UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
Amendment No. 1 to
FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
Paradigm Advanced Technologies, Inc.
(Name of Small Business Issuer in Its Charter)
Delaware 33-0692466
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
5140 Yonge Street, Suite 1525, North York, Ontario, Canada M2N 6L7
(Address of Principal Executive Offices) (Zip Code)
(416) 222-9629
Issuer's Telephone Number
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.0001 Per Share
(Title of Class)
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PART I
Item 1. Description of Business.
Paradigm Advanced Technologies, Inc. (the "Company") is a developmental
stage company which was formed to act as a marketer and distributor for digital
video surveillance security software products. The Company was incorporated in
Delaware on January 12, 1996, and on the same day purchased all of the right,
title and interest in the security and surveillance products business
established by Paradigm Advanced Technologies Joint Venture (the "Joint
Venture"). The Joint Venture was dissolved on the same day. Three of the four
principals of the Joint Venture are now affiliated with the Company, including:
Jack Y. L. Lee, who serves as the Chief Executive Officer of the Company, David
Kerzner, who serves as President of the Company, and Sarah Casse, who serves as
a Consultant to the Company. The Company's headquarters are located at 5140
Yonge Street, Suite 1525, North York, Ontario, Canada M2N 6L7, and its telephone
number is (416) 222-9629.
The Company has entered into a Distributor Agreement with Alpha Systems
Lab, Inc. ("ASL") of Irvine, California, pursuant to which it has acquired the
exclusive right to purchase and distribute certain digital video security
products in Canada, and the non-exclusive right to purchase and distribute them
worldwide. These distribution rights will expire in November, 2005, although the
Distributor Agreement may be terminated earlier in certain events of default or
non-performance. No governmental approvals are required for the distribution of
these products. ASL is currently the Company's sole supplier. Other than the
Distributor Agreement, there is no relationship or affiliation between ASL and
the Company. The Company's initial efforts will center on two of ASL's products.
The first product, VideoBank, is a software-based video surveillance
system. This system differs from conventional, hardware-based video surveillance
systems, which rely upon video cassette recorders (VCRs), in that the VideoBank
system digitally records images, and stores them in and retrieves them from a
computer's memory instead of a video cassette tape. This system eliminates many
of the problems associated with operating a VCR-based security system, such as
storage and preservation of video cassette tapes and the possibility of
mechanical failures and breakdowns of the VCR or other components of the system.
It also introduces a measure of efficiency in installing improvements to the
system, because improvements can be made simply by implementing upgrades of the
software, instead of having to purchase and install new hardware components. At
the same time, although additional image storage capacity can be added simply by
augmenting the computer's memory, the software-based video surveillance system
has the drawback of being highly dependent on low-cost, high-capacity removable
data storage media. Based upon current trends in computer hardware pricing,
however, the Company believes that such low-cost, removable data storage media
(including, for example, optical data disks) will continue to become more widely
available in the future. The software presently is
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designed to operate on a conventional 486 computer and, with its icon-driven
user interface, is designed to be "user-friendly."
The second product, VideoBank-Remote, is a predominantly software-based
system which allows images captured by VideoBank to be digitally transmitted
over conventional telephone lines. The Company will market and distribute the
software component of this system. Like VideoBank, VideoBank-Remote operates on
a conventional personal computer and modem. Its software is also designed to be
user-friendly, employing an icon-driven, Windows-based graphical user interface.
By transmitting over telephone lines, it obviates the need to link camera sites
to the remote observation post by installing coaxial cables. Advances in
computer technology have made possible VideoBank-Remote and its advances over
existing telephone transmission technology in terms of clarity of image,
transmission time, and cost of transmission. VideoBank-Remote has demonstrably
the best image per transmission time of any existing telephone-based system,
primarily because both the VideoBank and VideoBank-Remote systems can accept
images of any resolution quality that the video camera itself is capable of
producing, and do not impose any limit on the maximum resolution of the image as
do many competitive products.
Although VideoBank and VideoBank Remote utilize computer hardware and
other physical equipment, these systems are referred to herein as
"software-based" systems because neither product requires the use of proprietary
hardware. Instead, both products can operate on any computer hardware that meets
the minimum system specifications: as noted above, the specification calls for a
conventional personal computer with at least a 486-class central processing
unit. Therefore, these systems can be sold either as a software package to be
installed upon any computer system that meets the system specifications or as a
"turn-key" hardware-software bundle.
In contrast, to the Company's knowledge, all of its competitors in the
marketplace for video surveillance security systems offer systems that are based
on proprietary hardware or equipment. There are approximately twenty companies
which manufacture video transmission systems for security applications. Though
some may have developed software products for use in video security and
surveillance products, the competitors' products are primarily hardware-based.
Many competitors' products are also complex and less reliable than VideoBank. To
the Company's knowledge, none of its competitors have developed a software-based
product with the capabilities of VideoBank. The Company also believes that it
can offer its products for substantially lower prices than those of its
competitors because of the system's non-proprietary hardware specification and
the availability of the bundled hardware/software system incorporating equipment
that the Company purchases at a volume discount.
To the Company's knowledge, there are no existing or probable
government regulations that will have an effect upon the Company's business.
Although end-users of surveillance equipment in Canada, and elsewhere, are
required to give notice of the use of such equipment, there are no known
absolute prohibitions either on the ownership or the use of surveillance
equipment. The Company knows of no existing or probable government regulations
that either
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do or may affect the Company's right to distribute, sell, manufacture, or
otherwise deal with digital video surveillance security systems.
The Company currently has seven full-time employees and two part-time
employees. The Company will conduct its distribution and marketing efforts
through its manufacturer's sales representative network, which consists of seven
independent companies in the United States and Canada with which it maintains
contractual arrangements. These seven companies each employ between three and
ten sales personnel.
It is currently expected that the Company will sell the software for
the VideoBank System for approximately $1,500 and the hardware/software bundle
for the VideoBank-Remote System for approximately $2,800, with a gross margin of
approximately 40%. Because the Joint Venture made no sales of these products
during its existence, there are no historical figures against which to compare
such information.
Item 2. Management's Discussion and Analysis or Plan of Operation.
In connection with its organization, the Company acquired a security
and surveillance products business established by the Joint Venture, including
the purchase and distribution rights pursuant to the contract with ASL. During
the succeeding months, the Company raised approximately $1,000,000 in capital
through two private placements completed in accordance with Rule 504 of the
Securities and Exchange Commission. It is currently conducting an additional
private placement in accordance with Regulation D of the Securities and Exchange
Commission, in which it intends to raise a minimum of $275,000 and a maximum of
$1,375,000 in capital. Management expects that this will satisfy the Company's
cash requirements for the first six months after its organization, taking into
account the Company's accumulated deficit at June 30, 1996, of $603,555.
However, management estimates that the total amount of "seed capital" required
in order to proceed with current operations and to bring the Company's own
product to market will be $2,500,000, including approximately $600,000 for
research and development, approximately $900,000 for advertising, marketing and
promotional efforts, and approximately $1,000,000 for working capital, and
anticipates that the Company may need to raise additional capital during its
first twelve months. It anticipates doing so through additional private
placements of unregistered shares of its Common Stock conducted under an
exemption provided by the Securities Act of 1933 or by the rules of the
Securities and Exchange Commission.
The Company's initial efforts for its first twelve months will center
on the marketing and distribution of VideoBank and VideoBank-Remote. During the
first three months, the Company will solidify its manufacturer's representative
network by entering into sales representation contracts with these
representatives, and will begin the process of creating its advertising and
promotional materials, customer database, and public relations campaign. It will
also concentrate on generating initial revenues from existing relationships with
companies which are already familiar with the Company's products and have
expressed a willingness to buy. After the
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first three months, the Company will concentrate on consolidating its
distribution networks, cementing its client relationships, and establishing an
image and brand-name recognition for the Company in the marketplace in which it
competes.
During its first twelve months, the Company will also explore
possibilities of entering into additional marketing and distribution
relationships with manufacturers and developers of software-based video
surveillance systems by entering into distribution or sales representation
agreements with such manufacturers and developers. This would diversify the
suppliers of products that the Company markets and distributes. With respect to
the Company's advertising and marketing arrangements, the Company currently has
relationships with Industry Marketing Service, a marketing consulting company
located in Tempe, Arizona, and with Adler & Schinkel, an advertising agency
based in Phoenix, Arizona, and is currently negotiating the details of an
alliance with a public relations firm. The Company currently plans to continue
to use its existing marketing and distribution methods, but also is reviewing
and evaluating these methods in order to determine whether better or more
efficient practices may be available. The Company ultimately intends to market
its own proprietary software-based video surveillance products and is currently
completing the development of its first product, a software-based video
surveillance system involving enhanced frame density, a more powerful search
engine driven by proprietary algorithms, and a more user-friendly interface.
The Company does not currently have any intentions to acquire any
significant plant or equipment. The Company's warehouse and production facility
requirements are minimal because the Company's products consist simply of
software stored on three or four floppy disks and boxed with a user manual. To
the extent that the Company sells integrated or bundled hardware-software
systems, the integrator or hardware manufacturer installs the Company's software
and then "drop-ships" the system directly to the customer. The Company may
increase the number of its employees as it further solidifies and consolidates
its distribution networks.
Item 3. Description of Property.
The Company's corporate headquarters are located in North York,
Ontario, Canada in leased facilities consisting of approximately 1,000 square
feet of office space. This facility is leased on a month-to-month basis for $600
(Canadian) per month.
The Company's technical support and distribution office is located in
Irvine, California. This office is in a leased facility consisting of
approximately 1,560 square feet. The monthly rent is $1,404. The lease expires
on February 28, 1997, and contains a renewal option for an additional one-year
term.
The Company's marketing office is located in a leased facility in Mesa,
Arizona in a facility consisting of approximately 414 square feet. The monthly
rent is $495. This facility is leased for a one-year term expiring on January
30, 1997.
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As its business may permit or require, the Company may add to its staff
or facilities. The Company does not presently own any real estate. The Company
has no policies regarding investments in real estate, securities, or other forms
of property.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) The following table details the security ownership of the only person,
other than directors or officers of the Company, who is known to be the
beneficial owner of more than five percent of the Common Stock of the
Company:
Beneficial Current Percent
Ownership of Percent Options of Class if
Name and Address Common Stock of Class Granted Fully Exercised
- ---------------- ------------ -------- --------- ---------------
Sarah Casse 1,375,000 10.8% 1,875,000 15.7%
63 Otter Crescent
North York, Ontario M5N 2W7
(b) The following table details the security ownership of each of the Company's
directors and executive officers:
Beneficial Current Percent
Ownership of Percent Options of Class if
Name and Address Common Stock of Class Granted Fully Exercised
- ---------------- ------------ -------- --------- ---------------
Jack Y. L. Lee, 1,375,000 11.7% 1,875,000 15.7%
Chief Executive Officer
28 Old Park Lane
Richmond Hill, Ontario L4B 2L4
David Kerzner, 2,337,500 19.8% 3,187,500 26.7%
President
120 Arnold Avenue
Thornhill, Ontario L4J 1B7
C. Richard Brogan, 104,000 0.9% -- 0.5%
Vice President of Marketing
3242 S. Birchett Drive
Tempe, Arizona 85282
Jacob Kerzner, -- -- 562,500 2.7%
Director
148 Faywood Boulevard
Downsview, Ontario M3H 247
All directors and executive 3,816,500 30.0% 5,625,000 27.2%
officers as a group
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Item 5. Directors, Executive Officers, Promoters and Control Persons.
The following table sets forth information regarding the directors and
executive officers of the Company.
Name Age Position
Jack Y. L. Lee...................... 46 Chief Executive Officer and
Secretary-Treasurer and Director
David Kerzner....................... 35 President and Director
C. Richard Brogan................... 56 Vice President for Marketing and Sales
Jacob Kerzner....................... 38 Director
- --------------------
Jack Y. L. Lee has been Chief Executive Officer and Secretary-Treasurer
of the Company since its inception. He qualified as a Chartered Accountant in
1974 while employed with Clarkson, Gordon & Co., a major independent accounting
firm that later merged into Ernst & Young. Since 1987, he has been a syndicator
for Syndicat Management Inc., a company which specializes in the syndication of
real estate and other investments. He currently serves as its President. Mr. Lee
also has been a director of the Company since its inception, and is currently
holding office as a director until the first annual shareholders' meeting or
until his successor has been elected and qualified.
David Kerzner has served as President of the Company since its
inception. From 1990 to 1994, he worked at ISTI Corporation/Intertec Security,
serving as President of ISTI Corporation and as the Marketing Manager of, and a
consultant to, Intertec Security. In these capacities, Mr. Kerzner participated
on both the executive and operational levels in the research and development of
an integrated remote video and audio surveillance system. From 1987 to 1992, he
was the owner and operator of Interactive Security Systems Inc., a full-service
electronic security company. Mr. Kerzner also has been a director of the Company
since its inception, and is currently holding office as a director until the
first annual shareholders' meeting or until his successor has been elected and
qualified.
C. Richard Brogan has been Vice-President for Marketing and Sales of
the Company since its inception. He served as Sales Manager for Robot Research,
Inc. from 1993 to 1995, where he performed marketing for video processing
equipment and PC-based telephone-line transmission systems for use with
closed-circuit television systems, and as Director of Sales and Marketing for
Sentry Products from 1989 to 1993, where he performed marketing for personal
duress systems employing ultrasonic technology.
Jacob Kerzner has served as a director of the Company since its
inception, and is currently holding office as a director until the first annual
shareholders' meeting or until his successor has been elected and qualified. He
founded Nightingale Healthcare Inc., a privately
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owned hospital and nursing home staffing company, in 1986, and currently serves
as its President and Chief Executive Officer. He is the brother of David
Kerzner.
Item 6. Executive Compensation.
The following table discloses the amount and kind of annual
compensation payable to the Company's three executive officers, including its
Chief Executive Officer, during the fiscal year ending December 31, 1996:
Summary Compensation Table
Long-Term Compensation
Annual Compensation Awards
Other Securities
Name and Annual Underlying All Other
Principal Position Year Salary Bonus Compensation Options Compensation
- ------------------- ---- -------- ----- ------------ ---------- ------------
Jack Y. L. Lee 1996 $100,000 $0 $0 1,875,000 $0
Chief Executive
Office and
Secretary-Treasurer
David Kerzner 1996 75,000 0 0 3,187,500 0
President
C. Richard Brogan 1996 80,000 0 0 0 0
Vice Pesident for
Marketing and Sales
The following table contains information concerning the grant of stock
options to the Company's three executive officers, including its Chief Executive
Officer, during the fiscal year ending December 31, 1996. No options have yet
been exercised:
Number of Percent of
Securities Total Options
Underlying Granted to Exercise
Options Employees in or Base Expiration
Name Granted Fiscal Year Price per Share Date
- ----------------------- ---------- ------------- --------------- ----------
Jack Y. L. Lee 1,875,000 37.0% $0.05 1/12/01
Chief Executive Officer
and Secretary-Treasurer
David Kerzner 3,187,500 63.0% $0.05 1/12/01
President
C. Richard Brogan 0 -- -- --
Vice President for
Marketing and Sales
Total.................. 5,062,500 100.0%
Directors of the Company do not receive any stated salary for their
services as directors or members of committees of the board of directors, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Directors of the
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Company may also serve the Company in other capacities as an officer, agent or
otherwise, and may receive compensation for their services in such other
capacity.
The Company has entered into a Consulting Agreement with Jack Y. L. Lee
which defines the terms of Mr. Lee's employment with the Company. Pursuant to
this agreement, Mr. Lee is to serve as the Company's Chief Executive Officer and
also as a Director for a 10-year term commencing on February 1, 1996, at an
annual salary of $100,000, with primary responsibility in the area of product
development and marketing within the video security marketplace in the United
States, Canada and abroad. The agreement may be terminated early in the event of
the resignation, death or disability or other incapacity of Mr. Lee. At the end
of the agreement's term, it may be extended by the mutual consent of the parties
for further five-year terms, with Mr. Lee's compensation to be renegotiated at
the time of each extension. The agreement also contains provisions regarding
confidentiality of information, ownership of inventions and patents,
non-competition, and non-solicitation. In addition to his salary under the
Consulting Agreement, Mr. Lee is eligible to receive a bonus upon the approval
of the Company's Board of Directors.
The Company has entered into a similar Consulting Agreement with David
Kerzner, pursuant to which Mr. Kerzner is to serve as the Company's President
and also as a Director for a 10-year term commencing on February 1, 1996, at an
annual salary of $75,000, with head office and product development
responsibilities. Like the agreement with Mr. Lee, this agreement may be
terminated early in the event of the resignation, death or disability or other
incapacity of Mr. Kerzner, and may be extended at the end of its term by the
mutual consent of the parties for further five-year terms, with Mr. Kerzner's
compensation to be renegotiated at the time of each extension. The agreement
also contains provisions regarding confidentiality of information, ownership of
inventions and patents, non-competition, and non-solicitation. Mr. Kerzner also
is eligible to receive a bonus upon the approval of the Company's Board of
Directors.
The Company entered into an agreement with Sarah Casse on January 12,
1996, pursuant to which Ms. Casse is to provide advice and/or assistance with
respect to the Company's use of technology, with respect to the preparation and
implementation of the Company's business plan; and with respect to marketing
matters. In consideration for these services, the Company granted Ms. Casse the
options to purchase up to 1,875,000 shares of its Common Stock which are
disclosed elsewhere in this registration statement. See "Item 4. Security
Ownership of Certain Beneficial Owners and Management" in Part I of this
Registration Statement.
The Company has entered into a consulting agreement with Industry
Marketing Service, a corporation located in Tempe, Arizona of which C. Richard
Brogan serves as Principal. Pursuant to this agreement, Industry Marketing
Service is to market the Company's products in the commercial and industrial
security market, and to administer the Company's advertising and public
relations functions. The agreement runs for a one-year term beginning on January
1, 1996. The Company paid Industry Marketing Service $8,000 at the beginning of
the term of the agreement, and is to pay an additional $6,000 per month
thereafter.
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Item 7. Certain Relationships and Related Transactions.
On January 12, 1996, the Company issued and sold 6,000,000 unregistered
shares of its Common Stock to the participants in the Joint Venture in
consideration for the purchase by the Company of all of the right, title and
interest in the security and surveillance products business established by the
Joint Venture. Certain of its directors and officers were participants in the
Joint Venture, and therefore received shares of the Common Stock of the Company
in this transaction. These included Jack Y. L. Lee, the Company's Chief
Executive Officer, who received 1,875,000 shares (including 500,000 shares in
trust), and David Kerzner, the Company's President, who received 2,337,500
shares. Lisa Kerzner, Jacob Kerzner's wife, received 412,500 shares in the
transaction. Sarah Casse, a holder of more than 5% of the Company's issued and
outstanding Common Stock, received 1,375,000 shares in the transaction. See also
"Item 4. Recent Sales of Unregistered Securities" in Part II of this
Registration Statement.
The Company has entered into employment agreements with each of David
Kerzner and Jack Y. L. Lee. See "Item 6. Executive Compensation." No further
transactions with related parties are contemplated at this time. In the event
that such a transaction should be contemplated in the future, it will be
subjected to review by the Company in accordance with appropriate, reasonable
and prudent business practices.
Item 8. Description of Securities.
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $0.0001 per share. As of June 16, 1996, there were
issued and outstanding 12,716,674 shares of the Company's Common Stock. On June
5, 1996, there were 47 holders of record of the Company's Common Stock.
Each stockholder of the Company is entitled to one vote, in person or
by proxy, for each share of Common Stock entitled to vote held by such
stockholder. All elections for directors are decided by plurality vote; all
other questions are decided by majority vote except as may otherwise be provided
by the Company's Charter or by the Delaware General Corporation Law.
The holders of the Company's Common Stock are not entitled to
cumulative voting rights with respect to the election of directors, and as a
consequence, minority stockholders will not be able to elect directors on the
basis of their votes alone. Holders of the Company's Common Stock are entitled
to receive ratably such dividends as may be declared by the Board of Directors
out of funds legally available therefor. See "Item 1. Market Price of and
Dividends on the Registrant's Common Equity and Other Shareholder Matters" in
Part II of this Registration Statement. In the event of a liquidation,
dissolution or winding up of the Company, holders of the Company's Common Stock
are entitled to share ratably in all assets remaining after payment of
liabilities. Holders of the Company's Common Stock have no preemptive rights and
no right to convert their Common Stock into any other securities. There are no
redemption or sinking
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fund provisions applicable to the Common Stock. All outstanding shares of the
Company's Common Stock are fully paid and non-assessable.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
At the time of the filing of this Registration Statement, there is no
established public trading market for the Company's Common Stock. The Company's
Common Stock is traded over-the-counter on the NASDAQ Bulletin Board under the
symbol "PRAV." The range of high and low bid prices for the Company's Common
Stock during the period commencing on April 12, 1996 (the date of its approval
for trading on the NASDAQ Bulletin Board) and ending on July 22, 1996, as
reported on the NASDAQ Bulletin Board, are as follows:
Year and Period High Low
-------------------------------------- ----- ------
1996:
Period commencing April 12
and ending July 22 ................. $0.75 $0.375
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions or the "penny
stock" rules to which the Company's Common Stock is subject.
As of June 16, 1996, there were issued and outstanding 12,716,674
shares of the Company's Common Stock. On June 5, 1996, there were 47 holders of
record of the Company's Common Stock. Of the 12,716,674 issued and outstanding
shares, 6,000,000 were "restricted securities" available for sale in the public
market subject to restrictions as to volume and other limitations pursuant to
Rule 144 of the Securities and Exchange Commission, and 5,800,000 were freely
tradable pursuant to Rule 504(b)(1) of the Securities and Exchange Commission.
916,674 shares were issued pursuant to the Company's June private placement,
conducted in reliance upon Regulation D of the Securities and Exchange
Commission, of Units consisting of shares of its Common Stock and warrants to
purchase shares of its Common Stock. In addition, 8,000,000 shares were subject
to issuance pursuant to outstanding options with an exercise price of $0.05 per
share granted under the Company's stock option plan. The Company has agreed with
the subscribers in its June private placement to file a registration statement
pursuant to the Securities Act of 1933 with respect to the shares of its Common
Stock which it will issue to them. The Company currently has no other proposals
to make any public offering of its Common Stock.
The Company has not declared or paid any cash dividends on its Common
Stock since its inception, and its Board of Directors currently intends to
retain all earnings for use in the business for the foreseeable future. Any
future payment of dividends will depend upon the
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Company's results of operations, financial condition, cash requirements and
other factors deemed relevant by the Company's Board of Directors.
Item 2. Legal Proceedings.
The Company is not party to any material litigation.
Item 3. Changes in and Disagreements with Accountants.
There have been no changes in, or disagreements with, the Company's
accountants. The Company's principal independent accountant has not resigned or
been dismissed. During January 1996, the month of the Company's organization,
Bromberg & Associates, Chartered Accountants, of Mississauga, Ontario, Canada
were engaged as the principal accountants to audit the Company's financial
statements.
Item 4. Recent Sales of Unregistered Securities.
On January 12, 1996, the Company issued and sold 6,000,000 unregistered
shares of its Common Stock, par value $0.0001 per share, to the participants in
the Joint Venture, including Jack Y. L. Lee, David Kerzner, Sarah Casse, and
Lisa Kerzner. These shares were issued in connection with the formation and
organization of the Company and the contribution to the Company of all of the
right, title and interest in the security and surveillance products business of
Paradigm Advanced Technologies Joint Venture by its participants. The Company
also assumed all of the liabilities and obligations relating to this business.
The balance sheet value of the assets acquired was $91,295.00, and the balance
sheet value of the liabilities assumed was $35,150.00.
On January 25, 1996, the Company commenced an offering of 3,000,000
unregistered shares of its Common Stock, par value $0.0001 per share. On
February 8, 1996, this offering was fully subscribed and closed. These shares
were sold at a price of $0.10 per share, for a total offering price of $300,000.
The offering was not underwritten, and there were no underwriting discounts or
commissions. This sale was made in reliance upon Rule 504 of the Securities and
Exchange Commission. The aggregate offering price did not exceed $1,000,000, and
the offering was otherwise in compliance with Rules 501 and 502 of the
Securities and Exchange Commission. These securities were sold to a total of
eight private investors.
On February 14, 1996, the Company commenced an offering of 2,800,000
unregistered shares of its Common Stock, par value $0.0001 per share. On May 1,
1996, this offering was fully subscribed and closed. These shares were sold at a
price of $0.25 per share, for a total offering price of $700,000. The offering
was not underwritten, and there were no underwriting discounts or commissions.
This sale was made in reliance upon Rule 504 of the Securities and Exchange
Commission. The aggregate offering price did not exceed $1,000,000, and the
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offering was otherwise in compliance with Rules 501 and 502 of the Securities
and Exchange Commission. These securities were sold to a total of 29 private
investors.
On June 3, 1996, the Company commenced an offering of 55 Units, each
consisting of 83,334 unregistered shares of its Common Stock, par value $0.0001
per share, at $0.30 per share, and warrants to purchase 83,334 shares of its
Common Stock at $0.30 per share. The warrants may not be exercised for six
months after the date of their issuance, and expire three years after the date
of their issuance. The Company intends to raise a minimum of $275,000 and a
maximum of $1,375,000 in capital in this offering. The offering is being made to
a limited number of investors who qualified as "accredited investors," as such
term is defined in Rule 501(a) of the Securities and Exchange Commission. To
date, this offering has been made to two investors, neither of whom have any
relation to the Company, and eleven Units have been sold at a price of $25,000
per Unit with all of such purchase price being allocated to the purchase of the
Common Stock. No other offers have been made yet; however, it is anticipated
that the offering may later be expanded to include more offerees. The offering
is not being underwritten, and as a result there will be no underwriting
discounts or commissions. This sale is being made in reliance upon Regulation D
of the Securities and Exchange Commission. The aggregate offering price will not
exceed $5,000,000, and the offering is otherwise being conducted in compliance
with Rules 501 and 502 of the Securities and Exchange Commission.
Item 5. Indemnification of Directors and Officers.
The Company's By-Laws require it to indemnify to the fullest extent
permitted by law each person that the Company is empowered by law to indemnify.
The Company's Charter requires it to indemnify to the fullest extent permitted
by Sections 102(b)(7) and 145 of the Delaware General Corporation Law, as
amended from time to time, each person that such Sections grant the corporation
the power to indemnify.
Section 145 of the Delaware General Corporation Law permits a
corporation, under specified circumstances, to indemnify its directors,
officers, employees or agents against expenses (including attorney's fees),
judgments, fines and amounts paid in settlements actually and reasonably
incurred by them in connection with any action, suit, or proceeding brought by
third parties by reason of the fact that they were or are directors, officers,
employees or agents of the corporation, if such directors, officers, employees
or agents acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e. one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought
12
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shall determine upon application that the defendant directors, officers,
employees or agents are fairly and reasonably entitled to indemnity for such
expenses despite such adjudication of liability.
The Company's Charter also contains a provision stating that no
director shall be liable to the Company or any of its stockholders for monetary
damages for breach of fiduciary duty as a director, except with respect to (1) a
breach of the director's duty of loyalty to the corporation or its stockholders,
(2) acts or omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (3) liability under Section 174 of the Delaware
General Corporation Law (for unlawful payment of dividends, or unlawful stock
purchases or redemptions) or (4) a transaction from which the director derived
an improper personal benefit. The intention of the foregoing provision is to
eliminate the liability of the Company's directors to the Company or its
stockholders to the fullest extent permitted by Section 102(b)(7) of the
Delaware General Corporation Law, as amended from time to time.
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PART F/S
BROMBERG & ASSOCIATE 1177 Finch Avenue West Suite 21
- ----------------------- Downsview, Ontario M3J 2E9
CHARTERED ACCOUNTANTS Office: (416) 663-1974
Fax: (416) 630-1345
AUDITORS' REPORT
TO THE SHAREHOLDERS OF
PARADIGM ADVANCED TECHNOLOGIES, INC.
We have audited the interim balance sheet of Paradigm Advanced
Technologies, Inc. as at March 31, 1996 and the statements of income, deficit,
changes in shareholders' equity and changes in financial position for the period
then ended. These audited financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on the
audited financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Canada. These standards require that we plan and perform an audit
to obtain reasonable assurance whether the audited financial statements are free
of material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the audited 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.
In our opinion, these interim audited financial statements presents
fairly, in all material respects, the financial position of the Corporation as
at March 31, 1996 and the results of its operations and the changes in its
financial position for the period then ended in accordance with generally
accepted accounting principles.
/s/ BROMBERG & ASSOCIATE
CHARTERED ACCOUNTANTS
DOWNSVIEW, ONTARIO
May 16, 1996
14
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PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
INTERIM BALANCE SHEET
ASSETS
June 30, 1996 March 31, 1996
(Unaudited)
CURRENT ASSETS
Bank $ 338,132 $ 15,940
Inventories (Note 1a) 354,562 349,275
Prepaid expenses and deposit 16,418 2,626
-------------- --------------
709,112 367,841
Capital Assets (Notes 1b, 3) 19,668 4,729
-------------- --------------
TOTAL ASSETS $ 728,780 $ 372,570
============== ==============
LIABILITIES
CURRENT LIABILITIES
Accounts payable 26,190 37,028
-------------- --------------
SHAREHOLDERS' EQUITY
STOCKHOLDERS' EQUITY (Note 4)
Authorized 30,000,000 common shares
at $0.0001 par value per share
Issued and outstanding
12,633,340 and 10,140,000 common
shares 1,306,145 641,145
Deficit (603,555) (305,603)
-------------- --------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 728,780 $ 372,570
============== ==============
APPROVED ON BEHALF OF THE BOARD
/s/ Jacob Kerzner
- -------------------------------
Director
/s/ David Kerzner
- -------------------------------
Director
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PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
INTERIM STATEMENT OF INCOME
From
From Inception on
For the Three Inception on January 12,
Months ended January 12, 1996, through
June 30, 1996 1996, through June 30, 1996
(Unaudited) March 31, 1996 (Unaudited)
REVENUES
Sales $ -- $ -- $ --
Cost of Sales
Purchases 5,287 349,275 354,562
Inventory, period end 354,562 349,275 354,562
------------ ------------ ------------
TOTAL REVENUES $ -- $ -- $ --
============ ============ ============
EXPENSES
Consulting Fees 125,123 222,769 347,892
Legal and professional 38,251 13,722 51,973
Salaries and benefits 31,459 21,275 52,734
Office and general 11,254 13,106 24,360
Travel and entertainment 81,914 28,268 110,182
Occupancy costs 8,015 6,214 14,229
Depreciation 1,936 249 2,185
------------ ------------ ------------
TOTAL EXPENSES 297,952 305,603 603,555
============ ============ ============
NET GAIN (LOSS) FOR THE PERIOD $ (297,952) $ (305,603) $ (603,555)
============ ============ ============
Net gain (loss) per average
common share $ (0.03) $ (0.04) $ (0.06)
------------ ------------ ------------
Average common shares
outstanding during period 11,390,111 8,001,750 9,804,913
Accumulated deficit at
period-end $ 603,555 $ 305,603 $ 603,555
------------ ------------ ------------
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PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
INTERIM STATEMENT OF SHARE CAPITAL
JANUARY 12, 1996 THROUGH JUNE 30, 1996
PAID IN
SHARES CAPITAL
Issuance of common
shares to purchase all
of the assets and liabilities
of Paradigm Advanced
Technologies Joint Venture 6,000,000 $ 56,145
Issuance of common
shares in February 1996 in
connection with a private
placement offering 3,000,000 300,000
Issuance of common shares
in March 1996 in connection
with a private placement
offering 1,140,000 285,000
Issuance of common shares
in May 1996 in connection
with a private placement
offering 1,660,000 415,000
Issuance of common
shares in June, 1996 in
connection with a private
placement 833,340 $ 250,000
---------- -----------
12,633,340 $ 1,306,145
========== ===========
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PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
INTERIM STATEMENT OF CASH FLOWS
From
From Inception on
For the Three Inception on January 12,
Months ended January 12, 1996, through
June 30, 1996 1996, through June 30, 1996
(Unaudited) March 31, 1996 (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net gain (loss) for the period $ (297,952) $ (305,603) $ (603,555)
Adjustment to reconcile net
loss to net cash used in
operating activities
Depreciation 1,936 249 2,185
Changes to assets, liabilities
Decrease (Increase) in
inventory (5,287) (349,275) (354,562)
Decrease (Increase) in
sundary assets (13,792) (2,626) (16,418)
Increase (Decrease) in
accounts payable (10,838) 37,028 26,190
------------ ------------ ------------
Net Cash Provided by (Used
In) Operating Activities $ (325,933) $ (620,227) $ (620,227)
============ ============ ============
CASH FLOWS FROM INVESTING
ACTIVITIES
Increase (Decrease) in
capital assets (16,875) (4,978) (21,853)
------------ ------------ ------------
Net Cash Provided by (Used
In) Investing Activities $ (16,875) $ (4,978) $ (21,853)
============ ============ ============
CASH FLOWS FROM FINANCING
ACTIVITIES
Received for issuance of
common stock 665,000 641,145 1,306,145
------------ ------------ ------------
Net Cash Provided by
Financing Activities $ 665,000 $ 641,145 $ 1,306,145
============ ============ ============
NET INCREASE IN CASH
FOR PERIOD $ 322,192 $ 15,940 $ 338,132
============ ============ ============
Cash, beginning of period $ 15,940 $ -- $ --
------------ ------------ ------------
Cash, end of period $ 338,132 $ 15,940 $ 338,132
============ ============ ============
18
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Supplemental cash flow
disclosure
Cash paid for
Interest -- -- --
Income taxes -- -- --
19
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PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO INTERIM FINANCIAL STATEMENTS
JUNE 30, 1996 (UNAUDITED) AND MARCH 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method)
and net realizable value.
b) CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation.
Depreciation is provided using the declining balance basis at the following
annual rate:
Furniture and fixtures - 20%
c) METHOD OF ACCOUNTING
i) The Company maintains its books and prepares its financial statements on
the accrual basis of accounting.
ii) There are no material differences in the determination of net loss and
per-share calculations between Canadian and U.S. GAAP.
2. INCORPORATION, FISCAL YEAR END
The Company was incorporated on January 12, 1996 in the state of Delaware
and has elected a December 31 fiscal year end for book and tax purposes.
3. INVENTORY
The inventory consists of computer security equipment.
4. CAPITAL ASSETS
Accumulated Net
Cost Depreciation Book-value
Furniture and
fixtures, March
31, 1996 $ 4,978 $ 249 $ 4,729
Furniture and
fixtures, June 30,
1996 $21,853 $2,185 $19,668
20
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5. STOCK OPTIONS
As at March 31, 1996, 6,000,000 shares of common stock are reserved for
issuance to directors, officers, and employees under the Company's Stock
Option Plan. The exercise price of such shares is $0.05 and the expiration
date of the option is January 12, 2001.
6. CURRENCY
All amounts are expressed in United States Dollars.
21
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PART III
Item 1. Index to Exhibits.
Page
3.1* Certificate of Incorporation.
3.2* By-Laws.
4.1* Stock Option Plan.
10.1* Distributor Agreement dated November 29, 1995, together with
Amending Agreement dated January 24, 1996.
10.2* Consulting Agreement with Jack Y. L. Lee dated February 1, 1996.
10.3* Consulting Agreement with David Kerzner dated February 1, 1996.
10.4* Consulting Agreement with Industry Marketing Service dated
January 1, 1996.
10.5* Agreement with Sarah Casse dated January 12, 1996.
* Document previously filed on August 1, 1996, with Form 10-SB.
Item 2. Description of Exhibits.
3.1* Certificate of Incorporation.
3.2* By-Laws.
4.1* Stock Option Plan.
10.1* Distributor Agreement dated November 29, 1995, together with Amending
Agreement dated January 24, 1996.
10.2* Consulting Agreement with Jack Y. L. Lee dated February 1, 1996.
10.3* Consulting Agreement with David Kerzner dated February 1, 1996.
10.4* Consulting Agreement with Industry Marketing Service dated January 1,
1996.
10.5* Agreement with Sarah Casse dated January 12, 1996.
* Document previously filed on August 1, 1996, with Form 10-SB.
22
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SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of
1934, the registrant caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
PARADIGM ADVANCED TECHNOLOGIES, INC.
Date: October 1, 1996
By: /s/ Jack Y. L. Lee
--------------------------------
Jack Y. L. Lee
Chief Executive Officer and
Secretary-Treasurer
By: /s/ David Kerzner
--------------------------------
David Kerzner
President
23
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