<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
X Annual report under Section 13 or 15(d) of the Securities Exchange
-------
Act of 1934. For the fiscal year ended December 31, 1998
OR
____ Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from __________ to __________.
Commission File Number: 0-28836
PARADIGM ADVANCED TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 3-0692466
(State or Other Jurisdiction of IRS Employer
Incorporation or Organization) Identification No.)
1 Concorde Gate, Suite 201
Toronto, Ontario
Canada M3C 3N6 M3C 3N6
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (416) 447-3235
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Name of Each Exchange
Title of Each Class: on which Registered:
------------------- -------------------
Common Stock, par value None
$0.0001 per share
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's
<PAGE>
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB [ ].
The issuer's revenues for its most recent fiscal year were $23,465.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of February 9, 2000, is 59,318,324.
The number of shares outstanding of the Registrant's Common Stock, as of
February 9, 2000 was 29,996,662 shares of Common Stock.
<PAGE>
PART I
ITEM 1. Description of Business
Paradigm Advanced Technologies, Inc. (the "Company") 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. The Company develops, markets, and distributes
software-based digital video surveillance and GPS tracking systems that can be
used for security or other purposes. The Company's products currently include
VideoBank and Satcom IV, software-based video surveillance systems that permit
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 the Company has been developing GPS tracking technology for personal
tracking as well as for vehicular tracking purposes. The Company has entered
into an agreement to be the exclusive licensing agent for a broad based patent
which covers the process whereby GPS signals are transmitted over a cellular
network to a base unit. The Company believes 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. There
are essentially three sources of revenue for the company which include the sale
of GPS products, Licensing users of the GPS/CELLULAR technology under "the
patent", and the sale of VideoBank products. On its date of incorporation, the
Company acquired all of the right, title and interest in a security and
surveillance products business established by Paradigm Advanced Technologies
Joint Venture (the "Joint Venture"). The Joint Venture was dissolved on the
same day.
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 10 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" and "Satcom IV" are fully integrated software programs,
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 and Satcom IV, 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 is expected to experience enormous growth. The
Strategis Group of Washington, DC projects that revenues from location-based
wireless consumer services are expected to rise more than 100-fold, from less
than $30 million in 1999 to $3.9 billion by 2004.
<PAGE>
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.
The company has key 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.
Manufacturing and Engineering Agreements
Engineering and manufacturing of the Company's VideoBank software is being
enhanced by Satellite Advanced Technologies, Inc. based in Toronto, Ontario
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 second quarter of 2000 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 being engineered and manufactured by Adastra, Inc.
based in Montreal, Quebec. The product requires further development in order to
customize the system to certain vertical markets.
VideoBank and Satcom IV
VideoBank and Satcom IV are software-based video surveillance systems.
These systems differ 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. These systems eliminate
many of the problems associated with operating a VCR-based security system, such
as storage and preservation of video cassette tapes and the possibility of
mechanical failures and breakdowns of the VCR or other components of the system.
It also introduces a measure of efficiency in installing improvements to the
system, because improvements can be made simply by implementing upgrades to the
software, instead of having to purchase and install new hardware components. At
the same time, although additional image storage capacity can be added simply by
augmenting the computer's memory, the software-based video surveillance system
has the drawback of being highly dependent on low-cost, high-capacity removable
data storage media. Based upon current trends in computer hardware pricing,
however, the Company believes that such low-cost, removable data storage media
(including, for example, optical data disks) will continue to become more widely
available in the future.
<PAGE>
VideoBank Remote is a predominantly software-based system that allows
images captured by VideoBank to be transmitted digitally over conventional
telephone lines. The Company will market and distribute the software component
of this system. Like VideoBank, VideoBank Remote operates on a conventional
personal computer and modem. Its software is also designed to be user-friendly,
employing an icon-driven, Windows-based graphical user interface. By
transmitting over telephone lines, it obviates the need to link camera sites to
the remote observation post by installing coaxial cables. Advances in computer
technology have made possible VideoBank Remote and its advances over existing
telephone transmission technology in terms of clarity of image, transmission
time, and cost of transmission. VideoBank Remote has demonstrably the best
image per transmission time of any existing telephone-based system, primarily
because both the VideoBank and VideoBank Remote systems can accept images of any
resolution quality that the video camera itself is capable of producing, and do
not impose any limit on the maximum resolution of the image as do many
competitive products such as Telesite and TVX.
Although VideoBank, Satcom IV and VideoBank Remote utilize computer
hardware and other physical equipment, these systems are referred to herein as
"software-based" systems because neither product requires the use of proprietary
hardware. Instead, both products can operate on any computer hardware that
meets the minimum system specifications: as noted above, the specification
calls for a conventional personal computer with at least a 486-class central
processing unit. Therefore, these systems can be sold either as a software
package to be installed upon any computer system that meets the system
specifications or as a "turn-key" hardware-software system. In contrast, to the
Company's knowledge, most of its competitors in the marketplace for video
surveillance security systems offer systems that are based on proprietary
hardware or equipment. See "The Company--Competition."
The VideoBank and VideoBank Remote systems are Windows-based and offer an
icon-driven user interface. When installed on a computer that has 850 megabytes
(MB) of available internal hard disk drive storage space, VideoBank is capable
of recording at least 24 hours of data at the rate of one high resolution color
frame per second. In addition, if there is an alarm condition, the system is
capable of recording 15 frames per second for a limited time span of
approximately 16 minutes. This capacity is sufficient to provide high-
resolution, multiple-frame motion video of several alarm conditions, each having
duration of two or three minutes. In addition, the ability to transmit video
images over a telephone line, rather than via coaxial or other specialized
closed-circuit cable, makes the VideoBank Remote system easier to use and less
expensive than traditional remote surveillance systems. In addition,
improvements and upgrades to the VideoBank system can be made by implementing
upgrades to the software itself, rather than upgrading the equipment itself.
These software upgrades permit the addition of new functions such as Video
Transmission, Image Downloading, Multi-Plexing and Video Motion Sensing.
New Versions of Products
The Company is engaged in the development of new versions of the VideoBank
and VideoBank Remote software-based video surveillance systems, and currently
expects to have such products available for marketing and sale during the second
quarter of 2000. The Company presently expects that such products will have
most of the same capabilities and features as the VideoBank and VideoBank Remote
Version 1 products currently have, as well as additional features and improved
functionality, better compatibility with the Windows-based graphical user
<PAGE>
interface environment, and the ability to work with a variety of video capture
cards made by different manufacturers.
Competition
The VideoBank system is referred to as a "software based" system because
the product does not require the use of proprietary hardware. In contrast, to
the Company's knowledge, most of its competitors in the marketplace for video
surveillance security offer products that are based on proprietary hardware or
equipment. There are approximately 20 companies that manufacture video
transmission systems for security applications. Though some competitors may
have developed software products for use in video security and surveillance
products, the existing competitive products are primarily hardware based. For
example, 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 the Company's knowledge, none of its competitors have developed a
software-based product with the capabilities of VideoBank. The Company also
believes that it can offer its products for substantially lower prices than
those of its competitors because of the system's non-proprietary hardware
specification and the availability of the bundled hardware/software system
incorporating equipment that the Company or the user can purchase at a volume
discount.
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 worldwide 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 10 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.
<PAGE>
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 be underway by the end of November
1998, 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")
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.
<PAGE>
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.
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.
GPS Patent and Licensing Rights
Paradigm became be the first company to be licensed under a unique broad-
based patent, which covers transmission of GPS coordinates via any cellular
network to a base unit. The Patent (US Patent # 5,043,736) was granted in 1991
and was reexamined in 1994 (Reexamination Certificate # B1 5,043,736). As a
result of the reexamination the number of claims covered by the patent was
increased from 4 to 6. The patent, which has been issued and upheld in the
United States and Australia, is pending in Canada and Japan. The patent is very
significant since it covers the basic process by which a location that is
identified by use of GPS is transmitted over a cellular unit to a base unit or
monitoring station.
Paradigm has also entered into an agency agreement with the patent holder
as the exclusive worldwide licensing agent for the patent. Revenues will be
generated by licensing companies who are using or plan to use the process
covered by the patent.
Regulatory Matters
To the Company's knowledge, there are no existing or probable government
regulations that will have an effect upon the Company's business. Although end-
users of surveillance
<PAGE>
equipment in Canada, and elsewhere, are required to give notice of the use of
such equipment, there are no known absolute prohibitions either on the ownership
or the use of surveillance equipment. The Company knows of no existing or
probable government regulations that either do or may affect the Company's right
to distribute, sell, manufacture, or otherwise deal with digital video
surveillance security systems.
Employees
There were only 3 full time employees at December 31, 1998. These
employees were paid consulting fees. In addition to David Kerzner, there were
two consultants at December 31, 1998, who were providing research and
development and administrative services to the Company. None of the Company's
employees is represented by a labor union or is subject to a collective
bargaining agreement. The Company has a positive relationship with its
employees.
Major Suppliers and Customers
The Company's major suppliers are Satellite Advanced Technologies, Inc. of
Toronto, Canada and ADASTRA Technology, Inc., located in Montreal, Canada. The
Company does not have any major customers.
Research and Development
A significant amount of time and effort was placed on research and
development at the Company's inception. The Company uses contractors and third
party companies to continue its research and development activities.
<PAGE>
ITEM 2. Description of Properties
The Company's executive offices are located in 1,200 square feet of office
space in Toronto, Ontario, Canada, which is leased by the Company on a monthly
basis at a rental rate of $2000 (Canadian). The Company believes that its
facilities are adequate for its needs and that alternative or additional space
will be available as required.
ITEM 3. Legal Proceedings
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 who
represented all the parties in the above transaction and who are the escrow
agents 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 in the financial
statements for the issue of any additional shares to the vendors of these
companies.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
On April 12, 1996, the Common Stock of the Company was approved for trading
on the NASDAQ-OTC Electronic Bulletin Board under the symbol "PRAV." Prior to
that date, there was no public market for the Company's Common Stock. From the
time of listing through December 31, 1998, the high bid price was $0.7500 and
the low bid price was $0.045. The following table sets forth the range of high
and low closing representative bid prices for the Company's Common Stock from
April 12, 1996 through December 31, 1998 (as reported by NASDAQ), which
represent inter-dealer prices, without retail mark-up, mark-down or commission
and may not reflect actual transactions:
<TABLE>
<CAPTION>
Fiscal Year Ended December 31, 1996 High Bid Low Bid
- ----------------------------------- -------- -------
<S> <C> <C>
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 $ 0.17 $ 0.065
Second Quarter Ended June 30, 1998 $ 0.09 $ 0.05
Third Quarter Ended September 30, 1998 $ 0.09 $ 0.14
Fourth Quarter Ended December 31, 1998 $ 0.11 $ 0.045
</TABLE>
As of February 9, 2000, there were 57 holders of record of the Company's
Common Stock. The Company has never declared or paid a cash dividend on its
capital stock and does not expect to pay cash dividends on its Common Stock in
the foreseeable future. The Company currently intends to retain its earnings,
if any, for use in its business. Any dividends declared in the future will be
at the discretion of the Board of Directors and subject to restrictions that may
be imposed by the Company's lenders.
The Company has undertaken the following unregistered sales of its Common
Stock. On January 12, 1996, the Company issued 6,000,000 unregistered shares of
its Common Stock to the participants in the Paradigm Advanced Technologies Joint
Venture (the "Joint Venture") in exchange for all of the right, title and
interest in the security and surveillance products business established by the
Joint Venture. Certain of the Company's directors and officers were
participants in the Joint Venture and as a result received shares of the Common
Stock of the Company in the transaction. The Company's former Chief Executive
Officer, Jack Y. L. Lee received 1,875,000 shares (including 500,000 shares in
trust), and the Company's President, David Kerzner received 2,337,500 shares.
In addition, Lisa Kerzner, the wife of director Jacob Kerzner, received 412,500
shares of Common Stock in the transaction. All of the following sales were
exempt from registration pursuant to Sections 3(b) and 4(2) of the Securities
Act of 1933 (the "1933 Act") and Regulation D promulgated by the Securities
Exchange Commission (the "SEC") thereunder. None of the following unregistered
sales involved underwriters, and there were no underwriting discounts or
commissions.
<PAGE>
<TABLE>
<CAPTION>
Person or Class of Persons Number of Total Cash Price or
Date, Title of Securities Sold to Whom Sold Shares Consideration
- --------------------------------- ------------ ------ -------------
<S> <C> <C> <C>
January 12, 1996; Common Stock Paradigm Advanced 6,000,000 Assets and liabilities
Technologies Joint Venture valued at $56,145
February, 1996; Common Stock Private Placement 3,000,000 $300,000
Investors
February, March, April and May, Private Placement 2,800,000 $700,000
1996; Common Stock Investors
June through November, 1996; Private Placement 2,158,351 $647,500
Common Stock Investors
November, 1996; Common Stock PTI Financial Corp. 165,418 $ 49,625
March 12, 1997, Common Stock PTI Financial Corp. 1,316,676 $395,000
September, December 1997; Common Private Placement 510,000 $ 60,410
Stock Investors
February 19, 1998; Common Stock Vendors of 1280884 3,720,000 $930,000
Ontario Inc.
April, May, June, July 1998: Private Placement 9,135,000 $520,590
Common Stock Investors
Note: The PTI issue on March 12,
1997 was conversion of a loan.
</TABLE>
Item 6. 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 the Company's control, there is no assurance that they
will be realized, and actual results may vary significantly from those shown.
Liquidity and Capital Resources
The Company had cash on hand and in trust of $12,856 at December 31, 1998. In
order to finance future operations, the Company needs to raise additional funds
through the issue of additional shares and debt.
.
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 entered into an
agreement to be the exclusive licensing agent for a broad based patent which
covers the process whereby GPS signals are transmitted over a cellular network
to a base unit. The Company plans to license parties using this process and
expects to earn licensing revenue from these agreements. The Company is working
on developing and solidifying its manufacturer's representative network by
entering into distribution or sales
<PAGE>
representation agreements with manufacturers and developers of software-based
video surveillance systems and GPS tracking units. The Company is reviewing and
evaluating its marketing and distribution 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, patent licensing, the sale of new products and the assumption of
additional debt.
Three Months Ended December 31, 1998
The Company is a development stage company with a limited history of
operations. It was incorporated on January 12, 1996.
The Company recorded no sales for the quarter ended December 31, 1998 as
compared to sales of $(486,499) for the three months ended December 31, 1997.
The negative sales for the fourth quarter of 1997 resulted from the reversal of
a one time barter sale of $450,000 and other sales, which proved to be
irrecoverable.
Gross profit for the three months ended December 31, 1997 reflects the write-
off of all inventories on hand. These inventories were written off as they were
considered to have no realizable value.
Selling, General and Administrative Expenses for the three months ended
December 31, 1998 were $312,380 as compared to $155,755 for the three months
ended December 31, 1997. This increase is due to compensation expenses recorded
for the issue of stock options to consultants of the company.
The net loss for the three months ended December 31, 1998 was $312,380
compared to $855,959 for the three months ended December 31, 1997. The higher
loss for the three months ended December 31, 1997 is attributable to the write
off of irrecoverable receivables and inventories in the fourth quarter of 1997.
Year Ended December 31, 1998
The Company recorded revenue of $23,465 for the year ended September 30, 1998
as compared to sales of $47,468 for the year ended December 31, 1997. The
Company's only revenue for the year ended December 31, 1998 comprised the sale
of a portion of the VideoBank
<PAGE>
software rights to a third party. Most of the sales for the prior year were
attributable to sale of VideoBank and individual hardware items.
The Company recorded a gross profit of $23,465 for the year ended December
31, 1998 as compared to a gross loss of $306,470 for the year ended December 31,
1997. There were no costs expensed for the 1998 sale as all expenses incurred on
the software had been written off in prior years. The gross loss in 1997 is due
to the write off of all inventories as they were considered to have no
realizable value.
Selling, General and Administrative Expenses for the year ended December 31,
1998 were $538,429 as compared to $1,109,064 for the year ended December 31,
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 Company had a net loss of $1,479,322 for the year ended December 31, 1998
as compared to a loss of $1,512,215 for the year ended December 31,1997. The
loss for the 1998 fiscal year includes the non-cash write off of the investment
in 1280884 Ontario Inc. of $930,000 - see note below. The Company reduced its
operating expenses in 1998 and anticipates a decline in losses in future
quarters.
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 who
represented all the parties in the above transaction and who are the escrow
agents 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 in the financial
statements for the issue of any additional shares to the vendors of these
companies.
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.
Item 7. Financial Statements
The financial statements of the Company, including the notes thereto,
together with the report of independent certified public accountants thereon,
are presented beginning at page F-I.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
<PAGE>
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
The directors and executive officers of the Company are listed on the
following table. There are no other promoters or control persons:
<TABLE>
<CAPTION>
Name Age Position, Term in Office
---- --- ------------------------
<S> <C> <C>
David Kerzner 39 Chief Executive Officer, President, Secretary-Treasurer,
and Director (all positions January 12, 1996, to
present, except President since December 29, 1997 to
present)
Selwyn Wener 49 Chief Financial Officer (February 1, 1998, to present)
Jacob Kerzner 42 Director (January 12, 1996, to present)
</TABLE>
The following is a brief description of the professional experience and
background of the directors and executive officers of the Company.
David Kerzner: Mr. Kerzner has served as the President and a director of the
Company since its founding and took over as CEO in December 1997 from Mr. Jack
Lee who resigned on December 29, 1997. 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.
Selwyn Wener: Mr. Wener was appointed Executive Vice President and 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 1997. 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 the Company since
its founding. Mr. Kerzner currently serves as the President and Chief Executive
Officer of Nightingale Healthcare Inc., a privately owned hospital and nursing
home staffing company founded by Mr. Kerzner in 1986. Mr. Kerzner is the
brother of David Kerzner.
<PAGE>
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the SEC. Officers, directors
and greater than ten percent shareholders are required by SEC regulation to
furnish the Company with copies of all Section 16(a) reports they file.
Based solely on review of the copies of such reports furnished to the
Company during or with respect to fiscal 1998, or written representations that
no Forms 5s were required, the Company believes that during the fiscal year
ended December 31, 1998, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with.
Item 10. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the registrant's four most highly compensated
executive officers other than the Chief Executive Officer, whose total annual
salary and bonus exceeded $100,000 during the fiscal year ended December 31,
1998:
<TABLE>
<CAPTION>
Shares of Common
Annual compensation Stock
Name and ----------------------------------- Underlying
principal position Year Salary Bonus options/SARS
- ------------------ ---- ------ ----- -------------
<S> <C> <C> <C> <C>
Jack Y. L. Lee 1998 $0 $0 0
Former Chief Executive Officer and 1997 $66,600 $0 0
Secretary-Treasurer of the Company 1996 $66,000 $0 1,875,000
David Kerzner 1998 $75,000 $0 0
President 1997 100,000 $0 0
1996 $75,000 $0 $3,187,500
Note: Jack Lee resigned as CEO, CFO
and Secretary on December 29, 1997
</TABLE>
Directors' Compensation
The Company's policy is not to pay compensation to directors who are also
employees of the Company for their service as directors. Non-employee directors
do not presently receive compensation for their service as directors either.
The Company will, however, reimburse directors a fixed amount for out-of-pocket
expenses incurred for attendance at meetings.
Employment Contracts
In February 1996, the Company 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
<PAGE>
1997, but Mr. Kerzner was due $100,000 total. The additional $25,000 was accrued
at the end of 1997, therefore, the total consulting fee payable to Mr. Kerzner
for 1997 was $100,000. Mr. Kerzner was paid a consulting fee and was not on the
Company payroll. The consulting agreement may be terminated early by the Company
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 Company's board of directors.
The Company entered into an employment agreement with Mr. Jack Lee in
February 1996, which was a consulting agreement in terms of which Mr. Lee was to
be paid an annual fee of $66,600. Mr. Lee resigned as CEO, Secretary-Treasurer
and director of the Company on December 29, 1997, There are no fees payable to
Mr. Lee for any period subsequent to the date of his resignation.
The Company entered into a consulting agreement dated January 12, 1996 with
Sarah Casse. Ms. Casse serves as a marketing, business, and technological
consultant to the Company. The agreement grants Ms. Casse the option to purchase
up to 1,875,000 shares of the common stock of the Company as compensation for
her services at the price of $0.05 per share.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information with respect to the beneficial
ownership of the outstanding Common Stock of the Company by each director,
executive officer, all five percent (5%) stockholders of the Company and all
directors and officers as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent
Name and Address of Beneficial Owner Beneficial Owner (1) of Class (2)
- ------------------------------------ -------------------- ------------
<S> <C> <C>
Jack Y. L. Lee
28 Old Park Lane 3,416,668 (3) 11.45%
Richmond Hill, Ontario L4B 2L4
David Kerzner, President and CEO
77 Dell Park Ave 3,525,000 (4) 11.81%
Toronto, Ontario M6B 2T9
Jacob Kerzner, Director
148 Faywood Blvd. 562,500 (5) 1.9%
Downsview, Ontario M3H 2W7
Selwyn Wener, CFO 1,000,000 (6) 3.3%
34 Braeburn Drive
Thornhill, Ontario L3T 4W6
Sarah Casse
63 Otter Crescent 3,350,000 (7) 11.22%
North York Ontario M5N 2W7
C-Saw Investments 8,800,000 (8) 29.48%
80 Broad Street, 26th Floor
New York, NY 11225
Mendel Raksin
338 Crown Street 3,333,360 (9) 11.17%
New York, NY 11225
All directors and executive officers as a
group (3 persons): 5,087,500 17.04%
</TABLE>
(1) Under Securities and Exchange Commission rules, beneficial ownership
includes any shares as to which an individual has sole or shared voting power or
investment power. Unless otherwise indicated, the Company 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 29,852,662 shares of Common Stock issued and outstanding as of
December 31, 1998.
(3) Includes 1,958,334 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(4) Includes 3,187,500 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(5) Includes 562,500 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(6) Includes 1,000,000 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
<PAGE>
(7) Includes 1,875,000 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.
(8) Includes 4,,400,000 shares of Common Stock issuable upon the exercise of
presently exercisable stock warrants.
(9) Includes 1,666,680 shares of Common Stock issuable upon the exercise of
presently exercisable stock warrants.
Item 12. Certain Relationships and Related Transactions
On January 12, 1996, the Company issued 6,000,000 unregistered shares of
its Common Stock to the participants in the Paradigm Advanced Technologies Joint
Venture (the "Joint Venture") in exchange for all of the right, title and
interest in the security and surveillance products business established by the
Joint Venture. Certain of the Company's directors and officers were
participants in the Joint Venture and as a result received shares of the Common
Stock of the Company in the transaction. The Company's Chief Executive Officer,
Jack Y. L. Lee received 1,875,000 shares (including 500,000 shares in trust),
and the Company's President, David Kerzner received 2,337,500 shares. In
addition, Lisa Kerzner, the wife of director Jacob Kerzner, received 412,500
shares of Common Stock in the transaction. Lastly, Sarah Casse, a holder of
more than 5% of the Company's issued and outstanding Common Stock, received
1,375,000 shares of Common Stock in the transaction.
In December 29, 1997, Mr. Jack Y. L. Lee resigned as Chief Executive
Officer of the Company and was replaced by Mr. David Kerzner who was President.
The Company has entered into a Consulting Agreement with David Kerzner under
which he receives an annual salary of $100,000.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Index to Financial Statements
Report of Independent Auditors
Financial Statements
Balance Sheets - December 31, 1998
Statement of Income for the year ended December 31, 1998
Statement of Changes in Shareholder's Equity for the Year Ended
December 31, 1998
Statement of Deficit for the Year Ended December 31, 1998
Statements of Cash Flows for the year ended December 31, 1998
Notes to Financial Statements
Exhibits
3.1* Certificate of Incorporation of the Company.
3.2* By-Laws of the Company.
4.1* Stock Option Plan.
10.1* Distributor Agreement with Alpha Systems Lab, Inc., dated November 29,
1995, together with Amending Agreement, dated January 24, 1996.
10.2* Consulting Agreement with Jack Y. L. Lee, dated February 1, 1996.
10.3* Consulting Agreement with David Kerzner, dated February 1, 1996.
<PAGE>
10.4* Consulting Agreement with Industry Marketing Service, dated January 1,
1996.
10.5* Agreement with Sarah Casse, dated January 12, 1996.
24 Power of Attorney (included in the signature page to this report).
27 Financial Data Schedule.
_______________
* Previously filed with the SEC as Exhibits to, and incorporated herein by
reference from, the Company's Registration Statement on Form 10-SB, as
amended, filed with the SEC on August 1, 1996.
** Previously filed with the SEC as Exhibits to, and incorporated herein by
reference from, the Company's Registration Statement on Form SB-2, as
amended, filed with the SEC on December 31, 1996, as amended.
(b) A Form 8-K was filed on April 1, 1998.
<PAGE>
Paradigm Advanced Technologies, Inc.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors.................................. F-2
Balance Sheet at December 31, 1997 and 1998..................... F-3
Statement of Income for year ended December 31, 1998............ F-4
Statement of Deficit for the year ended December 31, 1998....... F-5
Statement of Cash Flow for the year ended December 31, 1998..... F-6
Statement of Changes in Shareholders Equity for the Year Ended
December 31, 1998............................................... F-7
Notes to Financial Statements................................... F-8
<PAGE>
Bromberg & Associate 1177 Finch Avenue West Suite 21
- ------------------------------- Downsview, Ontario M3J 2E9
CHARTERED ACCOUNTANTS 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, 1998 and the statements of income, deficit, changes in
shareholders' equity and changes in financial position for the year 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.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred significant losses for the past
two years and continues to have negative working capital. These conditions
raise substantial doubt about its ability to continue as a going concern.
Management's plans regarding those matters also are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
We conducted our audit in accordance with Generally Accepted Auditing
Standards. These standards require that we plan and perform an audit to obtain
reasonable assurance whether the audited financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the audited financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation.
In our opinion, these audited financial statements presents fairly, in all
material respects, the financial position of the Corporation as at December 31,
1998 and the results of its operations and the changes in its financial position
for the year then ended in accordance with generally accepted accounting
principles.
/s/ Bromberg & Associate
CHARTERED ACCOUNTANTS
DOWNSVIEW, ONTARIO
January 26, 2000
<PAGE>
Paradigm Advanced Technologies, Inc.
(A Development Stage Company)
Balance Sheet as at
<TABLE>
<CAPTION>
December 31, 1998 December 31,1997
----------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Bank $ 12,856 $ 0
Miscellaneous Receivable $ 1,302 $35,515
Prepaids and deposits (Note 3) $155,075 $ 0
-------- -------
$169,233 $35,515
Long Term:
Capital Assets (Notes 1, 4) $ 11,185 $13,982
-------- -------
======== =======
TOTAL ASSETS $180,418 $49,497
======== =======
LIABILITIES
CURRENT
Bank Indebtedness $ 0 $ 139
Accounts Payable $460,409 $422,008
Loans Payable (Note 5) $391,315 $356,772
-------- --------
-------- --------
TOTAL LIABILITIES $851,724 $778,919
-------- --------
SHAREHOLDERS' EQUITY
Share Capital (Notes 5, 7)
Authorized 30,000,000 Common
Stock at $0.0001 par value per share
The authorized Common Shares were
increased to 100,000,000 Common
Shares in February 1999
Issued and outstanding:
29,796,662 as of December 31, 1998
16,140,445 as of December 31, 1997 $ 3,755,618 $ 2,218,180
Deficit ($4,426,924) ($2,947,602)
------------ ------------
Total Shareholders' Equity ($671,306) ($729,422)
------------ ------------
Total Liabilities & Shareholders' $ 180,418 $ 49,497
Equity ============ ============
</TABLE>
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Statement of Income
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES
Sales Revenue $23,465 $47,468
------- --------
Cost of Sales
Inventory - Beginning of Period $0 $354,762
Purchases $0 ($824)
-- ---
$0 $353,938
Inventory - End of Period $0 $0
-- --
Cost Of Sales $0 $353,938
-- --------
Gross Profit/(Loss) $0 ($306,470)
-- --------
OPERATING EXPENSES:
Selling, General & Administrative $538,429 $1,109,064
Research & Development $10,712 $48,909
Depreciation and Amortization $ 2,796 $4,213
Interest Expense $20,850 $12,500
Capital Assets Written Off $0 $31,059
Write-off Investment in Subsidiary
(Note 7) $930,000 $0
-------- --
TOTAL EXPENSES $1,502,787 $1,205,745
---------- ----------
========== ($1,512,215)
NET (LOSS) FOR THE PERIOD ($1,479,322) ==========
===========
Earnings Per Share (0.06) (0.10)
==== ====
Average common shares outstanding
during period 24,986,646 15,355,914
========== ==========
</TABLE>
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF DEFICIT
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deficit - Beginning of the Period ($2,947,602) ($1,435,387)
Net Loss - Current Period ($1,479,322) ($1,512,215)
----------- -----------
Deficit - End of Period ($4,426,924) ($2,947,602)
=========== ===========
</TABLE>
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOW
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net gain (loss) for the period ($1,479,322) ($1,512,215)
Items not requiring an outlay of Cash:
Amortization of Fixed Assets $ 2,796 $ 4,213
Capital Assets Written Off $ 0 $ 31,059
Write-off Investment in Subsidiary $ 930,000 $ 0
Net Changes in non-cash working
capital items related to operations:
Inventory $ 0 $ 286,593
Accounts Receivable $ 0 $ 69,162
Miscellaneous Receivable $ 34,214 ($15,600)
Prepaids and Deposits ($155,075) $ 202,500
Accounts Payable $ 38,401 $ 353,019
------------ ------------
Total Cash Flow Used in Operations ($628,986) ($581,269)
============ ============
CASH FROM FINANCING ACTIVITIES
Loan Payable $ 34,543 ($38,228)
Proceeds of Common Stock Issuance $ 1,537,438 $ 464,910
------------ ------------
Net Cash Used in Financing Activities $ 1,571,981 $ 426,682
============ ============
CASH USED IN INVESTING ACTIVITIES
Acquisition of Fixed Assets $ 0 ($254)
Write-off of Subsidiary ($930,000) $ 0
------------ ------------
Net Cash Used in Investing Activities ($930,000) ($254)
============ ============
NET INCREASE (DECREASE) IN CASH FOR
THE PERIOD $ 12,995 $ 154,841
Cash - Beginning of period ($139) $ 154,702
------------ ------------
Cash/(Bank Indebtedness) - End of $ 12,856 ($139)
period ============ ============
</TABLE>
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY
<TABLE>
<CAPTION>
For the Year Ended December 31, 1998
Shares Par Value Additional Paid-Up
Capital
---------------------------------------------------------------------
<S> <C> <C> <C>
Opening Balance - December 31, 1997 16,140,445 $1,614 $2,216,566
Issuance of Common Shares on January 7, 75.000 $ 8 $ 9,367
1998 due to the exercise of Stock Options
at $0.125 per share
Issuance of Common Shares on February 19, 3,720,000 $ 372 $ 929,628
1998 due to the purchase of 1280884
Ontario Inc. (Note 7)
Issuance of Common Shares on February 19, 582,217 $ 58 $ 57,415
1998 due to the exercise of Stock
Options at $0.05-$0.125 per share
Issuance of Common Shares on March 19, 200,000 $ 20 $ 19,980
1998 due to the Exercise of Stock
Options at $0.10 per share
Issuance of Common Shares on April 22, 1,000,000 $ 100 $ 99,900
1998
Issuance of Common Shares on May 28, 1998 2,855,000 $ 285 $ 147,305
Issuance of Common Shares on June 8, 1998 180,000 $ 18 $ 17,982
Issuance of Common Shares on June 23, 1998 1,000,000 $ 100 $ 49,900
Issuance of Common Shares on July 16, 1998 4,100,000 $ 410 $ 204,590
---------- ------ ----------
Balance as at December 31, 1998 29,852,662 $2,985 $3,752,633
========== ====== ==========
</TABLE>
<PAGE>
Paradigm Advanced Technologies Inc.
Notes To Financial Statements
For the Year Ended December 31, 1998
Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
The Corporation has incurred losses since its incorporation in 1996. The
Corporation has funded its operations to date through the issue of shares and
debt.
The Corporation plans to continue its efforts to acquire equity partners, to
make private placements, and to seek both private and government funding for its
projects. The Corporation has reduced its expenses and believes that it will be
successful in its financing activities and that sufficient funding will be
raised to finance the Corporations activities until the Corporation attains
profitability.
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%.
METHOD OF ACCOUNTING
The Corporation maintains its books and prepares its financial statements using
the accrual basis of accounting.
There are no material differences in the determination of Net Earnings and per
share calculations between Canadian and U.S GAAP.
Note 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.
Note 3. PREPAIDS AND DEPOSITS
Prepaids and Deposits include the amounts paid for the exclusive agency rights
to a GPS patent. The cost of the agency rights will be amortized over the term
of the agency agreement, which is due to commence in 1999.
Note 4. CAPITAL ASSETS
<TABLE>
<CAPTION>
COST ACCUMULATED NET BOOK NET BOOK VALUE
DEPRECIATION VALUE 1997
1998 1998 1998
<S> <C> <C> <C> <C>
FURNITURE
AND FIXTURES $21,847 $10,662 $11,185 $13,982
</TABLE>
<PAGE>
Paradigm Advanced Technologies Inc.
Notes To Financial Statements
For the Year Ended December 31, 1998
Note 5. LOANS PAYABLE
Loans payable include:
a) Loans amounting to $243,842, 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%.
b) Convertible promissory notes of $60,000 which are due and payable on December
31, 1999 and are convertible into common shares at a rate of $0.05 per share.
Interest is payable on these convertible promissory notes at a rate of 12.5% per
annum.
Note 6. 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 31,1998, are as follows:
<TABLE>
<CAPTION>
Year Granted Expiry Date Price Range No. of Shares
<S> <C> <C> <C>
1996 Jan 2001 $ 0.05 7,583,334
1997 Nov 2000 $ 0.12 45,000
1997 Nov 2000 $ 0.125 125,000
1997 Oct 2000 $ 0.15 40,000
1997 Nov 2000 $ 0.20 50.000
1997 Dec 2000 $0.25-$0.40 300,000
1998 Mar 2001 $0.05-$0.10 2,350,000
----------
TOTAL STOCK OPTIONS OUTSTANDING 10,493,334
==========
</TABLE>
b) As at December 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 March 2000. An additional 6,707,000 warrants
were issued during the year, exercisable at prices of $0.10-$0.25 per share for
each warrant owned. These warrants are exercisable over a three-year period.
Note 7. 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 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.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By: /s/ David Kerzner
-------------------------------
David Kerzner
President, Chief Executive Officer
and Director
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 Report, 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 Exchange Act, this Report has been
signed below by the following persons on behalf of the Company in the capacities
and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ David Kerzner President, Chief Executive February 10, 2000
- ---------------------- Officer (Principal Executive
David Kerzner Officer) and Director
/s/ Selwyn Wener Chief Financial Officer February 10, 2000
- ---------------------- (Principal Financial Officer)
Selwyn Wener
/s/ Jacob Kerzner Director February 10, 2000
- ----------------------
Jacob Kerzner
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM UNAUDITED
FINANCIAL STATEMENTS, DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 12,856
<SECURITIES> 0
<RECEIVABLES> 1,302
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 169,233
<PP&E> 21,847
<DEPRECIATION> (10,662)
<TOTAL-ASSETS> 180,418
<CURRENT-LIABILITIES> 851,724
<BONDS> 0
0
0
<COMMON> 3,755,618
<OTHER-SE> (4,426,924)
<TOTAL-LIABILITY-AND-EQUITY> 180,418
<SALES> 23,465
<TOTAL-REVENUES> 23,465
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,481,937
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,850
<INCOME-PRETAX> (1,479,322)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,479,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,479,322)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
