As filed with the Securities and Exchange Commission on December 1, 1998
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.
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(Name of Small Business Issuer in its Charter)
Delaware 7373 33-0692466
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(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction Classification Code Number) Identification No.)
of Incorporation
or Organization)
1 Concorde Gate, Suite 201
Toronto, Ontario
Canada M3C 3N6
(416) 447-3235
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(Address and Telephone Number of Principal Executive Offices)
David Kerzner With a copy to:
Chief Executive Officer
Paradigm Advanced Technologies, Paul J. Pollock, Esq.
Inc. Piper & Marbury L.L.P.
1 Concorde Gate, Suite 201 1251 Avenue of the Americas
Toronto, Ontario New York, New York 10020
Canada M3C 3N6 Phone: (212) 835-6000
Phone: (416) 447-3235 Fax: (212) 835-6001
Fax: (416) 447-3974
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(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.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registrations statement number of the earlier
registration statement for the same offering. __________________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. __________________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. ______________________
If delivery of the prospectus is expected to be made
pursuant to Rule 434, check the following box. ____________
CALCULATION OF REGISTRATION FEE
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Title of Each Proposed Proposed
Class of Maximum Maximum
Securities Amount Offering Aggregate Amount of
to be Registered to be Price Offering Registration
Registered Per Unit Price Fee
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Common Stock, 20,428,333 .0938* $1,916,177.64 $565.27
$0.0001 par value
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* Pursuant to Rule 457(c), the proposed maximum offering price is estimated
to be the average of the closing bid price ($.0625) and asked price ($.1250) for
the Company's securities of the same class on November 24, 1998.
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.
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SUBJECT TO COMPLETION, DATED DECEMBER 1, 1998
PROSPECTUS
PARADIGM ADVANCED TECHNOLOGIES, INC.
20,428,333 Shares of Common Stock
This is a public offering of shares of Common Stock of Paradigm Advanced
Technologies, Inc. The selling stockholders identified in this prospectus are
offering and selling all the shares covered by this Prospectus.
The selling stockholders have the right to determine both the number of
shares they will offer and the time or times when they will offer the shares.
They may sell the shares at the market price at the time of the sale or at such
other prices as they may negotiate.
Paradigm will not receive any of the proceeds from the offering, but will
receive the proceeds from the conversion of any of the convertible debentures.
Paradigm is registering the sale of the shares under this Prospectus on behalf
of the selling stockholders in accordance with registration rights that it
granted to the selling stockholders.
The Common Stock is quoted on the Nasdaq Over-the-Counter Bulletin Board
under the symbol "PRAV." On November 24, 1998, the Nasdaq Bulletin Board
reported that the closing bid price of the Common Stock was $.0625, and the
closing asked price of the Common Stock was $.1250.
INVESTMENT IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these shares
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these shares and it is not soliciting an offer to
buy these shares in any state where the offer or sale is not
permitted.
The date of this Prospectus is December __, 1998.
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Table of Contents
Page
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PROSPECTUS SUMMARY...........................................3
THE OFFERING.................................................4
RISK FACTORS.................................................5
USE OF PROCEEDS.............................................11
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS....11
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...12
RESULTS OF OPERATIONS.......................................12
DESCRIPTION OF BUSINESS.....................................13
DILUTION....................................................20
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS................................................20
EXECUTIVE COMPENSATION......................................21
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
MANAGEMENT AND SELLING STOCKHOLDERS....................23
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..............25
DESCRIPTION OF SECURITIES...................................25
SHARES ELIGIBLE FOR FUTURE SALE.............................26
PLAN OF DISTRIBUTION........................................26
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES.........................27
LEGAL MATTERS...............................................28
EXPERTS.....................................................29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS..................F-1
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in the Common Stock. You should read the
entire prospectus carefully, including the "Risk Factors" section, the financial
statements and the notes to the financial statements before making any decision
to purchase the Common Stock. Unless we say otherwise, the statements in this
Prospectus give effect to the approval by the stockholders of an increase in the
number of authorized shares of Common Stock we may issue to 100,000,000.
Paradigm
Paradigm Advanced Technologies, Inc. is a development stage company that
develops, markets, and distributes software-based digital video surveillance and
global positioning system ("GPS") tracking systems for security use and other
purposes. Our 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.
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.
GPS tracking technology - global positioning systems for personal tracking
as well as for vehicular tracking purposes.
We believe that these products represent improvements over existing video
surveillance and GPS 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.
We anticipate that the new versions of VideoBank containing the enhanced
compression software application will be ready for market in the first quarter
of 1999 and that they will offer improved functionality, better compatibility
with the Windows-based graphical user interface environment, and the ability to
work with video capture cards made by different manufacturers rather than solely
with one proprietary card.
The GPS product line is in the beta testing stage, and it is anticipated
that production units will be available by the first quarter of 1999. Paradigm
intends to be the first company to be licensed under a unique broad-based
patent, which covers transmission of GPS coordinates via any cellular network.
The patent, which has been issued and upheld in the United States and Australia,
is pending in Canada and Japan. Paradigm has also entered into a joint venture
with the patent holder as the exclusive worldwide licensing agent for the
patent. We believe that the licensing of existing companies presently infringing
on the patent as well as those who are just entering the market will generate
future recurring revenues.
The Company's principal executive offices are located at 1 Concorde Gate,
Suite 201, Toronto, Ontario, Canada, M3C 3N6; telephone and its telephone number
is (416) 447-3235. The Company was incorporated in Delaware in January, 1996.
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THE OFFERING
Shares of Common Stock Offered 20,428,333
Use of Proceeds Paradigm will not receive any
proceeds from the sale of the
shares by the selling
stockholders, but will receive
proceeds from the exercise of
any of the convertible
debentures. It will use any such
proceeds for working capital and
other corporate purposes.
Risk Factors The shares offered under this
Prospectus involve a high degree
of risk. See "Risk Factors" and
"Business."
Nasdaq Symbol PRAV
Exchange Rate Any monetary amounts provided
by Paradigm in Canadian dollars
have been converted to U.S.
dollars at the exchange rate of
U.S.$1.00 = $1.5321 Canadian,
the rate prevailing on November
24, 1998.
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RISK FACTORS
Investing in Paradigm's Common Stock is very risky. You should carefully
consider the following factors and other information in this prospectus before
deciding to invest in the shares. If you are not in a financial position to bear
a complete loss of your investment, you should not purchase any of
the shares.
Limited Operating History, Historical Operating Losses
Paradigm is subject to risks associated with early stage companies
including, among others, start-up losses, uncertainty of revenues, absence of
current profitability and the need for additional funding. Since our inception,
we have had limited operations, no revenues and have incurred cumulative losses
to September 30, 1998 are $4,114.544. We have also made few product sales. Due
to our history of operating losses, we may never be successful in addressing
such risks or achieving product sales and, therefore, may never become
profitable. See "Management's Discussion and Analysis or Plan of Operation" and
the Financial Statements and Notes thereto.
Fluctuations in Quarterly Results of Operations
Paradigm's results of operations will continue to vary significantly and
will be highly dependent on the timing of product introductions and
enhancements, 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. Our current and future expenses are
based on our operating plans and sales forecasts, and estimates of future
revenues are, to a large extent, fixed. Accordingly, we may be unable to adjust
spending quickly enough to compensate for any unexpected revenue shortfall and
may, therefore, experience material and adverse fluctuations in results of
operations on a quarterly or annual basis. Any significant shortfall in revenues
in relation to our planned expenditures would seriously harm our business,
financial condition and results of operations. In addition, from time to time,
we may make certain pricing, product or marketing decisions as a strategic
response to changes in the competitive environment. Such changes could result in
significant expenditures that could seriously decrease our results of
operations. 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
"Management's Discussion and Analysis or Plan of Operation."
Dependence on Current Management and Future Availability of Qualified Personnel
Our performance depends significantly on the continued services of our
senior management, including David Kerzner, Paradigm's founder, President and
Chief Executive Officer, Selwyn Wener, Chief Financial Officer, and Clifford
Richler, Vice President, and upon our 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 as a result of the time and effort that would be required to
familiarize any new management with Paradigm's operations and to implement
Paradigm's business plan. We believe that our future success will depend in a
large part upon our 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 we cannot
be certain that we will be able to continue to attract and retain personnel who
possess the skills and experience necessary to meet our needs. The Company
maintains no "key man" insurance on any of its officers or directors. Mr.
Kerzner and Mr. Richler both have consulting agreements with the Company that
contain non-competition covenants and confidentiality and non-solicitation
provisions, among others. See "Management" and "Executive Compensation -
Employment Agreements."
Possible Volatility of Stock Price
The stock market has experienced extreme price and volume fluctuations
that have particularly affected the market prices of equity securities of many
high technology and emerging growth companies in a manner unrelated to or
disproportionate with the operating performance of such companies. The market
for stocks of companies with smaller amounts of capital like ours can be subject
to greater price volatility than the stock market in general These market
fluctuations may adversely affect the price of the Common Stock. In addition,
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factors such as announcements of the introduction of new or enhanced products by
Paradigm or by its competitors and quarter-to-quarter variations in Paradigm's
results of operations may have a significant impact on the market price of the
Common Stock. See "Price Range of Common Stock and Dividend Policy."
Potential Effect of Future Sales of Common Stock Under Rule 144 or Otherwise
The market price of the Common Stock could drop as a result of sales in
the market of a large number of shares of Common Stock or the exercise of
options for Common Stock., or the perception that such sales or exercise of
options could occur. These factors could also make it more difficult for
Paradigm to raise funds through future offerings of Common Stock. On the date of
this Prospectus, there were 42,710,995 shares of Common Stock issued and
outstanding. Of these shares
o 7,802,217 shares are presently freely tradable, without restriction,
o the shares sold in this offering will be freely tradable, without
restriction, and
o 34,908,778 shares are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities 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 who has satisfied a one-year holding
period may sell restricted securities within any three-month period limited to a
number of shares which does not exceed the greater of (i) one percent of the
then outstanding shares or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Rule 144 also permits
the sale of "restricted securities" by a person who has not been an affiliate of
the issuer and who has satisfied a two-year holding period without any quantity
limitation.
In addition, Paradigm has (i) granted options to purchase a total of
10,493,334 shares of Common Stock. and (ii) issued warrants to purchase a total
of 3,607,111 shares of Common Stock All of these options have vested, but none
have been exercised, as their exercise price is higher than the market value of
the shares. If and when these options are exercised, the underlying shares will
be freely tradable, as Paradigm registered the shares authorized in its 1996
Stock Option Plan under a Registration Statement on Form S-8, which was filed
with the SEC on February 4, 1997. The warrants became exercisable in March 1998,
and the underlying shares will be restricted securities and will become eligible
for sale in the public market subject to the provisions of Rule 144.
Potential Dilutive Effect of Authorized but Unissued Shares of Common Stock
We are authorized to issue 100,000,00 shares of Common Stock. Of such
shares
o 42,710,995 shares are issued and outstanding,
o 11,100,000 shares are reserved for issuance upon the conversion of
the convertible debentures,
o 10,000,000 shares are reserved for issuance upon the exercise of
options granted under Paradigm's 1996 Stock Option Plan; and
o 493,334 shares are reserved for issuance upon the exercise of
other options granted by Paradigm.
Although the Board of Directors currently has no plans to issue any
unissued shares except in connection with the convertible debentures and the
stock options, such issuances and the issuance of any new shares would have the
effect of diluting the interests of current stockholder and purchasers in the
offering. See "Dilution" and "Executive Compensation - 1996 Stock Option Plan."
Limited Prior Market for Common Stock
The Common Stock is quoted on the Nasdaq-OTC Bulletin Board. To date, there
has not been an active market in Paradigm's stock. We do not know the extent to
which investor interest in Paradigm will lead to the development of a liquid
trading market. See "Market for Common Equity and Related Stockholder Matters."
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Risk of being Low-Priced Stock ("Penny Stock")
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include an equity security
registered or approved for registration and traded on a national securities
exchange or quoted on the Nasdaq National Market and an equity security issued
by the issuer that has:
o net tangible assets of at least $2,000,000,
if such an issuer has been in continuous
operation for three years;
o net tangible assets of at least $5,000,000,
if such issuer has been in continuous
operation for less than three years; or
o average revenue of at least $6,000,000 for
the preceding three years.
The Common Stock does not meet these criteria. On April 12, 1996, the
Common Stock was accepted for quotation on the Nasdaq-OTC Electronic Bulletin
Board. From the time of the listing through November 27, 1998, the high and low
bid prices of the Common Stock has been well below the $5.00 level. 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 them to make a special suitability determination of each purchaser and
receive 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 Common Stock and may affect the ability of purchasers to
sell in the secondary markets any of the shares acquired under this Prospectus.
This restricted market, in turn, could have an adverse effect on the valuation
of the Common Stock.
Absence of Dividends
For the foreseeable future, we anticipate retaining our earnings for the
operation and growth of our business, and we do not anticipate paying cash
dividends on our capital stock.
Control by Existing Stockholders
Upon completion of this offering, our directors, officers and greater than
5% stockholders (and their respective affiliates), taken as a group, will
beneficially own approximately 30.3% of the outstanding Common Stock. Certain
principal stockholders are directors or executive officers of the Company. As a
result, these stockholders, acting together, are likely to be able to influence
matters requiring approval by the stockholders of the Company, including the
election of directors and any merger, consolidation or sale of all or
substantially all of Paradigm's assets. In addition, such persons, acting
together may have the ability to control the management and affairs of Paradigm.
Accordingly, this concentration of ownership could seriously harm the market
price of the Common Stock by:
o delaying, deferring or preventing a change in control
of Paradigm;
o impeding a merger, consolidation, takeover or other
business combination involving Paradigm; or
o discouraging a potential acquirer from making a tender
offer or otherwise attempting to obtain control of Paradigm.
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
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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. See "Description of Business"
The GPS tracking products represent new and emerging technology. Rapid
growth is driving the industry to invest in miniaturization. Our patent rights
will help to leverage our ability to make sales. However, many of the large
users of the technology will most likely put up resistance to any attempts to
collect royalties on products that have had some market history. Therefore, the
success of the GPS technology will depend, in part, upon our ability to
effectively market and license the technology.
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. To remain
competitive, we 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 our existing products
obsolete.
Paradigm'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. If we are
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 our results of operations. In particular, the
introduction of new products is subject to the inherent risk of development
delays. Paradigm has experienced product development delays in the past, and
such delays may occur in the future. In addition, due to the uncertainties
associated with Paradigm's emerging market, we may not be able to forecast
product demand accurately or to respond in a timely manner to changing
technologies and customer requirements. See "Description of Business--VideoBank
and GPS products" and "--New Versions of Products."
Competition
The market for video surveillance and GPS tracking systems, including the
Paradigm's software-based system, is highly competitive and is characterized by
pressures to:
o reduce prices,
o incorporate new features, and
o accelerate the release of new products.
A number of companies currently offer products that compete directly or
indirectly with Paradigm's system. Certain of our 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 we do. 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 Paradigm. Although Paradigm considers
its digital software product to be superior in the security industry,
competition in the security industry is expected to develop, increase, and
generally become more intense. As a result, we may not be able to maintain a
competitive position against current or future competitors as they enter the
market in which we compete. We believe that significant competitive factors
affecting this market are:
o depth of product functionality,
o product quality and performance,
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o product price, and
o customer support.
In the event that competition significantly increases, competitive
pressures could cause Paradigm to reduce the prices of its products, which could
adversely affect its results of operations. 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 our competitors, including
increased promotion and accelerated introduction of new or enhanced products,
also could reduce our gross margins and have a material adverse effect on our
financial condition or results of operations. Although we believe we have
certain technological and other advantages over our competitors, maintaining
such advantages will require continued investment in research and development
and sales and marketing. In addition, competitors have established and, in the
future, may continue to establish collaborative relationships among themselves
or with third parties, including third parties with whom Paradigm has strategic
relationships, in order to increase the ability of their products to address the
security needs of prospective customers. Accordingly, it is possible that new
competitors or alliances may emerge and rapidly acquire significant market
share. If this were to occur, Paradigm's financial condition or results of
operations could be materially adversely affected. See "Description of
Business--Competition."
Future Capital Needs and Uncertainty of Additional Funding
Paradigm has expended, and will continue to expend in the future,
substantial funds to complete the research and development, manufacturing and
marketing of its products. Paradigm is currently in negotiations to obtain
additional financing to fund its operations. Paradigm anticipates that it will
seek additional funding through public or private sales of its securities,
including equity securities. 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 us. In the event that Paradigm is not able to obtain
additional funding on a timely basis, it 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
Paradigm would otherwise seek to develop, manufacture or market itself. Any of
these actions could reduce Paradigm's market share and competitiveness in the
industry, resulting in a material adverse effect on its financial condition or
results of operations. See "Plan of Operation."
Reliance on Third Party Resellers
A substantial majority of our sales revenues in the future may be derived
from the sale of our products through third parties. Accordingly, we may become
dependent on the continued viability and financial stability of these resellers,
many of which also offer products of several different companies including, in
some cases, products that are competitive with Paradigm's products. Should any
of these resellers elect to discontinue to purchase our products over time or to
provide such products with adequate levels of support, our sales revenues would
decrease causing us to incur potentially significant time and effort to
establish relationships with new resellers. See "Description of Business."
Dependence on Third Parties for Manufacturing and Shipping
Paradigm relies, in part, on independent third parties to manufacture,
install, and ship its finished products. The manufacture of Paradigm's products
primarily consists 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 Paradigm or by a third party acting in accordance with
our specifications. Additional assembly is required when our products are
installed on a computer's hard disk drive, together with the necessary
additional equipment, and sold as a complete video surveillance system. Although
our products do not depend upon any particular or proprietary computer hardware
configuration, and we believe that there are several vendors who can supply the
manufacturing and shipping services required for its products, any significant
failure to establish reliable manufacturing and distribution facilities for the
products on a timely basis could have a material adverse effect on the Company's
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results of operations. In addition, the GPS hand-held hardware products are
manufactured by one manufacturer, Adastra Technologies Inc., a Quebec company.
Adastra designs, builds, packages, and ships the GPS hardware in accordance with
Paradigm's specifications and on a when needed basis. Should Adastra's services
become unavailable for any reason, a portion of Paradigm's business could become
suspended while Paradigm sought such services elsewhere. Such interruption of
work and the time and effort required to develop relations with a new GPS
manufacturer could significantly reduce Paradigm's revenues. See "Description of
Business."
Management of Growth
Presently, we intend to grow our business through internal growth and
collaborations with other surveillance technology companies. In the past, growth
has placed a substantial burden on our managerial, operational, financial and
information systems. Our ability to increase sales and remain competitive
depends upon our ability to:
o obtain capital to fund research and development,
o manage costs,
o adapt our infrastructure and systems to accommodate
growth, and
o recruit and train additional qualified personnel including
- software, technical and development engineers, and
- managerial, sales, marketing and operations personnel
Competition for such personnel is intense, and there is no certainty that
we will be successful in attracting and retaining such personnel. Our success
depends to a significant extent on the ability of our executive officers and
other members of senior management to respond to these challenges effectively
and to take necessary measures in a timely manner. Our inability to manage
growth effectively could have a material adverse effect on the our business,
results of operations and financial condition.
Limited Protection of Proprietary Technology
We regard our software technology as proprietary and attempt to protect it
under copyright, trademark and trade secret laws as well as through contractual
restrictions on disclosure, copying and distribution. We distribute individual
copies of our software under a "shrinkwrap" license agreement containing these
restrictions and generally do not obtain signed license agreements from our end
users. Although the enforceability of shrinkwrap licenses is not well
established, we are not aware of any third parties that are making unauthorized
use of our proprietary technology. However, it may be possible for unauthorized
third parties to copy our products or to reverse engineer or obtain and use
information that we regard as proprietary. The steps that we take to protect our
proprietary rights may not be adequate, and third parties may infringe or
misappropriate our copyrights, trademarks and similar proprietary rights. In
addition, the laws of certain countries in which our products are or may be
distributed do not protect our products and intellectual property 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, we believe that software will increasingly become the
subject of claims of infringement on the rights of others. To date no third
party has filed an infringement claim against Paradigm, and there have been no
explicit threats of litigation asserting that our products infringe someone
else's intellectual property rights. If an infringement claim is asserted
against us, we may be required to participate in costly litigation or to obtain
a license to continue to use the intellectual property in question. The failure
of the Paradigm to obtain any such licenses on reasonable terms or to avoid
infringement litigation would cause us to incur a large expense that could be
extremely detrimental to the our business. See "Description of Business."
Risk Associated with the Year 2000
The Year 2000 issue arose from computer programs which were written using
two digits rather than four to define the applicable year. For example,
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date-sensitive software may recognize a date using "00" as the Year 1900 rather
than the Year 2000. Such misrecognition could result in system failures or
miscalculations causing disruptions of operations, including, among others, a
temporary inability to process transactions, send invoices or engage in similar
normal business activities.
We rely on our systems in operating and monitoring all aspects of our
business. We also rely on the external systems of our manufacturers, suppliers
and third-party resellers. We have begun to identify all of our significant
internal software applications which contain source codes that may be unable to
appropriately interpret the Year 2000 and have already begun to fix or replace
those applications. We have determined that our accounting system is Year 2000
Complaint. Management believes that the estimated costs to modify or replace any
other systems before the Year 2000 are not significant.
In addition, we have asked our major suppliers, manufacturers and
third-party resellers about their progress in identifying and addressing
problems related to the Year 2000. Certain of these companies have informed us
that they do not anticipate problems in their business operations due to Year
2000 compliance issues. We are currently unable to determine the extent to which
Year 2000 issues will affect our other suppliers, manufacturers or third-party
resellers or the extent to which we would be vulnerable to their failure to fix
any of their Year 2000 problems.
USE OF PROCEEDS
Paradigm will not receive any proceeds from the sale of the shares by the
selling stockholders.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
On April 12, 1996, the Common Stock was approved for quotation on the
Nasdaq Over-the-Counter Electronic Bulletin Board under the symbol "PRAV." Prior
to that date, there was no public market for the Common Stock. The following
table sets forth the range of high and low closing representative bid prices of
the Common Stock for each quarter from April 12, 1996 through September 30, 1998
(as reported by Nasdaq), which represent inter-dealer prices, without retail
mark-up, mark-down or commission and may not reflect actual transactions.
Fiscal Year Ended December 31, 1996 High Bid Low Bid
- ----------------------------------- -------- -------
Second Quarter Ended June 30, 1996
(from April 12, 1996) $0.1845 $0.1562
Third Quarter Ended September 30, 1996 $0.2915 $0.1710
Fourth Quarter Ended December 31, 1996 $0.4375 $0.125
Fiscal Year Ended December 31, 1997
- -----------------------------------
First Quarter Ended March 31, 1997 $0.375 $0.125
Second Quarter Ended June 30, 1997 $0.25 $0.0625
Third Quarter Ended September 30, 1997 $0.40625 $0.125
Fourth Quarter Ended December 31, 1997 $0.22 $0.11
Fiscal Year Ended December 31, 1998
- -----------------------------------
First Quarter Ended March 31, 1998 $ $
Second Quarter Ended June 30, 1998 $ $
Third Quarter Ended September 30, 1998 $ $
As of November 24, 1998, there were 56 holders of record of the Common
Stock. Paradigm 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
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future. Paradigm 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 possible restrictions of Paradigm's
lenders.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion contains forward-looking statements and
projections. Because these forward-looking statements and projections are based
on a number of assumptions and are subject to significant uncertainties and
contingencies, many of which are beyond Paradigm's control, there is no
assurance that they will be realized, and actual results may vary significantly
from those shown.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1998 Compared to Nine Months Ended
September 30, 1997
The Company recorded revenue of $23,465 for the nine months ended
September 30, 1998 as compared to sales of $533,967 for the nine months ended
September 30, 1997. The Company's only revenue for the nine months ended
September 30, 1998 comprised the sale of a portion of the VideoBank software
rights to a third party. Most of the sales for the prior year arose from a one
time barter sale which was recorded in the first quarter of the 1997 fiscal
year. The Company was unable to recover the proceeds of this sale and credited
the sale in the fourth quarter of the 1997 fiscal year.
Selling, General and Administrative Expenses for the nine months ended
September 30, 1998 were $243,060 as compared to $83,524 for the nine months
ended September 30, 1997. This decrease is due to the closing of the California
office in September 1997 and a reduction in staff due to the outsourcing of
research and development activities.
The net loss before extraordinary items for the nine months ended
September 30, 1998 was $236,942 as compared to a loss of $656,256 for the nine
months ended September 30, 1997. The loss for 1998 is due to the lack of
revenue, as the Company was not able to recover most of its expenses.
Fiscal Year Ended December 31, 1997 Compared to Fiscal Year Ended
December 31, 1996
During the year ended December 31, 1997, the Company's sales totaled
$47,468 as compared to $55,689 for the year ended December 31, 1996. Most of the
sales are attributable to sale of VideoBank and individual hardware items. As a
result of a shortage of funds, the Company closed its office in California in
September 1997 and significantly reduced all its operations
The Company recorded a gross loss of $306,470 for the year ended December
31, 1997 as compared to gross profit of $7,806 for the year ended December 31,
1996. The gross loss is due to the write off of all inventories as they were
considered to have no realizable value.
The Company had a net loss of $1,512,215 for the year ended December 31,
1997 as compared to a loss of $1,435,387 for the year ended December 31, 1996.
The losses are attributable to the write off of irrecoverable receivables and
inventories in the fourth quarter of 1997 and product development, start-up
expenses and marketing expenses incurred in 1996 and the first nine months of
1997. It is anticipated, however, that there will be a steady decline in losses
in future quarters.
Liquidity and Capital Resources
The Company had cash on hand and in trust of $36,551 at September 30,
1998. In order to finance future operations, the Company needs to raise
additional funds through the issue of additional shares and debt.
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Plan of Operation
The Company's efforts continue to center on the development and
distribution of its Global Positioning Satellite tracking devices and VideoBank
and VideoBank-Remote video surveillance products. 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 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 as the Company's warehouse and production facility
requirements are minimal. The Company may increase the number of its employees
as it continues to grow and further solidifies and consolidates its distribution
networks.
The Company intends to raise additional funds on an as-needed basis to
finance its future activities through the issuance and sale of additional shares
of stock, the sale of new products and assumption of additional debt.
Purchase of 1280884 Ontario Inc.
In February 1998, the Company acquired all the shares of 1280884 Ontario
Inc. and its wholly owned subsidiary North York Leasing Inc. The Company issued
3,720,000 Common Shares to the vendors of these companies at a price of 25 cents
per share representing a cost of $930,000 and is required to issue additional
shares to these vendors if during any one consecutive 60 day trading period
between April 1998 and February 1999, the average closing price of the Company's
shares is less than 25 cents, so that the total consideration is the equivalent
of $930,000. The Company has instituted legal action against the legal firm that
represented the other parties in the above transaction and that was the escrow
agent for the above shares and is claiming that these shares be canceled and
that damages be paid to the Company.
The Company sold the above companies in June 1998 to an unrelated party for
a nominal sum. Under the terms of the purchase agreement, the purchaser and the
secured creditors of 1280884 Ontario Inc. and North York Leasing Inc. granted
the Company a full release from all its commitments concerning 1280884 Ontario
Inc. and North York Leasing Inc. The Company wrote off its investment in 1280884
Ontario Inc. and North York Leasing Inc. at the end of March 1998.
DESCRIPTION OF BUSINESS
General
Paradigm Advanced Technologies, Inc. ("Paradigm" or "We") is a development
stage company incorporated in Delaware on January 12, 1996 that was formed to
capitalize on the need for digital image and interactive GPS tracking technology
in North America and abroad. Paradigm has essentially three sources of revenue
which include the sale of GPS products, the licensing of users of the
GPS/CELLULAR technology under the patent described below, and the sale of
VideoBank products. On its date of incorporation, Paradigm 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.
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Our VideoBank products current include 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. In addition, Paradigm has GPS tracking technology for
personal tracking as well as for vehicular tracking purposes. We believe that
these products represent improvements over existing video surveillance and GPS
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.
Our present strategy is to aggressively market and promote the existing
versions of the VideoBank and GPS products, and simultaneously to continue
developing the proprietary upgraded versions of these products. Our products
generally compete with hardware-based or videotape-based video surveillance
products, and, therefore, we intend to use our marketing and advertising efforts
to increase awareness of the advantages of its software-based system. We believe
that demand for GPS tracking systems will be driven by factors such as: the
expanding demand for GPS products for use in commercial fleets as well as the
consumer markets for safety and security. In addition, the trend is now veering
towards GPS/Cellular usage verses RF transmissions, which was traditionally used
in the past.
The specific GPS and digital image products presently being developed are as
follows:
"R-2" is a vehicle or personal security device that enables instant
transmission of a location to a central monitoring station or
personal computer via the Internet. A person's position can be
tracked on a panic or alarm initiated transmission, accurate to
within 2-5 meters, instantly available at the monitoring station
through the use of GPS satellites. The system is also designed as a
management tool that can archive the whereabouts of a vehicle or
individual on an ongoing basis;
"VideoBank DVR" is a fully integrated software program, which will
record, store and playback full motion, high-resolution color images
in the same fashion as a time-lapse VCR (videocassette recorder for
security applications). The software will allow for remote viewing of
video images stored in the VideoBank, as well as for the transmission
of images over various types of communication mediums such as,
standard telephone lines, ISDN, Cellular, T1, ADSL, and Satellite.
The market for security products in general is very strong and is not
periodic or cyclical in its growth patterns. Growth has averaged over 8% for the
past 10 years. However, the GPS market has experienced enormous growth. The
Strategis Group of Washington D.C. predicted in 1997 that revenues from five
wireless location applications have the potential to exceed $8 billion per year
in a mature market. The five wireless location applications identified are
information and emergency services, automobile tracking, vehicle location for
fleets, child location and asset tracking. U. S. manufacturers own approximately
75% of the worldwide market share. The market size has almost quadrupled from
1993 when it stood at $510 million. Sales of GPS receivers are expected to reach
$9.6 billion by the year 2000. The market for GPS over cellular technology is
estimated at $8.5 billion by the year 2005.
Demand is very strong and the VideoBank and GPS line of products are
expected to be one of the first digital recording and transmission devices with
GPS tracking capabilities to reach this fertile market. Recent breakthroughs,
involving the introduction of "Wavelet" compression algorithms allowing for
significantly faster transfer speeds, and proprietary correcting algorithms,
will springboard the company into vertical markets that until now were not
technologically viable. The ability to tap pent-up demand will allow for instant
market penetration.
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Paradigm has strategic relationships with highly skilled engineering firms.
The research and development carried out by these firms is a key strategy to
gain and maintain market share. To stay ahead of the game, improved video
compression techniques and increased functionality will continue to be
developed. Our software engineering contractors are comprised of some of the
leading experts in video compression algorithms and microprocessor based
technology.
GPS Patent and Licensing Rights
Paradigm intends to be the first company to be licensed under a unique
broad-based patent, which covers transmission of GPS coordinates via any
cellular network. The patent which has been issued and upheld in the United
States and Australia is pending in Canada and Japan. Based on preliminary
research, Paradigm believes that over 50 companies are currently using the
technology covered under the patent.
Paradigm has also entered into a joint venture with the patent holder as
the exclusive worldwide licensing agent for the patent. Revenues will be
generated by licensing existing companies presently infringing on the patent as
well as those who are just entering the market.
Manufacturing and Engineering Agreements
Engineering and manufacturing of the our VideoBank software is being
supplied by Enhanced Video Systems based in Vancouver, British Colombia which
will provide the VideoBank software with great improvement in compression
techniques, enhancing the products performance significantly. The Company
anticipates that its new versions of VideoBank with the new compression
algorithm will be ready for market in the first quarter of 1999 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 GPS product line is currently being engineered and manufactured by
Adastra, Inc. based in Montreal, Quebec, pursuant to a subcontracting Agreement.
The products are now ready for beta testing and it is anticipated that
production units will be available by the first quarter of 1999.
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, we believe 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. Paradigm 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
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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 our knowledge, most of its
competitors in the marketplace for video surveillance security systems offer
systems that are based on proprietary hardware or equipment. See "Description of
Business --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 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
Paradigm 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 1999. Paradigm 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
Paradigm'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,
Hymatom 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 our knowledge, none of our competitors have developed a software-based
product with the capabilities of VideoBank. We also believe that we can offer
our products for substantially lower prices than those of our competitors
because of the system's non-proprietary hardware specification and the
availability of the bundled hardware/software system incorporating equipment
that we or the user can purchase at a volume discount.
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GPS "R2" Vehicle Safety System
The R2 vehicle safety system has been designed to provide real-time
warning and recording of an automotive and/or driver unsafe condition along with
location, real-time recovery and two-way communication capabilities for a wide
variety of applications. All the relevant date, together with position, time,
date and real time velocity may be either automatically transmitted to one or
more control centers located at various selected geographical locations, or
stored in memory for eventual download and replay. Multiple control centers can
be connected in a network with full information exchange capability.
Precision in establishing position is obtained utilizing the
information provided by the Navstar GPS (Global Positioning System) satellite
system and a proprietary signal-processing algorithm to further enhance the
precision.
GPS provides world-wide coverage; it delivers latitude, longitude.
The GPS system falls under the regulatory arm of the US military, the Department
of Defense, and for national security purposes, the signal is purposely degraded
to within 100 meters accuracy. To counter that problem, an error-correcting
algorithm developed by Paradigm's contractors improves GPS accuracy levels to
within +2 to + 5 meters.
Geofencing
The R2 can be programmed to operate within a certain perimeter or
pre-programmed route. This will allow a user to report by exception for
pre-determined alert criteria. For example an armored vehicle can have a set
route. If the vehicle would be re-routed for any reason, the unit would report
back its exact location.
The R2 vehicle safety system CPU (central processing unit) processes
the information provided by the sensors, provides an alert signal for unsafe
conditions and transmits the relevant information to either a monitoring station
or to a storage unit for later review. Using the R2 safety system hardware and
software components, a virtually unlimited number of vehicles and individuals
can be tracked simultaneously.
Each remote unit is serialized with a unique identity code that is
transmitted at the beginning of each message to provide the monitoring station
the information to distinguish one mobile unit from another.
Optional Features
R2 pilot projects, which are expected to begin in the first quarter
of 1999, are designed to be full featured, with the ability to carry out
numerous tasks. This will help the companies testing the units to decide which
features and functions are really necessary for their applications. The
following outlines some of these features:
Driver Display
A driver display unit will be able to provide the operator with
feedback about any unsafe condition on a LCD display with an audio and visual
warning. The driver display provides a warning to the driver for each of the
following conditions:
a) Excessive speed ("Speed");
b) Excessive safety distance ("Safety Distance");
c) Faulty brakes ("Brake Fail");
d) Excessive temperature ("Overtemperature")'
e) Seat-belts ("Seat Belts"); and
f) Off route ("Route Error")
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The fixed, in-vehicle units can be equipped with a battery as an option for
backup and a belt clip mounting cradle is available for a portable unit to allow
personal use as well.
Paradigm will also market communications server and graphic
workstation/commercial software to consumer, industrial and governmental users.
The R2 vehicle safety system product line currently provides the following
additional applications:
Vehicle Theft Protection. Upon receipt of an alarm from a vehicle
installed with the system, the monitoring station receives a signal that
automatically displays the precise position and identification of the vehicle.
This data is displayed on a computer-generated map of the area which is used by
the monitoring personnel to advise the police, or the appropriate authority, of
the exact vehicle position, direction of travel and approximate speed.
Personal Security. The R2 vehicle safety system incorporates a driver
accessible panic button, which allows the driver to discreetly communicate an
emergency message to the monitoring station in the event of a crisis. As a
result, assistance can be summoned in a short period of time. The display
mapping software allows the presentation of all the unsafe conditions
superimposed on street or rural road maps, as appropriate. If the monitoring
station receives an unsafe condition report, the position of the user is
displayed on the relevant map. If the appropriate map is not currently
displayed, a new window will be opened showing the correct map with the new user
centered in the map window. If the user moves, the map display will
automatically pan so that the user is always visible in the map window. In the
event of an emergency, the monitoring station operator can access an unsafe
condition and pop-up a window which displays from the database all of the
information relation to that vehicle. The monitoring station operator can zoom
in and out on the map to display more or less detail. In addition, the map
window can be resized to show more or less area at the same detail level. Print
and/or fast fax capabilities are provided.
Medical Emergency. The R2 vehicle safety system has the ability to report
a drivers physical emergencies to the monitoring service so that immediate help
can be sent to the driver of the vehicle.
Roadside Assistance. Less dramatic but equally important is the ability of
summoning roadside assistance in the event of a mechanical breakdown.
Competing Products. Paradigm has reviewed published reports concerning
competing products developed by companies such as Ford Motor Company, Rockwell
International, ATX Research, Prince-Sky Tel AutoLink and General Motors. It
appears from data collected on these products, that the systems are larger, less
flexible and more expensive than Paradigm's products. Paradigm monitors the
competitive products on a regular basis and is continuously being updated.
Personal Tracking - Portable Unit. The R2 vehicle safety system is a
system that has been designed with a powerful communications platform. This
platform has the ability to monitor over 120 features, which will be available
to consumers, industrial and governmental users on a custom basis. The add-on
service area will provide the greatest potential for growth of the R2 vehicle
safety system's product lines because it can be configured to the need of the
user. The add-on services are covered in an appendix. As an example of these
services, the R2 vehicle safety system has the platform to support a medical
patient cardiovascular monitor for biomedical analysis.
There is a vast market potentially available for this product. Between 2
and 3 million Americans have heart conditions, and 400,000 new cases are
diagnosed each year. Heart failure causes more than 38,000 deaths a year and is
a contributing factor in another 225,000 deaths. The death rate attributed to
heart failure has doubled since 1968, in contrast to a greater than 50 percent
decrease in coronary disease mortality during the same period. More people are
living longer. People aged 65 and older represent the fastest growing segment of
the population, and the risk of heart failure increases with age.
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The need for portability and the capability of supporting biomedical
communication will make the R2 personal system's platform a powerful tool in
saving lives.
Regulatory Matters
To the our knowledge, there are no existing or probable government
regulations that will have an effect on our 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. We know of no existing or
probable government regulations that either do or may affect our right to
distribute, sell, manufacture, or otherwise deal with digital video surveillance
security systems.
Employees
As of November 24, 1998, Paradigm employed 3 on a full-time basis and 3
people on a temporary or part-time basis. Additionally, Paradigm conducts its
engineering and manufacturing efforts through contractual arrangements. Sales
representation will mostly be carried out through large system integrators who
have their own sales and technical staff to support the products. None of
Paradigm's employees is represented by a labor union or is subject to a
collective bargaining agreement. Paradigm considers its relations with its
employees to be good.
Description of Properties
Paradigm's executive offices are located in 1,200 square feet of office
space in Toronto, Ontario, Canada, which is leased by Paradigm on a monthly
basis at a rental rate of $1,305. Paradigm believes that its facilities are
adequate for its needs and that alternative or additional space will be
available as required.
Legal Proceedings
Purchase of 1280884 Ontario Inc.
In February 1998, the Paradigm acquired all the shares of 1280884 Ontario
Inc. and its wholly owned subsidiary North York Leasing Inc. Paradigm issued
3,720,000 Common Shares to the vendors of these companies at a price of 25 cents
per share representing a cost of $930,000 and is required to issue additional
shares to these vendors if during any one consecutive 60 day trading period
between April 1998 and February 1999, the average closing price of the Common
Stock is less than 25 cents, so that the total consideration is the equivalent
of $930,000. Paradigm has instituted a legal action against the legal firm that
represented all the parties in the above transaction and that acted as escrow
agent for the above shares and is claiming that these shares be canceled and
that damages be paid to Paradigm. No provision has been made for the issue of
any additional shares to the vendors of these companies.
Where You Can Find More Information
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and copy
any document we file at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.
Paradigm 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 in this Prospectus. Written or oral requests for such
copies should be directed to: Selwyn Wener, Chief Financial Officer, Paradigm
Advanced Technologies, Inc., 1 Concorde Gate, Suite 201, Toronto, Ontario,
Canada, M3C 3N6; telephone (416) 447-3235.
We intend 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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DILUTION
We are authorized to issue 100,000,000 shares of Common Stock. Of such
shares 42,710,995 shares are issued and outstanding, 11,000,000 shares are
reserved for issuance upon the conversion of the convertible debentures,
10,000,000 shares are reserved for issuance upon the exercise of options granted
under Paradigm's 1996 Stock Option Plan and 493,334 shares are reserved for
issuance upon the conversion of other options.
In many cases, the officers, directors and present stockholders of
Paradigm have acquired their shares at a cost substantially lower than that
which investors will pay for the Common Stock offered hereby. In addition,
Paradigm is obligated to issue a substantial number of shares upon the exercise
of convertible debentures and stock options granted under its 1996 Stock Option
Plan. As a result, anyone purchasing shares in this offering could incur
substantial dilution in the net tangible book value per share. See "Risk Factors
- - Dilutive Effect of Unissued Shares" and "Executive Compensation - 1996 Stock
Option Plan."
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table contains information concerning Paradigm's executive
officers and directors. There are no other promoters or control persons:
Name Age Position
- ---- --- --------
Jack Y. L. Lee* 48 President and Chief
Executive Officer,
Secretary-Treasurer, and
Director
David Kerzner 38 President and Chief
Executive Officer,
Secretary and Director
Clifford Richler 47 Vice President of Marketing
and Sales
Selwyn Wener 48 Chief Financial Officer
Jacob Kerzner 40 Director
The following is a brief description of the professional experience and
background of the directors and executive officers of Paradigm.
*Jack Y. L. Lee: resigned as CEO, CFO and Secretary on December 29, 1997.
Mr. Lee had served as the Chief Executive Officer, Treasury-Secretary and a
director of Paradigm 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 Charted 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 Paradigm since its founding and took over as Chief Executive Officer in
January 1998 from Mr. Jack Lee who resigned at that time. 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. Mr. Kerzner is the brother of Jacob Kerzner, a director of
Paradigm.
Mr. Clifford Richler: Mr. Richler was appointed Vice President of Marketing
and Sales of Paradigm on March 15, 1998. Mr. Richler has been the President and
CEO of Network Franchising International, an independent franchise consulting
and marketing firm since 1980. Mr. Richler has also served as Vice President of
Print Three Corporation from 1986-1994.
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<PAGE>
Mr. Selwyn Wener: Mr. Wener was appointed Executive Vice President and
interim Chief Financial Officer of Paradigm on February 1, 1998. Mr. Wener has
been the Principal of S&L Associates, a financial services and investor
relations consulting firm since 1994. Mr. Wener was the Chief Financial Officer
for SoftQuad International Inc., a public development company, from 1994 to 1997
and Chief Financial Officer and General Manager for Legacy Storage Systems Inc.,
a computer disk storage manufacturer and distributor from 1989 to 1993. Mr.
Wener has a Chartered Accountant (CA) certification from South Africa where he
was a partner in a medium sized firm of chartered accountants.
Jacob Kerzner: Mr. Kerzner has served as the a director of Paradigm since
its inception on January 12, 1996. 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, Paradigm's President and Chief
Executive Officer.
EXECUTIVE COMPENSATION
Directors' Compensation
Our policy is not to pay compensation to directors who are also employees
of Paradigm for their service as directors. Non-employee directors do not
presently receive compensation for their service as directors, either. Paradigm
will, however, reimburse directors a fixed amount for out-of-pocket expenses
incurred for attendance at meetings.
Summary Compensation Table
The following table sets forth the compensation earned by the Company's
Chief Executive Officer during the fiscal year ended December 31, 1997. No other
named executive officer's annual salary and bonus exceeded $100,000
Annual
compensation Shares of Common
Name and principal ------------------- Stock Underlying
position Year Salary Bonus options/SARS
- --------------------- ---- ------ ----- ----------------
Jack Y. L. Lee* 1997 $66,600 $0 0
Chief Executive Officer 1996 $66,000 $0 1,875,000
and Secretary-Treasurer
David Kerzner 1997 $100,000 $0 0
President, Chief 1996 $ 75,000 $0 3,187,500
Executive Officer and
Secretary
- ---------------
*Jack Lee resigned as CEO, CFO and Secretary on December 29, 1997.
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<PAGE>
Stock Option Grants in Last Fiscal Year
No stock options were granted to the named executive officer during the
December 31, 1997.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End
Option/SAR Values
Value of Unexercised In-the-
# of Unexercised Options Money Options at Fiscal
at Fiscal Year-End Year-End
Name and ------------------------ -----------------------
principal position Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ----------- ------------- ----------- -------------
Jack Y. L. Lee* 1,985,334 0 $99,266.70 0
Chief Executive
Officer and
Secretary-Treasurer
David Kerzner 3,187,500 0 $159,376 0
President, Chief
Executive Officer
and Secretary
Employment Agreements
In February 1996, Paradigm entered into a ten-year consulting agreement,
with David Kerzner, President of the Company. The consulting agreement provided
for a fee of $75,000 in 1997, but Mr. Kerzner was due $100,000 total. The
additional $25,000 was accrued at the end of 1997, and, therefore, the total
consulting fee payable to Mr. Kerzner for 1997 was $100,000. Effective May 1,
1998, Mr. Kerzner's remuneration was changed to 75,000 per year. Mr. Kerzner was
paid a consulting fee and was not on Paradigm's payroll. The consulting
agreement may be terminated early by Paradigm in the event of the resignation,
death or disability or other incapacity of Mr. Kerzner, as the case may be. The
consulting agreement also contains provisions regarding confidentiality of
information, ownership of inventions and patents, non-competition and
non-solicitation. Mr. Kerzner is eligible to receive a bonus upon the approval
of the Board of Directors.
The Company entered into an employment agreement with Mr. Jack Lee in
February 1996, pursuant to which was to be paid an annual fee of $66,600. When
Mr. Lee resigned as CEO, Secretary-Treasurer and director of the Company on
December 29, 1997, no further fees were payable to him.
Paradigm entered into a consulting agreement with Sarah Casse, dated
January 12, 1996. Ms. Casse serves as a marketing, business, and technological
consultant to Paradigm. The agreement grants Ms. Casse the option to purchase up
to 1,875,000 shares of Common Stock as compensation for her services at an
exercise price of $0.05 per share.
In March 1998, Paradigm entered into an agreement with Clifford Richler to
oversee its marketing, licensing and sales functions. Mr. Richler is paid an
annual fee of $78,324 for the term of the agreement.
In February 1998, Paradigm entered into an agreement with Selwyn Wener to
oversee its operations, financial reporting, and investor and public relations
functions as Executive President. Mr. Wener also assumed the functions of
interim Chief Financial Officer. Mr. Wener receives an annual fee of $65,268.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, MANAGEMENT AND
SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the outstanding Common Stock of Paradigm before and after this
offering by (i) each director, (ii) each executive officer, (iii) all five
percent (5%) stockholders of the Company, (iv) all directors and officers as a
group and (v) the selling stockholders. It also includes the number of shares
that 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
Paradigm 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 Paradigm.
Amount and # of # of Shares Percent of
Nature Shares Beneficially Class (2)
Officers, Directors of Beneficial to Owned Before After
and 5% Stockholders Ownership(1) be Sold After Offering Offering Offering
- ------------------- ------------- ------- -------------- -------- --------
David Kerzner,
President & CEO
663 Glencairn Ave.
Toronto, Ontario
M6B 1Z8 6,525,000(3) 3,000,000(4) 3,525,000 14.2% 7.7%
Selwyn Wener, CFO
34 Braeburn Drive
Thornhill,
Ontario L3T 4W6 1,000,000(5) 0 1,000,000 2.3% 2.3%
Clifford Richler,
Vice President
37 Wild Briar Way
Toronto, Ontario
M2J 2L3 2,500,000(6) 0 2,500,000 5.7% 5.7%
Jacob Kerzner,
Director
148 Faywood Blvd.
Downsview,
Ontario M3H 2W7 1,975,000(7)(8) 1,000,000(8) 975,000 4.6% 2.3%
C-SAW Investments
80 Broad Street,
26th Floor
New York, NY 10004 4,400,000(9) 4,250,000 250,000 10.3% *
Sarah Casse
63 Otter Crescent
North York
Ontario M5N 2W7 3,350,000(10) 0 3,350,000 7.5% 7.5%
Mendel Raskin
338 Crown Street
New York, NY 11225 3,333,360(11) 0 3,333,360 7.5% 7.5%
BRE Investments &
Consulting, LLC 2,500,000 2,500,000 0 5.8% 0%
Barrett R. Evans 2,500,000 2,500,000 0 5.8% 0%
All Directors and
executive officers
as a group (4
persons 12,000,000(4)(8) 4,000,000(4)(8) 8,000,000 24.8% 16.5%
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<PAGE>
Amount and # of # of Shares Percent of
Nature Shares Beneficially Class (2)
Officers, Directors of Beneficial to Owned Before After
and 5% Stockholders Ownership(1) be Sold After Offering Offering Offering
- ------------------- ------------- ------- -------------- -------- --------
Selling Stockholders
- --------------------
BRE Investments &
Consulting LLC See Officers, Directors and 5% Stockholders above
Barrett R. Evans See Officers, Directors and 5% Stockholders above
C-SAW Investments, Ltd. See Officers, Directors and 5% Stockholders above
Eastern Investments 1,100,000 1,100,000 0 2.6% 0%
Alexander Guttman 1,250,000 1,250,000 0 2.9% 0%
1284936 Ontario Inc. 500,000 500,000 0 1.2% 0%
Samuel L. Olan 300,000 300,000 0 * 0%
Jennifer Weinberger 110,000 110,000 0 * 0%
SBK Consultants 200,000 200,000 0 * 0%
Erin Ostfeld 110,000 110,000 0 * 0%
Eve Kerzner(12) 2,000,000 2,000,000 0 4.7% 0%
Billy Gonzalez 200,000 200,000 0 * 0%
David Scheinfeld 200,000 200,000 0 * 0%
Kato Krauss 100,000 100,000 0 * 0%
Aaron Apelbaum 500,000 500,000 0 1.2% 0%
Aaron Braun 300,000 300,000 0 * 0%
Kerzner Family
Trust(13) 1,000,000 1,000,000 0 2.3% 0%
Enchanced Video
Systems 625,000 625,000 0 1.5% 0%
Iwatch Communications
LLC 1,000,000 1,000,000 0 2.3% 0%
Joseph Lebovics 83,333 83,333 0 * 0%
Joshua Scheinfeld 600,000 600,000 0 1.4% 0%
Selling Stockholder
Total: 20,428,333
- -------------------------------
* Less than 1%.
(1) Under SEC rules, beneficial ownership includes any shares as to which an
individual has sole or shared voting power or investment power. Unless
otherwise indicated, Paradigm believes that all persons named in the table
have sole voting and investment power with respect to all shares of Common
Stock beneficially owned by them. A person is also deemed to be the
beneficial owner of securities that can be acquired by such person within
60 days from the date hereof upon the exercise of warrants or options.
Each beneficial owner's percentage ownership is determined by assuming
that options or warrants that are held by such person and which are
exercisable within 60 days from the date hereof have been exercised.
(2) Based on 42,710,995 shares outstanding as of November 24, 1998.
(3) Includes 3,187,500 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(4) Includes 200,000 shares owned by Mr. Kerzner's wife.
(5) Represents shares of Common Stock issuable upon the exercise of presently
exercisable stock options.
-24-
<PAGE>
(6) Includes 1,000,000 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(7) Includes 562,500 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(8) Includes 1,000,000 shares owned by the Kerzner Family Trust.
(9) Includes 4,250,000 shares of Common Stock purchased by such person in a
private placement concluded on July 15, 1998.
See "Certain Transactions."
(10) Includes 1,875,000 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(11) Includes 1,666,680 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(12) Eve Kerzner is the wife of David Kerzner.
(13) Jacob Kerzner is the Trustee of the Kerzner Family Trust.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 12, 1996, Paradigm 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 Paradigm's directors and officers were participants in
the Joint Venture and as a result received shares of Common Stock in the
transaction. Paradigm's former Chief Executive Officer, Jack Y. L. Lee received
1,875,000 shares (including 500,000 shares in trust), and Paradigm's current
President and Chief Executive Officer, 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. Finally, Sarah Casse, a principal
stockholder of Paradigm, received 1,375,000 shares of Common Stock in the
transaction.
Mr. Jack Lee advanced $45,076 to Paradigm in April/May 1997 and advanced
$17,500 in July 1997. A promissory note was issued for these amounts in terms of
which the loans are secured by a pledge over all the assets of Paradigm. The
loans are payable on demand and interest is payable on these loans at the rate
of prime plus 4%. (interest rate is effectively 10.75%)
Mr. David Kerzner advanced $50,000 to Paradigm in June 1997. A promissory
note was issued for this amount in terms of which the loan is secured by a
pledge over all the assets of Paradigm. The loan is payable on demand and
interest is payable on these loans at the rate of prime plus 4%. (interest rate
is effectively 10.75%)
Mr. David Kerzner advanced $49,153 to Paradigm in November and December
1997, being the proceeds of shares sold by Mr. Kerzner to private investors.
Paradigm has entered into a Consulting Agreement with David Kerzner under
which he receives an annual fee of $100,000. See "Executive Compensation -
Employment Agreements."
DESCRIPTION OF SECURITIES
General
The authorized capital stock of Paradigm consists of 100,000,000 shares of
Common Stock, $.0001 par value per share, of which 42,710,905 were outstanding
as of November 24, 1998.
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 Paradigm 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 non
assessable.
Warrants
Paradigm has outstanding warrants to purchase an aggregate of 3,607,111
shares of Common Stock, which were issued in connection with the private
placement concluded in March 1996. 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 or
if any stock dividend upon the Common Stock is declared and paid by Paradigm.
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.
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<PAGE>
Antitakeover Provisions
Statutory Provisions. Delaware law contains certain provisions that may
have the effect of delaying, deterring or preventing a change in control of
Paradigm.
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 900 Buchanan Blvd., Suite 1
Boulder City, Nevada 89006.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, there were 42,710,995 shares of Common
Stock issued and outstanding. Of these shares
o 7,802,217 shares are presently freely tradable, without restriction,
o the shares sold in this offering will be freely tradable, without
restriction, and
o 34,908,778 shares are "restricted securities," as that term is
defined under Rule 144 promulgated under the Securities 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 who has satisfied a one-year holding
period may sell restricted securities within any three-month period limited to a
number of shares which does not exceed the greater of (i) one percent of the
then outstanding shares or (ii) the average weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Rule 144 also permits
the sale of "restricted securities" by a person who has not been an affiliate of
the issuer and who has satisfied a two-year holding period without any quantity
limitation.
In addition, Paradigm has (i) granted options to purchase a total of
10,493,334 shares of Common Stock. and (ii) issued warrants to purchase a total
of 3,607,111 shares of Common Stock All of these options have vested, but none
have been exercised, as their exercise price is higher than the market value of
the shares. If and when these options are exercised, the underlying shares will
be freely tradable, as Paradigm registered the shares authorized in its 1996
Stock Option Plan under a Registration Statement on Form S-8, which was filed
with the SEC on February 4, 1997. The warrants became exercisable in March 1998,
and the underlying shares will be restricted securities and will become eligible
for sale in the public market subject to the provisions of Rule 144.
The market price of the Common Stock could drop as a result of sales in
the market of a large number of shares of Common Stock or the exercise of
options for Common Stock., or the perception that such sales or exercise of
options could occur. These factors could also make it more difficult for
Paradigm to raise funds through future offerings of Common Stock.
PLAN OF DISTRIBUTION
Paradigm will receive no part of the proceeds of any sales made hereunder.
See "Use of Proceeds." Paradigm will pay all expenses of registration incurred
in connection with this offering and in connection with the offering and sale of
the Shares, other than commissions, discounts and fees of underwriters, dealers
or agents. All selling and other expenses incurred by the selling stockholders
will be borne by the 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.
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<PAGE>
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.
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 one year after the Shares were issued, provided such date is at least
90 days after the date of this Prospectus.
Paradigm has filed the Registration Statement, of which this Prospectus
forms a part, with respect to the sale of the Shares. There can be no assurance
that the Selling Stockholders will sell any or all of the Shares offered
hereunder.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES
Paradigm is required by its By-laws and Certificate of Incorporation to
indemnify, to the fullest extent permitted by law, each person that it is
permitted to indemnify. Paradigm'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.
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<PAGE>
Section 145 of the Delaware General Corporation Law permits Paradigm 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 Paradigm. In order to be eligible for such indemnification,
however, the directors, officers, employees or agents of Paradigm 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, Paradigm 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.
Paradigm's Certificate of Incorporation permits it to indemnify its
directors except in the event of: (1) a breach of the duty of loyalty to
Paradigm 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 Paradigm may otherwise be permitted to indemnify its directors,
officers and controlling persons against liabilities arising under the 1933 Act
or otherwise, the Paradigm has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LEGAL MATTERS
The legality of the securities being offered hereby will be passed upon
for Paradigm by Piper & Marbury L.L.P., New York, New York.
EXPERTS
The consolidated balance sheet as of December 31, 1997 and the
consolidated statements of income, stockholders' equity, and cash flows for the
years ended December 31, 1997 and 1996, included in this Prospectus, have been
included herein in reliance on the report of Bromberg & Associate, chartered
accountants, given on the authority of that firm as experts in accounting and
auditing.
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<PAGE>
FINANCIAL STATEMENTS
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
INDEX TO FINANCIAL STATEMENTS
Page
----
Fiscal Years Ended December 31, 1997 and 1996 from date of
Inception (audited)
- ----------------------------------------------------------
Report of Independent Auditors F-2
Balance Sheet F-3
Statement of Income F-4
Statement of Deficit F-5
Statement of Cash Flow F-6
Statement of Changes in Shareholders Equity F-7
Notes to Financial Statements F-8
Nine Months Ended September 30, 1998 and 1997 (unaudited)
- ---------------------------------------------------------
Balance Sheet F-10
Statement of Income F-11
Statement of Deficit F-12
Statement of Cash Flow F-13
Notes to Financial Statements F-14
F-1
<PAGE>
BROMBERG & ASSOCIATE 1177 Finch Avenue West Suite 21
- ----------------------------
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, 1997 and 1996 and the statements of income, deficit, changes
in shareholders' equity and changes in financial position for the periods 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 present fairly, in all
material respects, the financial position of the Corporation as at December 31,
1997 and 1996 and the results of its operations and the changes in its financial
position for the periods then ended in accordance with generally accepted
accounting principles.
/s/ BROMBERG & ASSOCIATE
CHARTERED ACCOUNTANTS
DOWNSVIEW, ONTARIO
August 14, 1998
F-2
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Balance Sheet as at
December 31, December
1997 31, 1996
ASSETS ----------- ---------
CURRENT ASSETS
Bank $0 $154,702
Accounts Receivable $0 $69,162
Share Subscription $0 $202,500
Receivable
Inventories $0 $286,593
Miscellaneous $35,515 $19,915
------- -------
Receivable
$35,515 $732,872
LONG TERM:
Capital Assets (Notes 1, 3) $13,982 $49,000
------- --------
TOTAL ASSETS $49,497 $781,872
======= ========
LIABILITIES
CURRENT
Bank Indebtedness $139 $0
Accounts Payable $422,008 $68,989
Loans Payable (Note 4) $356,772 $395,000
-------- --------
TOTAL LIABILITIES $778,919 $463,989
-------- --------
SHAREHOLDERS' EQUITY
Share Capital (Note 5)
Authorized 30,000,000
Common Stock at
$0.0001 par
value per share
Issued and outstanding:
16,140,445 as of
December 31, 1997
14,123,769 as of
December 31, 1996 $2,218,180 $1,753,270
Deficit ($2,947,602) ($1,435,387)
---------- ----------
Total Shareholders' Equity ($729,422) $317,883
-------- --------
Total Liabilities & $49,497 $781,872
Shareholders' Equity ======= ========
F-3
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Statement of Income
For the Year Ended December 31, 1997
1997 1996
---- ----
REVENUES
Sales Revenue (Note 1) $47,468 $55,689
------- -------
Cost of Sales
Inventory - Beginning $354,762 $0
of Period
Purchases ($824) $402,645
------ --------
$353,938 $402,645
Inventory - End of Period $0 $354,762
-- --------
Cost Of Sales $353,938 $47,883
-------- -------
Gross Profit/(Loss) ($306,470) $7,806
-------- ------
OPERATING EXPENSES:
Selling, General & $1,109,064 $1,377,028
Administrative
Research & Development $48,909 $55,188
Depreciation and $4,213 $10,977
Amortization
Interest Expense $12,500 $0
Capital Assets Written Off $31,059 $0
------- --
TOTAL EXPENSES $1,205,745 $1,443,193
---------- ----------
NET (LOSS) FOR THE ($1,512,215) ($1,435,387)
PERIOD ========== ==========
Earnings Per Share (0.10) (0.15)
====== ======
Average common shares
outstanding during
period 15,355,914 9,505,170
========== =========
F-4
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF DEFICIT
For the Year Ended December 31, 1997
1997 1996
---- ----
Deficit - Beginning of
the Period ($1,435,387) $0
Net Loss - Current Period ($1,512,215) ($1,435,387)
------------ ------------
Deficit - End of Period ($2,947,602) ($1,435,387)
============ ============
F-5
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
For the Year Ended December 31, 1997
1997 1996
---- ----
CASH FLOWS FROM
OPERATING ACTIVITIES
Net gain (loss) for the
period ($1,512,215) ($1,435,387)
Items not requiring an
outlay of Cash:
Amortization of Fixed
Assets $4,213 $10,977
Capital Assets Written
Off $31,059 $0
Net Changes in non-cash
working capital items
related to operations:
Inventory $286,593 ($286,593)
Accounts Receivable $69,162 ($69,162)
Miscellaneous Receivable ($15,600) ($19,915)
Share Subscriber Receivable $202,500 ($202,500)
Accounts Payable $353,019 $68,989
-------- -------
Total Cash Flow Used in ($581,269) ($1,933,591)
Operations ======== ==========
CASH FROM FINANCING
ACTIVITIES
Loan Payable ($38,228) $395,000
Proceeds of Common Stock
Issuance $464,910 $1,753,270
-------- ----------
Net Cash Used in
Financing Activities $426,682 $2,148,270
======== ==========
CASH USED IN INVESTING
ACTIVITIES
Acquisition of Fixed Assets ($254) ($59,977)
------ ---------
Net Cash Used in ($254) (59,977)
Investing Activities ====== ========
NET INCREASE (DECREASE)
IN CASH FOR THE PERIOD ($154,841) $154,702
Cash - Beginning of period $154,702 $0
-------- --------
Cash/(Bank Indebtedness)
- End of period ($139) $154,702
====== ========
F-6
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
For the Year Ended December 31, 1997
Shares Par Value Additional
Paid-Up Capital
-------------------------------------------
Opening Balance - December 14,123,769 $1,412 $1,751,858
31, 1996
Issuance of Common Shares 1,316,676 $132 $394,868
on March 12, 1997 on the
Conversion of PTI Financial
Corp. Loan outstanding at a
rate of $0.30 per share
Issuance of Common Shares 140,000 $14 $6,986
on May 5, 1997 due to the
exercise of Stock Options
at $0.05 per share
Issuance of Common Shares 210,000 $21 $52,479
on September 19, 1997
through First Liberty Mutual
Issuance of Common Shares 50,000 $50 $2,450
on October 16, 1997 due to
the Exercise of Stock
Options at $0.05 per share
Issuance of Common Shares 300,000 $300 $7,610
on December 19, 1997 ------- ---- ------
Balance as at December 31, 16,140,445 $1,929 $2,216,251
1997 ========== ====== ==========
F-7
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a)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%.
b)METHOD OF ACCOUNTING
i) The Corporation maintains its books and prepares its
financial statements using the accrual basis of
accounting.
ii) There are no material differences in the
determination of Net Earnings and per share calculations
between Canadian and U.S GAAP.
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 accounting and tax
purposes.
3. CAPITAL ASSETS
Accumulated
Depreciation Net Book Net Book
Cost 1997 1997 Value 1997 Value 1996
--------- ------------ ---------- ----------
Furniture and
fixtures, $ 21,847 $ 7,865 $ 13,982 $49,000
Dec. 31, 1997
4. LOANS PAYABLE
Loans payable include loans amounting to $258,842 which are secured by a
pledge over all the assets of the Company. Interest is payable on these
secured loans at a rate of prime plus 4%.
F-8
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
5. STOCK OPTIONS AND WARRANTS
a) Options to purchase Common Shares have been issued under the Company's
stock option plan to directors, officers, employees and consultants of the
Company. Options outstanding at December 31,1997 are as follows:
Year Granted Expiration Date Price Range No. of Shares
- ------------ --------------- ----------- -------------
1996 January 2001 $0.05 7,933,334
1997 November 2000 $0.12 45,000
1997 November 2000 $0.125 125,000
1997 October 2000 $0.15 40,000
1997 November 2000 $0.20 50,000
1997 December 2000 $0.25 100,000
1997 December 2000 $0.40 200,000
- ---------------------------------------------------------------
Total Stock 8,493,334
Options ---------
Outstanding
b) As at December 31, 1997, 3,607,111 warrants were issued, exercisable at
a price of $0.30 per share for each warrant owned. These warrants are
exercisable over a 3 year period and expire in three years from the date
of issue.
6. SUBSEQUENT EVENT
In February 1998, the Company acquired all the shares of 1280884 Ontario
Inc. and its wholly owned subsidiary, North York Leasing Limited. The
Company issued 3,720,000 Common Shares to the vendors of these companies
at a price of 25 cents per share representing a cost of $930,000 and is
required to issue additional shares to these vendors if during any one
consecutive 60 day trading period between April 1998 and February 1999,
the average closing price of the Company's shares is less than 25 cents,
so that the total consideration is the equivalent of $930,000. The Company
has instituted a legal action against the legal firm that represented all
the parties in the above transaction and that acted as escrow agent for
the above shares and is claiming that these shares be canceled and that
damages be paid to the Company. No provision has been made for the issue
of any additional shares to the vendors of these companies.
The Company wrote off its investment in the above companies in March 1998,
as there were insufficient funds to finance their operations, and the
value of the investment had materially declined.
F-9
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM BALANCE SHEET
(UNAUDITED)
(Unaudited)
SEP 30,1998 DEC 31,1997
ASSETS
Current
Cash at Bank and in trust $36,551 $0
Miscellaneous Receivables $24,196 $35,515
Prepaids and deposits $155,331 $0
------------------------- ------------
$216,078 $35,515
Long Term
Capital Assets (Note 1, Note 4) $11,885 $13,982
------------------------ ------------
Total Assets $227,963 $49,497
======================== ============
LIABILITIES
Current
Bank Indebtedness $0 $139
Accounts payable $410,889 $422,008
Loans payable (Note 5) $331,315 $356,772
------------------------- ------------
Total Liabilities $742,204 $778,919
------------------------- ------------
SHAREHOLDERS' EQUITY
Share Capital (Notes 6,7 & 8)
Authorized 30,000,000 Common $3,600,303 $2,218,180
Stock at $0.0001
par value Issued and
outstanding stock
29,852,662 as of
Sep 31, 1998
16,140,445 as of
Dec 31, 1997
Deficit ($4,114,544) ($2,947,602)
------------------------- ------------
------------------------- ------------
Total Shareholders' Equity ($514,241) ($729,422)
------------------------- ------------
==================== ============
Total Liabilities & $227,963 $49,497
Shareholders' Equity ==================== ============
F-10
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM STATEMENT OF INCOME
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-----------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
REVENUE
Sales Revenue (Note 1, $23,465 $12,858 $23,465 $533,967
Note 3)
-----------------------------------------------
Cost of Sales
Inventory-Beginning of $0 $214,316 $0 $314,316
Period
Purchases $0 $8,558 $0 $32,719
-----------------------------------------------
$0 $222,874 $0 $347,035
Inventory-End of Period $0 $214,316 $0 $214,316
-----------------------------------------------
Cost of Sales $0 $8,558 $0 $132,719
Gross Profit $23,465 $4,300 $23,465 $401,248
-----------------------------------------------
Operating Expenses
Selling, General and $83,524 $277,791 $243,060 $953,289
Administration
Research & Development $0 $9,568 $0 $96,503
Interest Expense $5,300 $0 $15,250 $0
Depreciation and $699 $2,571 $2,097 $7,712
amortization
-----------------------------------------------
Total Expenses $89,523 $289,930 $260,407 $1,057,504
-----------------------------------------------
Net Profit/(Loss) for the ($66,058) ($285,630) ($236,942) ($656,256)
Period
Write off of investment $0 $0 $930,000 $0
in Subsidiary
-----------------------------------------------
Net Profit/(Loss) after
extraordinary item ($66,058) ($285,630) $1,166,942 ($656,256
===============================================
Earnings per Share -
before (0.0023) (0.0182) (0.0101) (0.0439)
extraordinary item
===============================================
Earnings per Share - after
extraordinary item (0.0023) (0.0182) (0.0500) (0.0439)
===============================================
Average common shares
outstanding during period 29,139,619 15,685,445 23,346,816 14,957,107
F-11
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
STATEMENT OF DEFICIT
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Deficit - Beginning of
Period ($4,048,486)($1,806,012) ($2,947,602) ($1,435,386)
Net Profit/(Deficit) -
Current Period ($66,058) ($285,630) ($1,166,942) ($656,256)
-----------------------------------------------
Deficit - end of period ($4,114,544)($2,091,642)($4,114,544) ($2,091,642)
===============================================
F-12
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM STATEMENT OF CASH FLOW
(UNAUDITED)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
---- ---- ---- ----
Cash provided by (used
in) Operations
Net Gain (loss) for the
period $ ($66,058) $(285,630) $ (1,166,942) $(656,256)
Items not requiring an
outlay of cash
Amortization of
fixed assets 699 2,571 2,097 7,712
Write-off of
Investment in
Subsidiary 0 0 930,000 0
Net changes in non-cash
working capital items
related to operations:
Inventory 0 (4,620) 0 72,277
Accounts Receivable 0 99 0 (474,818)
Miscellaneous Receivable 9,729 (3,833) 11,319 (5,157)
Prepaids and Deposits (155,331) 0 (155,331) 0
Share Subscriber
Receivable 0 0 0 202,500
Accounts Payable (52,463) 211,436 (11,119) 340,308
Loans Payable (15,000) (370,161) (25,457) (154,336)
------------------------------------------------
TOTAL CASH FLOW USED
IN OPERATIONS ($278,424) ($450,138) ($415,433) ($667,770)
Cash From Financing
Activities
Proceeds of Common
Stock Issue 205,000 447,500 1,382,123 454,500
Less Write-off of
Subsidiary 0 0 (930,000) 0
------------------------------------------------
TOTAL CASH FROM
FINANCING ACTIVITIES
Cash Used in Investing
Activities 205,000 447,500 452,123 454,500
Acquisition of fixed
assets 0 (2) 0 (3,126)
------------------------------------------------
NET INCREASE (DECREASE)
IN CASH FOR THE PERIOD ($73,424) ($2,640) $36,690 ($216,396)
Cash - beginning of the
period $109,975 ($59,056) ($139) $154,700
------------------------------------------------
Cash - end of the period $36,551 ($61,696) $36,551 ($61,696)
================================================
F-13
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
NOTES TO INTERIM STATEMENT
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNT 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, 1998.
These financial statements do not purport to contain disclosures in
conformity with generally accepted accounting principles and should be
read in conjunction with the audited financial statements Paradigm
Advanced Technologies, Inc. (the "Company") for the year ended December
31, 1997 contained in the Company's Annual Report on Form 10-KSB. The
results for the six months ended September 30, 1998 are not necessarily
indications of the results for the fiscal year ending December 31, 1998.
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.
(b) CAPITAL ASSETS
Capital assets are recorded at cost less accumulated depreciation.
Depreciation is provided using the declining balance basis at the
following rate:
Furniture and fixtures - 20%
(c) METHOD OF ACCOUNTING
The Company maintains its books and prepares its financial statements on
the accrual basis of accounting.
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.
F-14
<PAGE>
3. REVENUE
In the first quarter of 1997, the Company recorded a sale of software on
the basis of a barter agreement with Primary Response in Toronto for
$450,000 inclusive of a discount of 10%. The Company was unable to recover
this amount and the sale was credited in the fourth quarter of the 1997
fiscal year.
4. CAPITAL ASSETS
Accumulated Net Book Net Book
Cost Depreciation Value Value
1998 1998 1998 1997
---- ------------ -------- --------
Furniture and $21,847 -$9,962 $11,885 $13,982
Fixtures
5. LOANS PAYABLE
Loans payable include loans amounting to $243,842 which are secured by a
pledge over all the assets and the Company. Interest is payable on these
loans at a rate of prime plus 4%.
6. SHARE CAPITAL
On February 19, 1998, the Company issued 3,720,000 shares to the vendors
of North York Leasing Inc. and HOJ Franchise Systems - see Note 8. On May
28, 1998 the Company issued 2,500,000 shares for net proceeds of $112,500.
On July 16, 1998 the Company issued 4,100,000 shares for net proceeds of
$205,000.
During the First Quarter of 1998, Options at a price of $0.01 to $0.125
per Share were exercised resulting in the issuance of 852,217 Common
shares. during the second quarter of 1998, Options at a price of $0.01 to
$0.10 per Share were exercised resulting in the issuance of 2,535,000
shares.
7. STOCK OPTIONS AND WARRANTS
(a) Options to purchase Common Shares have been issued under the
Company's stock option plan to directors, officers, employees and
consultants of the Company. Options outstanding at March 31, 1998 are
as follows:
F-15
<PAGE>
Year Granted Expiry Date Price Range No. of Shares
------------ ----------- ----------- -------------
1996 Jan-01 $0.05 7,583,334
1997 Nov-00 $0.12 45,000
1997 Nov-00 $0.125 125,000
1997 Oct-00 $0.15 40,000
1997 Nov-00 $0.20 50,000
1997 Dec-00 $0.25-$0.40 300,000
1998 Mar-01 $0.05-$0.10 2,350,000
---------
TOTAL STOCK OPTIONS OUTSTANDING 10,493,334
==========
(b) As at March 31, 1998, 3,607,111 warrants were issued, exercisable at
a price of $0.30 per share for each warrant owned. These warrants are
exercisable over a 3-year period and expire in three years from the
date of issue.
8. PURCHASE OF 1280884 ONTARIO INC.
(a) In February 1998, the Company acquired all the shares of 1280884
Ontario Inc. and its wholly owned subsidiary North York Leasing Inc. The
company issued 3,730,000 Common Shares to the vendors of these companies
at a price of 25 cents per share representing a cost of $930,000 and is
required to issue additional shares to these vendors if during any one
consecutive 60 day trading period between April 1998 and February 1999,
the average closing price of the company's shares is less than 25 cents,
so that the total consideration is the equivalent of $930,000. The Company
has instituted legal action against the legal firm that represented all
the parties in the above transaction and acted as the escrow agent for the
above shares and is claiming that these shares be canceled and that
damages be paid to the Company. No provision has been made for the issue
of any additional shares to the vendors of these companies.
The Company disposed of its investment in the above companies in June
1998.
F-16
<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.....$ 648.29
Printing and Engraving Expenses*........................ 1,000.00
Legal Fees and Expenses*................................ 15,000.00
Accounting Fees and Expenses*........................... 1,000.00
Miscellaneous Expenses*...................................1,000.00
--------------
Total...................................................$18,648.29
*Estimated.
-II-1-
<PAGE>
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 promulgated
thereunder. None of the following unregistered sales involved underwriters, and
there were no underwriting discounts or commissions.
Person or Class
Date, Title of of Persons Number of Cash Price or
Securities Sold to Whom Sold Shares Consideration
- --------------- ------------ --------- -------------
January 12, 1996; Paradigm 6,000,000 Assets and
Common Stock Advanced liabilities
Technologies valued at
Joint Venture $56,145
February, 1996; Private 3,000,000 $300,000
Common Stock Placement
investors
February, March, Private 2,800,000 $700,000
April and May, 1996; Placement
Common Stock investors
June through Private 2,158,351 $647,500
November, 1996; Placement
Common Stock investors
November, 1996; PTI Financial 165,418 $49,625
Common Stock Corp.
January 1997; Directors and 7,583,334 Services rendered
Stock Options Officers
March 1997; Private 3,607,111 $1,082,133.30
Warrants Investors
March, 1997; PTI Financial 136,676 Conversion of loan
Common Stock Corp. valued at $395,000
May, 1997; Consultants 140,000 $7,000 (option exercise)
Common Stock
September 1997; Private Placement 210,000 $52,500
Common Stock investors
October 1997; Consultant 50,000 Exercise of options
Common Stock valued at $2,500
October through Consultants 560,000 Services rendered
December 1997;
Stock Options
December 1997; Private Placement 300,000 $7,910
Common Stock investors
January, February Consultants 857,217 $38,573 (option exercise)
1998; Common Stock
February 1998; Vendors of 3,720,000 $930,000
Common Stock North York Leasing
March 1998; Consultants 2,350,000 Services rendered
Stock Options
April 1998; Private Placement 500,000 $50,000
Common Stock investors
April, 1998; Consultant 500,000 $5,000 (option exercise)
Common Stock
May 1998; Private 2,500,000 $125,000
Common Stock Placement investors
May, June 1998; Consultants 1,535,000 $51,697 (option exercise)
Common Stock
July, 1998; Private 3,000,000 $150,000
Common Stock Placement investors
July, 1998; Eastern 1,100,000 $55,000
Common Stock Investments, LLC
July through Private 2,500,000 $625,000
November 1998; Investors
Warrants
December, 1998; Conversion of 11,100,000 Conversion of loans valued
Common Stock convertible at $550,000
debentures
December, 1998; Enhanced Video 625,000 Services rendered
Common Stock Systems
December, 1998; Consultants 1,000,000 1,000,000 Services rendered
Common Stock
December, 1998; Private 83,333 $4,167
Common Stock Placement investors
December 1998; Private 6,000,000 $300,000
Convertible Debentures Investors
December 1998; Consultant 1,000,000 Services rendered
Convertible Debentures
December 1998; David Kerzner 6,000,000 $99,153 loan to the
Convertible Debentures Company
December 1998; Jack Kerzner 1,000,000 $50,000 loan to the
Convertible Debentures Company
-II-2-
<PAGE>
Item 27. Exhibits.
3.1 Certificate of Incorporation of the Company. (1)
3.2 By-Laws of the Company. (1)
4.1 1996 Stock Option Plan. (1)
5.1 Opinion and Consent of Piper & Marbury L.L.P. regarding
legality. (4)
10.1 Distributor Agreement with Alpha Systems Lab, Inc.,
dated November 29, 1995, together with Amending
Agreement dated January 24, 1996. (1)
10.2 Consulting Agreement with Jack Y. L. Lee, dated
February 1, 1996. (1)
10.3 Consulting Agreement with David Kerzner, dated February
1, 1996. (1)
10.4 Consulting Agreement with Industry Marketing Service,
dated January 1, 1996. (1)
10.5 Agreement with Sarah Casse dated January 12, 1996.
10.6 Share Purchase Agreement between the Company and HOJ
Theta Realty Inc., dated June 10, 1998. (2)
10.7 Agency Agreement between the Company and Eastern Investments, LLC,
dated June 10, 1998.
23.1 Consent of Bromberg & Associate. (4)
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit
5.1). (3)
25 Power of Attorney (included on signature page to this Registration
Statement) (3).
27 Financial Data Schedule (5)
- --------------
(1) 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.
(2) Previously filed as Exhibit 10.1 to Paradigm's Form 10-QSB
for the Period Ended June 30, 1998.
(3) Filed herewith.
(4) To be filed upon amendment.
(5) Previously filed with the Company's Annual Report on Form 10-KSB for
the Year Ended December 31, 1997 and Quarterly Report on Form 10-QSB
for the Period Ended September 30, 1998.
-II-3-
<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.
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<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 this 30th day of November, 1998.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By: /s/ David Kerzner
-----------------------------
David Kerzner
President and Chief Executive
Officer
Each person whose signature appears below hereby constitutes and appoints
David Kerzner his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying all that said attorney-in-fact and agent or his substitute or
substitutes, or any of them, may lawfully do or cause to be done by virtue
hereof.
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/ David Kerzner President, Chief Executive Officer, November 30, 1998
- --------------------- (Principal Exeuctive Officer) and
David Kerzner Director
/s/ Selwyn Wener Chief Financial Officer (Principal November 30, 1998
- --------------------- Financial Officer)
Selwyn Wener
/s/ Jacob Kerzner Director November 30, 1998
- ---------------------
Jacob Kerzner
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<PAGE>
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- ----------- ----
3.1 Articles of Incorporation of the Company..................(1)
3.2 By-Laws of the Company....................................(1)
4.1 Stock Option Plan.........................................(1)
5.1 Opinion and Consent of Piper & Marbury L.L.P. regarding
legality..................................................(4)
10.1 Distributor Agreement with Alpha Systems Lab, Inc., dated
November 29, 1995,
together with Amending Agreement dated January 24, 1996...(1)
10.2 Consulting Agreement with Jack Y. L. Lee dated February 1,
1996......................................................(1)
10.3 Consulting Agreement with David Kerzner, dated February 1,
1996......................................................(1)
10.4 Consulting Agreement with Industry Marketing Service, dated
January 1, 1996...........................................(1)
10.5 Agreement with Sarah Casse dated January 12, 1996.........(1)
10.6 Share Purchase Agreement between the Company and HOJ Theta
Realty Inc., dated June 10, 1998..........................(2)
10.7 Agency Agreement between the Company and Eastern
Investments, LLC, dated June 10, 1998.....................(4)
23.1 Consent of Bromberg & Associate ..........................55
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit
5.1)......................................................(4)
25 Power of Attorney (included on signature page to this
Registration Statement)...................................53
27 Financial Data Schedule...................................(5)
- --------------
(1) 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.
(2) Previously filed as Exhibit 10.1 to Paradigm's Form 10-QSB
for the Period Ended June 30, 1998.
(3) Filed herewith.
(4) To be filed upon amendment.
(5) Previously filed with the Company's Annual Report on Form 10-KSB for
the Year Ended December 31, 1997 and Quarterly Report on Form 10-QSB
for the Period Ended September 30, 1998.
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<PAGE>
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
November 30, 1998
