As filed with the Securities and Exchange Commission on December 23, 1996
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
Registration Statement
Under the
Securities Act of 1933
PARADIGM ADVANCED TECHNOLOGIES, INC.
(Name of Small Business Issuer in its Charter)
Delaware 7373 33-0692466
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification No.)
Organization) Code Number)
5140 Yonge Street, Suite 1525
North York, Ontario
Canada M2N 6L7
(416) 222-9629
(Address and Telephone Number of
Principal Executive Offices)
Jack Y. L. Lee
Chief Executive Officer Jay Gary Finkelstein, Esquire
Paradigm Advanced Technologies, Inc. Piper & Marbury L.L.P.
5140 Yonge Street, Suite 1525 1200 Nineteenth Street, N.W.
North York, Ontario Washington, D.C. 20036
Canada M2N 6L7 (202) 861-3900
(416) 222-9629
(Name, Address and Telephone Number
of Agents For Service)
Approximate Date of Proposed Sale to the Public: As soon as practicable after
the effective date of this
Registration Statement
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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 of
1933 check the following box. |X|
CALCULATION OF REGISTRATION FEE
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Title of Each
Class of Number Estimated Estimated
Securities of Shares Offering Aggregate Amount of
to be to be Price Offering Registration
Registered Registered Per Unit Price Fee
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Common Stock,
par value 12,109,546 $0.328125* $3,973,444.78* $1,204.07
$0.0001 per share
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* Pursuant to Rule 457(c), the proposed maximum offering price is estimated to
be $0.328125, the average of the bid price ($0.28125) and asked price ($0.375)
for the Company's securities of the same class on December 20, 1996.
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 said Section 8(a),
may determine.
<PAGE>
TABLE OF CONTENTS AND
CROSS-REFERENCE SHEET
Showing location in Prospectus of information
required by Part I of Form SB-2
Item Number and Caption Prospectus Heading Page
1. Front of Registration Statement and Outside Front Cover Page of
Outside Front Cover of Prospectus Prospectus
2. Inside Front and Outside Back Cover Outside Front Cover Page of
Pages of Prospectus Prospectus
3. Summary Information and Risk Prospectus Summary...................3
Factors Risk Factors.........................4
4. Use of Proceeds Use of Proceeds.....................12
5. Determination of Offering Price Outside Front Cover Page of
Prospectus; Determination of
Offering Price......................12
6. Dilution Dilution............................12
7. Selling Security Holders Selling Stockholders................12
8. Plan of Distribution Plan of Distribution................13
9. Legal Proceedings Legal Proceedings...................14
10. Directors, Executive Officers, Directors, Executive Officers,
Promoters and Control Persons Promoters and Control Persons.......15
11. Security Ownership of Certain Security Ownership of Certain
Beneficial Owners and Management Beneficial Owners and Management....16
12. Description of Securities Description of Securities...........16
13. Interest of Named Experts and Interest of Named Experts and
Counsel Counsel.............................17
14. Disclosure of Commission Position Disclosure of Commission Position
on Indemnification for Securities on Indemnification for Securities
Act Liabilities Act Liabilities.....................17
15. Organization Within Last Five Years Certain Relationships and Related
Transactions........................19
16. Description of Business The Company; Description of
Business.............................9
17. Management's Discussion and Plan of Operation...................18
Analysis or Plan of Operation
18. Description of Property Description of Property.............19
19. Certain Relationships and Related Certain Relationships and Related
Transactions Transactions........................19
20. Market for Common Equity and Market for Common Equity and
Related Stockholder Matters Related Stockholder Matter..........19
21. Executive Compensation Executive Compensation..............19
22. Financial Statements Financial Statements................21
23. Changes In and Disagreements With Changes In and Disagreements With
Accountants on Accounting and Accountants on Accounting and
Financial Disclosure Financial Disclosure................27
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 23, 1996
12,109,546 Shares
PARADIGM ADVANCED TECHNOLOGIES, INC.
Common Stock
(par value $0.0001 per share)
This prospectus relates to 12,109,546 shares (the "Shares") of common
stock, $0.0001 par value (the "Common Stock"), of Paradigm Advanced
Technologies, Inc., a Delaware corporation (the "Company"). All of the Shares
are shares of Common Stock that are either outstanding or that are to be issued
upon the exercise of warrants or options owned or held by the persons named in
this Prospectus under the caption "Selling Stockholders." The Shares either: (i)
were acquired by the Selling Stockholders in various private placements by the
Company, all of which were exempt from the registration provisions of the
Securities Act of 1933, as amended (the "1933 Act"), (ii) will be acquired in
the future by the Selling Stockholders upon the exercise of warrants granted in
connection with such private placements, or (iii) will be acquired in the future
by the Selling Stockholders upon the exercise of options previously granted by
the Company. See "Selling Stockholders."
The Company's Common Stock is quoted for trading on the National
Association of Securities Dealers' Automated Quotation System Over-the-Counter
Electronic Bulletin Board ("Nasdaq-OTC") under the symbol "PRAV." The Selling
Stockholders may from time to time sell the Shares on the Nasdaq-OTC, on any
other national securities exchange or automated quotation system on which the
Common Stock may be listed or traded, in negotiated transactions or otherwise,
at prices then prevailing or related to the then current market price or at
negotiated prices. The Shares may be sold directly or through brokers or
dealers. See "Plan of Distribution."
The Company will receive no part of the proceeds of any sales made
hereunder. See "Use of Proceeds." All expenses of registration incurred in
connection with this offering are being borne by the Company, but all selling
and other expenses incurred by the Selling Stockholders will be borne by the
Selling Stockholders. See "Selling Stockholders."
The Selling Stockholders and any broker-dealers participating in the
distribution of the Shares may be deemed to be "underwriters" within the meaning
of the 1933 Act, and any commissions or discounts given to any such
broker-dealer may be regarded as underwriting commissions or discounts under the
1933 Act.
The Shares have not been registered for sale by the Selling
Stockholders under the securities laws of any state as of the date of this
Prospectus. Brokers or dealers effecting transactions in the Shares should
confirm the registration thereof under the securities laws of the States in
which transactions occur or the existence of any exemption from registration.
On December 18, 1996, the closing bid and asked prices of the Common
Stock as reported on the Nasdaq-OTC were $0.3125 and $0.4375, respectively.
-----------------
See "Risk Factors," beginning on Page 4, for information and a
discussion of certain factors that should be considered by prospective
investors.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMIS-
SION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
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Per Unit Total, Underwriting
Total Minimum Price to Discounts and Proceeds to
Total Maximum Public Commissions Company(1)
- --------------------------------------------------------------------------------
Per Share: 0.329125* * N/A None
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Total: $3,973,444.78* * N/A None
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* The Shares will be offered from time to time by the Selling
Shareholders, who retain the right to determine both the number of
Shares that will be offered and the timing of any such offering. The
Shares will be sold at the market price at the time of such sale or at
such other price as may be negotiated. Delivery of certificates
representing the shares of Common Stock will be made against payment
therefor through the one or more brokers or dealers, in negotiated
transactions, or otherwise. See "Plan of Distribution."
-----------------
Paradigm Advanced Technologies, Inc.
The date of this Prospectus is December 23, 1996.
-----------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Exchange Act and, in accordance therewith, files reports, proxy or information
statements and other information with the Securities and Exchange Commission
(the "Commission"). This Prospectus contains information concerning the Company
but does not contain all of the information set forth in the Registration
Statement and exhibits thereto which the Company has filed with the Commission
under the 1933 Act. Such reports, proxy or information statements, Registration
Statement and exhibits and other information filed by the Company with the
Commission can be inspected without charge at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth St., N.W., Washington, D.C.
20549, at the Regional Offices of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and via the Commission's World
Wide Web page at "http://www.sec.gov." Copies of such material can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates.
The Company will provide without charge to each person to whom a
Prospectus is delivered, upon written or oral request of such person, a copy of
any or all documents referred to above that have been incorporated into this
Prospectus by reference. Written or oral requests for such copies should be
directed to: Jack Lee, Corporate Secretary, Paradigm Advanced Technologies,
Inc., 5140 Yonge Street, Suite 1525, North York, Ontario, Canada, M2N 6L7;
telephone (416) 222-9629.
The Company intends to furnish stockholders with annual reports
containing consolidated financial statements for each fiscal year audited by an
independent accounting firm and unaudited quarterly reports.
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. All dollar amounts in this Prospectus are stated
in the lawful currency of the United States unless otherwise indicated.
The Company
Paradigm Advanced Technologies, Inc. (the "Company") is a development stage
company that develops, markets, and distributes software-based digital video
surveillance systems that can be used for security or other purposes. The
Company's products currently include VideoBank, a software-based video
surveillance system that permits the user to store video images on a computer
disk drive rather than on conventional videotape, and VideoBank Remote, a
similar software-based video surveillance system that permits the transmission
of video images using ordinary telephone lines rather than coaxial or
proprietary transmission lines. The Company believes that both of these products
represent improvements over existing video surveillance technology, not only in
terms of ease of use of the products, but also in terms of the products'
capabilities for recalling and manipulating video data, the ability to upgrade
the systems without needing to replace hardware components, and the products'
general independence from particular or proprietary hardware components.
Until recently, manufacturing of the Company's VideoBank product line was
outsourced to Alpha Systems Lab, Inc. ("ASL") pursuant to a Distributor
Agreement. The Distributor Agreement terminated on October 4, 1996, without
objection from the Company. The Company permitted this termination to occur
because, although ASL had been the Company's sole supplier of products: (1) the
Company plans to meet its long-term product needs through internal production of
new versions of the VideoBank products that the Company currently is developing
and testing; (2) the Company believes that it has adequate inventory to meet
expected customer demand for VideoBank products in the near future; and (3) the
Company expects that it will have the ability to obtain additional product from
ASL if necessary in the near term, although at higher prices. Consequently the
Company believes that the termination of the Distributor Agreement will not have
a material adverse effect on the Company's business or results of operations.
The Company anticipates that its new versions of VideoBank products will be
ready for market in the first quarter of 1997 and that they will offer improved
functionality, better compatibility with the Windows-based graphical user
interface environment, and the ability to work with a variety of video capture
cards made by different manufacturers rather than solely with one proprietary
card.
The Company's present strategy is to aggressively market and promote the
existing versions of the VideoBank and VideoBank Remote products, and
simultaneously to continue developing the proprietary upgraded versions of these
products. The Company's products generally compete with hardware-based or
videotape-based video surveillance products, and therefore the Company intends
to use its marketing and advertising efforts to increase awareness of the
advantages of its software-based system. The Company believes that demand for
video surveillance systems will be driven by factors such as: the commercial and
residential construction markets, the overall crime rate and the property crime
rate, both locally and nationwide, the development of better and more
cost-effective technology and equipment, the effects of advertising, and more
widespread acceptance of the technology.
The Company's principal executive offices are located at 5140 Yonge Street,
Suite 1525, North York, Ontario, Canada, M2N 6L7, and its telephone number is
(416) 222-9629. The Company was incorporated in Delaware in January, 1996.
The Company is required to file reports with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended (the "1934
Act"). The Company will furnish annual reports to its shareholders which will
include audited financial statements reported on by its independent auditors and
quarterly reports containing unaudited condensed financial information for the
first three quarters of each fiscal year. The Company also will furnish such
other reports from time to time as it may determine or as may be required by
law.
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<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating the Company and its
business before purchasing the Shares offered hereby. A purchase of the Shares
offered hereby is speculative in nature and involves a high degree of risk. No
purchase of the Shares should be made by any person who is not in a position to
lose the entire amount of such investment.
Limited Operating History, Historical Operating Losses; Variability of Results
of Operations
The Company is subject to risks associated with early stage companies,
including start-up losses, uncertainty of revenues, absence of current
profitability and the need for additional funding. The Company has a limited
history of operations and no history of revenues. The Company has incurred
cumulative losses of $985,656 from the date of incorporation on January 12,
1996, to September 30, 1996. The Company has not yet made any product sales, and
there can be no assurance that: (i) product sales will occur, or, once
commenced, will continue or increase; (ii) the Company will achieve profitable
operations; or (iii) new products introduced by the Company will achieve market
acceptance. The Company's results of operations will continue to vary
significantly and will be highly dependent on the timing of product
introductions and enhancements by the Company and its competitors, changes in
pricing, execution of any necessary technology licensing agreements and the
volume and timing of orders received, all of which are difficult to forecast. A
significant portion of the Company's expenses are relatively fixed and planned
expenditures are based on sales forecasts. As a result of the foregoing and
other factors, the Company anticipates that it may experience material and
adverse fluctuations in results of operations on a quarterly or annual basis.
Therefore, the Company believes that period to period comparisons of its
revenues and results of operations are not necessarily meaningful and that such
comparisons cannot be relied upon as indicators of future performance. See "Plan
of Operations."
Dependence On Key Personnel
The Company's success depends to a significant degree upon the continuing
contributions of its key management personnel including, Jack Y. L. Lee, its
Chief Executive Officer, and David Kerzner, its President, and upon its ability
to attract and retain qualified personnel in the future. The loss of services of
any key management personnel could adversely affect the Company's financial
condition or results of operations. The Company believes that its future success
will depend in a large part upon its ability to attract and retain highly
skilled managerial, sales, marketing and product development personnel.
Competition for qualified personnel in most technology-related industry sectors
is intense, and there can be no assurance that the Company will be successful in
retaining its key employees or that it can attract or retain additional skilled
personnel as required. The Company maintains no "key man" insurance on any of
its officers or directors. Mr. Lee and Mr. Kerzner both have consulting
agreements with the Company that contain non-competition covenants and
confidentiality and non-solicitation provisions, among others. The
enforceability and scope of these agreements are subject to judicial
interpretation, and therefore the agreements may not be enforceable as written.
Offering Price and Subsequent Trading Price Dependent Upon Market
The securities to be offered hereby will be offered at the market price
prevailing at the time of the offer, which price may vary and may have a limited
relationship, or no relationship, to the Company's assets, book value, results
of operations or other established criteria of value. The offering price also
may not be indicative of the prices that will prevail in the subsequent trading
market for the Company's securities. The Company's securities will trade in the
subsequent trading market at prices that may vary and may have a limited
relationship, or no relationship, to the Company's assets, book value, results
of operations or other established criteria of value.
Future Sales of Common Stock Under Rule 144 or Otherwise
Of the 14,123,769 shares of the Company's Common Stock issued and
outstanding as of the date of this Prospectus, 6,000,000 shares are "restricted
securities," as that term is defined under Rule 144 promulgated under the 1933
Act, and will become eligible for sale in the public market subject to the
provisions of Rule 144. In general under Rule 144, a person (or persons whose
shares are aggregated) who has satisfied a two-year holding
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<PAGE>
requirement may sell restricted securities within any three-month period limited
to a number of shares which does not exceed the greater of one percent of the
then outstanding shares or the average weekly trading volume of the Company's
Common Stock during the four calendar weeks prior to such sale. Rule 144 also
permits the sale (without any quantity limitation) of "restricted securities" by
a person who is not an affiliate of the issuer and who has satisfied a
three-year holding period.
Limited Prior Market for Common Stock; Possible Volatility of Stock Price
The Common Stock is quoted on the Nasdaq-OTC Bulletin Board. However, no
assurance can be given that an active public market will develop or be
sustained. Factors such as announcements of the introduction of new or enhanced
products by the Company or its competitors and quarter- to-quarter variations in
the Company's results of operations, as well as market conditions in the
technology and emerging growth company sector, may have a significant impact on
the market price of the Company's Common Stock. Further, the stock market has
experienced extreme volatility that has particularly affected the market prices
of equity securities of many high technology companies and that often has been
unrelated or disproportionate to the operating performance of such companies.
These market fluctuations may adversely affect the price of the Company's Common
Stock.
Classification of the Common Stock as Penny Stock
In October 1990, Congress enacted the "Penny Stock Reform Act of 1990."
"Penny Stock" is generally any equity security other than a security (a) that is
registered or approved for registration and traded on a national securities
exchange or an equity security for which quotation information is disseminated
by The National Association of Securities Dealers Automated Quotation ("Nasdaq")
System on a real-time basis pursuant to an effective transaction reporting plan,
or which has been authorized or approved for authorization upon notice of
issuance for quotation in the NASDAQ System, (b) that is issued by an investment
company registered under the Investment Company Act of 1940, (c) that is a put
or call option issued by Options Clearing Corporation, (d) that has a price of
five dollars or more or (e) whose issuer has net tangible assets in excess of
$2,000,000, if the issuer has been in continuous operation for at least three
years, or $5,000,000, if the issuer has been in continuous operation for less
than three years and average revenue of at least $6,000,000 for the last three
years. The Company's Common Stock does not meet these criteria. On April 12,
1996, the Common Stock of the Company was approved for trading on the Nasdaq-OTC
Electronic Bulletin Board. From the time of the listing through December 18,
1996, the high bid price was $0.7500 and the low bid price was $0.1562.
Therefore, the Common Stock is subject to Rules 15g-2 through 15g-9 (the "Penny
Stock Rules") under the Exchange Act. The Penny Stock Rules impose additional
reporting, disclosure and sales practice requirements on brokers and dealers and
require that such brokers and dealers must make a special suitability
determination of each purchaser and must have received the purchaser's written
consent to the transaction prior to the sale. Consequently, the Penny Stock
Rules may affect the ability of brokers and dealers to sell the Company's Common
Stock and may affect the ability of purchasers to sell any of the Shares
acquired hereby in the secondary markets.
So long as the Company's Common Stock is within the definition of "Penny
Stock" as defined in Rule 3a51-1 of the Exchange Act, the Penny Stock Rules will
continue to be applicable to the Common Stock. Unless and until the price per
share of Common Stock is equal to or greater than $5.00, the Common Stock will
be subject to substantial additional risk disclosures and document and
information delivery requirements on the part of brokers and dealers effecting
transactions in the Common Stock. Such additional risk disclosures and document
and information delivery requirements on the part of such brokers and dealers
may have an adverse effect on the market for and/or valuation of the Common
Stock.
Absence of Dividends
The Company has not paid any cash dividends on its capital stock and does
not anticipate paying any such cash dividends in the foreseeable future.
Earnings, if any, will be retained to finance the future growth of the Company.
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<PAGE>
Control by Existing Stockholders
The Company's directors, officers and principal (greater than 5%)
stockholders, taken as a group, together with their affiliates, beneficially own
in the aggregate approximately 58.7% of the Company's outstanding Common Stock.
Certain principal stockholders are directors or executive officers of the
Company. As a result of such ownership, these stockholders are likely to be able
to control matters requiring approval by the stockholders of the Company,
including the election of directors. See "Security Ownership of Certain
Beneficial Owners and Management."
Emerging Market for Software-Based Video Surveillance Systems
The market for software-based video surveillance systems is emerging and is
dependent on the general demand for video surveillance systems, which is
difficult to predict with any certainty. The general demand for video
surveillance systems is dependent on a number of variables, including the
commercial and residential construction markets, the overall crime rate and the
property crime rate in a particular locality and nationally, the development of
better and more cost-effective technology and equipment, the effects of
advertising, and more widespread acceptance of such technology. Unless and until
the general demand for video surveillance systems grows, demand for
software-based video surveillance systems is likely to be limited and market
share is likely to derive primarily from direct competition with hardware-based
systems. Even if there is an increase in demand for video surveillance systems
in general, the demand for software-based systems may not increase at the same
rate. There can be no assurance that the market for software-based video
surveillance systems will either develop at the rate contemplated by the Company
or at a rate sufficient to support the Company's business plan. See "The
Company; Description of Business."
Rapid Technological Change
The emerging software-based video surveillance system market, and the
computer industry in general, are characterized by rapidly changing technology,
resulting in short product life cycles and rapid price declines. The Company
must continuously update its existing and planned products to keep them current
with changing technologies and must develop new products to take advantage of
new technologies that could render the Company's existing products obsolete. The
Company's future prospects are highly dependent on its ability to increase the
functionality of its products in a timely manner and to develop new products
that address new technologies and achieve market acceptance. There can be no
assurance that the Company will be successful in these efforts. If the Company
is unable to develop and introduce such products in a timely manner, due to
resource constraints or technological or other reasons, this inability could
have a material adverse effect on the Company's results of operations. In
particular, the introduction of new products is subject to the inherent risk of
development delays. The Company has experienced product development delays in
the past, and such delays may occur in the future. In addition, due to the
uncertainties associated with the Company's emerging market, there can be no
assurance that the Company will be able to forecast product demand accurately or
to respond in a timely manner to changing technologies and customer
requirements. See "The Company; Description of Business--VideoBank and VideoBank
Remote" and "--New Versions of Products."
Competition
The market for video surveillance systems, including the Company's
software-based system, is highly competitive and is characterized by pressures
to reduce prices, incorporate new features and accelerate the release of new
products. A number of companies currently offer products that compete directly
or indirectly with the Company's system. Certain of the Company's competitors or
potential competitors have significantly greater financial, management,
technical and marketing resources and other competitive resources, as well as
longer operating histories, greater name recognition, and a larger customer
base, than the Company. As a result, they may be able to adapt more quickly to
new or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their products than can the
Company. Although the Company considers that its digital software product is
unique in the security industry, competition in the security industry is
expected to develop, increase, and generally become more intense. The Company
believes that significant competitive factors affecting the market are depth of
product functionality, product quality and performance,
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<PAGE>
product price and customer support. In the event that competition significantly
increases, competitive pressures could cause the Company to reduce the prices of
its products, which could adversely affect the Company's results of operations.
There can be no assurance that the Company's current or potential competitors
will not develop products comparable or superior to those developed by the
Company or adapt more quickly than the Company to new technologies, evolving
industry trends or changing customer requirements. Competition also could
increase if new companies enter the market or if existing competitors expand
their product lines. An increase in competition could result in price reductions
and loss of market share. A variety of other potential actions by the Company's
competitors, including increased promotion and accelerated introduction of new
or enhanced products, also could reduce the Company's gross margins and have a
material adverse effect on the Company's financial condition or results of
operations. Although the Company believes it has certain technological and other
advantages over its competitors, maintaining such advantages, if any, will
require continued investment by the Company in research and development and
sales and marketing. There can be no assurance that the Company will have
sufficient resources to make such investments or that the Company will be able
to make the technological advances necessary to maintain such competitive
advantages. In addition, current and potential competitors have established or
may in the future establish collaborative relationships among themselves or with
third parties, including third parties with whom the Company has strategic
relationships, to increase the ability of their products to address the security
needs of the Company's prospective customers. Accordingly, it is possible that
new competitors or alliances may emerge and rapidly acquire significant market
share. If this were to occur, the Company's financial condition or results of
operations could be materially adversely affected. There can be no assurance
that the Company will be able to compete successfully in the future. See "The
Company; Description of Business--Competition."
Substantial Dilution
In many cases, the officers, directors and present stockholders of the
Company have acquired their interest in the Company at a cost substantially
lower than that which investors will pay for the Common Stock offered hereby. In
addition, 10,634,519 of the Shares described in this Prospectus are shares
issuable upon the exercise of warrants and options held by the officers,
directors and present stockholders of the Company, most of which shares will be
issued at prices substantially lower than that which investors will pay for the
Common Stock offered hereby. As a result, investors participating in the
Offering likely will incur immediate, substantial dilution in the net tangible
book value per share.
Future Capital Needs and Uncertainty of Additional Funding
The Company has expended, and will continue to expend in the future,
substantial funds to complete the research and development, manufacturing and
marketing of its products. Based on its current staffing level and product
development schedule, the Company anticipates that its working capital and funds
anticipated to be derived from operations should be adequate to satisfy its
capital and operating requirements through the first quarter of 1997. This
estimate is based upon the assumptions that research and development expenses
continue at present levels and that the number of personnel remains unchanged.
There can be no assurance, however, that the Company will have sufficient
working capital to satisfy the Company's capital needs either until or beyond
this date. The Company anticipates that it will seek additional funding through
public or private sales of its securities, including equity securities, and that
it will seek a bridge loan with the assistance of First Liberty, a New
York-based investment bank. It may not be possible to obtain adequate funds,
whether through financial markets, bank loans, or collaborative or other
arrangements with corporate partners or from other sources, when needed or on
terms acceptable to the Company. In the event that the Company is not able to
obtain additional funding on a timely basis, the Company may be required to
scale back or eliminate certain or all of its development, manufacturing or
marketing programs or to license third parties to commercialize products or
technologies that the Company would otherwise seek to develop, manufacture or
market itself, any of which actions could have a material adverse effect on the
Company's financial condition or results of operations. See "Plan of Operation."
Reliance on Third Party Resellers
A substantial majority of the Company's sales revenues in the future may be
derived from the sale of its products through third parties. Accordingly, the
Company may become dependent on the continued viability and financial stability
of these resellers. The Company may become dependent on the resellers who
generally offer
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products of several different companies, including in some cases products that
are competitive with the Company's products. There can be no assurance that the
Company's resellers, if any, will continue to purchase the Company's products
over time or provide such products with adequate levels of support. The loss of,
or a significant reduction in sale volume to, any such resellers could have a
material adverse effect on the Company's results of operations.
Dependence on Third Parties for Manufacturing and Shipping
The Company may utilize an independent third party for the manufacture,
installation, or shipment of its finished products. The manufacture of the
Company's products consists of primarily of duplicating diskettes or pressing
CD-ROMs, printing manuals and packaging and assembling finished products, all of
which are or may be performed either by the Company or by a third party acting
in accordance with the Company's specifications. The Company's products also may
be installed on a computer's hard disk drive and, together with the necessary
additional equipment, sold as a complete video surveillance system. Although the
Company's products do not depend upon any particular or proprietary computer
hardware configuration and the Company believes there are several vendors who
can supply the manufacturing and shipping services it may require for its
products, any significant failure to establish reliable manufacturing and
distribution facilities for the Company's products on a timely basis could have
a material adverse effect on the Company's results of operations. See "The
Company; Description of Business."
Management of Growth
The Company's business has grown in recent periods and this growth has
placed, and if sustained will continue to place, a substantial burden on its
managerial, operational, financial and information systems. In particular, the
growth of the Company's business has required and, if sustained, will continue
to require the employment of additional software, technical and development
engineers, the number of which could be substantial. There can be no assurance
that the Company will be able to hire engineers and other employees with the
necessary qualifications. The future success of the Company also depends upon
its ability to attract and retain highly skilled managerial, sales, marketing
and operations personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. There can be no assurance that the Company's
management will be able to manage future expansion, if any, successfully, or
that its management, personnel or systems will be adequate to support the
Company's operations or will be implemented in a cost-effective or timely
manner. The Company's success depends to a significant extent on the ability of
its executive officers and other members of senior management to respond to
these challenges effectively. The Company's inability to manage growth
effectively could have a material adverse effect on the Company's business,
results of operations and financial condition.
Limited Protection of Proprietary Technology
The Company regards its software technology as proprietary and attempts to
protect it under copyright, trademark and trade secret laws as well as through
contractual restrictions on disclosure, copying and distribution. The Company
distributes individual copies of its software under a "shrinkwrap" license
agreement containing these restrictions and generally does not obtain signed
license agreements from its end users. Although the enforceability of shrinkwrap
licenses is not well established, the Company is not aware of any third parties
which are making unauthorized use of the Company's proprietary technology. It
may be possible for unauthorized third parties to copy the Company's products or
to reverse engineer or obtain and use information that the Company regards as
proprietary. There can be no assurance that the Company's competitors will not
independently develop technologies that are substantially equivalent or superior
to the Company's technologies. In addition, the laws of certain countries in
which the Company's products are or may be distributed do not protect the
Company's products and intellectual rights to the same extent as the laws of the
United States and Canada. As the number of software products in the market
increases and the functionality of these products further overlaps, the Company
believes that software will increasingly become the subject of claims that such
software infringes the rights of others. To date no third party has filed an
infringement claim against the Company and there have been no explicit threats
of litigation asserting that the Company's products infringe their intellectual
property rights, but there can be no assurance that third parties will not
assert infringement claims against the Company in the future or that any such
assertion will not result in costly litigation or require the Company to obtain
a license to intellectual property rights of third parties. If
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the Company were required to so obtain any such licenses, there can be no
assurance that such licenses will be available on reasonable terms, or at all.
THE COMPANY; DESCRIPTION OF BUSINESS
General
The Company is a development stage company incorporated in Delaware on
January 12, 1996, that was formed to act as a developer, marketer and
distributor of digital video surveillance security software products. On its
date of incorporation, the Company acquired all of the right, title and interest
in a security and surveillance products business established by Paradigm
Advanced Technologies Joint Venture (the "Joint Venture"). The Joint Venture was
dissolved on the same day.
Distributor Agreement
Until recently, manufacturing of the Company's VideoBank product line was
outsourced to Alpha Systems Lab, Inc. ("ASL") pursuant to a Distributor
Agreement. Under this Distributor Agreement, ASL was responsible for producing
the VideoBank and VideoBank Remote products, and the Company had the exclusive
right to purchase and distribute these products in Canada and the non-exclusive
right to purchase and distribute them worldwide. Other than the Distributor
Agreement, there was and is no relationship or affiliation between ASL and the
Company.
The distribution rights granted under the Distributor Agreement were to
expire in November, 2005, although that agreement provided for early termination
in certain events. ASL notified the Company on October 4, 1996, that ASL had
terminated the Distributor Agreement as a result of certain alleged
non-performance by the Company. The Company permitted this termination to occur
because, although ASL had been the Company's sole supplier of products: (1) the
Company plans to meet its long-term product needs through internal production of
new versions of the VideoBank products that the Company currently is developing
and testing; (2) the Company believes that it has adequate inventory to meet
expected customer demand for VideoBank products in the near future; and (3) the
Company expects that it will have the ability to obtain additional product from
ASL if necessary in the near term, although at higher prices. Consequently the
Company believes that the termination of the Distributor Agreement will not have
a material adverse effect on the Company's business or results of operations.
The Company anticipates that its new versions of VideoBank products will be
ready for market in the first quarter of 1997 and that they will offer improved
functionality, better compatibility with the Windows-based graphical user
interface environment, and the ability to work with a variety of video capture
cards made by different manufacturers rather than solely with one proprietary
card.
VideoBank and VideoBank Remote
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 to 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.
VideoBank Remote is a predominantly software-based system that allows
images captured by VideoBank to be transmitted digitally over conventional
telephone lines. The Company will market and distribute the software
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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 such as Telesite and TVX.
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 system. In contrast, to the Company's knowledge,
most of its competitors in the marketplace for video surveillance security
systems offer systems that are based on proprietary hardware or equipment. See
"The Company--Competition."
The VideoBank and VideoBank Remote systems are Windows-based and offer an
icon-driven user interface. When installed on a computer that has 850 megabytes
(MB) of available internal hard disk drive storage space, VideoBank is capable
of recording at least 24 hours of data at the rate of one high resolution color
frame per second. In addition, if there is an alarm condition, the system is
capable of recording 15 frames per second for a limited time span of
approximately 16 minutes. This capacity is sufficient to provide
high-resolution, multiple-frame motion video of several alarm conditions, each
having a duration of two or three minutes. In addition, the ability to transmit
video images over a telephone line, rather than via coaxial or other specialized
closed-circuit cable, makes the VideoBank Remote system easier to use and less
expensive than traditional remote surveillance systems. In addition,
improvements and upgrades to the VideoBank system can be made by implementing
upgrades to the software itself, rather than upgrading the equipment itself.
These software upgrades permit the addition of new functions such as Video
Transmission, Image Downloading, Multi-Plexing and Video Motion Sensing.
New Versions of Products
The Company is engaged in the development of new versions of the VideoBank
and VideoBank Remote software-based video surveillance systems, and currently
expects to have its first such product available for marketing and sale during
the first quarter of 1997. The Company presently expects that such products will
have most of the same capabilities and features as the VideoBank and VideoBank
Remote Version 1 products currently have, as well as additional features and
improved functionality, better compatibility with the Windows-based graphical
user interface environment, and the ability to work with a variety of video
capture cards made by different manufacturers.
Competition
The VideoBank system is referred to as a "software based" system because
the product does not require the use of proprietary hardware. In contrast, to
the Company's knowledge, most of its competitors in the marketplace for video
surveillance security offer products that are based on proprietary hardware or
equipment. There are approximately 20 companies that manufacture video
transmission systems for security applications. Though some competitors may have
developed software products for use in video security and surveillance products,
the existing competitive products are primarily hardware based. For example,
Hymaturn Industries of France has developed Memocom, a proprietary hardware
system that records black and white images. In addition, Dedicated Micros, an
English company, has developed a hardware solution that allows for the recording
of video to a computer disk.
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
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the bundled hardware/software system incorporating equipment that the Company or
the user can purchase at a volume discount.
Regulatory Matters
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 do
or may affect the Company's right to distribute, sell, manufacture, or otherwise
deal with digital video surveillance security systems.
Employees
As of December, 1996, the Company employs ten people on a full-time basis
and two people on a temporary or part-time basis. Additionally, the Company
conducts its distribution and marketing efforts through contractual arrangements
with its manufacturer's sales representative network, which consists of seven
independent companies in the United States and Canada. None of the Company's
employees is represented by a labor union or is subject to a collective
bargaining agreement. The Company considers its relations with its Employees to
be good.
Dividend Policy
The Company has never declared or paid a cash dividend on its capital stock
and does not expect to pay cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain its earnings, if any, for use in
its business. Any dividends declared in the future will be at the discretion of
the Board of Directors and subject to restrictions that may be imposed by the
Company's lenders.
Price Range of Common Stock
On April 12, 1996, the Common Stock of the Company was approved for trading
on the Nasdaq-OTC Electronic Bulletin Board. Prior to that date, there was no
public market for the Company's Common Stock. From the time of the listing
through December 18, 1996, the high bid price was $0.7500 and the low bid price
was $0.1562.
Selected Financial Data
The following selected financial data is qualified by reference to and
should be read in conjunction with the financial statements and the notes
thereto included elsewhere herein. In the opinion of the Company, all unaudited
financial statements include adjustments, consisting only of normal recurring
accruals necessary for a fair presentation of such information for the periods
presented. The results of operations for the nine months ended September 30,
1996, are not necessarily indicative of results to be expected for the year
ending December 31, 1996.
Summary Financial Data
From Inception on
January 12, 1996, Quarter Ended
through September 30, 1996 September 30, 1996
Statement of Operations Data
Net Revenue $- 0 - $- 0 -
Gross Profits $- 0 - $- 0 -
Net Loss $985,656 $382,101
Net Loss Per Share $0.08 $0.03
Balance Sheet Data As of September 30, 1996
Cash $25,411
Total Assets $458,332
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Current Liabilities $25,344
Stockholders' Equity $1,418,645
USE OF PROCEEDS
All of the Shares offered hereby are being offered by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
the Shares. See "Selling Stockholders."
DETERMINATION OF OFFERING PRICE
Prior to the Offering there has been a limited market for the Common Stock.
The offering price of the Common Stock for purposes of this Prospectus was
estimated by the Company based upon historical market prices for the Company's
Common Stock. The Company anticipates, however, that the Selling Stockholders
will offer and sell their Shares at the then-current market price for the
Company's Common Stock.
DILUTION
Of the 24,758,288 Shares described in this Prospectus, 14,123,769 Shares
are presently issued and outstanding (the "Outstanding Shares"). In many cases,
the officers, directors and present stockholders of the Company have acquired
their Outstanding Shares at a cost substantially lower than that which investors
will pay for the Common Stock offered hereby. The remaining 10,634,519 Shares
described in this Prospectus are shares issuable upon the exercise of warrants
and options held by the officers, directors and present stockholders of the
Company (the "Option Shares"). Most of the Option Shares also will be issued at
prices substantially lower than that which investors will pay for the Common
Stock offered hereby. As a result, investors participating in the Offering
likely will incur immediate, substantial dilution in the net tangible book value
per share.
SELLING STOCKHOLDERS
The following table sets forth the number of shares of Common Stock which
may be offered for sale from time to time by the Selling Stockholders. The
shares offered for sale constitute all of the shares of Common Stock known to
the Company to be beneficially owned by the Selling Stockholders. Other than the
relationships described below, none of the Selling Stockholders has or have any
material relationship with the Company.
Position, office Fully-Diluted # of
Name of Selling or other material Shares of Common
Stockholder relationship (if any) Stock Offered
Lisa Kerzner 412,500(1)
David Kerzner President 2,337,500(2)
Sarah Casse 1,375,000(3)
Jack Lee Chief Executive Officer 1,541,668(4)
Richard Brogan Vice President of Marketing 104,000(5)
Jack Lee (Trust) 396,000(6)
Jean-Michel Ouzzan 22,217(7)
Mendel Raksin 3,333,360(8)
Mathis Weingarten 166,668(9)
Schlomo Assaraf 166,668(10)
1315 Eastern Parkway Corp. 416,670(11)
Investment Hotlines 33,334(12)
PTI Financial Corp. 1,482,094(13)
Phillip Heller 110,000(14)
Prosper Lugasi 39,600(15)
Yad Harambam 40,000(16)
Michel Abihsira 3,575(17)
Moshe Ben Guigui 16,692(18)
Jack Rosenblum 100,000(19)
Mayer Amsel 12,000(20)
---------------------------
TOTAL: 12,109,546
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- -------------------------------
Notes
1. All of these Shares are currently restricted under Rule 144 of the 1933
Act.
2. All of these Shares are currently restricted under Rule 144 of the 1933
Act.
3. All of these Shares are currently restricted under Rule 144 of the 1933
Act.
4. 1,375,000 of these Shares are currently restricted under Rule 144 of the
1933 Act; 83,334 of the Shares are outstanding and not restricted, and
83,334 of the Shares are issuable upon the exercise of a warrant.
5. All of these Shares are currently restricted under Rule 144 of the 1933
Act.
6. All of these Shares are currently restricted under Rule 144 of the 1933
Act.
7. All of these Shares are issuable upon the exercise of an option.
8. 1,666,680 of these Shares are currently outstanding; the remaining
1,666,680 Shares are issuable upon the exercise of a warrant.
9. 83,334 of these Shares are currently outstanding; the remaining 83,334
Shares are issuable upon the exercise of a warrant.
10. 83,334 of these Shares are currently outstanding; the remaining 83,334
Shares are issuable upon the exercise of a warrant.
11. 208,335 of these Shares are currently outstanding; the remaining 208,335
Shares are issuable upon the exercise of a warrant.
12. All of these Shares are currently outstanding.
13. 165,418 of these Shares are currently outstanding and 165,418 Shares are
issuable upon the exercise of a warrant; an additional 1,316,676 Shares,
along with Warrants to purchase an additional 1,316,676 Shares, are
issuable upon the conversion of certain units held by PTI Financial Corp.
14. All of these shares are issuable upon the exercise of an option.
15. All of these shares are issuable upon the exercise of an option.
16. All of these shares are issuable upon the exercise of an option.
17. All of these shares are issuable upon the exercise of an option.
18. All of these shares are issuable upon the exercise of an option.
19. All of these shares are issuable upon the exercise of an option.
20. All of these shares are issuable upon the exercise of an option.
PLAN OF DISTRIBUTION
The Selling Stockholders may from time to time sell all or a portion of the
Shares on the Nasdaq-OTC market or on any other national securities exchange on
which the Common Stock may be listed or traded, in negotiated transactions or
otherwise, at prices then prevailing or related to the then current market price
or at negotiated prices. The Shares will not be sold in an underwritten public
offering. The Shares may be sold directly or through brokers or dealers. The
methods by which the Shares may be sold include: (a) a block trade (which may
involve crosses) in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; and (d) privately negotiated transactions. In
effecting sales, brokers and dealers engaged by Selling Stockholders may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
commissions or discounts from Selling Stockholders (or, if any such
broker-dealer acts as agent for the purchaser of such shares, from such
purchaser) in amounts to be negotiated which are not expected to exceed those
customary in the types of transactions involved. Broker-dealers may agree with
the Selling Stockholders to sell a specified number of such shares at a
stipulated price per share, and, to the extent such broker-dealer is unable to
do so acting as agent for a Selling Stockholder, to purchase as principal any
unsold shares at the price required to fulfill the broker-dealer commitment to
such Selling Stockholder. Broker-dealers who acquire shares as principal may
thereafter resell such shares from time to time in transactions (which may
involve crosses and block transactions and sales to and through other
broker-dealers, including transactions of the nature described above) in the
over-the-counter market or otherwise at prices and on terms then prevailing at
the time of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may receive from
the purchasers of such shares commissions as described above.
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In connection with the distribution of the Shares, the Selling Stockholders
may enter into hedging transactions with broker-dealers. In connection with such
transactions, broker-dealers may engage in short sales of the Shares in the
course of hedging the positions they assume with the Selling Stockholders. The
Selling Stockholders may also sell the Shares short and redeliver the Shares to
close out the short positions. The Selling Stockholders may also enter into
option or other transactions with broker-dealers which require the delivery to
the broker-dealer of the Shares. The Selling Stockholders may also loan or
pledge the Shares to a broker-dealer and the broker-dealer may sell the Shares
so loaned or upon a default the broker-dealer may effect sales of the pledged
shares. In addition to the foregoing, the Selling Stockholders may enter into,
from time to time, other types of hedging transactions.
The Selling Stockholders and any broker-dealers participating in the
distributions of the Shares may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any profit on the sale of
Shares by the Selling Stockholders and any commissions or discounts given to any
such broker-dealer may be deemed to be underwriting commissions or discounts
under the Securities Act.
The Shares may also be sold pursuant to Rule 144 under the Securities Act
beginning two years after the Shares were issued, provided such date is at least
90 days after the date of this Prospectus.
The Company has filed the Registration Statement, of which this Prospectus
forms a part, with respect to the sale of the Shares. The Company has agreed to
use its best efforts to keep the Registration Statement current and effective
for a period commencing on the effective date of the Registration Statement and
terminating 24 months after the Registration Statement is filed with the
Commission. There can be no assurance that the Selling Stockholders will sell
any or all of the Shares offered hereunder.
Under the Exchange Act and the regulations thereunder, any person engaged
in a distribution of the shares of Common Stock of the Company offered by this
Prospectus may not simultaneously engage in market making activities with
respect to the Common Stock of the Company during the applicable "cooling off"
periods prior to the commencement of such distribution. In addition, and without
limiting the foregoing, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-6 and 10b-7, which provisions may limit
the timing of purchases and sales of Common Stock by the Selling Stockholders.
The Company will pay all of the expenses incident to the offering and sale
of the Shares, other than commissions, discounts and fees of underwriters,
dealers or agents.
LEGAL PROCEEDINGS
The Company is not currently engaged in any legal proceedings and is not
aware of any pending or threatened litigation that could have a material adverse
effect on the Company's business, financial condition or results of operations.
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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of the Company are listed on the
following table. There are no other promoters or control persons:
Name Age Position, Term in Office
Jack Y. L. Lee 47 Chief Executive Officer, Secretary-Treasurer, and
Director (all positions January 12, 1996, to
present)
David Kerzner 36 President and Director (both positions January
12, 1996, to present)
C. Richard Brogan 56 Vice President for Marketing and Sales (January
12, 1996, to present)
Jacob Kerzner 38 Director (January 12, 1996, to present)
The following is a brief description of the professional experience and
background of the directors and executive officers of the Company.
Jack Y. L. Lee: Mr. Lee has served as the Chief Executive Officer,
Treasurer-Secretary and a director of the Company since its founding. Between
1987 and January 12, 1996, Mr. Lee served as President and as a syndicator for
Syndicate Management Inc., which specializes in the syndication of real estate
and other investments. In 1974, Mr. Lee qualified as a Chartered Accountant
while employed at Clarkson, Gordon, & Co., a major independent accounting firm
which has subsequently merged into the Accounting firm of Ernst & Young LLP.
David Kerzner: Mr. Kerzner has served as the President and a director of
the Company since its founding. From 1990 to 1994, Mr. Kerzner was employed by
ISTI Corporation/Intertec Security, most recently as President of ISTI
Corporation and as the Marketing Manager of, and as a consultant to, Intertec
Security. From 1987 to 1992, Mr. Kerzner was the owner and operator of
Interactive Security Systems Inc., a full service electronic security company.
C. Richard Brogan: Mr. Brogan has served as Vice President for Marketing
and Sales of the Company since its founding. From 1993 to 1995, Mr. Brogan was
employed as a Sales Manager for Robot Research Inc. where he was responsible for
marketing video processing equipment and PC-based telephone-line transmission
systems for use with closed-circuit television systems. From 1989 to 1993, Mr.
Brogan was employed as a Director of Sales and Marketing for Sentry Products
where he was responsible for marketing systems employing ultrasonic technology.
Mr. Brogan's contract expires on January 12, 1997. The Company anticipates that
the contract will not be renewed.
Jacob Kerzner: Mr. Kerzner has served as the a director of the Company
since its founding, Mr. Kerzner currently serves as the President and Chief
Executive Officer of Nightingale Healthcare Inc., a privately-owned hospital and
nursing home staffing company founded by Mr. Kerzner in 1986. Mr. Kerzner is the
brother of David Kerzner.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of the outstanding Common Stock of the Company by each director,
executive officer, all five percent (5%) stockholders of the Company and all
directors and officers as a group:
Beneficial Current Percent of
Ownership Percent Options Class if Fully
Name and Address of Common Stock of Class Granted Exercised
- ------------------- --------------- -------- --------- --------------
Jack Y. L. Lee, 1,458,334 10.3% 1,958,334 13.8%
Chief Executive Officer
28 Old Park Lane
Richmond Hill, Ontario
L4B 2L4
David Kerzner, 2,337,500 16.6% 3,187,500 22.3%
President
120 Arnold Avenue
Thornhill, Ontario
L4B 2L4
C. Richard Brogan, 104,000 0.7% ---- 0.4%
Vice President for
Marketing and Sales
3242 S. Birchett Drive
Tempe, Arizona 85282
Jacob Kerzner, ---- ---- 562,500 2.3%
Director
148 Faywood Blvd.
Downsview, Ontario M3H 2W7
Sarah Casse 1,475,000 10.4% 1,875,000 13.5%
63 Otter Crescent
North York, Ontario M5N 2W7
George Sukornyk 1,250,000 8.9% ---- 5.1%
49 St. Clair Avenue W.
Ste. 104
Toronto, Ontario M4V 1K6
Mendel Raksin 1,666,680 11.8% 1,666,680 13.5%
338 Crown Street
New York, New York 11225
All directors, executive 8,291,514 58.7% 9,250,014 70.9%
officers and 5% owners,
as a group
DESCRIPTION OF SECURITIES
General
The total number of shares of stock of all classes which the Company has
authority to issue is 30,000,000 shares of Common Stock, par value of $0.0001
per share.
Each Stockholder is entitled to one vote, in person or by proxy, for each
share of Common Stock held by the stockholder. Common Stockholders are entitled
to receive ratably such dividends that the Board of Directors may declare from
legally available funds. If the Company is liquidated, dissolved, or wound up,
holders of Common Stock are entitled to share ratably in any assets remaining
after paying liabilities. Holders of Common Stock have no preemptive rights and
the Common Stock is neither redeemable nor convertible into any other
securities. All of the issued and outstanding Common Stock is fully paid and
nonassessable.
As of December 23, 1996, there were 14,123,769 shares of Common Stock held
of record by a total of 46 shareholders (excluding shares issuable upon exercise
of outstanding options and warrants of the Company.
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Warrants
The Company has outstanding warrants to purchase an aggregate of 2,290,435
shares of Common Stock, which were issued in connection with the private
placement that was recently concluded. Each warrant entitles the holder to
purchase at any time one share of Common Stock for three years from the date of
grant at an exercise price of $0.30 per share of Common Stock, subject to
adjustment of the price per share and number of shares issuable upon exercise of
such warrants upon any subdivision, consolidation or reclassification of the
Common Stock of the Company or if any stock dividend upon the Common Stock is
declared and paid by the Company. The warrants do not contain antidilution
provisions relating to issuances or sales of Common Stock at prices below the
exercise price or the then prevailing market price of the Common Stock. The
warrants may be exercised in whole or in part.
Antitakeover Provisions
Statutory Provisions. Delaware law contains certain provisions that may
have the effect of delaying, deterring or preventing a change in control of the
Company.
The Articles do not provide for cumulative voting in the election of
directors. The Board of Directors can amend the Articles or Bylaws without the
assent or vote of the stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is Intercontinental
Registrar and Transfer Agency, Inc., situated at Boulder City, Nevada.
INTEREST OF NAMED EXPERTS AND COUNSEL
No expert or counsel (i) was hired on a contingent basis, (ii) will receive
any direct or indirect interest in the Company, or (iii) is or was a promoter,
underwriter, voting trustee, director, officer, or employee of the Company.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
The Company is required by its By-Laws and Certificate of Incorporation to
indemnify, to the fullest extent permitted by law, each person that the Company
is permitted to indemnify. The Company's Certificate of Incorporation requires
it to indemnify such parties, including directors, officers, employees and
agents to the fullest extent permitted by Sections 102(b)(7) and 145 of the
Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law permits the Company 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 in relation to any action, suit, or proceeding
brought by third parties because they are or were directors, officers, employees
or agents of the Company. In order to be eligible for such indemnification,
however, the directors, officers, employees or agents of the Company must 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. In addition, with respect to
any criminal action or proceeding, the officer, director, employee or agent must
have had no reason to believe that the conduct in question was unlawful.
In derivative actions, the Company may only indemnify its officers,
directors, employees and agents against expenses actually and reasonably
incurred in connection with the defense or settlement of a suit, and only if
they acted in good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of the corporation. Indemnification is not
permitted in the event that the director, officer, employee or agent is actually
adjudged liable to the Corporation unless, and only to the extent that, the
court in which the action was brought so determines.
- 17 -
<PAGE>
The Company's Certificate of Incorporation permits the Company to indemnify
its directors except in the event of: (1) a breach of the duty of loyalty to the
Company or its stockholders; (2) an act or omission that involves intentional
misconduct or a knowing violation of the law and an act or omission not in good
faith; (3) liability arising under Section 174 of the Delaware General
Corporation Law, relating to unlawful stock purchases, redemptions, or payment
of dividends; or (4) a transaction in which the potential indemnitee received an
improper personal benefit.
Insofar as the Company may otherwise be permitted to indemnify its
directors, officers and controlling persons against liabilities arising under
the 1933 Act or otherwise, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the 1933 Act and is, therefore, unenforceable.
PLAN OF OPERATION
This section contains forward-looking statements regarding the Company's
business and financial condition. No assurance can be given that actual results
of operations will not differ materially from the forward-looking statements
contained herein. For a discussion of various factors which may cause actual
results to vary, see "Risk Factors," commencing at page 4 hereof.
The Company has a limited history of operations. It was incorporated on
January 12, 1996. In connection with its organization, the Company acquired an
existing security and surveillance products business established by the Paradigm
Advanced Technologies Joint Venture. During the succeeding months, the Company
raised approximately $1,000,000 in capital through two private placements
completed in accordance with Rule 504 promulgated under the 1933 Act. The
Company recently concluded an additional private placement in accordance with
Rule 505 promulgated under the 1933 Act, in which raised approximately $647,500
in capital, and has entered into a lending relationship with PTI Financial Corp.
pursuant to which the Company will borrow between $150,000 and $500,000 from PTI
Financial Corp. Management expects that the proceeds of these private placements
and of this lending relationship will satisfy the Company's cash requirements
through the first quarter of 1997. 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.
The Company's efforts during its first twelve months have centered and will
continue to center on the development, marketing and distribution of its two
principal products VideoBank and VideoBank-Remote. The Company has worked on
developing and solidifying its manufacturer's representative network by entering
into distribution or sales representation agreements with manufacturers and
developers of software-based video surveillance systems, developing its
advertising and promotional materials and customer database, and planning of a
public relations campaign, and will continue to work on all of these activities.
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. 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 also will
continue to concentrate on generating revenues from existing relationships with
businesses that are already familiar with the Company's products and have
expressed a willingness to buy. The Company will continue to concentrate
particularly 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.
The Company does not currently have any intentions to acquire a plant or
any significant 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 continues to grow and further
solidifies and consolidates its distribution networks.
- 18 -
<PAGE>
DESCRIPTION OF PROPERTY
The Company's executive offices are located in 1,000 square feet of office
space in North York, Ontario, Canada, which is leased by the Company on a
monthly basis at a rental rate of $600 (Canadian). The Company leases additional
technical support and distribution and marketing offices, including 1,560 square
feet in Irvine, California and 414 square feet in Mesa Arizona. The lease for
the technical support and distribution office in California expires in 1998
(after giving effect to all renewal options), and the monthly rental rate is
currently $1,404. The lease for the marketing office in Arizona expires in 1997
and the monthly rental rate is currently $495. The Company believes that its
facilities are adequate for its needs and that alternative or additional space
will be available as required.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 12, 1996, the Company issued 6,000,000 unregistered shares of
its Common Stock to the participants in the Paradigm Advanced Technologies Joint
Venture (the "Joint Venture") in exchange for all of the right, title and
interest in the security and surveillance products business established by the
Joint Venture. Certain of the Company's directors and officers were participants
in the Joint Venture and as a result received shares of the Common Stock of the
Company in the transaction. The Company's Chief Executive Officer, Jack Y. L.
Lee received 1,875,000 shares (including 500,000 shares in trust), and the
Company's President, David Kerzner received 2,337,500 shares. In addition, Lisa
Kerzner, the wife of director Jacob Kerzner, received 412,500 shares of Common
Stock in the transaction. Lastly, Sarah Casse, a holder of more than 5% of the
Company's issued and outstanding Common Stock, received 1,375,000 shares of
Common Stock in the transaction.
The Company has entered into a Consulting Agreement with Jack Y. L. Lee
under which he receives an annual salary of up to $100,000, depending on the
amount of his time that he devotes to the Company. The Company also has entered
into a Consulting Agreement with David Kerzner under which he receives an annual
salary of $75,000. The Company has also entered into a one-year agreement
terminating in January 1997 with Industry Marketing Service, a corporation of
which C. Richard Brogan serves as Principal. Under this agreement he receives
$80,000 for the year from Industry Marketing Service.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On April 12, 1996, the Common Stock of the Company was approved for trading
on the Nasdaq-OTC Electronic Bulletin Board. From the time of the listing
through December 18, 1996, the high bid price was $0.7500 and the low bid price
was $0.1562; quarter-end high and low bids (as reported by Nasdaq) are set forth
below, which quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions:
Quarter Ended High Bid Low Bid
------------- -------- -------
June 30, 1996 $0.1845 $0.1562
September 30, 1996 $0.2915 $0.1710
As of December 23, 1996, there were 46 holders of record of the Company's
Common Stock. The Company has declared no dividends on the Common Stock, its
only class of equity. The Common Stock is not traded on any Canadian or other
exchange.
EXECUTIVE COMPENSATION
Directors' Compensation
The Company's policy is not to pay compensation to directors who are also
employees of the Company for their service as directors. Non-employee directors
do not presently receive compensation for their service as directors, either.
The Company will, however, reimburse directors a fixed amount for out-of-pocket
expenses incurred for attendance at meetings.
- 19 -
<PAGE>
Summary Compensation Table
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and Secretary-Treasurer, who is the only officer of the
Company whose total annual salary and bonus exceeded $100,000 during the fiscal
year ending December 31, 1996:
Shares of
Annual Common
compensation Stock All
Name and --------------- underlying other com-
principal position Year Salary Bonus options pensation
- --------------------------------- ---- -------- ----- ---------- ----------
Jack Y. L. Lee 1996 $100,000 0 1,875,000 0
Chief Executive Officer and
Secretary-Treasurer of the
Company
Stock Option Grants Table
The following table provides information with regard to stock options
granted to the Company's Chief Executive Officer and Secretary-Treasurer during
the fiscal year ending December 31, 1996:
Number of Percent of Exer-
Securities Total Options/ cise or
Underlying SARs Granted Base
Options/SARs to Employees in Price Expiration
Name Granted Fiscal Year ($/Sh.) Date
- -------------- ------------ --------------- ------- ----------
Jack Y. L. Lee 1,875,500 37.0% $0.05 1/12/01
Employment Contracts
In February 1996, the Company entered into ten-year consulting agreements,
which may be extended for additional five year terms by the mutual consent of
the parties, with Jack Y. L. Lee, the Chief Executive Officer of the Company,
and David Kerzner, President of the Company. Mr. Lee's and Mr. Kerzner's
consulting agreements provide for annual salaries of $100,000 and $75,000,
respectively for the first ten year term and for compensation to be negotiated
if the consulting agreement is extended for additional terms. The consulting
agreements may be terminated early by the Company in the event of the
resignation, death or disability or other incapacity of Mr. Lee or Mr. Kerzner,
as the case may be. The consulting agreements also contain provisions regarding
confidentiality of information, ownership of inventions and patents,
non-competition and non-solicitation. Both Mr. Lee and Mr. Kerzner are eligible
to receive a bonus upon the approval of the Company's board of directors.
The Company entered into a consulting agreement dated January 12, 1996 with
Sarah Casse. Ms. Casse serves as a marketing, business, and technological
consultant to the Company. The agreement grants Ms. Casse the option to purchase
up to 1,875,000 shares of the common stock of the Company as compensation for
her services at the price of $0.05 per share.
In January, 1996, the Company entered into a one-year agreement with
Industry Marketing Service ("IMS") to oversee the Company's marketing,
advertising and public relations functions. The Company paid IMS an initial fee
of $8,000 at the beginning of the term of the agreement and pays a monthly fee
of $6,000.
- 20 -
<PAGE>
FINANCIAL STATEMENTS
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
Bank short term deposits $ 25,411
Share subscription receivable 25,000
Inventories (Note 1a) 357,838
Prepaid expenses and deposit 26,781
--------
$435,030
Capital Assets (Notes 1b & 3) 23,302
--------
TOTAL ASSETS $458,332
========
LIABILITIES
Current Liabilities
Accounts payable $ 25,344
--------
SHAREHOLDERS' EQUITY
Share Capital (Note 4)
Authorized 30,000,000 common shares, $.0001 par value
Issued and outstanding: 13,008,343 common shares 1,300
Additional paid in capital 1,417,345
Deficit (985,657)
---------
432,988
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $458,332
=========
- 21 -
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM STATEMENT OF DEFICIT
FOR THE PERIOD FROM THE DATE OF INCORPORATION
JANUARY 12, 1996 TO SEPTEMBER 30, 1996
(UNAUDITED)
Balance, beginning of period $ 0
Net Loss 985,656
--------
Balance, end of period $985,656
========
- 22 -
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM STATEMENT OF SHARE CAPITAL
(UNAUDITED)
Agg. Additional Total
Par Paid-In Paid-In
Shares Value Capital Capital
---------- --------- ------------- -------------
Issuance of common shares to 6,000,000 $600.00 $ 55,545.00 $ 56,145.00
purchase all of the shares
and liabilities of Paradigm
Advanced Technologies Joint
Venture
Issuance of common shares in 3,000,000 $300.00 $299,700.00 $300,000.00
February, 1996 in connection
with a private placement
offering
Issuance of common shares in 2,800,000 $245.00 $612,255.00 $612,500.00
February, March, April and May
1996 in connection with a
private placement offering
Issuance of common shares 2,158,351 $215.84 $647,284.16 $647,500.00
between June and November 1996
in connection with a private
placement offering (1)
Issuance of common shares to 165,418 $ 16.54 $ 49,608.46 $ 49,625.00
PTI Financial Corp. in connection
with the payment of a commitment
fee relating to the financing
transaction (2)
---------- --------- ------------- -------------
14,123,769 $1,412.38 $1,751,857.62 $1,753,270.00
========== ========= ============= =============
1) In connection with these offerings, warrants to purchase 2,125,017 common
shares at $0.30 per share were issued.
2) In connection with this offering, warrants to purchase 165,418 common
shares at $0.30 per share have been inssued. In addition, PTI Financial
Corp. will receive 1,316,676 common shares and warrants to purchase an
additional 1,316,676 common shares at $0.30 per share upon the conversion
of certain units.
As of December 23, 1996, 14,123,769 shares of the Company's Common Stock were
issued and outstanding.
- 23 -
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM STATEMENT OF INCOME
JANUARY 12, 1996 TO SEPTEMBER 30, 1996
(UNAUDITED)
From Inception
For the Three on January 12,
Months Ended 1996 through
September 30, September 30,
1996 (Unaudited) 1996 (Unaudited)
---------------- ----------------
Sales $ 0 $ 0
Cost of Sales
Purchases 3,276 357,838
Inventory - end of period 3,276 357,838
---------------- ----------------
$ 0 $ 0
Expenses
Consulting fees $166,004 $513,896
Legal and professional 77,129 129,102
Salaries and benefits 37,232 89,966
Office and general 38,301 62,661
Travel and entertainment 53,040 163,222
Occupancy costs 9,946 24,175
Depreciation 449 2,634
---------------- ----------------
382,101 985,656
---------------- ----------------
Net gain (loss) for the period $(382,101) $(985,656)
================ ================
- 24 -
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM STATEMENT OF CASH FLOW
JANUARY 12, 1996 TO SEPTEMBER 30, 1996
(UNAUDITED)
Cash provided by (used in) operations
Net gain (loss) for the period $ (985,656)
Items not requiring an outlay of cash:
Depreciation of fixed assets 2,634
Net changes in non-cash working capital items
related to operations 0
Inventory (357,838)
Accounts payable 25,343
Sundry assets (26,781)
------------
$(1,342,298)
============
Cash provided by financing activities
Proceeds of common share issuance $ 1,393,645
Cash used in investing activities
Acquisition of fixed assets (25,936)
------------
$ 1,367,709
============
Net increase in cash for the period $ 25,411
============
Cash - beginning of period $ 0
------------
Cash - end of the period $ 25,411
============
- 25 -
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
NOTES TO INTERIM STATEMENT
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) FINANCIAL STATEMENTS
The accompanying condensed financial statements are not audited for
the interim period, but include all adjustments (consisting of only
normal recurring accruals) which management considers necessary for
the fair representation of results at September 30, 1996.
The Company is a development stage company formed on January 12, 1996
and does not purport to contain complete disclosures in conformity
with generally accepted accounting principles.
The results reflected for the nine month period ended September 30,
1996 are not necessarily indicative of the results for the entire
fiscal year ending December 31, 1996.
b) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) and net realizable value.
c) 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%
d) METHOD OF ACCOUNTING
i) The Company maintains its books and prepares its financial
statements on the accrual basis of accounting.
ii) There are not any material differences in the determination of
net loss and per share calculations between Canadian and U.S.
generally accepted accounting principles.
2. INCORPORATION
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. CAPITAL ASSETS
Accumulated Net
Cost Depreciation Book-value
Furniture and fixtures $25,936 $2,634 $23,302
======= ====== =======
4. STOCK OPTIONS
As at June 30, 1996, 10,000,000 shares of Common Stock are reserved for
issuance to directors, officers and employees under the Company's stock
option plan. All options are exercisable at price of $0.05 and the
expiration date of the options is January 12, 2001.
- 26 -
<PAGE>
5. ACQUISITION
On January 12, 1996, the Company acquired 100% of the assets and
liabilities of Paradigm Advanced Technologies Joint Venture in exchange for
6,000,000 Common Shares valued at $56,145. The Company recorded the
acquisition using the purchase method.
CHANGES IN AN DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
NO REPRESENTATIONS; PROSPECTUS DELIVERY OBLIGATION
No 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 other information and
representations must not be relied upon as having been authorized by the
Company. 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 since the date hereof or that the
information contained herein is correct as of any time subsequent to its date.
This Prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
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.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the 1933 Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules to the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement and the exhibits and scheduled filed as a part of the
Registration Statement. Statements contained in this Prospectus concerning the
contents of any contract or any other document referred to are not necessarily
complete, and reference is made in each instance to the copy of such contract or
document filed as an exhibit to the Registration Statement. Each such statement
is qualified in all respects by such reference to such exhibit. The Registration
Statement, including exhibits and schedules thereto, may be inspected without
charge at the Securities and Exchange Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Securities and Exchange
Commission.
- 27 -
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Company is required by its By-Laws and Certificate of Incorporation to
indemnify, to the fullest extent permitted by law, each person that the Company
is permitted to indemnify. The Company's Charter requires it to indemnify such
parties to the fullest extent permitted by Sections 102(b)(7) and 145 of the
Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law permits the Company 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 in relation to any action, suit, or proceeding
brought by third parties because they are or were directors, officers, employees
or agents of the corporation. In order to be eligible for such indemnification,
however, the directors, officers, employees or agents of the Company must have
acted in good faith and in a manner they reasonably believed to be in, or not
opposed to, the best interests of the Company. In addition, with respect to any
criminal action or proceeding, the officer, director, employee or agent must
have had no reason to believe that the conduct in question was unlawful.
In derivative actions, the Company may only indemnify its officers,
directors, employees and agents against expenses actually and reasonably
incurred in connection with the defense or settlement of a suit, and only if
they acted in good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of the corporation. Indemnification is not
permitted in the event that the director, officer, employee or agent is actually
adjudged liable to the Corporation unless, and only to the extent that, the
court in which the action was brought so determines.
The Company's Certificate of Incorporation permits the Company to indemnify
its directors except in the event of: (1) a breach of the duty of loyalty to the
Company or its stockholders; (2) an act or omission that involves intentional
misconduct or a knowing violation of the law and an act or omission not in good
faith; (3) liability arising under Section 174 of the Delaware General
Corporation Law, relating to unlawful stock purchases, redemptions, or payment
of dividends; or (4) a transaction in which the potential indemnitee received an
improper personal benefit.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of the Common Stock offered hereby. The Selling Stockholders will
not pay any of the following expenses.
Securities and Exchange Commission Registration Fee..................$ 1,204.07
Printing and Engraving Expenses*.......................................1,000.00
Legal Fees and Expenses*..............................................20,000.00
Accounting Fees and Expenses*..........................................1,000.00
Miscellaneous Expenses*................................................1,000.00
--------------
Total................................................................$24,204.07
*Estimated.
Item 26. Recent Sales of Unregistered Securities.
The Company has undertaken the following unregistered sales of its Common
Stock. All of the following sales were exempt from registration pursuant to
Sections 3(b) and 4(2) of the 1933 Act and SEC Regulation D
- II-1 -
<PAGE>
promulgated thereunder. None of the following unregistered sales involved
underwriters, and there were no underwriting discounts or commissions.
Person or
Date, Title Class of Persons Number of Cash Price or
of Securities Sold to Whom Sold Shares Consideration
- --------------------------- ------------------ ----------- ------------------
January 12, 1996; Paradigm Advanced 6,000,000 Assets and
Common Stock Technologies Joint liabilities valued
Venture at $56,145
February, 1996; Private Placement 3,000,000 $300,000
Common Stock investors
February, March, April and Private Placement 2,800,000 $700,000
May, 1996; Common Stock investors
June through November, Private Placement 2,158,351 $647,500
1996; Common Stock investors
November, 1996; Common PTI Financial 165,418 $ 49,625
Stock Corp.
Item 27. Exhibits.
3.1* Certificate of Incorporation of the Company.
3.2* By-Laws of the Company.
4.1* Stock Option Plan.
5** Opinion and Consent of Piper & Marbury L.L.P. regarding legality.
10.1* Distributor Agreement with Alpha Systems Lab, Inc., 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.
23.1 Consent of Bromberg & Associate.
23.2** Consent of Piper & Marbury L.L.P. (included in Exhibit 5).
- --------------
* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the Company's Registration Statement on Form
10-SB, as amended, filed with the Commission on August 1, 1996.
** To be filed by amendment.
- II-2 -
<PAGE>
Item 28. Undertakings.
(a) The undersigned Registrant will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
1933 Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was
registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii)Include any additional or changed information on the plan
of distribution.
(2) For determining liability under the 1933 Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that
time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the 1933 Act
may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
- II-3 -
<PAGE>
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 for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of North
York and the Province of Ontario, Canada, on the 23rd day of December, 1996.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By: /s/ Jack Y. L. Lee
------------------------------
Jack Y. L. Lee
Chief Executive Officer and
Chief Financial Officer
By: /s/ David Kerzner
------------------------------
David Kerzner
President
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.
/s/ Jack Y. L. Lee Chief Executive Officer, December 23, 1996
- ------------------------ Chief Financial Officer and
Jack Y. L. Lee Director
/s/ David Kerzner President and December 23, 1996
- ------------------------ Director
David Kerzner
/s/ Jacob Kerzner Director December 23, 1996
- ------------------------
Jacob Kerzner
- II-4 -
<PAGE>
================================================================================
EXHIBIT INDEX
================================================================================
- II-5 -
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
3.1 Articles of Incorporation of the Company...............................*
3.2 By-Laws of the Company.................................................*
4 Stock Option Plan......................................................*
5 Opinion and Consent of Piper & Marbury regarding legality.............**
10.1 Distributor Agreement with Alpha Systems Lab, Inc., 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......................*
23.1 Consent of Bromberg & Associate.....................................II-7
23.2 Consent of Piper & Marbury (included in Exhibit 5)....................**
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* Previously filed with the Commission as Exhibits to, and incorporated
herein by reference from, the Company's Registration Statement on Form
10-SB.
** To be filed by amendment.
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Paradigm Advanced Technologies, Inc.:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ Bromberg & Associate
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Bromberg & Associate
Downsview, Ontario
December 23, 1996
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