoted market value
of the stock at the date of grant over the amount on optionee must pay
to acquire stock.
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 7
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 2000
- --------------------------------------------------------------------------------
6. COMMON STOCK (CONTINUED):
(d) Stock options (continued):
Had compensation cost been determined based on the fair value at the
grant dates of the stock options and charged to earnings consistent
with the measurement provision of FAS 123, the impact would be as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Period from
inception on
January 3, 1994 Three Months Ended March 31,
to March 31, ----------------------------
2000 2000 1999
- ---------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
Loss for the period, as reported $ (7,319,498) $ (327,852) $ (292,486)
Estimated fair value of option grants (2,375,052) - -
- ---------------------------------------------------------------------------------------------------------------
(9,694,550) (327,852) (292,486)
Less compensatory benefit included in
selling, general and administrative
expenses 1,129,800 - -
- ---------------------------------------------------------------------------------------------------------------
Pro forma loss $ (8,564,750) $ (327,852) $ (292,486)
- ---------------------------------------------------------------------------------------------------------------
Loss per share $ (0.34) $ (0.01) $ 0.01
- ---------------------------------------------------------------------------------------------------------------
</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%; 1998 - 6.0%; 1997 - 5.0%, expected option life - 5 years (all
periods); expected volatility in 1999 - 120%; 1998 - 156%; 1997 - 70%.
7. INCOME TAXES:
The Company has non-capital loss carry forwards for income tax purposes of
approximately $4,725,000 which are available to reduce taxable income of
future years. The unrecorded benefit of these losses carried forward is
approximately $2,120,000. 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 346,400
- ------------------------------------------------------------------------------------------
$ 4,725,000
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
BRAINTECH, INC.
(A Development Stage Enterprise)
Notes to Consolidated Financial Statements, page 8
(Unaudited)
(Expressed in U.S. Dollars)
Three months ended March 31, 2000 and 1999
Period from inception on January 3, 1994 to March 31, 2000
- --------------------------------------------------------------------------------
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 defence and counterclaim alleging
breach of fiduciary duty and negligence. While the ultimate outcome is
uncertain, management of the Company believes it will be successful in
defending this action and accordingly no amount has been provided in
these financial statements.
(b) On March 16, 1999, three corporations commenced legal proceeding
against the Company and certain of its present and former directors are
claiming damages in the amount of $606,000 for breach of contract and
conversion of stock certificates. The plaintiffs have not sought
recovery of any shares of the Company. The Company has filed a defence
and counterclaim alleging that the plaintiffs and a former promoter of
the Company, caused share certificates of the defendant to be issued to
the plaintiffs improperly, and caused funds of the Company to be used
for unauthorized and improper purposes. In the previous year, the
Company recorded the full amount of the $606,000 as a liability.
9. COMMITMENTS:
The Company has obligations under operating lease arrangements which
require the following minimum annual payments:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
2000 $ 161,559
2001 222,812
2002 195,817
2003 95,605
- ---------------------------------------------------------------------------------------------------------------
$ 675,793
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Eighty percent of these amounts are recoverable pursuant to an agreement
with Sideware Systems Inc., a company with certain common shareholders and
directors as the Company.
10. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Selling, general and administrative expenses are comprised of the
following:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Period from
inception on
January 3, 1994 Three Months Ended March 31,
to March 31, -----------------------------
2000 2000 1999
- ------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Compensatory benefit of employee stock options $ 1,129,800 $ - $ -
Salaries and benefits 919,454 53,453 58,721
Other 2,569,170 162,059 170,667
- ------------------------------------------------------------------------------------------------------------------
$ 4,618,424 $ 215,512 $ 229,388
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALLIANCE AGREEMENT
This Alliance Agreement (the "Agreement") is made effective as of the 26th of
March, 2000 between BrainTech, Inc. ("BNTI"), having a principal place of
business at Suite 102, 903 West 1st St., North Vancouver, B.C. V7P 3N4, fax
(604) 980-7121, and ABB Flexible Automation a division of ABB Inc. ("ABB"),
having a place of business at 1ABB Court, Brampton,Ontario L6T 5S6 905-460-3000,
fax: 905-460-3401
RECITALS.
A. BNTI has expertise in the development of machine vision systems,
including the technology and methods required to analyze and classify
digital representations of images and visual patterns.
B. BNTI has developed valuable proprietary technology for use in the
development of visions systems, including the Odysee Development Studio,
the BrainTronProcessor, and the BrainTech Image Processing Library.
C. ABB has expertise in the area of flexible automation equipment
manufacturing and system integration.
D. ABB has developed a valuable network of business contacts and clients.
E. BNTI and ABB believe that their respective technologies and expertise can
be profitably combined in industrial applications which can employ the
expertise and technology of both BNTI and ABB.
F. BNTI and ABB wish to establish a framework to cooperate in developing and
executing business which combines the areas of expertise and technologies
of both companies.
ARTICLE 1. PURPOSE OF THIS AGREEMENT
1.1 ABB and BNTI agree to cooperate, in accordance with the terms and
procedures set out in this Agreement, in the identification, pursuit and
development of business opportunities to design, develop, market, and
install industrial applications and systems which combine the expertise
and technology of BNTI and the expertise and technology of ABB.
ARTICLE 2. AUTHORIZATION
2.1 ABB hereby authorizes BNTI to make representations to potential customers
of BNTI to the effect that:
(a) BNTI has established an alliance with ABB; and
Page 1
<PAGE>
(b) as a result of that alliance, BNTI can make the services and
expertise of ABB available to potential customers.
In making such representations, BNTI is authorized to distribute ABB's
promotional literature and other promotional products to potential
customers.
2.2 BNTI hereby authorizes ABB to make representations to potential customers
of ABB to the effect that:
(a) ABB has established an alliance with BNTI; and
(b) as a result of that alliance, ABB can make the services, expertise,
and proprietary technology and products of BNTI available to
potential customers.
In making such representations, ABB is authorized to distribute BNTI
promotional literature and other promotional products to potential
customers.
ARTICLE 3. MARKETING COOPERATION
3.1 Each party agrees that, upon becoming aware of a business opportunity to
design, develop, market, or install an industrial application or system
which can potentially utilize, in a substantial way, the expertise and
technologies of both BNTI and ABB (an "Opportunity"), it will:
(a) advise the potential customer of its alliance with the other party, and
of the expertise and technology of the other party; and
(b) advise of the other party of the Opportunity.
3.2 Upon identifying an Opportunity, the parties will cooperate to obtain such
contracts or business as can be obtained arising from the Opportunity. In
doing so, the parties will use their reasonable best efforts to implement
the following steps and procedures.
(a) The parties will establish a reasonable division of work and
responsibility, having to their respective areas of expertise and
technologies.
(b) The parties will cooperate in preparing such proposals or feasibility
studies as may be beneficial in pursuit of the Opportunity. In doing
so, each party will prepare estimates of its expected costs in
completing the areas of work which may be assigned to it. Each party
will make available to the other the information and calculations on
which its cost estimates are based.
(c) The parties will prepare such specifications and contracts as may be
beneficial in pursuits of the Opportunity.
Page 2
<PAGE>
(d) The parties will establish a fair and reasonable division of the
revenue anticipated from the Opportunity. To the greatest extent
practicable, the division of revenue shall include allowance for a
reasonable finder's fee for the party which first identified or found
the Opportunity.
3.2 Each party agrees, to the greatest extent reasonably practicable, to work
exclusively with the other party (in preference to any other company
offering expertise or technology similar to that of the other party) in
pursuing any Opportunity. For greater certainty, this section will not
require either party to work exclusively with the other party if it has a
persuasive bona fide business reason for not so. Such bona fide business
reasons may include, without out limitation:
(a) Inability of the other party to supply expertise or technology which is
important to pursuit of the Opportunity;
(b) Independent preference of a potential customer for another company
offering expertise or technology similar to that of the other party; or
(c) Inability of the parties, despite their reasonable best efforts, to
agree on any business or technical issues important to the pursuit of
the Opportunity.
ARTICLE 4. INTELLECTUAL PROPERTY RIGHTS
4.1 ABB acknowledges that (except to the extent that such have been licensed
by BNTI from third parties) BNTI owns all title and intellectual property
rights, copyright, moral rights, and patent rights in and to the
inventions, designs, products, hardware, software, and programs listed in
Schedule "A" (the "BNTI Proprietary Technology") Nothing in this Agreement
shall constitute a grant, transfer, or assignment to ABB of any of the
foregoing rights, or any license to use any BNTI Proprietary Technology
except as expressly authorized by BNTI.
4.2 ABB shall not reverse engineer, decompile, or disassemble any BNTI
Proprietary Technology , except any only to the extent that such activity
is expressly permitted by applicable law notwithstanding this limitation.
4.3 ABB further acknowledges that information provided by BNTI to ABB
concerning the BNTI Proprietary Technology shall constitute proprietary
and confidential information belonging to BNTI. ABB shall not disclose,
and shall keep confidential, all such information. This provision shall
not apply to information which (i) is or becomes part of the public domain
through no act or omission of ABB, (ii) ABB receives from a third party
acting without any obligation or restriction of confidentiality in favor
of BNTI, (iii) BNTI releases from confidential treatment by written
consent, or (iv) Partner is required by any applicable law or court order
to disclose.
Page 3
<PAGE>
4.4 ABB warrants that neither it nor any of its employees will knowingly
convert to their own use or to use of any other party any industrial
secrets or trade secrets owned by BNTI and obtained by ABB or its personnel
by reason of this Agreement or otherwise.
4.5 BNTI acknowledges that (except to the extent that such have been licensed
by ABB from third parties) ABB owns all title and intellectual property
rights, copyright, moral rights, and patent rights in and to the
inventions, designs, products, hardware, software, and programs listed in
Schedule "B" (the "ABB Proprietary Technology") Nothing in this Agreement
shall constitute a grant, transfer, or assignment to BNTI of any of the
foregoing rights, or any license to use any ABB Proprietary Technology
except as expressly authorized by ABB.
4.6 BNTI shall not reverse engineer, decompile, or disassemble any ABB
Proprietary Technology , except any only to the extent that such activity
is expressly permitted by applicable law notwithstanding this limitation.
4.7 BNTI warrants that neither it nor any of its employees will knowingly
convert to their own use or to the use of any other party any industrial
secrets or trade secrets owned by ABB and obtained by BNTI or its
personnel by reason of this Agreement or otherwise.
4.8 BNTI further acknowledges that information provided by ABB to BNTI
concerning the ABB Proprietary Technology shall constitute proprietary and
confidential information belonging to ABB. BNTI shall not disclose, and
shall keep confidential, all confidential and proprietary information
provided by ABB or any subsidiary or agent of ABB relating to any ABB
Proprietary Technology. This provision shall not apply to information
which (i) is or becomes part of the public domain through no act or
omission of BNTI, (ii) BNTI receives from a third party acting without any
obligation or restriction of confidentiality in favor of ABB, (iii) ABB
releases from confidential treatment by written consent, or (iv) BNTI is
required by any applicable law or court order to disclose.
4.9 Each party further acknowledges that a violation of this Article 4 may
cause irreparable harm to the other party for which no adequate remedy in
damages exists, and each party therefore agrees that, in addition to any
other remedies available, a party will be entitled to seek equitable
remedies, including without limitation injunctive relief, to enforce the
obligations set forth in this Article 4. Without limiting the generality
of the foregoing, each party agrees that a party seeking to enforce the
obligations set out in this Article 4 shall be entitled to obtain interim,
interlocutory, and permanent injunctive relief without having to prove
irreparable harm, without regard to the balance of convenience, and
without having to post a bond.
Page 4
<PAGE>
ARTICLE 5. DISCLAIMER OF AGENCY OR PARTNERSHIP STATUS
5.1 Nothing in this Agreement shall create any relationship of partnership
between BNTI and ABB. Neither party shall represent to any third person
that the relationship between BNTI and ABB is anything other than that of
independent contractors.
5.2 Nothing in this Agreement shall constitute either party as an authorized
distributor, reseller or selling agent for the other party. Nothing in
this Agreement shall create in either party any right or authority to
incur any obligations on behalf of, or to bind in any respect, the other
party.
5.3 Neither BNTI's nor ABB's officers, employees or agents shall be deemed
officers, direct or indirect employees, or agents of the other.
ARTICLE 6. TERM AND TERMINATION
6.1 Unless terminated in accordance with this Article, the term of this
Agreement will be three years.
6.2 Either party may terminate this Agreement by providing 120 days written
notice to the other party.
6.3 Forthwith upon termination of this Agreement, each party shall cease:
(a) any and all presentations, solicitations, or other marketing
activities relating to the other party's products and services; and
(b) representing or holding itself out as being authorized to market,
advertise or promote in any way the products of the other party.
6.4 The provisions of Article 3 shall survive termination of this Agreement.
6.5 NEITHER PARTY SHALL, BY REASON OF TERMINATION OF THIS AGREEMENT, BE LIABLE
TO THE OTHER PARTY FOR COMPENSATION, REIMBURSEMENT OR DAMAGES ON ACCOUNT OF
THE LOSS OF PROSPECTIVE PROFITS ON ANTICIPATED SALES, OR ON ACCOUNT OF
EXPENDITURES, INVESTMENTS, LEASES OR COMMITMENTS ENTERED INTO OR MADE IN
CONNECTION WITH THIS AGREEMENT OR ANY BUSINESS CONDUCTED, OR EXPECTED TO BE
CONDUCTED, BETWEEN THE PARTIES.
6.6 Either Party may terminate this Agreement of the other Party HAS BEEN
ADJUDGED BANKRUPT, MAKES A GENERAL ASSIGNMENT FOR THE BENEFIT OF CREDITORS
OR IF A RECEIVER IS APPOINTED OWING TO HIS INSOLVENCY.
Page 5
<PAGE>
ARTICLE 7. GENERAL
7.1 Any consent by a party to, or waiver of, a breach of this Agreement by the
other party, whether express or implied, shall not constitute a consent
to, or waiver of, any different or subsequent breach.
7.2 Neither party may assign any rights under this Agreement.
7.3 If any provision of this Agreement is held invalid, illegal, or
unenforceable by a court of competent jurisdiction, the validity, legality
and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby, and shall remain in full force and effect.
7.4 All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered by
hand or telecopied to the addresses or fax numbers (as the case may be)
stated on the first page of this Agreement, or to such other addresses or
fax numbers as may be given in writing by the parties in accordance with
this section. Any such notice, request, demand or other communication
shall be deemed to have been received, if delivered by hand, on the date
of delivery, and if telecopied, on the business day next following the
date of transmission.
7.5 Each party agrees that during the term of this Agreement, and for a period
of six months following termination of this Agreement, it will not
solicit, entice, persuade or induce any individual who currently is, or at
any time during the term of this Agreement shall be, an employee of the
other party, to terminate or refrain from renewing such individual's
employment.
8. LAWS
8.1 Laws of Ontario
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates
set out below.
BRAINTECH, INC.: ABB Flexible Automation Group, Inc.:
"Owen Jones" "B. Mitchell"
- ----------------------------- ---------------------------------
Signature Signature
Owen Jones Barry Mitchell
- ----------------------------- ---------------------------------
Name Name
MARCH 15, 2000 00/03/26
- ----------------------------- ---------------------------------
Date Date
Page 6
<PAGE>
BRAINTECH INC.
WEIGHTED AVERAGE SHARES OUTSTANDING SINCE INCEPTION (6 YEARS AND 3 MONTHS)
31-MAR-99
Share issuances:
<TABLE>
<CAPTION>
(6 yrs * 365 + 91)
Date Amount Numerator Denominator Weighted Average
<S> <C> <C> <C> <C>
1/3/94 17400000 2279 2281 17,384,744
1/4/96 950000 1548 2281 644,717
4/3/96 733333 1488 2281 478,386
6/5/96 2000000 1361 2281 1,193,336
9/23/96 1000000 1284 2281 562,911
12/26/96 1200000 1191 2281 626,567
1/1/97 150000 1186 2281 77,992
2/5/97 1000000 1150 2281 504,165
3/1/97 50000 1127 2281 24,704
3/20/97 1000000 1106 2281 484,875
6/1/97 50000 1001 2281 21,942
9/23/97 1000000 919 2281 402,893
12/1/97 50000 851 2281 18,654
3/23/98 1600000 749 2281 525,384
7/21/98 773000 618 2281 209,432
8/11/98 165000 598 2281 43,257
9/25/98 1250000 557 2281 305,239
3/26/99 4400000 372 2281 717,580
6/4/99 2600000 302 2281 344,235
9/15/99 2350000 199 2281 205,020
10/19/99 450,000 164 2281 32,354
12/14/99 50000 109 2281 2,389
12/16/99 107000 107 2281 5,019
12/23/99 1010000 99 2281 43,836
1/18/00 1120000 73 2281 35,844
1/31/00 1243500 60 2281 32,709
2/29/00 1817500 31 2281 24,701
3/22/00 70000 9 2281 276
24,953,163
</TABLE>
Page 1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 930,861
<SECURITIES> 0
<RECEIVABLES> 22,889
<ALLOWANCES> 0
<INVENTORY> 3,369
<CURRENT-ASSETS> 978,469
<PP&E> 227,227
<DEPRECIATION> 89,849
<TOTAL-ASSETS> 1,115,847
<CURRENT-LIABILITIES> 78,025
<BONDS> 0
0
0
<COMMON> 45,589
<OTHER-SE> 386,233
<TOTAL-LIABILITY-AND-EQUITY> 1,115,847
<SALES> 0
<TOTAL-REVENUES> 69,886
<CGS> 0
<TOTAL-COSTS> 31,199
<OTHER-EXPENSES> 366,539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (327,852)
<INCOME-TAX> 0
<INCOME-CONTINUING> (327,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (327,852)
<EPS-BASIC> (0.01)
<EPS-DILUTED> 0
</TABLE>
