BRAINTECH INC/BC
S-1/A, 2000-03-09
COMPUTER INTEGRATED SYSTEMS DESIGN
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<PAGE>

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 2000

                                               REGISTRATION NO. 333-30162_______

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                ---------------
                          AMENDMENT NO. 1 TO FORM S - 1
             REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

                                 BRAINTECH, INC.
             (Exact name of Registrant as specified in its charter)

<TABLE>
<S>                                      <C>                                    <C>
            NEVADA                                                                  98-0168932
_______________________________          ____________________________           __________________
(State or other Jurisdiction of          (Primary Standard Industrial            (I.R.S. Employer
incorporation or organization)            Classification Code Number)           Identification No.)
</TABLE>

               930 West First Street, Suite 102, North Vancouver,
                        British Columbia, Canada V7P 3N4
                            Telephone (604) 988-0440
              (Address, including zip code, and telephone number,
       including area code, of registrant's principal executive offices)

                           National Registered Agent
                        1090 Vermont Avenue, Suite 910
                            Washington, D.C. 20005
                           Telephone (202) 371-8090
          _________________________________________________________
          (Name, address, including zip code, and telephone number,
                   including area code,of agent for service)
                                  COPIES TO:
                          Grant Sutherland, Chairman
                                BrainTech, Inc.
                          1600 - 777 Dunsmuir Street
                          Vancouver, British Columbia
                                    V7Y 1K4
                   Tel: (604) 688-0047 Fax: (604) 688-0094
       Approximate date of commencement of proposed sale to the public:
  As soon as practicable after this registration statement becomes effective.

     If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, check the following box. [x]

     If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

     If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

     If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [ ]

                         CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
 Title of Each Class of                           Proposed Maximum          Proposed Maximum
    Securities to be         Amount to be        Offering Price Per        Aggregate Offering          Amount of
       Registered             Registered              Share(1)                  Price(1)           Registration Fee
- ----------------------------------------------------------------------------------------------------------------------
<S>                          <C>                 <C>                       <C>                     <C>
Common Shares                 11,095,000               $3.00                  $33,285,500               $8,787
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1)  Estimated solely for the purpose of computing the registration fee
     pursuant to Rule 457(a) under the Securities Act of 1933.

The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to Section 8(a), shall determine.
<PAGE>

                                 BRAINTECH, INC.

Cross Reference Sheet to Item 501(b) of Regulation S-K Showing Location in
prospectus of Information Required by Items of Form S-1

<TABLE>
<CAPTION>
     REGISTRATION STATEMENT ITEM NUMBER                      LOCATION OR CAPTION IN PROSPECTUS
<S>                                                          <C>
1.   Forepart of Registration Statement and Outside          Outside Front Cover Page
     Front Cover Page of Prospectus
2.   Inside Front and Outside Back Cover Pages of            Inside Front and Outside Back Cover Pages
     Prospectus
3.   Summary Information, Risk Factors                       Prospectus Summary; Risk Factors; Selected Consolidated
                                                             Financial Data;
     Ratio of Earnings to Fixed Changes                      Not applicable
4.   Use of Proceeds                                         Prospectus Summary; Use of Proceeds
5.   Determination of Offering Price                         Risk Factors; Nature of Trading Market; Plan of
                                                             Distribution
6.   Dilution                                                Not Applicable.
7.   Selling Security Holders                                Selling Shareholders
8.   Plan of Distribution                                    Plan of Distribution
9    Description of Securities to be Registered              Description of Capital Stock
10.  Interests of Named Experts and Counsel                  Not applicable
11.  Information with respect to the Registrant
     (a) (1) Description of Business                         Prospectus Summary; Business - The Company
         (2) Description of Property                         Business - Description of Property
         (3) Legal Proceedings                               Business - Legal Proceedings
         (4) Control of Registrant                           Principal Shareholders
         (5) Nature of Trading Market                        Nature of Trading Market
         (6) Exchange Controls and Other                     Enforcement of Civil Liabilities; Description of
             Limitations Affecting Security Holders          Capital Stock
         (7) Taxation                                        Not Applicable
         (8) Selected Financial Data                         Selected Consolidated Financial Data;
         (9) Management's Discussion and Analysis            Management's Discussion and Analysis of Financial
             of Financial Condition and Results              Condition and Results of Operations
             of Operations
        (10) Quantitative and Qualitative                    Management's Discussion and Analysis of Financial
             Disclosures about Market Risk                   Condition and Results of Operations - Quantitative and
                                                             Qualitative Disclosures about Market Risk
        (11) Directors and Officers of Registrant            Management - Directors, Executive Officers and Key
                                                             Employees
        (12) Compensation of Directors and Officers          Management - Executive Compensation
        (13) Options to Purchase Securities from             Management - Executive Compensation; Description of
             the Registrant or Subsidiaries                  Capital Stock - Options to Purchase Securities from the
                                                             Company
        (14) Interest of Management in                       Certain Transactions
             Certain Transactions
     (b) Financial Statements                                Financial Statements
12.  Disclosure of Commission Position on                    Not Applicable.
     Indemnification for Securities Act Liability
</TABLE>

<PAGE>

                   Subject To Completion, Dated March 9, 2000

PROSPECTUS

                                 BRAINTECH, INC.

                        11,095,000 Shares of Common Stock

This is an offering of up to 11,095,000 shares of BrainTech, Inc. common
stock by the persons named in this prospectus as "selling shareholders".

The selling shareholders will control the number of shares offered for sale.
The selling shareholders are not required to sell all, or any, of the shares.

The selling shareholders will also control how the shares are offered for
sale. The selling shareholders may sell the shares either through the
OTC-Bulletin Board, or in private sales at negotiated prices. The selling
shareholders may also enter into underwriting agreements, and may pay
underwriting discounts or commissions. The selling shareholders will control
the prices at which the shares are offered, and can reject any proposed
purchaser.

The selling shareholders will receive the proceeds of sale from the shares.
We will not receive any of those proceeds. We will pay the cost of
registering the shares, which we estimate to be approximately $130,000. The
selling shareholders will pay their own selling and related costs.

Our common shares trade through the OTC-Bulletin Board under the symbol
"BNTI".

INVESTING IN OUR COMMON SHARES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE DISCLOSURES IN THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENCE.

                  The date of this prospectus is March 6, 2000

<PAGE>

                                        1


                               PROSPECTUS SUMMARY

- --------------------------------------------------------------------------------

                                 BRAINTECH, INC.

Our business is currently developing in two principal directions.

VISION SYSTEMS

The historical core of our business has been the development of automated
vision systems and related hardware and software products.

We have recently completed an automated vision system that sorts and inspects
brake shoes for Satisfied Brake Products Inc. of Cornwall, Ontario. This
project represented our first major contract for the development of a custom
vision system. In addition, we have submitted a feasibility study to Toyota
Canada Ltd. to develop a system that sorts and inspects automobile wheels.

We have also developed specialized hardware and software products to assist
in the development of vision systems. The BrainTron Processor performs
mathematical operations used in recognizing and classifying visual images.
The first generation BrainTron Processor was completed in 1995, and was
produced in both hardware and software forms. The second generation BrainTron
Processor is nearing completion in software form. The Odysee Development
Studio, completed during 1999, is a software program which allows us to
combine the different software components of a vision system quickly and
efficiently.

INTERNET PRODUCTS

In July 1998 we commenced development of the IMPAC accelerator board. The
IMPAC board was originally intended to perform logical and mathematical
operations used in vision systems. As development of the IMPAC board has
progressed, our focus has shifted to developing applications which sort and
filter data transmitted over the Internet, or which search and sort data
available in Internet data bases. Our investigations into the potential
applications of the IMPAC board are at a preliminary stage.

During the last quarter of 1999 we also developed "Wizmaster", a program
designed to be incorporated into the Dr. Bean product of Sideware Systems
Inc. We plan to pursue additional product development opportunities with
Sideware Systems Inc.

We have a limited operating history, and have not yet generated substantial
operating revenues. An investment in our shares is speculative and involves a
high degree of risk.

Our executive offices are located at 931 West 1st Street, Suite 102, North
Vancouver, British Columbia, Canada V7P 3N4, and our telephone number is
(604) 988-0440. Our world-wide web address is bnti.com.

- --------------------------------------------------------------------------------

<PAGE>

                                       2


- --------------------------------------------------------------------------------
                                  THE OFFERING

<TABLE>
<S>                                            <C>
Common shares being offered by the
Selling shareholders:                          11,095,000

Common shares to be outstanding
after the offering:                            43,986,833

Use of proceeds:                               We will not receive any proceeds
                                               of sale from the shares

OTC-Bulletin Board Symbol:                     BNTI
</TABLE>

                  SUMMARY OF CONSOLIDATED FINANCIAL INFORMATION

The following table summarizes our consolidated historical financial and
operating data for the periods indicated. The historical financial data is
not necessarily indicative of our future results.

<TABLE>
<CAPTION>
                             Year ended       Year ended       Year ended       Year ended       Year ended
                              Dec. 31,          Dec. 31,        Dec. 31,         Dec. 31,          Dec. 31,
                                1999             1998             1997             1996             1995
                               (000's)          (000's)          (000's)         (000's)           (000's)
<S>                           <C>             <C>               <C>             <C>              <C>
Sales Revenue                   $Nil              $58             $Nil             $Nil              $Nil

Profit (Loss)                 (1,236)          (2,111)            (930)            (960)             (748)
for the period

(Loss) per share               (0.03)           (0.07)           (0.04)           (0.05)            (0.04)
for the period
</TABLE>

Our financial statements are presented in United States dollars, and dollar
figures stated in this prospectus refer to United States dollars (except
where specified otherwise). As our head office is in Canada, many of our
transactions (including payment of salaries to our employees) are completed
in Canadian dollars ("Cdn$"). For purposes of this prospectus, other than
amounts extracted from our financial statements, Canadian dollar amounts have
been converted to United States dollars at an exchange rate of Cdn$1.00 =
US$0.68.

- --------------------------------------------------------------------------------

<PAGE>

                                       3


                                  RISK FACTORS

INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN ADDITION TO
OTHER INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.

BECAUSE WE DO NOT YET EARN SUBSTANTIAL REVENUE, WE FACE A RISK OF INSOLVENCY.

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

We have sufficient cash to pay ongoing operating expenses, at their current
level, for the balance of 2000. To continue operation beyond that we will
have to generate operating revenue or raise additional capital. If we are
unable to do so, we face a risk of insolvency.

Our audited financial statements include a note stating that there is
substantial doubt about our ability to continue as a going concern.

BECAUSE WE HAVE NOT IDENTIFIED SPECIFIC, RELIABLE MARKETS FOR OUR PRODUCTS
AND SERVICES, WE HAVE NO ASSURANCE THAT WE WILL EARN SUBSTANTIAL REVENUE IN
THE FUTURE.

Our prospects for earning revenue are speculative. We have no sales history,
or any other reliable basis, for projecting that we will earn substantial
revenue in the future.

We began developing software and hardware products for vision systems in
January 1994. We completed the first generation BrainTron processor in 1995
and the Odysee Development Studio in 1999. We are nearing completion of the
second generation BrainTron processor. We use these products in the
development of vision systems. We have never generated material revenue from
independent sales of these products.

During 1998 we began to seek opportunities to develop custom vision systems
for industrial applications. To date, we have obtained only one contract to
supply a custom vision system. In addition, purchasers of custom vision
systems commonly make isolated purchases, and acquire systems designed for
their particular needs. Accordingly, we have no assurance that any customers
we develop will be repeat customers, or that our sales to these customers
will lead to additional sales to other customers.

During 1999 we completed a prototype for the IMPAC accelerator board, and we
are investigating potential Internet-related applications for the IMPAC
board. Those investigations are at a preliminary stage, and we have not yet
identified specific applications or markets in which the IMPAC board might be
profitably exploited.

BECAUSE WE LACK ESTABLISHED DISTRIBUTION CHANNELS, WE MAY BE UNABLE TO
IDENTIFY OR EXPLOIT MARKETS FOR OUR PRODUCTS AND SERVICES.

We do not have established distribution channels for any of our products or
services.

To sell custom vision systems, we depend almost exclusively on direct sales
to end users. We have not
<PAGE>

                                       4


done extensive marketing or advertising, and we rely principally on industry
contacts for leads to potential customers. We have no means of ensuring that
we will identify, or become known to, a large percentage of the potential
customers for our products or services.

If we are successful in developing Internet-related products using the IMPAC
accelerator board, we will have to develop distribution channels to ensure
that those products are brought to market. We presently have no specific
plans for marketing any products which may be developed, and no established
distribution channels through which those products could be sold.

BECAUSE OF OUR LIMITED OPERATING AND SALES HISTORY, WE CANNOT MAKE RELIABLE
PROJECTIONS OF OUR FUTURE OPERATING COSTS.

If we are able to generate sales, we will likely have to hire additional
personnel to service our customers, and to continue development of our
technology. We will also likely incur additional marketing and overhead
expenses. As a result of our lack of historical sales, we cannot make
reliable projections of the number of additional personnel we will require,
the cost of employing those personnel, or the level of marketing and overhead
expenses we will incur. We thus have no assurance that any revenue we earn
will be sufficient to cover the cost of earning that revenue, or to generate
operating profits.

BECAUSE WE HAVE NOT GENERATED SUBSTANTIAL REVENUE, WE MAY BE UNABLE TO
COMPETE WITH OTHER SUPPLIERS OF VISION SYSTEMS.

The vision systems market is highly competitive, and a number of other
suppliers in that market have generated significant sales revenue. According
to data published by the Automated Imaging Association, approximately 75
North American suppliers had revenue exceeding $5 million during 1998.
Companies already earning substantial revenue may be more attractive to
potential customers. Many of our competitors in the vision systems industry
may also be located closer to large industrial cities, making it easier for
them to attract customers.

BECAUSE WE ARE A SMALL COMPANY, WE MAY NOT BE ABLE TO EXPLOIT THE POTENTIAL
OF THE IMPAC ACCELERATOR BOARD.

Our current intention is to develop Internet-related computer products which
use the IMPAC board. The market for Internet-related computer products is
dominated by large corporations which have assets much greater than ours, and
which might be able to develop products duplicating the features of any
products we develop at modest cost. We face a continual risk that market
opportunities or product features which we intend to exploit can, within a
short period of time, become dominated by much larger and wealthier
corporations, rendering our products obsolete or non-competitive.

BECAUSE OUR WORK FORCE IS SMALL, WE ARE VULNERABLE TO THE LOSS OF KEY
EMPLOYEES OR TO RAPID EXPANSION.

We have only five full time employees, and we thus employ only a small number
of employees in specific fields important to our business. The departure of a
single employee or a small number of employees could materially adversely
affect our business. We do not have key man insurance on any of our employees.
<PAGE>

                                       5


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

BECAUSE OF EXISTING LEGAL CLAIMS, WE FACE A RISK OF MATERIAL ADVERSE
JUDGMENTS.

We face claims totalling over $600,000 in two legal actions. While we are
defending the claims aggressively, the outcome of the legal actions is
uncertain, and could result in substantial judgments against us. Given our
current financial position, these judgments could seriously impair our
business or our ability to continue as a going concern.

BECAUSE OF PAST STOCK TRANSACTIONS, WE FACE CONTINGENT LIABILITIES.

In December 1993 we issued certificates for 1,500,000 shares to Arthur Scott.
The shares were to be issued in consideration for Mr. Scott completing the
design of the first generation BrainTron processor. Mr. Scott severed his
relationship with us shortly after the share certificates were issued, and
did not do the design work for which the shares were to be issued. We have
retained possession of the certificates since the time they were issued, and
intend to cancel the certificates. It is our position that Mr. Scott has no
entitlement to the shares in question, and no claim has been advanced in
respect of the shares by Mr. Scott. We believe the risk of a successful claim
against us in respect of the 1,500,000 shares is minimal, even if Mr. Scott
files a claim.

We also face the risk that previous corporate management may have issued
shares or share purchase warrants which were not properly recorded in the
corporate records, and of which present management are unaware. We have
recently received inquiries from people who claim to have acquired shares and
warrants in our company, at a time when it was operating under a different
name and under different management. As the price of our stock has risen
recently, we believe that any potential claims will materialize in the near
future. We face the risk that we may have to recognize the claims of third
parties who acquired shares or share purchase warrants under previous
management, and that we may thus have additional shares issued and
outstanding beyond the amount shown in our corporate records. We also face
the risk that we may not have a reliable means of evaluating the claims of
parties who claim to have acquired shares or share purchase warrants under
previous management, and that we may thus be forced to recognize claims which
are not in fact valid. We have no reliable means of determining how many
shares or share purchase warrants may be involved, although at present we
have no reason to believe that the number will be material.

BECAUSE WE SHARE CERTAIN COSTS WITH ANOTHER DEVELOPMENT STAGE COMPANY, OUR
OPERATING COSTS COULD INCREASE IN THE FUTURE.

We share some of our premises and personnel with Sideware Systems Inc.
Sideware Systems Inc. is a public company whose shares trade on the Canadian
Venture Exchange and the OTC Bulletin Board. Grant Sutherland, Owen Jones,
and James Speros, our directors, are also directors of Sideware Systems Inc.
Sideware Systems Inc. is a development stage company which has not achieved
profitable operation.

We currently share the cost of the common premises and personnel with
Sideware Systems Inc. However, there is no assurance that Sideware Systems
Inc. will be able to pay the portion of the costs for which it is
responsible, with the result that our cash requirements to continue operation
may increase
<PAGE>

                                       6


substantially.

BECAUSE THE MARKET PRICE OF OUR COMMON STOCK HAS BEEN PARTICULARLY VOLATILE,
PURCHASERS OF OUR COMMON STOCK FACE A HIGH DEGREE OF MARKET RISK.

The market price of our common stock has recently experienced extreme
fluctuations. Since January 1, 2000 the market price of our common stock has
varied between $1.15 and $5.50. As we have not announced any material changes
to our earnings, we believe that the fluctuations in our stock price have
resulted primarily from market perceptions of the speculative value of our
business opportunities. The susceptibility of our stock price to fluctuation
exposes purchasers of our stock to a high degree of risk.

BECAUSE OUR STOCK PRICE HAS BEEN VOLATILE, WE MAY HAVE DIFFICULTY IN RAISING
ADDITIONAL CAPITAL.

If we do not begin to generate substantial sales revenue during 2000, or if
we decide to pursue new development projects, we will likely have to raise
additional capital. The volatility of our stock price may deter potential
investors.

OFFERING OF THE SHARES FOR SALE MAY PUT DOWNWARD PRESSURE ON OUR STOCK PRICE.

The shares which may be offered pursuant to this prospectus represent
approximately 20% of our issued and outstanding stock. Prior to filing this
prospectus, those shares were "restricted securities" under Rule 144 to the
Securities Act of 1933, and were thus not eligible for resale on the market.
The market price of our stock could drop significantly if the selling
shareholders sell all or a large portion of the shares, or are perceived as
intending to sell them.

BECAUSE OUR STOCK MAY BE SUBJECT TO "LOW PRICE STOCK" RULES, THE MARKET FOR
OUR STOCK MAY BE LIMITED.

The Securities and Exchange Commission has adopted regulations which
generally define a "penny stock" to be any equity security that has a market
price less than $5.00. Our stock is presently covered by those rules, and may
continue to be so. The penny stock rules require broker-dealers to make a
special suitability determination before selling our stock to investors who
are not either regular customers or accredited investors. As a result, the
potential market for our stock may be limited.

             CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS

This prospectus contains forward-looking statements which involve risks and
uncertainties. These statements relate to future events or our future
financial performance, and are identified by terminology such as "may",
"will", "should", "scheduled", "plan", "intend", "estimate", "potential",
"continue", "believe", "anticipate", "expect", and similar expressions. These
statements are only predictions. Actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might
cause such a difference include, but are not limited to, those discussed
under the heading "RISK FACTORS". Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
hereof. We undertake no obligation to publicly release the results of any
revisions to these forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
<PAGE>

                                       7


                             ADDITIONAL INFORMATION

We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in Washington D.C. with respect to the securities offered
hereby. This prospectus forms part of the registration statement. However
certain parts of the registration statement (including schedules and
exhibits) have been excluded from this prospectus in accordance with the
rules and regulations of the Commission. In addition, we are subject to the
reporting requirements of the Securities and Exchange Act of 1934 (the
"Exchange Act"). Pursuant to those reporting requirements, we file reports,
including annual reports on Form 10-KSB, and other information with the
Commission. The registration statements and other documents we have filed
with the Commission may be inspected and copied at the Public Reference Room
of the Commission at Room 1024, Judicial Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Information on the operation of the Public Reference
Room can be obtained by calling the SEC at 1-800-SEC-0330.

                        ENFORCEMENT OF CIVIL LIABILITIES

Some of our directors and officers are residents of Canada and the majority
of our assets are in Canada. In addition, some of the experts named in this
prospectus carry on business in Canada, and may hold some or all of their
assets outside the United States. As a result, purchasers of the shares
offered pursuant to this prospectus may not be able to enforce civil
liabilities under United States federal securities laws against these
persons. Purchasers of shares may also be unable to serve legal process on
these persons within the United States, or realize in the United States on
judgments of courts of the United States. There is also doubt as to whether
Canadian courts will enforce judgments of courts of the United States or
liabilities created by United States legislation against us, our directors
and officers, or experts named in this prospectus.

                                 USE OF PROCEEDS

We will not receive any proceeds from the sale of shares offered hereby, all
of which will be received by the selling shareholders.

                            NATURE OF TRADING MARKET

Our common shares are currently trading through the OTC Bulletin Board under
the symbol "BNTI".

The following table shows the high and low sale prices for our common shares
for the quarters indicated.

<TABLE>
<CAPTION>
1999                        High            Low             Close
- ----                        ----            ---             -----
<S>                         <C>             <C>             <C>
                             ($)             ($)             ($)
Fourth Quarter              1.18            0.20            1.06
Third Quarter               0.33            0.21            0.27
Second Quarter              0.43            0.17            0.31
First Quarter               0.31            0.14            0.17
<PAGE>

                                       8


1998

Fourth Quarter              0.37            0.195           0.25
Third Quarter               1.08            0.234           0.27
Second Quarter              0.94            0.43            0.73
First Quarter               0.63            0.29            0.50

1997

Fourth Quarter              0.39            0.15            0.21
Third Quarter               0.48            0.20            0.34
Second Quarter              0.51            0.26            0.30
First Quarter               0.57            0.29            0.41
</TABLE>

The source of this information is the OTC-BB. The quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission and may
not represent actual transactions.

Subsequent to December 31, 1999 our share price has appreciated
substantially. The closing price for our shares on March 1, 2000 was $2.56.

As at February 29, 2000 we have 45,719,333 shares issued and outstanding. We
have approximately 250 registered shareholders. Approximately 24 million
shares are registered in the name of CEDE & Co., a depository. Based on
research into the indirect holdings registered in the names of depositories
and financial institutions, we estimate that we have over 4,000 beneficial
shareholders.

                                 DIVIDEND POLICY

We have never paid cash dividends on our capital stock. We currently intend
to retain any profits we earn to finance the growth and development of our
business. We do not anticipate paying any cash dividends in the foreseeable
future.

                                 CAPITALIZATION

The following table sets forth our consolidated capitalization as of December
31, 1999. This table should be read in conjunction with "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and
the Consolidated Financial Statements and related notes thereto included
elsewhere in this prospectus.

<TABLE>
<CAPTION>
                                                           December 31, 1999
                                                         (dollars in thousands)
                                                               (audited)
<S>                                                      <C>
Cash and cash equivalents                                          431
Short-term debt and current portion of long-term debt:             Nil
     Short-term debt facility                                      Nil
     Current portion of long-term debt                             Nil
<PAGE>

                                       9


             Total                                                 Nil
Long-term debt:                                                    Nil
Contingent Liability                                               600

             Total                                               1,031

Shareholder's equity:
     Common Stock, 50 million shares authorized                     41
         39,721,333 issued and outstanding
     Additional paid-in capital                                  6,910
     Retained earnings                                          (7,050)
     Total capitalization                                          932
</TABLE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data set forth below for the years ended
December 31, 1999, 1998, 1997, 1996, and 1995 were derived from our audited
consolidated financial statements. The financial data should be read in
conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" and our Consolidated Financial Statements and the
Notes thereto.

<TABLE>
<CAPTION>
                                       Years ended December 31
                           1999       1998       1997      1996       1995
                         (000's)    (000's)    (000's)    (000's)    (000'S)
<S>                      <C>        <C>        <C>        <C>        <C>
Sales Revenue              $Nil        $58       $Nil       $Nil       $Nil

Profit (Loss) for the    (1,236)    (2,111)      (930)      (960)      (748)
period

Profit (Loss) per         (0.03)     (0.07)     (0.04)     (0.05)     (0.04)
share

Total assets                616        143        193        170        115

Total S/H Equity            (99)      (990)      (645)      (523)      (757)

Total R&D expend.           579        321        149        260        179
</TABLE>

We have no long-term debt and have not paid any dividends.
<PAGE>

                                       10


                      MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Our company was incorporated in 1987. In 1994 we began developing products
for use in visual recognition systems. In the last half of 1999, we secured
our first major contract to develop a custom vision system. During the last
half of 1999 we also completed the first prototype of the IMPAC accelerator
board. We plan to use the IMPAC board to develop technologies which search,
filter, and interpret data found or transmitted on the Internet.

As of December 31, 1999 we have incurred aggregate net losses of
approximately $7.0 million since we entered the technology field in 1994. We
expect to continue to incur significant operating losses over the foreseeable
future. 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

YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998

During the year ended December 31, 1999 we did not receive any operating
revenue. We completed the majority of the work on our brake shoe sorting and
inspection system for Satisfied Brake Products Inc., and held a deposit of
$21,506 in respect of that work. In addition, we completed the Wizmaster
project for Sideware Systems Inc. However, as neither project was fully
invoiced or paid prior to December 31, 1999, revenue from those projects will
be recognized in our 2000 fiscal year.

During the fiscal year ended December 31, 1998, we received operating revenue
of $57,510 from the sale of vision systems and related services. We received:

(a)  $18,000 from Epson Portland Inc. for sale of the Company's print quality
     inspection system;

(b)  $30,000 from Cordis, a Johnson & Johnson company, for a feasibility study
     in respect of a shunt inspection system;

(c)  $7,500 from Tantus Electronics Corp. in respect of a proposed fruit
     inspection system for Sunkist Growers; and

(d)  $2,010 from NGI Technology, Inc. for a purchase of the BrainTron
     processor.

Cost of sales for the fiscal year ended December 31, 1998 were $30,005. This
figure included $1,250 in hardware costs and $28,755 in internal manpower
costs. The internal manpower costs related to work done on those projects
which generated revenue, as described above. As we had no operating revenue
for the year ended December 31, 1999, we had no cost of sales during that
period either.

Research and development expenses for the year ended December 31, 1999 were
$579,441, compared with $321,378 for the year ended December 31, 1998.
Research and development expenses include salaries and bonuses allocated to
research and development, which totalled $315,458 during 1999 and $230,553
during 1998. Research and development expenses for 1999 and 1998 also include
payments to North Shore Circuit Design of Austin, Texas for work on the IMPAC
accelerator board. Those payments
<PAGE>

                                       11


totalled $204,800 during 1999 and $116,294 during 1998. We report our
research and development expenses net of government grants, which totalled
$5,460 during 1999 and $45,890 during 1998. The grant funds were used for the
development of the Odysee Development Studio.

Consulting and contractor expenses were $nil for the year ended December 31,
1999, compared with $24,785 for the year ended December 31, 1998. Consulting
and contractor expenses for 1998 included approximately $17,000 spent in
preparing a business plan. There was no similar expense during 1999.

Our selling, general, and administrative expenses decreased from $1,786,410
for the year ended December 31, 1998 to $650,715 for the year ended December
31, 1999. Our selling, general, and administrative expenses include several
categories of expenditure, including salaries not allocated to research and
development. Accordingly, several factors contributed to the decrease. The
principal factors were as follows:

(a)  Our compensation expense for employee stock options decreased from
     $927,800 to $2,000. We incur a compensation expenses when we issue
     stock options to employees with an exercise price below the prevailing
     price for our stock.

(b)  Salaries and benefits decreased from $298,430 to $143,865. The
     principal reason for this decrease was the adjustment to our cost
     sharing agreement with Sideware Systems Inc., described below under the
     heading "Certain Transactions".

(c)  During 1999 we incurred a foreign exchange loss of $50,619. By
     comparison, during 1998 we incurred a foreign exchange gain of $36,743.
     Our foreign exchange gains and losses result principally from adjusting
     entries made in respect of transactions recorded in United States
     dollars, but actually carried out in Canadian dollars.

(d)  Accounting costs increased from approximately $54,000 to approximately
     $66,000. The principal reasons for this increase were costs incurred in
     filing reports required under the Securities and Exchange Act of 1934
     and costs incurred in resolving accounting issues relating to our stock
     option plan.

(e)  Travel and trade show costs decreased from approximately $56,000 to
     approximately $41,000, principally as a result of reduced trade show
     participation.

(f)  Premises costs decreased from approximately $63,000 to approximately
     $16,400, principally as a result of the adjustment made to our cost
     sharing agreement with Sideware Systems Inc.

YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997

During the year ended December 31, 1998 we received operating revenue of
$57,510 from the sale of prototype vision systems and related services. A
breakdown of this revenue, and the associated cost of sales, is given in the
preceding section. During the year ended December 31, 1997 we did not receive
any operating revenue. As we had no operating revenue during 1997, we had no
cost of sales either.

Research and development expenses for the year ended December 31, 1998 were
$321,378, compared with $148,527 for the year ended December 31, 1997.
Research and development expenses during 1998 included $116,294 paid to North
Shore Circuit Design of Austin, Texas for work on the IMPAC accelerator board
and on a prototype vision system. By comparison, during 1997 we paid North
Shore Circuit Design $11,000 for work on the prototype vision system (which
amount was allocated to "Consulting and contractors" in our December 31, 1997
financial statements). The balance of the increase in research and
development expenses from 1997 to 1998 was due principally to an increase in
<PAGE>

                                       12


the number of our research and development personnel.

Consulting and contractor expenses increased to $24,785 for the year ended
December 31, 1998 from $17,770 for the year ended December 31, 1997.
Consulting and contractor expenses during 1998 included approximately $17,000
spent in preparing a business plan. There was no similar expense during 1997.
During 1997 we paid North Shore Circuit Design approximately $11,000 for work
on a prototype vision system. As stated above, during 1998 payments to North
Shore Circuit Design were allocated to research and development.

General, selling, and administrative expenses increased from $763,745 for the
year ended December 31, 1997 to $1,786,410 for the year ended December 31,
1998. The principal factors which contributed to the increase were as follows:

(a)  Our compensation expense for stock options increased from $200,000 to
     $927,800.

(b)  Salaries and benefits increased from $215,014 to $298,430, principally
     as a result of hiring additional personnel.

(c)  Legal costs increased from approximately $80,000 during 1997 to
     approximately $116,000 during 1998, principally as a result of costs
     incurred in registering our shares pursuant to the Securities Exchange
     Act of 1934 and in legal disputes.

(d)  Accounting costs increased from approximately $14,000 to approximately
     $54,000, principally as a result of costs incurred in registering our
     shares under the Securities and Exchange Act of 1934.

(e)  Travel and trade show costs increased from approximately $40,000 to
     approximately $56,000, principally as a result of increased trade show
     participation.

(f)  Equipment rental increased from approximately $800 to approximately
     $15,000. This increase resulted from payments which we made to
     reimburse Techwest Management Inc. for a portion the cost of certain
     equipment. The equipment in question was acquired by Techwest
     Management Inc. through a sale to, and lease back from, a financial
     institution. As both our company and Sideware Systems Inc. used the
     equipment, each company reimbursed Techwest Management Inc. for 50% of
     the lease payments.

(g)  During 1998 we also paid approximately $31,000 (inclusive of applicable
     taxes) as compensation for the services of Grant Sutherland, our
     corporate Chairman. Mr. Sutherland did not receive any cash
     remuneration during 1997.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 1999 we raised approximately $2.1 million
in financing through private placements of shares. In addition, between
December 31, 1999 and February 29, 2000, we have received approximately
$830,000 from the exercise of incentive stock options. As at February 29,
2000 our cash balance is approximately $1,350,000.

At our current level of operation, we estimate that our monthly cash expenses
are approximately $100,000 per month. We base this estimate on the following
data:

(a)  As at February 29, 2000 we employ 5 full time and 9 part time officers
     or employees. Our monthly salary costs are approximately $40,000 per
     month.
<PAGE>

                                       13


(b)  For the year ended December 31, 1999 our average monthly general,
     overhead and administrative costs, exclusive of salary costs, were
     approximately $45,000 per month.

(c)  During the year ended December 31, 1999 we paid $204,800, allocated to
     "Research and development", to North Shore Circuit Design for work on
     the IMPAC accelerator board. Most of the work of North Shore Circuit
     Design was complete by the end of 1999. We expect that we will pay
     North Shore Circuit Design approximately $50,000 for additional work
     during the first six months of 2000.

(d)  During the year ended December 31, 1999 we also incurred capital
     expenditures of approximately $107,000, principally for leasehold
     improvements, computer equipment, and software. We do not expect to
     incur significant capital expenditures during the remainder of 2000
     unless they result from an increase our level of operation.

Based on the foregoing, we estimate that our total cash expenditures for the
period March 1, 2000 to December 31, 2000, will be approximately $1,000,000.
for the period March 1, 2000 to December 31, 2000. Accordingly, at our
current level of operation, our existing cash balances should be sufficient
to pay our anticipated cash expenditures to December 31, 2000.

We do not plan to increase our operating expenses significantly, or to incur
substantial capital expenditures, unless we begin to generate sales revenue
or unless we raise additional capital. At present, we do not have specific
plans to raise additional capital. We believe that if we identify additional
development projects which we consider worth pursuing, we will likely try to
raise up to $4,000,000 in private placement financing.

YEAR 2000

Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries to distinguish 21st century dates from
20th century dates. As a result, computer systems and/or software used by
many companies may need to be upgraded to comply with such "Year 2000"
requirements.

Our Year 2000 compliance program was conducted under the direction of our
systems administrator. Beginning in the middle of 1998, our systems
administrator commenced analyzing individual components of our computer
systems to identify any components which were not Year 2000 compliant.

Our systems administrator confirmed that all of the individual computers in
our system are Year 2000 compliant. The only software component that was
identified as potentially non-compliant was our accounting system. In May
1999 we replaced our accounting system with a Year 2000 compliant system. The
cost of the system was approximately $40,000, which was shared with Sideware
Systems Inc.

As at the date of this prospectus, we have not encountered any material Year
2000 problems. All of our products are Year 2000 compliant and we believe
that all of our internal systems are Year 2000 compliant. As a result, we
have not developed any contingency plan.
<PAGE>

                                       14


NEW ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". This
statement is effective for fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS 133 establishes consistent accounting and reporting
standards for derivative instruments and hedging activities. As of December
31, 1999 we have not adopted this standard and do not expect to do so prior
to its required application date. To December 31, 1999 we do not believe we
have entered into significant instruments that are subject to SFAS 133.
However, we are continuing to review and evaluate SFAS 133 and its impact.

EFFECTS OF FOREIGN CURRENCY EXCHANGE RATES AND INFLATION

While we record our financial statement in United States dollars, many of our
expenses are incurred in Canadian dollars. As a result, fluctuations in the
Canadian dollar exchange rate can affect our expenses, and thus our profit or
loss. During the year ended December 31, 1999 we incurred a foreign exchange
loss of $50,619. The foreign exchange loss resulted principally from
adjusting entries made in respect of transactions recorded in United States
dollars, but actually carried out in Canadian dollars. As at the date of this
prospectus, we have not engaged in exchange rate hedging activities. To the
extent we implement such hedging activities in the future, we cannot assure
that we will be successful.

In the years ended December 31, 1998 and December 31, 1999 inflation has had
a limited impact on our operations. However, there can be no assurance that
inflation will not have a material adverse effect on our results of
operations in the future.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As at December 31, 1999 we have not entered into or acquired financial
instruments that have a material market risk. We have no financial
instruments for trading or other purposes or derivative or other financial
instruments with off balance sheet risk. All financial assets and liabilities
are due within the next twelve months and are classified as current assets or
liabilities in the consolidated balance sheet provided with this prospectus.
The fair value of all financial instruments at December 31, 1999 is not
materially different from their carrying value.

To December 31, 1999, substantially all revenues and the majority of our cash
costs have been realized or incurred in Canadian dollars. To date we have not
entered into foreign currency contracts to hedge against foreign currency
risks between the Canadian dollar or other foreign currencies and our
reporting currency, the United States dollar. Generally, however, we attempt
to manage our risk of exchange rate fluctuations by maintaining sufficient
net assets in Canadian dollars to retire our liabilities as they come due.
<PAGE>

                                       15


                                    BUSINESS

THE COMPANY

Our company was incorporated in Nevada on March 4, 1987 under the name Tome
Capital Inc. We changed our name to Nevada Manhattan Mining Inc. on August
15, 1988, then back to Tome Capital Inc. on July 5, 1990, to Offshore
Reliance Ltd. on February 19, 1993, to Cozy Financial Corporation on April
20, 1993 and to BrainTech, Inc. on January 3, 1994. We did not carry on
active business prior to the beginning of 1994.

We were registered as an extra-provincial company under the British Columbia
COMPANY ACT on January 17, 1996. Our executive offices are located at 930
West 1st Street #102, North Vancouver, British Columbia, Canada V7P 3N4. Our
telephone number is (604) 988-6440 and our Internet address is www.bnti.com.

     OUR SUBSIDIARIES

We have one wholly owned subsidiary, BrainWare Systems Inc., incorporated in
British Columbia, Canada on March 3, 1994. BrainWare Systems Inc. carries out
our research and development and product development activities, and employs
our technical personnel.

The description of our business in this prospectus includes the business of
both BrainTech, Inc. and BrainWare Systems Inc.

TECHNICAL TERMS

Our business is technical, and as a result, we use technical terms in
describing it. We have included the following glossary to assist in
understanding our description.

- -    "algorithm" refers to the underlying logical method or sequence of steps
      by which a given calculation or manipulation of data is performed.

- -    "block" refers to a section of a computer processing board whose
      components perform related functions, and which are conveniently
      designed as a group.

- -    "driver" means a computer program which enables a computer to
      communicate with a specific device (such as a printer or additional
      processing unit).

- -    "fuzzy mathematics" is a branch of mathematical logic in which
      propositions are not classified as absolutely true or absolutely
      untrue, but rather as true to a degree, or untrue to a degree. Fuzzy
      mathematics has been used in a number of engineering and control
      applications.

- -    "fuzzy set" means a range of values used in calculations done through
      fuzzy mathematics. If the object of a fuzzy mathematics operation is to
      determine whether a measured quantity equals a certain specified value,
      the two quantities will be considered equal if the measured quantity
      falls within the fuzzy set constructed around the specified value.

<PAGE>

                                       16


- -    "interface" means a convention by which two software systems or programs
      communicate.

- -    "machine vision" refers to technology that collects and analyses visual
      images in a digital electronic format, and which uses such data to draw
      conclusions with little or no operator intervention.

- -    "module" refers to a part of computer system or program that performs
      functions which are conveniently designed or performed as a group.
      Designing computer systems in separate modules, which are then linked
      together, can reduce development costs and make subsequent
      modifications easier.

- -    "physical signature" means a vector of numbers representing an image
      which a vision system has identified as an object or visual pattern of
      interest, or a potential object or visual pattern of interest.

- -    "routine" means a computer program, or a portion of a computer program,
      which performs a specific task.

- -    "signature" means vector of numbers representing a specific object or
      visual pattern which a vision system is attempting to identify or
      recognize. Part of the function of a machine vision system is to
      compare a physical signature to a signature, to determine how well they
      match.

- -    "vector" refers to a set of numbers, with each number relating to a
      specific physical quantity or measurement.

HISTORICAL DEVELOPMENT

We entered the technology field in the first quarter of 1994. Since then, the
majority of our efforts have been devoted to developing products to be used
in creating machine vision systems, and in developing machine vision systems.

In June 1995 we completed development of the first generation BrainTron
Processor, which employs the Olson Reticular Brainstem ("ORB") algorithm to
carry out functions relating to the identification, classification and
matching of visual images. Further information on ORB is given below, under
the headings "BrainTron Processor" and "Intellectual Property".

During 1998 we made our first attempts at securing contracts to develop
custom vision systems to perform quality control functions. We prepared
feasibility studies or prototype systems in the following fields: print
quality inspection, frost damage inspection for fruit, and quality inspection
for surgical stents (used to reinforce weak blood vessels following
angioplasty surgery). We were not able to secure contracts to sell or install
any of these systems.

During 1998 we also commenced development of:

(a)  the Odysee Development Studio, a program designed to streamline the
     design of custom visions systems;

<PAGE>

                                       17


(b)  the second generation BrainTron processor, which employs more advanced
     mathematical algorithms for identifying and classifying digital images;
     and

(c)  the IMPAC accelerator board, which can compare and match mathematical
     vectors at high speed.

During 1999 we obtained our first substantial contract for the installation
of a custom machine vision system, to inspect and sort brake shoes for
Satisfied Brake Products Inc. of Cornwall, Ontario. We completed development
of the Odysee Development Studio, and working prototypes for the IMPAC
accelerator board and the second generation BrainTron processor. We also
developed "Wizmaster", a program designed for incorporation into the Dr. Bean
Internet product of Sideware Systems Inc.

In January 2000 we completed installation of the brake shoe sorting system
for Satisified Brake Products Inc.

Our plan of operation for the balance of 2000 is to develop our business in
two principal directions.

1.   We plan to pursue additional contracts for the design and installation
     of custom vision systems.

2.   We plan to develop Internet-related computer applications both for the
     IMPAC board and in cooperation with Sideware Systems Inc.

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

SERVICES AND PRODUCTS

We are currently developing our business in two different directions. The
historical core of our business is the development of machine vision systems
and related hardware and software products. With the development of the IMPAC
accelerator board and the Wizmaster program, we also intend to develop
Internet-related computer products.

     SERVICES AND PRODUCTS - MACHINE VISION SYSTEMS

Part of our business includes the development and supply of custom vision
systems. Systems like the ones we develop are often referred to as
application specific machine vision (ASMV) systems. ASMV systems are
generally custom designed to perform a specific function. In addition, we
have developed hardware and software products (the BrainTron processor and
the Odysee Development Studio) for use in the development of vision systems.

     MACHINE VISION SYSTEMS - INDUSTRY BACKGROUND

The growth of the machine vision industry is dictated, on the one hand, by
the technical difficulty of achieving accurate "computerized vision", and on
the other hand, by the vast theoretical scope of the potential applications.
The principal technical difficulties include the problems of compensating for
background noise that masks or distorts objects, separating objects from
their backgrounds, determining

<PAGE>

                                       18


how much "similarity" must exist before two visual patterns are considered to
represent the same object, and comparing physical objects which are only
approximately "similar" in the first place.

As the technical difficulties are solved, the potential benefits and
applications of computerized vision are large. In industrial quality control,
computerized vision can replace (and perform inspections more accurately
than) human inspectors. In industrial automation, computerized vision can be
used to control industrial machines or robots. In security systems,
computerized vision can be used to detect human visitors or intruders in
video camera images. In military applications, computerized vision can be
used in automated targeting systems. In medical applications, it can be used
to improve diagnostic reliability.

The Automated Imaging Association ("AIA") has published extensive statistics
on the market for machine vision systems. Principal statistics published by
the AIA include the following:

- -    In 1998 the North American market for merchant machine vision systems
     was approximately $1.25 billion (in revenue), or approximately 30,900
     units. These figures represented increases of approximately 1.5% (in
     revenue) or 22.7% (in units) over corresponding figures for 1997.

- -    The principal industrial applications of machine vision systems are
     inspection (e.g., inspection of products for quality control purposes),
     location analysis (e.g., control of industrial machines or robots, or
     control of fitting and assembly of products), and pattern recognition
     (e.g., optical character recognition). In 1998, inspection applications
     accounted for approximately 85% of the market by revenue, and
     approximately 42% by units. Location analysis applications accounted for
     approximately 11% of the market by revenue, and approximately 45% by
     units. Pattern recognition applications accounted for approximately 4%
     of the market by revenue and 13% of the market by units.

- -    The principal end users in the North American market for vision systems
     during 1998 were the following industries:

<TABLE>
<CAPTION>
     Industry                          % by Revenue           % by Units
     --------                          ------------           ----------
     <S>                               <C>                    <C>
     Semiconductors                    34%                    23%
     Electronics                       16%                    21%
     Containers                         3%                     6%
     Food                               8%                     4%
     Wood                               5%                     1%
     Transportation                     7%                     9%
     Fabricated metals                  2%                     2%
     Plastic                            4%                     5%
     Printing                           3%                     6%
     Medical / Pharmaceutical           3%                     8%
</TABLE>

- -    During 1998 suppliers of application specific machine vision (ASMV)
     systems accounted for approximately 54% of the market by revenue and 10%
     by units. Suppliers of general purpose vision systems accounted for 14%
     of the market by revenue and 35% by units. The remainder of the market
     was split among various sectors, including 3D based vision systems, web
     scanners, and x-ray vision based vision systems.

<PAGE>

                                       19


- -    During 1998 approximately 58% (by revenue) of all machine vision system
     sales were direct sales by suppliers. The remainder were through
     distributors or manufacturers' representatives.

The AIA has projected that by the year 2003, the North American market for
vision systems will increase to approximately $2.1 billion in revenue, and
approximately 55,000 units. These figures correspond to average annual growth
rates of approximately 11% for market revenue and 12% for units during the
period 1998 - 2003.

     MACHINE VISION SYSTEMS - TECHNICAL DESCRIPTION

Machine vision involves analysing visual images in a digital electronic form.
To do so, a machine vision system must first express a visual image in
digital form. The system must then analyse the digital data to recognize
patterns or specific objects.

We separate the development of a vision system into the following modules,
which correspond to the logical steps which must be followed in analysing an
electronic visual image.

ACQUISITION AND DIGITIZATION MODULE.  The acquisition and digitization module
receives input such as the signal from a video monitor, and creates a
digitized version of that input.

PREPROCESSING MODULE.  The preprocessing module receives digitized output
from the acquisition and digitization module and performs certain operations
and modifications on the digital data to facilitate pattern recognition.
The preprocessing module performs the following principal functions:

- -    It filters out noise and other apparent anomalies in the digital data.

- -    It segments the data by identifying subsets of the digital data which
     represent candidates for physical objects that the vision system is
     intended to recognize.

- -    It transforms data by deriving selected numerical characteristics of the
     data subsets identified as potential objects. The numerical
     characteristics may include such quantities as the length or width of
     the object, or a series of numbers describing its colour or texture. The
     numerical quantities thus derived are stored as a vector, referred to as
     the "physical signature" of the potential object.

TRAINING AND MATCHING MODULE.  The training and matching module performs two
essential functions.

- -    It receives the physical signatures of potential objects and attempts to
     match them to the signatures of specified objects already stored in
     memory (the objects the system is trying to locate or recognize). The
     training and matching module "classifies" physical signatures by
     calculating how well they match the signatures stored in memory. Since
     physical objects are unlikely to be perfectly identical, or to be
     described perfectly by a digitized version of visual input,
     classification necessarily involves the comparison of approximate
     quantities. The classification of physical signatures thus requires a
     mathematical algorithm for deciding how closely a physical signature and
     a signature match. A variety of mathematical models, including fuzzy
     mathematics and standard probability error functions, can be used to
     fulfil this

<PAGE>

                                       20


     requirement. While the technical details of the mathematical models
     differ, they have the common object of producing a numerical measure of
     how closely two mathematical data vectors match.

- -    It refines the stored signatures to which future physical signatures can
     be matched, that is it "trains" the system for more accurate object
     recognition in the future. Depending on the mathematical algorithm used
     to identify matching signatures, the training and matching module can
     adjust the appropriate memory signatures, or the mathematical parameters
     or functions used in matching physical signatures to the signatures
     stored in memory.

CONTROL AND FEEDBACK MODULES.  The control and feedback module controls input
to, and output from, the system. The control and feedback module determines
the extent to which the system is being trained and also permits direct
operator participation in certain steps of the process, such as the
identification of candidate objects or new objects. When a physical signature
does not match any of the signatures stored in memory, the control and
feedback module can also initiate procedures to create a "new" signature in
memory, to be used in identify the "new" object in the future.

     MACHINE VISION SYSTEMS - CUSTOMER PROJECTS

In September 1999 we entered into a contract to develop a system for
inspecting and sorting brake shoes for Satisfied Brake Products Inc. of
Cornwall, Ontario. We agreed to develop the machine vision components of the
system. A company named Mercator Robotec Inc. agreed to provide system
integration services, to link our machine vision components with the
mechanical control systems of the customer's production line. The machine
vision components of the system were required to identify and separate
approximately 200 different types of brake shoes, and to inspect the brake
shoes visually for defects.

The price for the system was Cdn$100,000, or approximately US$68,000. We
received approximately half of that price, with the other half going to
Mercator Robotec Inc. The system was completed in January 2000, and is
currently in operation. Our contract with Satisfied Brake Products Inc.
represented our first major contract for the sale of a custom vision system.

In November 1999 we prepared a feasibility study for Toyota Canada Ltd. for
the development of a system for inspecting and sorting automobile wheels. The
proposed system will be required to identify and separate approximately 20
different types of automobile wheels, and to inspect the wheels visually for
defects. The proposed price for the system is approximately US$90,000
(Cdn$130,000). We are pursuing negotiations with Toyota Canada Ltd. to obtain
a contract.

We plan to pursue additional opportunities to supply machine visions systems
for industrial applications. Investors are cautioned that most machine vision
systems are designed for the specific needs of a particular customer, and
represent isolated purchases by the customers in question. Accordingly, we
have no assurance that we will be able to obtain additional contracts to
supply machine vision systems, or that any customers we secure will become
repeat customers.

     MACHINE VISION SYSTEMS - BRAINTRON PROCESSOR

In 1995 the Company developed the first generation of the BrainTron
processor, which performs the

<PAGE>

                                       21


functions of a training and matching module, as described above. The first
generation BrainTron processor exists in hardware and software versions, both
of which operate under the Windows NT operating system. Both versions can be
used in final applications, although the software version was intended
principally for initial testing. The hardware version is a plug-in computer
card with five chips performing the following functions: communication with a
host computer, control of data movement within the processor, generation of
addresses to move data in memory, arithmetic operations, and random access
memory (RAM).

The first generation BrainTron processor uses the principles of fuzzy
mathematics to match physical signatures to signatures stored in memory.
Training functions carried out by the BrainTron processor use the ORB
algorithm, which includes a set of rules for making fuzzy sets either larger
or smaller to reflect new data. Using the ORB algorithm, the first generation
BrainTron processor expands or contracts the fuzzy sets being used to compare
signatures and physical signatures. This process "trains" the system to
require a close match in circumstances where a close match can be expected,
and to accept a more approximate match where historical data shows that a
close match will not likely be found.

During 1998 we commenced development of the second generation BrainTron
processor. The second generation BrainTron processor uses revised
mathematical algorithms to perform the classification and training functions.
In performing its classification function, the second generation BrainTron
processor uses a different mathematical formula for measuring how well two
vectors (representing a signature and a physical signature) match. In
performing its training function, the second generation BrainTron processor
adapts a system to new pieces of information in a way that is independent of
the order in which the new pieces of information are received. We believe
that the enhancements to the second generation BrainTron processor allow it
to carry out its classification and training functions more accurately and
quickly.

The software version of the second generation BrainTron processor has been
completed, and is undergoing testing. We expect to use the second generation
BrainTron processor in any machine vision systems which we install in the
near future. We have not yet commenced development of a hardware version of
the second generation BrainTron processor, and do not have definite plans as
to when, or whether, a hardware version will be built.

If suitable opportunities arise, we will license the BrainTron processor to
other companies. However, we expect that the BrainTron processor will be used
mainly as a component in custom vision systems which we develop for customers.

     MACHINE VISION SYSTEMS - ODYSEE DEVELOPMENT STUDIO

During 1999 we completed development of the Odysee Development Studio
("Odysee").

Odysee is designed to facilitate the expeditious and economical development
of custom vision systems. Odysee stores and manipulates libraries of routines
to perform the various functions which can be included within a vision
system. Odysee includes a standardized interface to which all of the routines
are adapted, so that the routines can be combined easily and efficiently into
an integrated system. Odysee permits the operator to "drag and drop"
individual routines from particular libraries to a window opened for the
system under development. Once added to the system window, the routines are
automatically linked together through the standardized Odysee interface.
Odysee thus eliminates the need to write

<PAGE>

                                       22


specialized computer code to link individual routines.

We initially developed Odysee for internal use, as an internal development
tool. We have tried briefly to market Odysee, through a limited marketing
program, as a development tool for use by other software companies and system
integrators. To that end, we modified Odysee to include additional routines
and functions, beyond those useful principally for vision systems. The
additional routines include numerical calculation and statistical routines,
to perform a variety of mathematical operations, and routines which can
manipulate large databases. Our attempts to market Odysee have thus far not
been successful, and we presently plan to use Odysee principally as an
internal development tool, as initially conceived.

Development of Odysee has been funded in part by a grant from the National
Research Council of Canada in the amount of $51,400.

The software by which Odysee links the various routines within its libraries
is proprietary. However, we do not have proprietary ownership of the majority
of the individual routines that can be used with Odysee, some of which are
available in the public domain.

     MACHINE VISION SYSTEMS - COMPETITIVE POSITION

The Automated Imaging Association ("AIA") has identified various categories
for companies operating in the vision systems industry. We believe that for
purposes of analysing our competitive position, we would be classified as a
merchant machine vision vendor.

According to data published by the AIA, over 250 merchant machine vision
companies were active in the vision systems market during 1998, with over 200
of those based in North America. The AIA reported that for 1998, of 214
companies operating in North America:

(a)  139 companies (vs. 109 in 1997) operated with revenues of less than $5
     million;

(b)  35 companies (vs. 29 in 1997) operated with revenues in the range of
     5-10 million;

(c)  18 companies (vs. 22 in 1997) operated with revenues in the range of
     $10-20 million;

(d)  11 companies (vs. 9 in 1997) operated with revenues in the range of
     $20-30 million;

(e)  6 companies (vs. 6 in 1997) operated with revenues in the range of
     $30-40 million; and

(f)  5 companies (vs. 7 in 1997) operated with revenues in excess of $40
     million.

We do not know of a reliable way to evaluate our future competitive position
within the industry. We believe that with the Standard Brake Products Inc.
project, we have demonstrated an ability to complete sales to major
industrial clients. However, we do not have an established track record of
sales or profits to provide any reliable indication of an ability to attract
significant market share or to operate profitably.

     SERVICES AND PRODUCTS - INTERNET TECHNOLOGIES

With the development of the IMPAC accelerator board, we intend to develop
Internet-related products

<PAGE>

                                       23


which utilize the data processing capabilities of the IMPAC board. In
addition, following development of the Wizmaster program, we intend to pursue
opportunities to develop additional products in cooperation with Sideware
Systems Inc.

     INTERNET TECHNOLOGIES - DESCRIPTION OF THE IMPAC ACCELERATOR BOARD

On July 6, 1998 we entered into a Product Development Agreement with United
Technologies Microelectronic Systems Inc. ("UTMC"), now a subsidiary of
Aeroflex Inc. Under that agreement we agreed to cooperate with UTMC in the
development of an Image Processor Accelerator Card ("IMPAC").

We originally intended to use the IMPAC board to design vision systems with
increased computing speed and efficiency. IMPAC was designed to consist of
the following principal blocks:

THE COMMUNICATIONS BLOCK, to control communication between IMPAC and the
main computer in which IMPAC is installed, and between the individual blocks
of IMPAC.

THE BRAINTRON BLOCK, to contain the second generation BrainTron processor and
associated memory.

THE CAM ENGINE BLOCK, to contain UTMC's proprietary CAM (Content Addressable
Memory) engine.

THE MICROPROCESSOR BLOCK, to contain a conventional microprocessor to perform
computing functions which are not performed by the communication block, the
BrainTron block or the CAM engine block.

The CAM (Content Addressable Memory) engine is an integrated circuit which
searches computer memory according to the content of the memory, as opposed
to the address of the memory. Rather than telling the user the contents of
memory at a specific address, the CAM engine can tell the user the address at
which the memory stores specific content (or the closest available match to
the specific content). The CAM engine thus creates the ability to identify
exact or close matches to specific data content at speeds which can not
currently be achieved with PC-based software applications.

In December 1999 we completed development and de-bugging of a prototype IMPAC
board. The prototype board includes a slot for later addition of the
BrainTron processor (as opposed to a completed BrainTron block) as we have
not yet developed a hardware version of the second generation BrainTron
processor. In addition, we have completed drivers enabling IMPAC to perform
basic input/output functions and to receive programming code from a host
computer (so that IMPAC can be programmed to perform specific functions).
These drivers are sufficient to permit us to begin testing IMPAC in specific
applications. These functions, and the operation of the CAM engine block and
microprocessor block, can be implemented without completing the BrainTron
block.

     INTERNET TECHNOLOGIES - POTENTIAL APPLICATIONS AND MARKETING FOR IMPAC

With the rapid growth in the market for Internet products, our current plan is
to investigate potential Internet-related applications for the IMPAC board. We
believe that the high speed data processing and matching capabilities of the
IMPAC board may be used in applications which search, screen or filter data
being transmitted over the Internet.

<PAGE>

                                       24


Examples of the potential applications which we intend to investigate
including the following.

DATA BASE ACCELERATION.  Data bases contain much of the data on the Internet.
The ability to search those data bases efficiently is an important factor in
the speed of the Internet. The operating speed of conventional random access
memory is a limiting factor in the speed at which data bases can be searched.
We believe that the IMPAC board may offer a more efficient means of searching
Internet data bases.

VIRUS DETECTION APPLICATIONS.  The transmission of computer viruses through
the Internet is a growing problem. We are investigating the possibility of
using the IMPAC accelerator board to develop a system which will screen
Internet data streams for viruses. We believe that the IMPAC board may be
well suited to this type of application, through its ability to compare a
sample data stream with a large number of known viruses. We expect that any
virus detection system which we develop using IMPAC will be suitable
principally for major Internet sites, as the system is likely to be too
expensive for individual PC users.

INTERNET LISTENING POSTS.  We are also investigating the possibility of using
IMPAC to develop systems which detect specified types of information being
transmitted over the Internet. Systems of this nature could be used by firms
seeking to maintain the security of their Internet sites and computer systems
by detecting (and then preventing) the unauthorized transmission of certain
types of secure information, or seeking to gather generic information on
Internet traffic.

Investors are cautioned that our investigations into the use of the IMPAC
board in Internet applications are in their initial stages. We have not
materially advanced the development of any Internet-related application using
the IMPAC board. There is no assurance that we will identify or complete any
Internet-related application which can be profitably exploited. In addition,
any Internet-related application which we develop may be offered in markets
which are highly competitive. Until our product development plans are further
advanced, we have no means of evaluating our potential competitive position
in any markets we may attempt to exploit.

Simultaneously with the Product Development Agreement described above, we
entered into a Manufacturing and Sales Agreement with UTMC. Under the
Manufacturing and Sales Agreement, UTMC will have responsibility for
manufacturing IMPAC, which we will purchase from UTMC. We will have
responsibility for marketing and sales of IMPAC. UTMC will assist in the
marketing and sales of IMPAC by referring customers to us, by including IMPAC
on its website and in certain catalogues of UTMC, and by such other means as
UTMC considers appropriate. UTMC will receive a commission of 10% on all
business referred to us by UTMC, or 5% in cases where we also commenced an
independent sales initiative.

<PAGE>

                                       25


     INTERNET TECHNOLOGIES - WIZMASTER

Pursuant to a Software Development Agreement with Sideware Systems Inc. dated
September 20 1999, we have developed a computer program named Wizmaster.
Wizmaster was designed to be included in the Dr. Bean program developed and
marketed by Sideware Systems Inc.

Dr. Bean is designed for use by companies operating e-commerce web sites. Dr.
Bean allows the company's customer service representatives to communicate
directly with potential customers, through live chat over the Internet. Dr.
Bean also incorporates a feature named "AutoService". The AutoService feature
displays automated questions for customer response. Based on the response,
the AutoService feature can provide an automated response to the customer's
inquiry, display further questions, or route the customer to an appropriate
customer service representative.

"Wizmaster" will be used in conjunction with the AutoService feature.
Wizmaster will permit Dr. Bean users to create custom "knowledge trees" which
specify the questions and possible responses to be used by the AutoService
feature. Through a user friendly drag-and-drop procedure, Wizmaster permits
the user to add a new question or response to the AutoService feature, and to
link specified responses to specified questions.

Under the Software Development and License Agreement, Sideware Systems Inc.
agreed to pay for the cost of developing Wizmaster on a cost plus 10% basis.
The total amount paid by Sideware Systems Inc. was approximately $11,200,
exclusive of taxes. Sideware Systems Inc. acquired, at no further charge, a
perpetual worldwide license to use Wizmaster as part of Dr. Bean. We are
prohibited from licensing Wizmaster to any other software developer (but not
to systems integrators) for a period of one year from the date Wizmaster
became generally available to purchasers of Dr. Bean (which occurred in
December 1999).

If opportunities arise, we intend to market Wizmaster to systems integrators
and (beginning in December 2000) to software developers. At the present time,
we do not know whether any significant market for Wizmaster exists. We also
intend to pursue opportunities to develop additional products that can be
integrated with Dr. Bean.

PLAN OF OPERATION

At our current level of operation, we estimate that our monthly cash expenses
are approximately $100,000 per month. We base this estimate on the following
data:

(a)  As at February 29, 2000 we employ 5 full time and 9 part time officers
     or employees. Our monthly salary costs are approximately $40,000 per
     month.

(b)  For the year ended December 31, 1999 our average monthly general,
     overhead and administrative costs, exclusive of salary costs, were
     approximately $45,000 per month.

(c)  During the year ended December 31, 1999 we paid $204,800, allocated to
     "Research and development", to North Shore Circuit Design for work on
     the IMPAC accelerator board. Most of the work of North Shore Circuit
     Design was complete by the end of 1999. We expect that we

<PAGE>

                                       26


     will pay North Shore Circuit Design approximately $50,000 for additional
     work during the first six months of 2000.

(d)  During the year ended December 31, 1999 we also incurred capital
     expenditures of approximately $107,000, principally for leasehold
     improvements, computer equipment, and software. We do not expect to
     incur significant capital expenditures during the remainder of 2000
     unless they result from an increase our level of operation.

As at February 29, 2000 our cash balance is approximately $1,350,000.
Accordingly, at our current level of operation, our existing cash balances
should be sufficient to pay our anticipated cash expenditures to December 31,
2000.

During the first six months of 2000 we will pursue the following projects and
objectives:

1.   Obtaining additional contracts for custom vision systems.

2.   Continued development of, and identifying applications for, the IMPAC
     accelerator board.

3.   Pursuing opportunities to develop additional products in cooperation
     with Sideware Systems Inc.

4.   Continued development of the second generation BrainTron processor.

If we do not have sufficient financial resources to pursue all of these
objectives, funds will be allocated in the order of priority set out above.

We do not plan to increase our operating expenses significantly, or to incur
substantial capital expenditures, unless we begin to generate sales revenue
or unless we raise additional capital. At present, we do not have specific
plans to raise additional capital. We believe that if we identify additional
development projects which we consider worth pursuing, we will likely try to
raise up to $4,000,000 in private placement financing.

We have not at any time been able to generate sufficient revenue from sales
of our products or services to sustain ongoing operations, and 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.

RESEARCH AND DEVELOPMENT

During the year ended December 31, 1998 we incurred research and development
expenses of $321,378, which included $116,204 paid to North Shore Circuit
Design for work on the IMPAC accelerator board. During the year ended
December 31, 1999 we incurred research and development expenses of $579,441,
which included $204,800 paid to North Shore Circuit Design.

Other than payments to North Shore Circuit Design, substantially all of our
research and development expenses consist of internal personnel costs
allocated to research and development.

During the first six months of 2000, we expect to pay approximately $50,000
to North Shore Circuit Design to complete its work on the IMPAC board.
Otherwise, we expect to complete substantially all of our research and
development work through our own employees.

<PAGE>

                                       27


INTELLECTUAL PROPERTY

We believe that software and related technical data which we have developed
constitute intellectual property belonging to us. The software and technical
data over which we assert intellectual property rights include principally
the following:

(a)  software we have written and incorporated in the Odysee Development
     Studio, including the software by which Odysee links the various
     subroutines within its libraries;

(b)  software and design specifications incorporated in the second
     generation BrainTron processor;

(c)  software routines which we develop from time to time in developing
     vision systems; and

(d)  software written in developing the Wizmaster program.

We have also registered the trademarks "BrainTech" and "BrainTron" with the
United States Patent and Trademark office.

Under our Product Development Agreement with UTMC dated July 6, 1998, we and
UTMC own jointly all intellectual property created in the development of the
IMPAC accelerator board. The stipulations as to joint ownership do not apply
to pre-existing intellectual property owned by either us or UTMC, or to
improvements or modifications to such pre-existing intellectual property.

Pursuant to a License Agreement dated January 13, 1995 with Willard W. Olson,
we hold a non-exclusive license to use Olson Reticular Brainstem algorithm
("ORB"). The term of the license is for 10 years, expiring in January, 2005.

ORB is a method of pattern classification which includes the following
features:

(a)  ORB measures the similarity of two visual patterns by developing a
     mathematical measurement for the degree of similarity in various
     features in the patterns.

(b)  ORB uses fuzzy mathematics to measure the similarity in individual
     features.

(c)  ORB is adaptive, in the sense that the mathematical criteria which it
     uses in comparing features can be modified to take account of new
     data, as new patterns are observed. In this way, a system using ORB
     can be "trained" over time to recognize and distinguish visual
     patterns more accurately.

We understand that Olson holds a license from Motorola Corp., pursuant to which
he was given the authority and legal power to grant the license given to us
under the License Agreement. We do not have a complete copy of the license
agreement between Motorola Corp. and Olson, which has been withheld on grounds
of confidentiality. We are thus not able to confirm directly the authority and
legal power of Olson to grant the license contained in the License Agreement.
However, attorneys for Olson have provided us with copies of certain provisions
contained in the license agreement between Motorola Corp. and Olson, which
provisions appear to us to authorize the license granted to us pursuant to the
License
<PAGE>

                                       28


Agreement. In addition, we have made it publicly known for over three years
that we have used the ORB algorithm in the development of the first
generation BrainTron processor, and have received no notice of any objection
from Motorola Corp. We have no reason to believe that our use of the ORB
algorithm is not properly authorized under the License Agreement.

ORB is the subject matter of U.S. Patent #5,390,261 (expiry date February 14,
2012) and Taiwan Patent No. 62531, currently owned by Motorola Corp. To the
best of our knowledge, neither patent has been challenged in any form of
court proceedings, with the result that there exists no judicial confirmation
of the validity or enforceability of the patents. We can not assure that any
of the patents referred to herein are valid or enforceable.

The first generation BrainTron processor was designed incorporating ORB. ORB
is not utilized in the second generation BrainTron processor.

Our ability to compete successfully will depend in part on our ability to
protect our proprietary technology and information. Apart from the BrainTech
and BrainTron trademarks, we have not applied for registration of
intellectual property rights in respect of any of our software (although
certain forms of legal protection, such as copyright ownership, are available
without registration). Although we attempt to prevent improper disclosure of
our proprietary technology, we cannot assure that the measures we take will
be adequate, or that competitors will not be able to develop similar
technology independently. Further, we can not assure that claims allowed on
any patent we obtain will be broad enough to protect our technology, that any
patent applications will ultimately be successful, or that foreign
intellectual property laws will protect our intellectual property. We may
have to resort to litigation to enforce or determine the validity and scope
of our proprietary rights. Litigation of this nature would likely be
expensive, and its outcome uncertain.

We have no pending claims against us for infringement of any patents or other
intellectual property rights of others. We have no reason to believe that we
infringe any intellectual property rights of others, although we do not
conduct systematic patent searches to determine whether any of our products
infringe existing patent rights. Whether or not we are actually infringing
the rights of third parties, claims of infringement may be advanced against
us, forcing us either to defend costly litigation or to purchase license
rights from third parties. If we are forced to purchase license rights from
third parties, we can not assure that we will be able to do so on
commercially reasonable terms, or at all.

DESCRIPTION OF PROPERTY

Our head office premises are located in North Vancouver, British Columbia,
Canada. Prior to September 1, 1998 the North Vancouver premises occupied
approximately 7,900 square feet. Effective September 1, 1998 additional space
was added to the premises, increasing the area to 14,867 square feet. We
share the North Vancouver premises with Sideware Systems Inc., a software
development company. The term of the lease expires August 31, 2003.

The lease provides for annual minimum rent of approximately $140,000 (equal
to approximately $8.84 per square foot) for the first year of the lease
commencing September 1, 1998 and ending August 31, 1999. Annual minimum rent
under the lease escalates to $9.01 per square foot in the second year, $9.18
per square foot in the third year, $9.35 per square foot in the fourth year,
and $9.52 per square foot in the fifth year. In addition, the lease requires
payment of additional costs relating to property taxes and
<PAGE>

                                       29


common area maintenance costs. Those costs are presently approximately $2.80
per square foot.

We operate our head office premises under a Cost Sharing and Allocation
Agreement with Sideware Systems Inc. Prior to October 1999 we shared the
costs of the premises with Sideware Systems Inc. equally. In October 1999 we
agreed with Sideware Systems Inc. to re-allocate the premises costs 20% to us
and 80% to Sideware Systems Inc. effective from January 1, 1999, as Sideware
Systems Inc. employs substantially more personnel, and thus makes greater use
of the premises.

The landlord under the lease is HOOPP Realty Inc., an arm's length company.
The tenant under the lease is Techwest Management Inc., a company of which
Owen Jones and Grant Sutherland are each directors, and in which Owen Jones
and Grant Sutherland are each one third shareholders. We are a co-covenantor
under the lease, along with Sideware Systems Inc. The costs of Techwest
Management Inc. under the lease are passed through to us and Sideware Systems
Inc. without any additional charges or mark-up.

Effective July 1, 1999 we have contracted for additional leasehold premises
in Vancouver, B.C. We have entered into:

(a)  a lease covering the premises at Suite 1620, 777 Dunsmuir Street (the
     "Original Premises") for the period July 1, 1999 to June 30, 2002, and
     covering the premises at Suite 1600, 777 Dunsmuir Street (the "Extended
     Premises") for the period December 1, 2000 to June 30, 2002; and

(b)  an Assignment of Lease covering the Extended Premises for the period
     July 1, 1999 to November 30, 2000.

The total space included in the Original and Extended Premises is 8,325
square feet. The landlord of the Original and Extended Premises is Pacific
Center Leaseholds Limited, an arm's length company.

The tenant under the lease described in (a) is Techwest Management Inc. We
are an indemnifier under the lease, along with Sideware Systems Inc. As an
indemnifier, we are liable to perform all of the obligations of the tenant
under the lease, including the payment of rent.

The assignor under the assignment described in (b) is SJM Management Ltd., a
private management company which holds a lease in respect of the Extended
Premises covering the period July 1, 1999 to November 30, 2000. Grant
Sutherland holds a one third beneficial interest in SJM Management Ltd. Prior
to July 1, 1999 the Extended Premises were occupied by the law firm
Sutherland Johnston MacLean, in which Mr. Sutherland was a partner. Under the
assignment, SJM Management Ltd. assigned its interest in respect of the
Extended Premises to Techwest Management Inc., which agreed to perform all of
the obligations of the tenant under the lease. We are an indemnifier under
the assignment, along with Sideware Systems Inc. As an indemnifier, we are
liable to perform all of the obligations of the assignee, including the
payment of rent.

Under the lease described in (a), the rent payable with respect to the
Original Premises for the period July 1, 1999 to June 30, 2002 is
approximately $43,860 per annum (approximately $11.22 per square foot)
payable in equal monthly installments of $3,655. The rent payable with
respect to the Extended Premises for the period December 1, 2000 to June 30,
2002 is approximately $49,500 per annum (approximately $11.22 per square
foot) payable in equal monthly installments of $4,130. In addition to rent,
monthly
<PAGE>

                                       30


charges are payable for maintenance fees, utilities and taxes. We anticipate
that the additional monthly charges will be approximately $3,400, based on
initial invoices submitted by Pacific Centre Leaseholds Limited.

Under the assignment described in (b), the rent payable with respect to the
Extended Premises for the period July 1, 1999 to November 30, 2000 is
approximately $43,540 per annum (approximately $9.86 per square foot) payable
in equal monthly installments of $3,630. In addition, monthly charges of
approximately $3,400 per month are payable for maintenance fees, utilities,
and taxes.

Sutherland Johnston, a law firm in which Grant Sutherland is a partner, will
continue to occupy a portion of the Extended Premises. Sideware Systems Inc.
and Sutherland Johnston will be responsible for a portion of the costs
relating to the Original and Extended Premises depending on the relative use
of those premises by those parties. We expect that for the foreseeable future,
we will:

(a)  bear approximately 10% of the cost of the Extended Premises; and

(b)  not use, and thus not bear any of the cost of, the Original Premises.

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 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. The outcome of the
action is uncertain.
<PAGE>

                                       31


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 (subject to any further
appeal) 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. We have filed an
Application for Leave to Appeal to the Supreme Court of Canada. That
application is pending. Any recovery in the proceeding must be considered
speculative.

                                   MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES

The following table sets forth certain information, as of February 29, 2000,
with respect to our directors, executive officers and key employees.

<TABLE>
<CAPTION>
     NAME                    AGE     POSITION
     ----                    ---     --------
     <S>                     <C>     <C>
     Owen L.J. Jones         48      President, Chief Executive Officer and Director
     W. Grant Sutherland     53      Chairman of the Board of Directors
     James L. Speros         41      Vice President
</TABLE>

OWEN L.J. JONES has been our President, Chief Executive Officer and a
director since December 1993. Prior to joining our Board of Directors, Mr.
Jones was the V.P. Sales, Marketing and Technology of Evergreen International
Technology Inc. (now Sideware Systems Inc.), a software development company
whose shares trade on the Canadian Venture Exchange and the OTC Bulletin
Board. Mr. Jones resigned from his position with Evergreen International
Technology Inc. in December 1993. In May 1995 Mr. Jones was elected as a
director of Evergreen International Technology Inc., and later assumed the
responsibilities of President and Chief Executive Officer of that company.
Subsequent to May 1995 Mr. Jones has divided his time and effort between our
affairs and the affairs of Sideware Systems Inc. Mr. Jones is not a director
of any public companies other than BrainTech, Inc. and Sideware Systems Inc.

W. GRANT SUTHERLAND was appointed one of our directors, and Chairman of our
Board of Directors, in November 1995. Mr. Sutherland is a licensed lawyer in
the Province of British Columbia, and has been engaged in the private
practice of law for 26 years, currently as a partner in the Vancouver law
firm Sutherland Johnston. Mr. Sutherland has also been a director of Sideware
Systems Inc. since May 1993.
<PAGE>

                                       32


Since November 1995, Mr. Sutherland has devoted the majority of his time and
effort to our affairs and those of Sideware Systems Inc., and presently
divides his time between our affairs and those of Sideware Systems Inc. Mr.
Sutherland is not a director of any public companies other than BrainTech,
Inc. and Sideware Systems Inc.

JAMES L. SPEROS was appointed one of our directors, and our Vice President,
on September 15, 1998. Mr. Speros is also a director of Sideware Systems Inc.
and President and Chief Operating Officer of Sidweware Corp., a wholly owned
subsidiary of Sideware Systems Inc. From June 1993 to January 1997 Mr. Speros
was the President and owner of two professional sports franchises, the
Baltimore Stallions and Montreal Alouettes of the Canadian Football League.
From January 1997 to February 1999 Mr. Speros was the President of
Exploration Mirandor, a mining exploration company. Mr. Speros is also a
director of Consolidated Maymac Petroleum Corp., a public company trading on
the Canadian Venture Exchange.

Owen Jones and Grant Sutherland were directors of Sideware Systems Inc. at
times when two bankruptcy petitions under the BANKRUPTCY AND INSOLVENCY ACT
(Canada) were brought in the Supreme Court of British Columbia against that
company by former directors of that company or private corporations
controlled by them. Both bankruptcy petitions were dismissed in January 1998.

Our directors will hold office until they resign, or until our next
shareholders' meeting.

EXECUTIVE COMPENSATION

Apart from incentive stock options, we do not presently compensate our
directors for services provided as directors. We provide compensation to our
directors, who are also officers, for services rendered as officers. We
currently provide the following compensation to our directors:

OWEN JONES.  Effective May 1, 1998 Mr. Jones receives payments totaling
$6,800 per month. We currently pay 20% of those monthly payments, with
Sideware Systems Inc. paying the remaining 80%. Prior to June 1, 1998, Mr.
Jones' monthly payments (then shared equally between us and Sideware Systems
Inc.) were $3,400 per month. Mr. Jones also holds incentive stock options to
acquire 1,527,500 shares at $0.20 per share. Mr. Jones receives no other
compensation from us or any of our subsidiaries.

GRANT SUTHERLAND.  Effective May 1, 1998 Mr. Sutherland receives payments
totaling $6,800 per month. We currently pay 20% of those monthly payments,
with Sideware Systems Inc. paying the remaining 80%. Mr. Sutherland also
holds incentive stock options to acquire 107,500 shares at $0.20 per share.
Mr. Sutherland exercised options to acquire 300,000 shares at $0.20 per share
in August 1998 and 1,120,000 shares at $0.20 per share in January 2000. Mr.
Sutherland receives no other compensation from us or any of our subsidiaries.

JAMES L. SPEROS.  Mr. Speros holds options to acquire 300,000 shares at $0.20
per share, but does not receive a salary from us. Mr. Speros receives no
other compensation from us or any of our subsidiaries.

The aggregate amount of cash remuneration which we paid to our directors and
officers as a group was approximately Cdn$48,000 (U$32,640) during the fiscal
ended December 31, 1999.
<PAGE>

                                       33


INCENTIVE STOCK OPTIONS

From time to time, we grant incentive stock options to directors, officers,
consultants, and employees.

The following table shows the incentive stock options held by our directors
and executive officers as at February 29, 2000.

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Name                 Options      Percent of       Number         Number      Exercise     Market Value of     Expiry
                     Granted     Total Options    Exercised    Outstanding      Price     Underlying Shares      Date
                                  Granted(1)                                               at Date of Grant
- -----------------------------------------------------------------------------------------------------------------------
<S>                <C>           <C>              <C>          <C>            <C>         <C>                  <C>
Owen Jones         1,500,000            19.4%          Nil       1,500,000       $0.20               $0.23    01/12/02
                      27,500             0.4%          Nil          27,500       $0.20               $0.20    20/04/04
- -----------------------------------------------------------------------------------------------------------------------
Grant              1,500,000            19.4%    1,420,000          80,000       $0.20               $0.23    01/12/02
Sutherland            27,500             0.4%          Nil          27,500       $0.20               $0.20    20/04/04
- -----------------------------------------------------------------------------------------------------------------------
James Speros         300,000             3.9%          Nil         300,000       $0.20               $0.20    20/04/04
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  This column states the percentage of all incentive stock options which we
     have granted.

The total number of incentive stock options held by our directors and
officers as at February 29, 2000 is 1,915,000. All of the options stated in
the table above are exercisable within 60 days of February 29, 2000.

Between December 31, 1999 and February 29, 2000, the following incentive
stock options were exercised by directors and officers:

         Grant Sutherland           1,120,000 options

The incentive stock options described above were granted pursuant to a Stock
Option Plan adopted in December 1997. In December 1999 we filed a
registration statement on Form S-8 with respect to the Stock Option Plan.


<PAGE>

                                       34


                             PRINCIPAL SHAREHOLDERS

The following table shows certain information regarding beneficial ownership
of common stock, as of February 29, 2000 by (i) each shareholder whom we know
to be the beneficial owner of more than 5% of outstanding shares, (ii) each
of our Directors and executive officers, and (iii) all Directors and
executive officers as a group:

<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
         NAME AND ADDRESS                               NUMBER OF SHARES                  PERCENTAGE OF SHARES
        OF BENEFICIAL OWNER                          BENEFICIALLY OWNED (1)              BENEFICIALLY OWNED (1)
- ----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                                 <C>
Owen L.J. Jones*(2)                                               3,808,500                               8.1%
102 - 930 W. 1st North Vancouver, B.C.,
Canada V7P 3N4

James L. Speros*(3)                                                 300,000                               0.7%
1111 Grand Hamptons Dr.
Herndon, Virginia
20170

W. Grant Sutherland*(4)                                           2,992,500                               6.5%
1600 - 777 Dunsmuir St.
Vancouver B.C.
V7Y 1K4

Willard W. Olson                                                  2,500,000                               5.5%
6021 East Huntress Dr.
Paradise, Arizona
85253

All executive officers and directors as a                         7,101,000                              14.9%
group (3 Persons)(5)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>

* Denotes Director of the Company

- ---------

(1)  Beneficial ownership is determined in accordance with the rules of the
     Securities and Exchange Commission and generally includes voting or
     investment power with respect to securities. Shares of common stock
     subject to options or warrants currently exercisable or convertible, or
     exercisable or convertible within 60 days of February 29, 2000 are
     deemed outstanding for computing the percentage of the person holding
     such option or warrant but are not deemed outstanding for computing the
     percentage of any other person. Except as indicated in the footnotes to
     this table and pursuant to applicable community property laws, the
     persons named in the table have sole voting and investment power with
     respect to all shares of common stock beneficially owned.

(2)  Includes 1,527,500 shares issuable pursuant to stock options exercisable
     within 60 days of February 29, 2000.


<PAGE>

                                       35


(3)  Includes 300,000 shares issuable pursuant to stock options exercisable
     within 60 days of February 29, 2000.

(4)  Includes 107,500 shares issuable pursuant to stock options exercisable
     within 60 days of February 29, 2000.

(5)  Includes 1,935,000 shares issuable pursuant to stock options exercisable
     within 60 days of February 29, 2000.

We are unaware of any person who owns 10% or more of our voting securities.
We are unaware of any arrangements, the operation of which may at a
subsequent date result in a change of corporate control.

                              CERTAIN TRANSACTIONS

Within the last three fiscal years, we have entered into the transactions set
out below in which our current directors or officers were interested.

In October 1996 we entered into an agreement with Sideware Systems Inc.
effective November 1, 1995 pursuant to which certain costs associated with
our premises and operations were shared with Sideware Systems Inc. The
principal costs subject to the cost-sharing agreement included:

- -    costs of the North Vancouver premises which we share with Sideware
     Systems Inc. and certain equipment located there; and

- -    personnel costs (billed through Techwest Management Inc. - see below)
     including, inter alia, the salary costs of our President and accounting
     personnel.

Prior to October 1999 we shared the common costs equally with Sideware
Systems Inc. By a Cost Sharing and Allocation Agreement executed in October
1999, we agreed with Sideware Systems Inc. to re-allocate the common costs
20% to us and 80% to Sideware Systems Inc. effective from January 1, 1999.
The reason for the reallocation of costs was the substantially greater level
of business conducted by Sideware Systems Inc., and its corresponding greater
use of the common premises and personnel.

Sideware Systems Inc. is a software development company whose shares trade on
the Canadian Venture Exchange and the OTC Bulletin Board. The directors of
Sideware Systems Inc. include Owen Jones, Grant Sutherland and James Speros.

Shared costs under the Cost Sharing and Allocation Agreement are administered
by Techwest Management Inc., a private management company. In addition,
services of certain of our personnel are provided to us through Techwest
Management Inc. Techwest Management Inc. is a private management company in
which Owen Jones and Grant Sutherland each hold a one third interest. The
personnel whose services are provided through Techwest Management Inc.
include, inter alia, Owen Jones and our accounting personnel. Effective June
1, 1998, Mr. Jones receives an annual salary of approximately $81,600
(Cdn$120,000) from Techwest Management Inc. The cost of Mr. Jones' salary is
currently borne 20% by us and 80% by Sideware Systems Inc.

From time to time, either our payments or those of Sideware Systems Inc. have
exceeded the

<PAGE>

                                       36


proportionate share required under the cost sharing arrangement, giving rise
to indebtedness as between us, Sideware Systems Inc. and Techwest Management
Inc. Through much of 1998 and 1999, we were indebted to Sideware Systems
Inc., as we did not have sufficient cash available to pay our proportionate
share of the common operating costs. As at February 29, 2000 we have paid off
this intercorporate indebtedness.

Techwest Management Inc. passes shared costs (including personnel costs)
through to us and Sideware Systems Inc. at cost, without any markup.

During the fiscal year ended December 31, 1998 we purchased approximately
$26,000 worth of computer equipment from Sideware Systems Inc. During the
year ended December 31, 1999 our purchases or computer equipment from
Sideware Systems Inc. were approximately $21,000. We purchase most of our
computer equipment through Sideware Systems Inc. owing to favorable pricing
on IBM equipment available to Sideware Systems Inc. Sideware Systems Inc.
charged a markup on the initial purchases, but its current policy is to pass
such equipment on to us at cost.

We entered into a Software Development and License Agreement dated September
20, 1999 with Sideware Systems Inc. Pursuant to the Software Development and
License Agreement, we developed a program named the "Wizmaster", for
incorporation into Sideware's "Dr. Bean" program. Dr. Bean is an electronic
Customer Relations Management ("eCRM") program which supports live chat over
the internet between companies and their customers. One of the features of
Dr. Bean, known as "AutoService", displays automated questions for customer
response, and then processes the customer's inquiry according to the response
he selects. Wizmaster permits Dr. Bean users to customize the questions and
answers used in the AutoService feature through a user friendly drop-and-drag
procedure.

Under the Software Development and License Agreement, Sideware Systems Inc.
agreed to pay the cost of developing Wizmaster on a cost plus 10% basis. The
total amount paid by Sideware Systems Inc. was approximately $11,200,
exclusive of taxes. Sideware Systems Inc. acquired, at no further charge, a
perpetual worldwide license to use Wizmaster as part of Dr. Bean. We are
prohibited from licensing Wizmaster to any other software developer (but not
to systems integrators) for a period of one year starting from the date
Wizmaster becomes generally available to purchasers of Dr. Bean.

Effective October 31, 1998 Sideware Systems Inc. purchased an interest in the
proceeds of a judgment which we obtained on April 2, 1998 against John
Kosituk, in the amount of $300,000, in British Columbia Supreme Court Action
No. C972736. Sideware Systems Inc. paid $136,000 on account of the purchase
price, which was subject to adjustment depending on the benefit ultimately
received by Sideware Systems Inc. pursuant to the judgment. On March 18, 1999
the British Columbia Court of Appeal allowed an appeal from the judgment. As
a result, we repaid the $136,000.

In November 1995 we entered into a License Agreement with NetMedia Systems
Inc., a private company in which Owen Jones and Grant Sutherland hold
interests, and a Joint Venture Agreement with NetMedia Systems Inc. and
Sideware Systems Inc. None of the business contemplated by the agreements
proceeded, with the result that the agreements were terminated in October
1999.

We have entered into transactions regarding our Vancouver office premises in
which one of our directors, Grant Sutherland, is interested. See "Description
of Property".

<PAGE>

                                       37


We have acquired legal services from the law firm Sutherland Johnston, of
which Grant Sutherland is a partner. The amount of such legal services prior
to December 31, 1998 was not material. Subsequent to December 31, 1998
Sutherland Johnston have performed approximately $33,000 (exclusive of taxes
and disbursements) worth of legal services for us.

During our last three fiscal years Grant Sutherland has acquired the
following shares in private placements:

- -    780,000 shares at a price of $0.25 per share pursuant to a private
     placement conducted in May 1998;

- -    300,000 shares at a price of $0.20 per share pursuant to a private
     placement conducted in September 1998;

- -    1,000,000 shares at a price of $0.15 per share pursuant to a private
     placement conducted in March 1999;

- -    1,000,000 shares at a price of $0.15 per share pursuant to a private
     placement conducted in September 1999;

- -    135,000 shares at a price of $0.15 per share pursuant to a private
     placement conducted in October 1999; and

- -    150,000 shares at a price of $0.60 per share pursuant to a private
     placement conducted in December 1999.

During our last three fiscal years Owen Jones has acquired the following shares
in private placements:

- -    1,000,000 shares at a price of $0.15 per share pursuant to a private
     placement conducted in March 1999.


                          DESCRIPTION OF CAPITAL STOCK

SHARE CAPITAL

The authorized capital of the Company is 50,000,000 shares of common stock,
$0.001 par value, of which 45,719,333 were issued and outstanding on February
29, 2000.

At our next shareholders' meeting, we intend to put forward a resolution to
increase our authorized capital to 200,000,000 shares of common stock. We
believe that the increase in authorized capital is necessary to give us
flexibility in raising additional equity capital, and in offering stock
options as an incentive to existing and prospective officers, consultants,
and employees.

<PAGE>

                                       38


     COMMON STOCK

The shares to be offered pursuant to this prospectus are common shares in our
capital stock. Holders of common shares are entitled to one vote for each
share held of record at general meetings of our shareholders. Accordingly,
holders of a majority of the common shares voting in any election of
directors will have the ability to elect all the directors standing for
election. All common shares participate equally in dividends we pay, and in
the proceeds of any liquidation, dissolution or winding up. There are no
pre-emption rights and our articles of incorporation and by-laws contain no
provisions that would delay, defer, or prevent a change in control. Our
articles of incorporation and by-laws provide for the release and
indemnification of our directors and officers as to certain liabilities
arising from their actions in such capacities to the fullest extent permitted
by law.

OPTIONS TO PURCHASE SECURITIES FROM THE COMPANY

     INCENTIVE STOCK OPTIONS

From time to time, we grant incentive stock options to directors, officers,
consultants, and employees. We have granted a total of 7,730,000 incentive
stock options permitting optionees to acquire common shares at a price of
$0.20 per share. Of those stock options:

(a)  230,000 have expired without being exercised;

(b)  5,551,000 have been exercised up to February 29, 2000; and

(c)  1,949,999 remain outstanding as at February 29, 2000.

1,455,000 stock options were exercised prior to December 31, 1999. Between
December 31, 1999 and February 29, 2000 an additional 4,096,000 incentive
stock options have been exercised. Of those, the following incentive stock
options were exercised by directors and executive officers:

     Grant Sutherland         1,120,000 options at $0.20 per share

All of the options described above were granted pursuant to our 1997 Stock
Option Plan. We have presently granted all options available under the 1997
Stock Option Plan.

In February 2000 our directors approved the 2000 Stock Option Plan, which
authorizes the granting of an additional 7,500,000 stock options. At our next
shareholders' meeting, we intend to put forward a resolution to approve the
2000 Stock Option Plan. At the date of this prospectus, we have not granted
any options pursuant to the 2000 Stock Option Plan.

TRANSFER AGENT

The transfer agent for our common stock is Colonial Stock Transfer Company of
455 East 400 South, Suite 100, Salt Lake City, UT 84111.

<PAGE>

                                       39


                              SELLING SHAREHOLDERS

The shares offered for sale pursuant to this prospectus consist of 11,095,000
shares. The selling shareholders acquired the shares pursuant to a private
placements conducted during 1999. Selling shareholders listed as 1, 3 and 5
below acquired their shares at a price of $0.15 per share pursuant to a
private placement conducted in March 1999. Selling shareholders listed as 6
to 11 below acquired their shares at a price of $0.15 per share pursuant to a
private placement conducted in June 1999. Selling shareholders listed as 12
to 15 below acquired their shares at a price of $0.15 per share pursuant to
private placements conducted in September and October 1999. Selling
shareholders listed as 17 to 22 below acquired their shares at a price of
$0.60 per share pursuant to a private placement conducted in December 1999.
Welcome Opportunities Ltd. acquired 500,000 shares at $.15 per share pursuant
to a private placement conducted in March 1999 and 500,00 shares at $.15 per
share pursuant to a private placement conducted in June 1999. Grant
Sutherland acquired 1,000,000 shares at $.15 per share pursuant to a private
placement conducted in March 1999 and 150,000 shares at $.60 per share
pursuant to a private placement conducted in December 1999. Beau-J Holdings
Ltd., a private holding company owned by Grant Sutherland, acquired 1,135,000
shares at $0.15 per share pursuant to private placements conducted in
September and October 1999.

The following table sets forth, as of February 1, 2000, and upon completion
of the offering described in this prospectus, information with regard to the
beneficial ownership of our common shares by the selling shareholders.
Information in the column "Total Shareholdings After Completion of Offering"
is based on information provided to us by the selling shareholders and is
accurate to the best of our knowledge. The selling shareholders may not have
a present intention of selling the shares and may offer less than the number
of shares indicated.

<TABLE>
<CAPTION>
                                                        TOTAL SHAREHOLDINGS
                                                        AFTER COMPLETION OF
      SELLING SECURITY HOLDER         NO. OF SHARES         OFFERING(1)
<S>                                   <C>               <C>
1.  Owen Jones (2)                      1,000,000             2,080,500
2.  Grant Sutherland (3)                1,150,000               707,500
3.  695183 B.C. Ltd.  (4)               1,000,000          see note (4)
4.  Welcome Opportunities Ltd.          1,000,000                   Nil
5.  Donald Anderson                       900,000               170,000
6.  Bolder Investment Partners            500,000                   Nil
7.  J.R. Sparling MD Incorporated         500,000                   Nil
8.  APL Securities Ltd.                   500,000                   Nil
9.  Nottinghill Resources Ltd.            500,000                   Nil
10. 9051 Investments Ltd. (5)              50,000          see note (5)
11. Daphne Thomas (5)                      50,000                25,000
12. Melvin Earl Beaumont (4)              450,000               157,500
13. Marguerite Beaumont (4)               450,000                   Nil
14. Rendeco Holdings Ltd.                 450,000                   Nil
15. Worldwide Mortgage Corp. Ltd.         450,000                   Nil
16. Beau-J Holdings Ltd. (3)            1,135,000          see note (3)
17. Jeffrey W. Lubore (6)                 150,000               100,000
18. David A. Robinson                     150,000                   Nil
<PAGE>

                                       40


19. Thomas M. Dunkenberger                150,000                 5,000
20. Michael M. Hawes                      150,000                12,000
21. Clive Forth                           110,000                   Nil
22. Michael Colen                         300,000                15,000
</TABLE>

(1)  Calculated on the assumption that all shares offered by each selling
     shareholder are sold. Total shareholdings stated include shares issuable
     pursuant to incentive stock options exercisable within 60 days of February
     29, 2000.

(2)  Owen Jones is our President and a member of our Board of Directors. Total
     shareholdings stated for Mr. Jones include 1,527,500 shares issuable
     pursuant to incentive stock options.

(3)  Grant Sutherland is the Chairman of our Board of Directors. Total
     shareholdings stated for Mr. Sutherland include 107,500 shares issuable
     pursuant to incentive stock options. Total shareholdings stated for Mr.
     Sutherland also include shares owned by Beau-J Holdings Ltd., a private
     holding company owned by Mr. Sutherland.

(4)  Total shareholdings stated for Melvin Beaumont include shares owned by
     69518 Alberta Ltd., a private holding company owned by Melvin Beaumont.
     Marguerite Beaumont is the wife of Melvin Beaumont.

(5)  Daphne Thomas is a consultant to us. Total shareholdings reported for Ms.
     Thomas include 25,000 shares issuable pursuant to incentive stock options.
     9051 Holdings Ltd. is a private holding company owned by Ms. Thomas.

(6)  Jeffrey W. Lubore is a consultant to us. Total shareholdings reported for
     Mr. Lubore include 100,000 shares issuable pursuant to incentive stock
     options.

To the best of our knowledge, assuming that all of the shares offered by each
selling shareholder are sold, no selling shareholder other than Owen Jones,
Grant Sutherland, or Melvin Beaumont will own or control in excess of 1% of
our voting securities.

                              PLAN OF DISTRIBUTION

The shares offered hereby may be sold from time to time by the selling
shareholders. These sales may be made privately, through the OTC Bulletin
Board quotation service, or otherwise, at prices and at terms then prevailing
or at prices related to the then current market price, or in negotiated
transactions. The shares may be sold by each of the selling shareholders
acting as principal for its own account or in ordinary brokerage transactions
and transactions in which the broker solicits purchasers. In effecting sales,
broker-dealers engaged by the selling shareholders may arrange for other
broker-dealers to participate in the re-sales.

Broker-dealers or agents may receive compensation in the form of commissions,
discounts or concessions from selling shareholders in amounts to be
negotiated in connection with the sale. These broker-dealers and any other
participating broker-dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with these sales, and any such
commissions, discounts or concessions may be deemed to be underwriting
discounts or commissions under the Securities Act. In addition, any
securities covered by this prospectus which qualify for sale pursuant to Rule
144 to the Securities Act may be sold under Rule 144 rather than pursuant to
this prospectus.

It is not possible at the present time to determine the price to the public
in any sale of the shares by the selling shareholders and each selling
shareholder reserves the right to accept or reject, in whole or in part, any
proposed purchaser of shares. Accordingly, the public offering price and the
amount of any applicable sales or underwriting discounts or commissions will
be determined at the time of such sale by the selling shareholders. The
aggregate proceeds to the selling shareholders from the sale of the shares
will be the purchase price of the shares less all applicable commissions and
underwriters' discounts, if any. We will pay substantially all the expenses
incident to the registration, offering and sale of the
<PAGE>

                                       41


shares to the public by the selling shareholders (currently estimated to be
$130,000), other than fees, discounts and commissions of underwriters,
dealers or agents, if any, and transfer taxes.

                                  LEGAL MATTERS

Certain legal matters relating to the legality of the issuance of the shares
offered by this prospectus will be passed upon by William K. Ziering,
Attorney At Law, of Four Embarcadero Center, Suite 3400, San Francisco, CA
94111-4187.

                                     EXPERTS

The consolidated balance sheets of the Company as at December 31, 1999 and
1998, and the consolidated statements of operations, stockholders' deficit
and cash flows for the years ended December 31, 1999, 1998, and 1997 have
been included herein and elsewhere in this Registration Statement in reliance
upon the report of KPMG LLP, independent chartered accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.

                          INDEX TO FINANCIAL STATEMENTS

Report of Independent Accountants
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Change in Shareholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
<PAGE>

                                       42


==============================================================================

     NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH
THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION WHERE
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.

                     TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                        Page
<S>                                                     <C>
Prospectus Summary.......................................1

Risk Factors.............................................3
Cautionary Notice regarding Forward-Looking Statements...6
Additional Information...................................7
Enforcement of Civil Liabilities.........................7
Use of Proceeds..........................................7
Nature of Trading Market.................................7
Dividend Policy..........................................8
Capitalization...........................................8

Selected Consolidated Financial Data.....................9
Management's Discussion and Analysis of Financial
  Condition and Results of Operation....................10

Business................................................15
Management..............................................31
Principal Shareholders..................................34
Certain Transactions....................................35
Description of Capital Stock............................37
Selling Shareholders....................................39
Plan of Distribution....................................40
Legal Matters...........................................41

Experts.................................................41
Index to Financial Statements...........................41
</TABLE>

   UNTIL -, 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.


                                 BRAINTECH, INC.


                            11,095,000 COMMON SHARES


                               ___________________

                                   PROSPECTUS
                               ___________________


                                   MARCH, 2000

==============================================================================
<PAGE>

                                       43


                                     PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13.  OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

We will not receive any proceeds from the sale of shares by the selling
shareholders.

We will pay substantially all the expenses incident to the registration,
offering and sale of the shares to the public by the selling shareholders
other than fees, discounts and commissions of underwriters, dealers or
agents, if any, and transfer taxes. Those expenses are estimated as follows:

<TABLE>
<CAPTION>
                                                              AMOUNT
                                                          ---------------
                                                          (STATED IN US$)
     <S>                                                  <C>
     SEC Registrtion Fee............................          $ 10,000
     Legal Fees and Expenses........................            40,000
     Accounting fees and expenses...................            20,000
     Blue Sky Qualification fees and expenses.......             5,000
     Printing.......................................            40,000
     Transfer Agent and Registrar Fees..............             5,000
     miscellaneous expenses and Qualification.......            10,000
            Total...................................          $130,000
</TABLE>

ITEM 14.  INDEMNIFICATION OF DIRECTORS AND OFFICERS

Under Article VIII of our By-Laws, any past or present director, officer, or
employee (or person serving as such for another corporation, at our request)
or a testator or intestate thereof, is entitled to be indemnified by us in
respect of any expenses (including without limitation attorneys' fees,
judgments, fines, and penalties) reasonably incurred by him in defending any
civil, criminal or administrative action, suit or proceeding to which he is
made a party by reason of his position with us (or other corporation at our
request). Indemnification is not available to the extent that it is adjudged
in such action, suit or proceedings that the officer, director or employee
was liable to us (or such other corporation) for negligence or misconduct in
the performance of duty.

A judgment or conviction (including a conviction based on a plea of guilty or
nolo contendere or its equivalent) shall not itself be deemed an adjudication
that the director, officer or employee was liable for negligence or
misconduct in the performance of his duties. A person claiming
indemnification may have his entitlement determined by:

(a)  order of the Court or administrative body having jurisdiction in the
     action, suit, or proceeding;

(b)  a resolution adopted by a majority of the quorum of our Board of
     Directors (not counting any director who has incurred expenses in
     connection with the action, suit or proceeding);
<PAGE>

                                       44


(c)  a resolution of the majority of our stockholders (if there is no quorum
     of directors available who have not incurred expenses in connection
     with the action, suit or proceeding);

(d)  a resolution of the majority of our directors entitled to vote at any
     meeting; or

(e)  any order of any Court having jurisdiction over us.

Any such determination that a payment by way of indemnification should be
made is binding on us.

The right of indemnification given under Article VIII of the By-Laws is not
exclusive of any such other right under any By-Law, agreement, shareholders'
resolution, provision of law, or otherwise. The provisions of Article VIII
also apply to any member of any committee appointed by our Board of Directors.

ITEM 15.  RECENT SALES OF UNREGISTERED SECURITIES

During the fiscal year ending December 31, 1996 we issued 4,683,333 shares in
private placements. These shares were issued pursuant to exemptions from
registration pursuant to Rule 504 of Regulation D under the Securities Act of
1933, as amended (the "Securities Act"). We received consideration of
$953,790, net of legal costs. 950,000 shares were issued January 4, 1996 at a
price of $0.1895 per share (equivalent to gross proceeds of $180,000).
733,333 shares were issued April 3, 1996 at a price of $0.2523 per share
(equivalent to gross proceeds of $185,000). 2,000,000 shares were issued June
5, 1996 at a price of $0.20 per share (equivalent to gross proceeds of
$400,000). 1,000,000 shares were issued September 23, 1996 at a price of
$0.20 per share.

During the fiscal year ending December 31, 1996 we issued 1,200,000 shares at
a deemed value of $240,000 to one of our former directors and a consultant in
payment of performance bonuses for technical services rendered to us. 400,000
shares were issued on December 26, 1996 to Paco Nathan, then one of our
directors, at a deemed value of $80,000. 800,000 shares were issued on
December 26, 1996 to Brad Martin at a deemed value of $160,000. Brad Martin
is a principal of North Shore Circuit Design, a software consulting firm
located in Austin, Texas. North Shore Circuit Design provided services to us
in relation to the development of the BrainTron processor. These shares were
issued pursuant to exemptions from registration under Section 4(2) of the
Securities Act.

During the fiscal year ending December 31, 1997 we issued 3,000,000 shares in
private placements. These shares were issued pursuant to exemptions from
registration pursuant to Rule 504 of Regulation D under the Securities Act.
We received consideration of $548,270.50, net of legal costs. 1,000,000
shares were issued March 20, 1997 at a price of $0.20 per share (equivalent
to gross proceeds of $200,000). 1,000,000 shares were issued May 29, 1997 at
a price of $0.20 per share (equivalent to gross proceeds of $200,000).
1,000,000 shares were issued December 24, 1997 at a price of $0.15 per share
(equivalent to gross proceeds of $150,000).

In May 1997 we issued 300,000 shares at a deemed value of $60,000 to Paragon
Communications in consideration for investor relations services. These shares
were issued pursuant to exemptions from registration Section 4(2) of the
Securities Act.
<PAGE>

                                       45


During the first half of 1998 we issued 1,600,000 shares in a private
placement. These shares were issued pursuant to exemptions from registration
pursuant to Rule 504 of Regulation D under the Securities Act. We received
consideration of $396,870, net of legal costs. 1,200,000 shares were issued
on March 27, 1998 at a price of $0.25 (equivalent to gross proceeds of
$300,000). Grant Sutherland, one of our directors, was the beneficial
purchaser of 780,000 of the 1,200,000 shares. 400,000 shares were issued on
May 4, 1998 at a price of $0.25 (equivalent to gross proceeds of $100,000).

In July and August 1998 we issued 900,000 shares on the exercise of stock
options granted to our directors, officers, employees and consultants. We
received consideration of $180,000. Directors exercised 600,000 of the
2,200,000 options. These shares were issued pursuant to exemptions from
registration pursuant to Rule 504 of Regulation D under the Securities Act.

In September 1998 we conducted a private placement of 1,250,000 shares at
$0.20 per share. The shares were issued pursuant to exemptions from
registration pursuant to Rule 504 of Regulation D under the Securities Act.
We received consideration of $248,750, net of legal costs. Grant Sutherland,
one of our directors, was the beneficial purchaser of 300,000 of the shares.

In March 1999 we conducted a private placement of 4,400,000 shares at $0.15
per share. The shares were issued pursuant to exemptions from registration
pursuant to Rule 506 of Regulation D under the Securities Act. We received
gross proceeds of $660,000. Grant Sutherland and Owen Jones, members of our
Board of Directors, purchased 1,000,000 shares each.

In June 1999 we conducted a private placement of 2,600,000 shares at $0.15
per share. The shares were issued pursuant to exemptions from registration
pursuant to Rule 506 of Regulation D under the Securities Act. We received
gross proceeds of $390,000. None of our directors participated in this
private placement.

In September and October 1999 we conducted private placements of 2,935,000
shares at $0.15 per share. The shares were issued pursuant to exemptions from
registration pursuant to Rule 506 of Regulation D under the Securities Act.
We received gross proceeds of $440,250. Beau-J Holdings Ltd., a private
holding company owned by Grant Sutherland, one of our directors, purchased
1,135,000 shares. Owing to administrative delays, 450,000 of the shares were
issued in December 1999 and 135,000 of the shares were issued in February
2000.

In December 1999 we conducted a private placement of 1,160,000 shares at
$0.60 per share. The shares were issued pursuant to exemptions from
registration pursuant to Rule 506 of Regulation D under the Securities Act.
We received gross proceeds of $696,000. Grant Sutherland, one of our
directors, purchased 150,000 shares. Owing to administrative delays, 150,000
of the shares were issued in February 2000.

See "DESCRIPTION OF CAPITAL STOCK - Share Capital."
<PAGE>

                                       46


ITEM 16.      EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
    NUMBER
                                 EXHIBIT
    <S>       <C>
    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 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.
   11.1(1)    Computation of net loss per share
   21.1(1)    Subsidiaries of the Registrant
   23.1       Consent of KPMG LLP
   23.2(1)    Consent of William K. Ziering (included in Exhibit 5.1)
   24.1(1)    Power of Attorney (included in the signature page to this Registration Statement)
   27.1(1)    Summary Financial Data for the year ended December 31, 1999.
</TABLE>

(1) Exhibit already on file.
<PAGE>

                                       47


ITEM 17.  UNDERTAKINGS

     (a)  The undersigned Registrant hereby undertakes:

          (1)  To file, during any period in which offers or sales are being
     made, a post-effective amendment to this Registration Statement:

               (i)    To include any prospectus required by section 10(a)(3)
                      of the Securities Act of 1933;

               (ii)   To reflect in the prospectus any facts or events arising
                      after the effective date of the Registration Statement
                      (or the most recent post-effective amendment thereof)
                      which, individually or in the aggregate, represent a
                      fundamental change in the information set forth in the
                      Registration Statement;

               (iii)  To include any material information with respect to the
                      plan of distribution not previously disclosed in the
                      Registration Statement or any material change to such
                      information in the Registration Statement.

          (2)  That, for the purpose of determining any liability under the
     Securities Act of 1933, each such post-effective amendment shall be deemed
     to be a new registration statement relating to the securities offered
     therein, and the offering of such securities at that time shall be deemed
     to be the initial bona fide offering thereof.

          (3)  To remove from registration by means of a post-effective
     amendment any of the securities being registered which remain unsold at
     the termination of the offering.

          (4)  To file a post-effective amendment to the Registration Statement
     to include any financial statements required by section 10(a)(3) of the
     Act.
<PAGE>

                                       48


                                   SIGNATURES

     In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized in Vancouver, British Columbia, on March 8, 2000.

                                       BRAINTECH, INC.

                                       By: "Grant Sutherland"
                                           ----------------------------------
                                           W. Grant Sutherland
                                           Chairman of the Board of Directors

     Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE                     TITLE                                DATE
<S>                           <C>                                  <C>
"Grant Sutherland"            Director, Chairman of                March 8, 2000
- ------------------------      the Board of Directors,
W. Grant Sutherland           Principal Financial Officer,
                              Principal Accounting Officer

*
- ------------------------      President, Chief Executive           March 8, 2000
Owen L.J. Jones               Officer and Director (Principal
                              Executive Officer)

*By: "Grant Sutherland"
     -------------------
     W. Grant Sutherland
     Attorney in Fact
</TABLE>
<PAGE>





                  Consolidated Financial Statements of

                  BRAINTECH, INC.
                  (A Development Stage Enterprise)
                  (Expressed in U.S. Dollars)


                  Years ended December 31, 1999, 1998 and 1997
                  Period from inception on January 3, 1994 to December 31, 1999





<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors
Braintech, Inc.

We have audited the accompanying consolidated balance sheets of Braintech,
Inc. (a development stage enterprise) as at December 31, 1999 and 1998 and
the related consolidated statements of operations, stockholders' deficit and
cash flows for each of the years in the three year period ended December 31,
1999 and for the period from inception on January 3, 1994 to December 31,
1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Braintech, Inc. as at December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the years in the three year
period ended December 31, 1999 and for the period from inception on January
4, 1994 to December 31, 1999, in conformity with generally accepted
accounting principles in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
financial statements, the Company has suffered recurring losses from
operations and has a net capital deficiency which raise substantial doubt
about its ability to continue as a going concern. Management's plans in
regard to these matters are also described in note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.



"KPMG"


Chartered Accountants


Vancouver, Canada

February 10, 2000, except as to note 11 which is as of February 21, 2000

<PAGE>

BRAINTECH, INC.
(A Development Stage Enterprise)

Consolidated Balance Sheets
(Expressed in U.S. Dollars)

December 31, 1999 and 1998

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
                                                                                     1999                 1998
- -------------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>                   <C>
ASSETS

Current assets:
     Cash and cash equivalents                                             $      431,390       $       22,479
     Accounts receivable                                                           16,189               22,433
     Inventory                                                                      3,369                 -
     Due from related companies (note 4(a))                                        13,644                 -
     Prepaid expenses                                                               7,392               12,344
     --------------------------------------------------------------------------------------------------------------
                                                                                  471,984               57,256

Due from directors and officers (note 4(b))                                        10,130               10,130

Fixed assets (note 5)                                                             134,210               75,237
- -------------------------------------------------------------------------------------------------------------------
                                                                           $      616,324       $      142,623
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:
     Accounts payable and accrued liabilities                              $       87,710       $       84,001
     Deferred revenue                                                              21,506                 -
     Due to related companies (note 4(a))                                            -                 442,860
     --------------------------------------------------------------------------------------------------------------
                                                                                  109,216              526,861

Amounts in dispute (note 8(b))                                                    606,000              606,000
- -------------------------------------------------------------------------------------------------------------------
                                                                                  715,216            1,132,861

Stockholders' deficit:
     Common stock (note 6):
       Authorized:  50,000,000 shares, with $0.001 par value
       Issued:  41,338,333 shares (1998 - 30,371,333)                              41,228               30,371
     Additional paid-in capital (note 6(c))                                     6,910,323            4,793,760
     Accumulated deficit                                                          (58,800)             (58,800)
     Deficit accumulated during the development stage                          (6,991,643)          (5,755,569)
     --------------------------------------------------------------------------------------------------------------
                                                                                  (98,892)            (990,238)

Future operations (note 2)
Contingencies (note 8)
Commitments (note 9)
Subsequent events (note 11)
Year 2000 Issue (note 12)

- -------------------------------------------------------------------------------------------------------------------
                                                                           $      616,324       $      142,623
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</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               Years ended December 31,
                                            to December 31,  ------------------------------------------------------
                                                       1999             1999              1998            1997
- -------------------------------------------------------------------------------------------------------------------
<S>                                        <C>               <C>               <C>              <C>
Sales                                       $        57,510   $         -       $       57,510   $        -
Cost of sales                                        30,005             -               30,005            -
- -------------------------------------------------------------------------------------------------------------------

Gross margin                                         27,505             -               27,505            -

Expenses:
     Consulting and contractors                     736,561             -               24,785          17,770
     Research and development                     1,719,001          579,441           321,378         148,527
     Selling, general and
       administrative (note 10)                   4,402,912          650,715         1,786,410         763,745
     Non-operating expenses:
        Loss on disposal of fixed assets             26,054            5,918             1,888            -
        Write-down of investments                   100,000             -                3,600            -
        Write-down of intangible assets              17,189             -                 -               -
        Write-down of organization costs             17,431             -                 -               -
- -------------------------------------------------------------------------------------------------------------------
                                                  7,019,148        1,236,074         2,138,061         930,042
- -------------------------------------------------------------------------------------------------------------------

Loss for the period                         $    (6,991,643)  $   (1,236,074)   $   (2,110,556)  $    (930,042)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

Loss per share information:
     Basic and diluted                      $         (0.29)   $       (0.03)    $       (0.07)   $      (0.04)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

Weighted average number of
   common shares outstanding                     24,174,901       36,076,379        28,620,884      25,464,978
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</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
- -------------------------------------------------------------------------------------------------------------------------
<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 (notes 6(d)
 and 11(b))                                         -             -            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)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</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             Years ended December 31,
                                                to December 31,   -------------------------------------------------
                                                           1999             1999            1998          1997
- -------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>              <C>             <C>
Cash flows from operating activities:
   Loss for the period                            $  (6,991,643)  $   (1,236,074)  $  (2,110,556)  $  (930,042)
   Items not involving cash:
     Amortization                                        79,958           42,503          24,135        10,287
     Bad debt                                            75,108             -               -             -
     Loss on disposal of fixed assets                    26,054            5,918           1,888          -
     Write-down of investments                          100,000             -              3,600          -
     Write-down of intangible assets                     17,189             -               -             -
     Write-down of organization costs                    17,431             -               -             -
     Shares issued for services rendered                300,000             -               -           60,000
     Compensatory benefit of employee
       stock options                                  1,129,800            2,000         927,800       200,000
   Changes in non-cash operating working
    capital:
       Inventory                                         (3,369)          (3,369)           -             -
       Accounts receivable                              (16,189)           6,244            (971)      (21,462)
       Prepaid expenses                                  (7,392)           4,952         (10,636)       (1,708)
       Accounts payable and accrued liabilities          74,178            3,709          45,197       (36,942)
       Deferred revenue                                  21,506           21,506            -             -
   ----------------------------------------------------------------------------------------------------------------
   Net cash used in operating activities             (5,177,369)      (1,152,611)     (1,119,543)     (719,867)

Cash flows from investing activities:
   Purchase of marketable securities                   (100,000)            -               -             -
   Purchase of fixed assets                            (239,163)        (107,394)        (87,988)      (23,559)
   Proceeds from notes receivable                      (130,181)            -               -             -
   Proceeds from disposal of real estate                306,752             -               -             -
   ----------------------------------------------------------------------------------------------------------------
   Net cash used in investing activities               (162,592)        (107,394)        (87,988)      (23,559)

Cash flows from financing activities:
   Notes receivable                                      55,073             -               -             -
   Borrowings from directors and officers                (2,826)            -             18,304       (39,881)
   Due to (from) related companies                      (25,270)        (456,504)        231,418       267,882
   Mortgages payable                                   (207,739)            -               -             -
   Share subscriptions received                         110,270          110,270            -             -
   Subscriptions receivable                             (66,000)         (66,000)           -             -
   Common shares issued, net of issue costs           5,663,731        2,081,150         837,600       548,270
   ----------------------------------------------------------------------------------------------------------------
   Net cash provided by financing activities          5,527,239        1,668,916       1,087,322       776,271
- -------------------------------------------------------------------------------------------------------------------

Increase (decrease) in cash and cash equivalents        187,278          408,911        (120,209)       32,845

Cash and cash equivalents, beginning of period          244,112           22,479         142,688       109,843
- -------------------------------------------------------------------------------------------------------------------

Cash and cash equivalents, end of period          $     431,390   $      431,390   $      22,479   $   142,688
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

Supplemental information:
   Cash paid for interest                         $       3,797   $          895   $       2,155   $       747
   Cash paid for taxes                            $        -      $         -      $        -      $      -
Non-cash financing activities:
   Shares issued for services rendered            $     300,000   $         -      $        -      $    60,000
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</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)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

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 year ended December 31, 1999, the Company incurred a loss of
     $1,236,074 and used cash in operating activities of $1,152,611. From
     inception of the business on January 3, 1994, the Company has incurred
     cumulative losses of $6,991,643 and used cash for operating activities of
     $5,177,369.

     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.

         Through December 31, 1997, the consolidated financial statements of the
         Company issued to shareholders were presented in accordance with
         generally accepted accounting principles in Canada. The application of
         United States accounting principles to these consolidated financial
         statements has been made on a retroactive basis. In addition, 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
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

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.

     (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
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

3.   SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):

     (h) Foreign currency:

         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 arising on
         translation of assets and liabilities denominated in foreign currencies
         are included in operations.

         The Company's subsidiary, Brainware Systems Inc., is treated as an
         integrated operation and the related accounts are translated into
         United States dollars using the temporal method as follows:

         (i)   Revenue and expenses at average exchange rates for the year;

         (ii)  Monetary items at the rates of exchange prevailing at the balance
               sheet dates;

         (iii) Non-monetary items at historical exchange rates; and

         (iv)  Exchange gains and losses arising from translation are included
               in the determination of net earnings for the year.

     (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.
         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").

     (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)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

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.

4. RELATED PARTY BALANCES AND TRANSACTIONS:

     (a) Due to (from) related companies:

         The amounts due to (from) related companies are from companies under
         common control or management and result from intercompany expense
         allocations and cash advances. On October 29, 1999, the Company agreed
         with Sideware Systems Inc. to re-allocate certain common costs
         effective January 1, 1999. The re-allocation has been reflected in
         these financial statements.

     (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 year, the Company was charged $68,735 (1998 - $129,538; 1997
         - $nil) for management and consulting services provided by directors
         and officers. These charges are included in selling, general and
         administrative expenses.

<PAGE>

BRAINTECH, INC.
(A Development Stage Enterprise)

Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

5.   FIXED ASSETS:

<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
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
                                                                              Accumulated             Net book
     DECEMBER 31, 1998                                           Cost        amortization                value
- -------------------------------------------------------------------------------------------------------------------
<S>                                                    <C>                  <C>                  <C>
     Furniture and fixtures                             $      16,419        $      1,790         $     14,629
     Computer equipment                                        47,046               8,612               38,434
     Trade show assets                                          8,446                 845                7,601
     Computer software                                         23,740              21,648                2,092
     Leasehold improvements                                    14,008               1,527               12,481
- -------------------------------------------------------------------------------------------------------------------

                                                        $     109,659        $     34,422         $     75,237
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

6.   COMMON STOCK:

     (a) Of the shares issued at December 31, 1999, 12,595,000 shares (1998 -
         5,280,000; 1997 - 6,830,000) 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.

     (c) Additional paid-in capital arises on the issuance of common shares at a
         price in excess of par value.

     (d) Subscriptions for shares:

         As at December 31, 1999, the Company had received subscriptions for
         285,000 common shares of common stock for aggregate proceeds of
         $110,270.

<PAGE>

BRAINTECH, INC.
(A Development Stage Enterprise)

Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

6.   COMMON STOCK (CONTINUED):

     (e) Stock options:

         The Company has reserved 7,500,000 common shares pursuant to a 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 year ended December 31, 1999 is as
         follows:

<TABLE>
<CAPTION>
         --------------------------------------------------------------------------------------------------------
                            Weighted
                             average    Weighted   Outstanding                                      Outstanding
                            exercise     average  December 31,                         Forfeited/  December 31,
         Expiry dates          price  fair value          1998     Granted  Exercised    expired           1999
<S>                         <C>       <C>         <C>             <C>       <C>        <C>         <C>
         November 28, 2002     $0.20       $0.19     4,097,000        -        85,000        -        4,012,000
         November 28, 2002     $0.20       $0.76     1,210,000        -        72,000      35,000     1,103,000
         November 28, 2002     $0.20       $0.77       125,000        -          -           -          125,000
         April 19, 2004        $0.20       $0.16          -        965,000       -           -          965,000
         November 25, 2004     $0.20       $0.18          -        200,000       -           -          200,000

                                                     5,432,000   1,165,000    157,000      35,000     6,405,000
         --------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------
</TABLE>

         Stock option activity during the year ended December 31, 1998 is as
         follows:

<TABLE>
<CAPTION>
         --------------------------------------------------------------------------------------------------------
                            Weighted
                             average    Weighted   Outstanding                                      Outstanding
                            exercise     average  December 31,                         Forfeited/  December 31,
         Expiry dates          price  fair value          1997     Granted  Exercised    expired           1998
<S>                         <C>       <C>         <C>             <C>       <C>        <C>         <C>

         November 28, 2002     $0.20       $0.19     5,000,000        -       803,000     100,000     4,097,000
         November 28, 2002     $0.20       $0.76          -      1,420,000    110,000     100,000     1,210,000
         November 28, 2002     $0.20       $0.77          -        150,000     25,000        -          125,000
         --------------------------------------------------------------------------------------------------------

                                                     5,000,000   1,570,000    938,000     200,000     5,432,000
         --------------------------------------------------------------------------------------------------------
         --------------------------------------------------------------------------------------------------------
</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. Included in expenses for 1999 is $2,000 representing
         a compensatory benefit (1998 - $927,800; 1997 - $200,000).

<PAGE>

BRAINTECH, INC.
(A Development Stage Enterprise)

Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

6.   COMMON STOCK (CONTINUED):

     (e) 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               Years ended December 31,
                                              to December 31,   ---------------------------------------------------
                                                         1999            1999             1998            1997
- -------------------------------------------------------------------------------------------------------------------
<S>                                           <C>               <C>              <C>             <C>
         Loss for the period, as reported       $  (6,991,643)  $  (1,236,074)   $  (2,110,556)  $    (930,042)
         Estimated fair value of option grants     (2,375,052)       (189,829)      (1,201,483)       (983,740)
- -------------------------------------------------------------------------------------------------------------------
                                                   (9,366,695)     (1,425,903)      (3,312,039)     (1,913,782)
         Less compensatory benefit included in
           selling, general and administrative
           expenses                                 1,129,800           2,000          927,800         200,000
- -------------------------------------------------------------------------------------------------------------------

         Pro forma loss                         $  (8,236,895)  $  (1,423,903)   $  (2,384,239)  $  (1,713,782)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------

         Loss per share                         $       (0.34)  $       (0.04)   $      (0.08)   $       (0.07)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</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% (1998 - 0%; 1997 - 0%), risk-free interest rate -
         5.88% (1998 - 6.0%; 1997 - 5.0%), expected option life - 5 years (1998
         - 5 years; 1997 - 5 years); expected volatility - 120% (1998 - 156%;
         1997 - 70%).


7.   INCOME TAXES:

     The Company has non-capital losses carried forward of approximately
     $4,000,000 which may be deducted in the calculation of taxable income of
     future periods.

     The unrecorded benefit of these losses carried forward is approximately
     $1,800,000. The benefit has been fully offset by a valuation allowance due
     to the uncertainty of the realization of the benefits.


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.

<PAGE>

BRAINTECH, INC.
(A Development Stage Enterprise)

Notes to Consolidated Financial Statements, page 8
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

8.   CONTINGENCIES (CONTINUED):

     (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>
<S>                                                       <C>
- ----------------------------------------------------------------------------

     2000                                                  $    216,500
     2001                                                       224,000
     2002                                                       197,000
     2003                                                        96,500
- ----------------------------------------------------------------------------
                                                           $    734,000
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
</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
     compensatory benefits:

<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
                                                    Period from
                                                   inception on
                                                January 3, 1994             Years ended December 31,
                                                to December 31,   -------------------------------------------------
                                                           1999             1999           1998           1997
- -------------------------------------------------------------------------------------------------------------------
<S>                                             <C>               <C>              <C>            <C>
     Selling, general and administrative
      expenses:
       Compensatory benefit of employee
         stock options                            $   1,129,800   $        2,000   $    927,800   $    200,000
       Salaries and benefits                            866,001          143,865        298,430        215,014
       Other                                          2,407,111          504,850        560,180        348,731
- -------------------------------------------------------------------------------------------------------------------

                                                  $   4,402,912   $      650,715   $  1,786,410   $    763,745
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

BRAINTECH, INC.
(A Development Stage Enterprise)

Notes to Consolidated Financial Statements, page 9
(Expressed in U.S. Dollars)

Years ended December 31, 1999, 1998 and 1997
Period from inception on January 3, 1994 to December 31, 1999

- --------------------------------------------------------------------------------

11. SUBSEQUENT EVENTS:

    (a)  Stock options:

         Subsequent to December 31, 1999 and up to February 21, 2000, 3,896,000
         stock options were exercised and converted to common shares for total
         cash proceeds of $779,200. Total stock options cancelled were 265,000.

    (b)  Private placements:

         Subsequent to December 31, 1999, 285,000 common shares were issued
         pursuant to share subscriptions received at December 31, 1999 in the
         amount of $110,270.



12.  YEAR 2000 ISSUE:

     The Year 2000 Issue arises because many computerized systems use two digits
     rather than four to identify a year. Date-sensitive systems may recognize
     the year 2000 as 1900 or some other date, resulting in errors when
     information using year 2000 dates is processed. In addition, similar
     problems may arise in some systems which use certain dates in 1999 to
     represent something other than a date. Although the change in date has
     occurred, it is not possible to conclude that all aspects of the Year 2000
     Issue that may affect the entity, including those related to customers,
     suppliers, or other third parties, have been fully resolved.


<PAGE>


[LETTERHEAD]

          KPMP LLP
          Chartered Accountants
          Box 10426 777 Dunsmuir Street                 Telephone (604) 691 3000
          Vancouver BC V7Y 1K3                          Telefax (604) 691 3031
          Canada                                        www.kpmg.ca




                   CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS


The Board of Directors
Braintech, Inc.

We consent to the use of our report dated February 10, 2000, except as to
note 11 which is as of February 21, 2000, relating to the consolidated
balance sheets of Braintech, Inc. as at December 31, 1999 and 1998 and the
related consolidated statements of operations, stockholders' deficit and cash
flows for each of the years in the three year period ended December 31, 1999
and for the period from inception on January 3, 1994 to December 31, 1999
included in the registration statement on Form S-1, of Braintech, Inc. and to
the reference to our firm under the heading "Experts" in the prospectus.



KPMG LLP
Chartered Accountants

Vancouver, Canada
March 8, 2000



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