PIPER & MARBURY
L.L.P.
1251 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10020-1104
212-835-6000
FAX: 212-835-6001 BALTIMORE
WASHINGTON
WRITER'S DIRECT PHILADELPHIA
NUMBER EASTON
212-835-6280
FAX: 212-835-6001
April 11, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir or Madam:
Attached is the Form 10-KSB of Paradigm Advanced Technologies, Inc. (the
"Company") for the period ended December 31, 1996. Pursuant to general
instruction 3 of Form 10-KSB, we hereby advise you that the Company is a
development stage company which was incorporated on January 12, 1996.
Accordingly, the Company has no prior periods of operation to which the
financial statements contained in the Form 10-KSB can be compared.
Sincerely,
/s/ Paul J. Pollock
Paul J. Pollock, Esq.
Enclosure
<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual report under Section 13 or 15(d) of the
------- Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
or
____ Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to _________
Commission File Number: 0-28836
PARADIGM ADVANCED TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 33-0692466
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
5140 Yonge Street
Suite 1525
North York, Ontario
Canada M2N 6L7
(Address of Principal Executive (Zip Code)
Offices)
Registrant's telephone number, including area code: (416) 222-9629
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class: on which Registered:
Common Stock, par value None
$0.0001 per share
<PAGE>
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes _X_ No __
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB[ ].
The issuer's revenues for its most recent fiscal year were $55,689.
The aggregate market value of the voting stock held by non-affiliates
as of April 9, 1997 is $2,007,258.
The number of shares outstanding of the Registrant's Common Stock, as of
March 31, 1997 was 15,440,445 shares of Common Stock.
<PAGE>
PART I
ITEM 1. Description of Business
Paradigm Advanced Technologies, Inc. (the "Company"), a development stage
company, has developed, markets and distributes digital video surveillance
security software products, principally the VideoBank and VideoBank Remote
products described below. 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. 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 on January 12, 1996.
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.
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 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 second 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.
<PAGE>
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 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
"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 through equipment upgrades. These
software upgrades permit the addition of new functions such as Video
Transmission, Image Downloading, Multi-Plexing and Video Motion Sensing. Because
neither VideoBank nor VideoBank Remote require proprietary hardware, the Company
is not reliant on a limited number of suppliers for raw materials.
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 to introduce
a mobile surveillance tracking system using GPS technology, and currently
expects to have such products available for marketing and sale during the second
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.
The Company estimates that it has spent approximately $80,000 since its
date of incorporation on research and development activities. This figure is
comprised principally of salaries paid to the Company's engineering staff.
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
<PAGE>
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 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 including any
environmental laws.
Employees
As of December 1996, the Company employed ten people on a full-time basis
and two people on a temporary or part-time basis. 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.
Dependence on a Few Major Customers
In its current development stage, the Company estimates that 80% of its
sales are to three major customers. The Company expects to diversify its
customer base as the VideoBank products are fully developed, however, it
believes that sales to the three customers will remain a substantial portion of
the Company's aggregate sales.
ITEM 2. Description of Properties
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 Can$600. The Company leases additional
technical support and distribution and marketing offices, comprised of 1,560
square feet in Irvine, California 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 Company
believes that its facilities are adequate for its needs and that alternative or
additional space will be available as required and that the facilities are
adequately covered by insurance.
ITEM 3. 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.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. 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 under the symbol "PRAV." The
following table sets forth the range of high and low closing representative bid
prices for the Company's Common Stock from April 12, 1996 through December 31,
1996 (as reported by NASDAQ), which represent 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
(From April 12, 1996) $0.1845 $0.1562
September 30, 1996 $0.2915 $0.1710
December 31, 1996 $0.4375 $0.125
As of December 23, 1996, there were 46 holders of record of the Company's
Common Stock. The Company has not declared or paid any cash dividends on its
Common Stock since its inception, and its Board of Directors currently intends
to retain all earnings for use in the business for the foreseeable future. Any
future payment of dividends will depend upon the Company's results of
operations, financial condition, cash requirements and other factors deemed
relevant by the Company's Board of Directors.
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 Securities Act of 1933, as amended (the "1933
Act") and Regulation D promulgated by the Securities Exchange Commission (the
"SEC") thereunder. None of the following unregistered sales involved
underwriters, and there were no underwriting discounts or commissions.
Person or Class Number of Total Cash
Date, Title of of Persons Shares Price or
Securities Sold to Whom Sold Consideration
January 12, 1996; Paradigm 6,000,000 Assets and
Common Stock Advanced liabilities
Technologies valued at
Joint Venture $56,145
February, 1996; Common Private 3,000,000 $300,000
Stock Placement
investors
February, March, April Private 2,800,000 $700,000
and May, 1996; Common Placement
Stock investors
June through November, Private 2,158,351 $647,500
1996; Common Stock Placement
investors
November, 1996; Common PTI Financial 165,418 $49,625
Stock Corp.
Item 6. Management's Discussion and Analysis or 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.
<PAGE>
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 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 it 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.
Item 7. Financial Statements
The financial statements of the Company, including the notes thereto,
together with the report of independent certified public accountants thereon,
are presented beginning at page F-1.
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
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)
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.
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.
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than ten percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file.
<PAGE>
Based solely on review of the copies of such reports furnished to the
Company during or with respect to fiscal 1996, or written representations that
no Forms 5s were required, the Company believes that during the fiscal year
ended December 31, 1996, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with, except that initial statements on beneficial ownership were filed late by
each of the directors and officers of the Company and Mendel Raksin, the only
person known to the Company to be the beneficial owner of more than ten percent
of the Company's securities, has not filed any statements required by Section
16(a).
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the registrant's four most highly compensated
executive officers other than the Chief Executive Officer during the fiscal year
ended December 31, 1996:
Shares
of
Annual Common
compensation Stock All
Name and ----------------- underlying other
principal position Year Salary Bonus options compensation
Jack Y. L. Lee 1996 $66,000 0 1,875,0000 0
Chief Executive
Officer and
Secretary-Treasurer of
the Company
David Kerzner
President 1996 $75,000 0 3,187,500 0
C. Richard Brogan (1) 1996 $80,000 0 ---- 0
(1) Mr. Brogan's employment with the Company terminated in February 1997.
Stock Option Grants Table
The following table provides information with regard to stock options
granted to the Company's Chief Executive Officer and the registrant's four most
highly compensated executive officers other than the Chief Executive Officer
during the fiscal year ended December 31, 1996:
Number of Percent of Total Exercise
Securities Options/SARs or Base Expiration
Underlying Granted Price Date
Name Options/SARs to Employees in ($/Sh.)
Granted Fiscal Year
Jack Y. L. Lee 1,875,000 37.0% $0.05 1/12/01
David Kerzner 3,187,500 63.0% $0.05 1/12/01
<PAGE>
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 $66,600 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.
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. Additionally,
non-employee directors do not presently receive compensation for their service
as directors. The Company will, however, reimburse directors a fixed amount for
out-of-pocket expenses incurred for attendance at meetings.
Item 11. 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 Warrants Percent
Ownership Current or of Class
Name and Address of Common Percent Options if Fully
Stock of Class Granted Exercised
Jack Y. L. Lee, Chief
Executive Officer 1,458,334 10.3% 1,958,334 13.8%
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
<PAGE>
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
49 St. Clair 1,250,000 8.9% ---- 5.1%
Avenue W., Ste 104
Toronto, Ontario
M4V 1K6
Mendel Raksin
338 Crown Street 1,666,680 11.8% 1,666,680 13.5%
New York, NY 11225
All directors,
executive officers 8,291,514 58.7% 9,250,014 70.9%
and 5% owners, as a
group:
Item 12. 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 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 $66,600. The Company also has
entered into a Consulting Agreement with David Kerzner under which he receives
an annual salary of $75,000.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Index to Financial Statements
Report of Independent Auditors, page F1
Financial Statements
Balance Sheets - December 31, 1996, September 30, 1996 and June
30, 1996, page F2
Statement of Income for the year ended December 31, 1996 (from
inception) and the fiscal quarter ended December 31, 1996,
page F5
Statement of Share Capital from Inception (January
12, 1996 through December 31, 1996), page F7
Statements of Cash Flows for the year ended December 31, 1996
Notes to Financial Statements, page F9
<PAGE>
Exhibits
3.1* Certificate of Incorporation of the Company.
3.2* By-Laws of the Company.
4.1* Stock Option Plan.
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.
- --------------
* Previously filed with the SEC as Exhibits to, and incorporated herein by
reference from, the Company's Registration Statement on Form 10-SB, as
amended, filed with the SEC on August 1, 1996.
** Previously filed with the SEC as Exhibits to, and incorporated herein by
reference from, the Company's Registration Statement on Form SB-2, as
amended, filed with the SEC on December 31, 1996, as amended.
(b) No reports on Form 8-K were filed during the fiscal year 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By: /s/ Jack J.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 Exchange Act, this Report has been
signed below by the following persons on behalf of the Company in the capacities
and on the date indicated.
Signature Title Date
/s/ Jack Lee President, Chief Executive April 8, 1997
Jack Lee Officer, Chief Financial
Officer and Director
/s/ David Kerzner President and a Director April 8, 1997
David Kerzner
/s/ Jacob Kerzner Director April 8, 1997
Jacob Kerzner
<PAGE>
Page F1
BROMBERG & ASSOCIATE 1177 Finch Avenue West Suite 21
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CHARTERED ACCOUNTANTS Downsview, Ontario M3J 2E9
Office: (416) 663-1974
Fax: (416) 630-1345
AUDITOR'S REPORT
TO THE SHAREHOLDERS OF
PARADIGM ADVANCED TECHNOLOGIES, INC.
We have audited the balance sheet of Paradigm Advanced Technologies, Inc.
as at December 31, 1996 and the statements of income, deficit, changes in
shareholders' equity and changes in financial position for the period then
ended. These audited financial statements are the responsibility of the
corporation's management. Our responsibility is to express an opinion on the
audited financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform an audit to obtain
reasonable assurance whether the audited financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the audited financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation.
In our opinion, these audited financial statements presents fairly, in all
material respects, the financial position of the Corporation as at December 31,
1996 and the results of its operations and the changes in its financial position
for the period then ended in accordance with generally accepted accounting
principles.
/s/ BROMBERG & ASSOCIATE
CHARTERED ACCOUNTANTS
DOWNSVIEW, ONTARIO
March 18,1997
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Page F2
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
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December 31,1996 September June 30, 1996
30,1996
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CURRENT ASSETS
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Bank $154,702 $25,411 $338,132
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Accounts 69,162
Receivable
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Inventories 286,593 357,838 354562
(Note 1a)
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Prepaid 19,915 26,781 16,418
expenses and
deposit
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Share 202,500 25000
Subscription
Receivable
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732,872 709,112 709,112
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Capital 49,000 23,302 19,668
Assets (Notes ------ ------ ------
1b, 3)
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TOTAL ASSETS 781,872 $458,332 $728,780
------- -------- --------
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LIABILITIES
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CURRENT LIABILITIES
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Accounts 68,989 25,344 26,190
Payable
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Loan Payable 395,000
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TOTAL 463,989 25,344 26,190
LIABILITIES
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PAge F4
SHAREHOLDERS' EQUITY
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Authorized 30,000,000
common shares at
$0.0001 par value per
share
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Issued and outstanding 1,753,270 1,418,645 1,306,145
14,123,769
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12,633,340 and
10,140,000 common
shares
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Deficit (1,435,387) (985,657) (603,555}
----------- --------- ---------
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Total Shareholders' 317,883 432,988 702,590
Equity
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Total Liabilities & 781,872 458,332 728,780
Shareholders' Equity
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Page F5
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF INCOME
For the Three From
Months ended Inception on
Dec 31, 1996 January 12,
1996, through
Dec. 31, 1996
REVENUES
Sales $ 55,689 $ 55,689
Cost of Sales
Purchases 44,807 402,645
Inventory, period 357,838 354,762
end
Total Cost Of 47,883 47,883
Sales
Gross Profit $ 7806 $ 7806
======== =======
OPERATING EXPENSES:
Selling, General & 407,194 1,377,028
Admin.
Research & 42,000 55,188
Development
Depreciation 8,343 10,977
TOTAL EXPENSES 457,537 1,443,193
========= =========
NET GAIN (LOSS) FOR
THE PERIOD $(449,731) $(1,435,387)
========== ============
Net gain (loss) per
average common $ (0.04) $(0.1430)
share --------- ---------
Average common
shares outstanding
during period 10,061,885 10,061,885
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Page F6
Accumulated deficit
at period-end
$ 985,657 $1,435,387
-------- ---------
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Page F7
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF SHARE CAPITAL
JANUARY 12, 1996 THROUGH DECEMBER 31,1996
PAID IN
SHARES CAPITAL
Issuance of common
shares to purchase all
of the assets and
liabilities
of Paradigm Advanced
Technologies Joint 6,000,000 $ 56,145
Venture
Issuance of common
shares in February
1996 in
connection with a
private 3,000,000 300,000
placement offering
Issuance of common
shares
in March 1996 in
connection
with a private 1,140,000 285,000
placement offering
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Issuance of common
shares
in May 1996 in
connection
with a private 1,660,000 415,000
placement
offering
Issuance of common
shares in June, 1996
in connection with a
private 1,208,343 $ 362,500
placement
Issuance of common
shares in July, 1996
in connection with a
private 950,000 $ 285,000
placement.
Issuance of common
shares in December,
1996 in
165,418 $ 49,625
connection with a
private placement
14,123,769 $ 1,753,270
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Page F9
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
From
For the Three Inception on
Months ended January 12,
December 1996, through
31,1996 December
31,1996
CASH FLOWS FROM
OPERATING ACTIVITIES
Net gain (loss) for $(449,731) $(1,435,387)
the period
Adjustment to
reconcile net loss
to net cash used
in operating
activities
Depreciation 8,343 10,977
Changes to assets,
liabilities
Decrease
(Increase) in
Accounts Receivable (69,162) (69,162)
Decrease 71,245 (286.593)
(Increase) in
Inventory
Decrease (177,500) (202,500)
(Increase) in
Share Subscriber
Receivable
Decrease
(Increase) in
sundry assets 6866 (19,915)
Increase
(Decrease) in
accounts payable 43,645 68,989
--------- --------
Net Cash Provided
by (Used in)
Operating
Activities
$(566,293) $(1,933,591)
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Page F10
CASH FLOWS FROM
INVESTING ACTIVITIES
Increase (34,041) (59,977)
(Decrease) in
capital assets
Net Cash Provided
by(used in)
Investing
Activities
$,(34,041) $(59,977)
CASH FLOWS FROM
FINANCING ACTIVITIES
Loan Payable 395,000 395,000
Received for
issuance of common
stock 334,625 1,753,270
--------- ---------
Net Cash Provided
by Financing
Activities $729,625 $2,148,270
======= =========
NET INCREASE IN CASH $ 129,291 $154,702
========= ========
FOR PERIOD
Cash, beginning of $ 25,411 $ --
period --------- --------
Cash, end of period $ 154,702 $154,702
======== =======
Supplemental cash
flow disclosure
Cash paid for
-- --
Interest
-- --
Income taxes
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PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out
method) and net realizable value.
b) CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation.
Depreciation is provided using the declining balance basis at the
following annual rate:
Furniture and fixtures - 20%
c) METHOD OF ACCOUNTING
i) The Company maintains its books and prepares its
financial statements on the accrual basis of accounting.
ii) The Company's financial statements are prepared
according to Canadian GAAP. There are no material
differences between Canadian and U.S. GAAP.
2. INCORPORATION, FISCAL YEAR END
The Company was incorporated on January 12, 1996 in the state of Delaware
and has elected a December 31 fiscal year end for book and tax purposes.
3. INVENTORY
The inventory consists of computer security equipment.
4. CAPITAL ASSETS
Accumulated Net
Cost Depreciation Book-value
Furniture
and
fixtures,
Dec 31, 1996 $59,977 $10,977 $ 49,000
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5. LOAN PAYABLE AND SUBSEQUENT EVENTS
The Loan is convertible and bears interest at a rate of prime plus 1%.
Subsequent to December 31,1996, the loan was converted to 1,316,667 common
shares at a rate of $.30 per share, along with warrants at a rate of $0.30
per share.
6 STOCK OPTIONS AND WARRANTS
As at December 1,1996, 8,000,000 common stock are reserved for issuance to
directors, officers and employees under the Company's stock option plan.
The exercise price is $0.05 and the expiry date of the options is January
12, 2001. On July 30,1996, 1,208,343 warrants were issued, exercisable at
$0.30 per share, and not exercisable for six months from the date of issue,
and are due to expire on July 30,1999.
7 ACQUISITIONS
On January 12,1996, the Company acquired 100% of the assets and liabilities
of Paradigm Advanced Technologies Joint Venture for $56,145, by the
issuance of 6,000,000 common shares. The company recorded the acquisition
using the purchase method,
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Page F13
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.
Bromberg & Associate
Downsview, Ontario
February 3, 1997
