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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, 1999
OR
___ Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transition period from __________ to __________.
Commission File Number: 0-28836
PARADIGM ADVANCED TECHNOLOGIES, INC.
(Name of Small Business Issuer in Its Charter)
Delaware 33-0692466
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
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 ___
___
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [X]
The issuer had no revenues for its most recent fiscal year.
As of April 10, 2000, the aggregate market values of the registrant's
common stock held by non-affiliates of the registrant (based upon the per share
closing price of $2.38 on April 10, 2000, and for the purpose of this
calculation only, the assumption that all of the registrant's directors and
executive officers are affiliates) was approximately $120,516,125.
As of April 10, 2000, there were 52,637,027 shares of the registrant's
common stock outstanding.
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PART I
ITEM 1. Description of Business
The discussion below contains certain forward-looking statements (as such
term is defined in Section 21E of the Securities Exchange Act of 1934) that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's results, performance and achievements in 2000 and beyond could differ
materially from those expressed in, or implied by, any such forward-looking
statements. See "Cautionary Note Regarding Forward-Looking Statements."
Summary
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 demand for digital image and interactive global positioning
system ("GPS") tracking technology in North America, South America, Europe and
Asia.
The Company is the exclusive licensing agent for a patent which covers an
invention comprising a portable locating unit useful both as a cellular
telephone and portable global positioning system that provides latitude and
longitude information remotely to a base unit display. The system includes a
small hand held receiver that receives signals from a satellite GPS and timing
and computing circuits to provide location information signals. The hand held
unit also includes a modem and transmitter to a cellular telephone network which
is connected to the base unit computational system and display. The location of
an individual or object can thus be determined at the remote station through the
use of the cellular telephone network.
On March 29, 2000, the Company completed the acquisition of PowerLOC
Technologies, Inc. ("PowerLOC") and Power Point Micro Systems Inc. ("Power
Point"). PowerLOC is a research and development company that has developed a
low-cost, miniature mobile-location GPS unit that transmits its position to a
base station through existing PCS, pager or cellular phone wireless networks.
Power Point is an international telecommunications consulting firm specializing
in wireless and wireline, voice and data systems integration. Since its
incorporation in 1992, and in partnership with leading carriers and network
equipment manufacturers, Power Point has designed and deployed more than 100
large-scale telecom and datacom networks in several countries. The aggregate
purchase prices of these companies consisted of (1) $300,000, (2) 5,000,000
common shares and (3) an option to acquire an additional 4,166,666 common
shares, which option is fully vested and exercisable for a three-year period.
Prior to the acquisition of PowerLOC, the Company had been developing the
"R-2" product for personal tracking as well as for vehicular tracking purposes.
During 1999, the Company's efforts to develop the R-2 were limited by the
Company's lack of capital resources. The "R-2" was too large and expensive for
the consumer market and required additional research and development to make the
product marketable. The miniature mobile-location GPS unit owned by PowerLOC
represents a superior personal tracking device to the Company's "R-2". As a
result of the PowerLOC acquisition, the Company has discontinued development of
the "R-2".
The Company had no revenues in 1999.
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Background
Precise determination of locations both on and above the earth's surface is
a fundamental requirement in many applications. For example, position data is
used for navigation on land, sea and air, and for tracking vehicles, cargo and
individuals. GPS is a system of 27 orbiting Navstar satellites established and
funded by the U.S. Government. On April 27, 1995, GPS was declared by the U.S.
Air Force Space Command to have achieved full operational capability. GPS can
complement or replace many other forms of electronic navigation and position
data systems. GPS offers major advantages over prior technologies in terms of
ease of use, precision, and accuracy, with worldwide coverage.
GPS positioning is based on a triangulation technique that precisely
measures distances from three or more Navstar satellites. The satellites
continuously transmit precisely timed radio signals using extremely accurate
atomic clocks. A GPS receiver calculates distances from the satellites in view
by determining the travel time of a signal from the satellite to the receiver.
The receiver then triangulates its position using its known distance from
various satellites. Under normal circumstances, a current stand-alone GPS
receiver is able to calculate its position at any point on earth, in the earth's
atmosphere, or in lower earth orbit, to within 100 meters, 24 hours a day. When
a GPS receiver is coupled with a reference receiver with known precise position,
accuracies of less than ten centimeters are possible.
The usefulness of GPS is dependent upon the locations of the receiver and
the GPS satellites that are above the horizon at any given time. The current
deployment of 27 satellites permits three-dimensional worldwide coverage 24
hours a day. However, reception of GPS signals typically requires line-of-sight
visibility between the Navstar satellites and the receiver, which can be blocked
by buildings, hills and dense foliage. Generally, optimal signal reception
requires that each satellite be above the horizon, and the receiver have a line
of sight to at least three satellites in order to determine its location in two
dimensions--latitude and longitude. The accuracy of GPS may also be limited by
distortion of GPS signals from ionospheric and other atmospheric conditions, and
intentional or inadvertent signal interference or Selective Availability ("SA").
Selective Availability, which is the largest component of GPS distortion, is
controlled by the U.S. Department of Defense and is a currently activated,
intentional system-wide degradation of stand-alone GPS accuracy from
approximately 25 to 100 meters. Selective Availability may be implemented by the
U.S. Department of Defense in order to deny hostile forces the highly accurate
position, time and velocity information supplied by GPS. In certain military
applications, classified devices are utilized to decode the SA degradation and
return accuracies to their original levels.
The Company uses client-server system architecture and proprietary
mathematical algorithms to minimize traditional line-of-sight limitations on
reception of GPS signals by increasing system sensitivity and computation
accuracy and minimizing the effect of certain factors which cause location
errors.
The Company believes that the market for GPS technology is poised for
significant growth. The FCC has required wireless carriers to implement
emergency 911 service. Phase I of the FCC's E911 rules requires that a dialable
number accompany each 911 call, which allows the Public Safety Answering Point
(PSAP) dispatcher to call back if the call is disconnected or to obtain
additional information. It also gives the dispatcher the location at the cell
site that received the call as a rough indication of the caller's location.
Phase II of the FCC's wireless 911 rules allows the dispatcher to know more
precisely where the caller is located, a capability called Automatic Location
Identification or ALI. These rules, subject to certain conditions, are scheduled
to be phased in between October 1, 2001 and December 31, 2004. The Company
believes that these rules are likely to increase demand for its GPS technology.
Business Strategy
The Company's primary objective is to become a leader in the Internet-
enabled location commerce (L-commerce) industry. The key steps in achieving
these objectives are as follows:
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. License other parties using the process covered by the patent;
. Develop PowerLOC product line, identify target markets for PowerLOC
products and explore new product opportunities; and
. Pursue alliances with business partners.
Patent and Licensing Rights
Paradigm was the first company to be licensed under a patent which covers
an invention comprising a portable locating unit useful both as a cellular
telephone and portable global positioning system that provides latitude and
longitude information remotely to a base unit display. The system includes a
small hand held receiver that receives signals from a satellite GPS positioning
system and timing and computing circuits to provide location information
signals. The hand held unit also includes a modem and transmitter to a cellular
telephone network which is connected to the base unit computational system and
display. The location of an individual or object can thus be determined at the
remote station through the use of the cellular telephone network. The patent (US
Patent # 5,043,736) was granted in 1991 and 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 four to six. The patent has been
issued in the United States and Australia and upheld in the U.S. The patent is
pending in Canada and Japan.
Paradigm has entered into an agency agreement with the patent holder as the
exclusive worldwide licensing agent for the patent. The Company expects to
generate revenues by licensing companies who are using or plan to use the
process covered by the patent. The Company is currently negotiating with a
number of prospective licensees.
PowerLOC Products
The Company has completed the initial development of its core MML(TM)
technology and has produced and tested a series of battery operated prototypes
which implements its GPS, communications and mapping software which is the
foundation of the iPL.client software which is described below. The MML module
consists of a miniature mobile-location GPS unit that transmits its position to
a base station through existing PCS, pager or cellular phone wireless networks.
The PowerLOC system prototype locates targets with accuracy for providing
detailed information about the user through the Internet almost instantaneously.
In tests, this level of performance was duplicated even when closed inside a car
glove compartment. The tests also demonstrated the power management features
which allow for an effective battery operated system. PowerLOC's system solution
consist of three components:
. iPL.mobile - the portable unit based on PowerLOC's MML technology,
. iPL.tracker - a carrier grade server that acts as network controller,
GPS location server, Internet gateway and billing system, and
. iPL.client - a client's software-only solution that includes a fully-
featured geographical information software (GIS) engine.
iPL.mobile
PowerLoc uses GPS to pinpoint the location of the vehicle, appliance
or person carrying the iPL mobile device. The Company is developing a personal
locator which will be the size of a pager device which can be used for people
who require continuous location monitoring. Personal locators will be modular,
and will include three components: (1) GPS module, (2) Transceiver module, (3)
Battery. The GPS module will include a chip-set whose main functions are to:
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. execute systems and network management and control functions;
. receive GPS data, and to compute the exact location; and
. format the data and to interface with the wireless transceiver module.
The Company intends to license its GPS module to manufacturers of cellular
telephones, pagers and personal digital assistants. iPL.mobile's GPS electronics
equipment will collect data from several satellites, and will use it to
calculate its exact position, altitude and velocity. This data will then be
transmitted from the wireless network to the iPL.tracker, a proprietary server
which will process raw data received from up to 50,000 iPL.mobile units and will
send the exact location and status of these mobile units to its dispatching
centers or monitoring stations via the Internet.
iPL.client
iPL.client will be a proprietary application that will be used in
connection with mapping/GIS software to provide specific location information
which will be transmittted by iPL.mobile or other GPS tracking devices.
Features of iPL.client will include:
. Audible alarms and warnings triggered by location changes;
. Seamless integration with scheduling programs such as MS-Exchange(TM),
MS-Outlook(TM), ACT(TM);
. Navigation planning; and
. Tracking history.
iPL.client software will be marketed and supported through the worldwide web.
Potential customers will be able to download the software and maps using
e-commerce tools.
iPL.tracker
The tracker will be the system's main server. iPL.tracker will be sold to
and installed at the wireless carrier site or, alternatively, at the site of the
location service provider. iPL.tracker software will be designed to operate in
any reliable, carrier grade, mid-range or server computer system. iPL.tracker's
main tasks include:
. Computing the exact location of each mobile unit;
. Tracking up to 50,000 mobile units simultaneously;
. Managing the network; and
. Creating billing records.
Suspended Products
During 1999, the Company decided to focus its development efforts on GPS
and licensing the patent. As a result, the Company's video surveillance business
was suspended. This business consists primarily of the VideoBank video
surveillance software as well as the third party distribution of the Satcom IV
system.
Business Combinations, Dispositions and Strategic Alliances
The Company regularly considers the acquisition or development of new
businesses and reviews the prospects of its existing businesses to determine
whether any should be modified, or otherwise discontinued. The Company also
considers and actively pursues strategic alliances with potential business
partners.
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In January 2000, the Company announced that it had signed a letter of
intent to enter into a strategic alliance with Pangea Petroleum Corporation. As
part of this arrangement, the Company expects to issue to Pangea or its
affiliates 7.5 million common shares and warrants covering an undetermined
amount of shares in a newly created class of Paradigm stock. As consideration
for these securities Pangea or its affiliates will (1) issue a warrant covering
12.5 million shares of Pangea common stock to the Company, (2) provide
consulting and public relations services to the Company and (3) transfer to the
Company a 50% interest in WorldLink USA, which is a development stage company
wholly owned by Pangea that owns video streaming technology and a library of
concerts previously broadcast over the Internet. Jacob International, an
affiliate of Pangea, has a relationship with the Company pursuant to which it
receives fees, including common shares, for certain management consulting
services relating to corporate financing activities.
During March 2000, the Company acquired all the outstanding capital stock
of PowerLOC Technologies Inc., which is a GPS technology company based in
Ontario, Canada. In connection with this business combination, the Company also
acquired the telecommunications consulting business of Power Point Microsystems
Inc. The aggregate purchase prices of these companies consisted of (1) $300,000,
(2) 5,000,000 common shares and (3) an option to acquire an additional 4,166,666
common shares, which option is fully vested and exercisable for a three-year
period. The business combination will be accounted for using the purchase method
of accounting.
The Company sold 1280884 Ontario Inc. and its wholly owned subsidiary North
York Leasing Inc. in June 1998 to an unrelated party for a nominal sum. The
Company acquired all the shares of these companies in February 1998 at a cost of
$930,000 plus an obligation to issue additional shares depending upon the
Company's stock price. The Company has filed suit against the law firm that
represented all of the parties in this transaction. See "Legal Proceedings."
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 of 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.
Manufacturing and Engineering Relationships
The Company is currently interviewing engineering and manufacturing firms
for its PowerLOC products. The Company acquired the MML technology from
PowerLOC. The Company has entered into an agreement with HunterPro S.A, an
engineering firm based in South America, to provide ongoing development and
support of the MML technology.
Competition
There are numerous companies offering location technologies, products and
services. Most of these companies focus on the vehicle market. These include
companies such as OnStar, a division of General Motors Corporation, @Track
Communications, Inc. (fka HighwayMaster Communications, Inc.), ATX Technologies
Inc., Trimble Navigation Limited, Rockwell International, and Qualcomm, Inc. In
certain instances these companies provide additional services to the motorists,
such as roadside and emergency operator assistance. Most of the current products
use GPS receivers which are relatively large, heavy and require a significant
amount of power. Some of these are susceptible to variances in the signal levels
and do not perform well when there is no line of sight to the GPS satellites.
The Company is focusing on the personal tracking market where a smaller unit is
required.
One of the Company's competitors has developed a system that is similar to
the PowerLOC products and a process that is similar to the process covered by
the patent. A system solution patent by Snaptrack, a company which was recently
purchased by Qualcomm, consists of a distributed processing concept that uses a
base station to communicate with the mobile GPS in order to generate a location
readout.
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.
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Employees
The Company had 4 full time employees at December 31, 1999. In addition to
David Kerzner, there were three employees at December 31, 1999, 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
HunterPro S.A. of Uruguay is the Company's major supplier. The Company does
not have any major customers.
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 $1,000 (Canadian). The Company is currently hiring
new employees and plans to move to larger office space in the near future. The
Company plans on subcontracting manufacturing and parts of its development
believes that it will be able to find suitable facilities when required.
ITEM 3. Legal Proceedings
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 was 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 was less than 25 cents, so that the total consideration was the
equivalent of $930,000. The Company instituted legal action against the legal
firm who represented all the parties in the above transaction and who is the
escrow agent for the above shares and is claiming that these shares be canceled
and that damages be paid to the Company. In February and March 2000, the Company
obtained a release from certain vendors of these companies who held 3,255,999
Common Shares. These vendors agreed to waive their rights to receive any
additional shares in connection with this transaction. No provision has been
made in the financial statements for the issuance of any additional shares to
the vendors who own 464,001 Common Shares and who have not yet agreed to a
release.
In March 2000, the Company was named as the defendant in a lawsuit brought
by Luigi Brun in Canada. The complaint seeks specific performance and monetary
damages arising out of a dispute relating to an alleged obligation to issue
common shares. The Company believes this claim is without merit and intends to
vigorously defend the lawsuit. It is not possible at this time to predict the
outcome of the lawsuit, including whether the Company will be forced to issue
common shares or to estimate the amount or range of potential loss, if any.
In March 2000, the Company was named as the defendant in a lawsuit brought
by Pines International, Inc. in Canada. The complaint seeks specific performance
and monetary damages arising out of a dispute relating to an alleged obligation
to issue common shares. The Company believes this claim is without merit and
intends to vigorously defend the lawsuit. It is not possible at this time to
predict the outcome of the lawsuit, including whether the Company will be forced
to issue common shares or to estimate the amount or range of potential loss, if
any.
In April 2000, the Company was named as the defendant in a lawsuit brought
by Barrett Evans in the United States District Court, Central District of
California. The complaint seeks specific performance, monetary damages and
injunctive relief arising out of a dispute relating to the terms of a
convertible promissory note. The Company believes this claim is without merit
and intends to vigorously defend the lawsuit. It is not possible at this time to
predict the outcome of the lawsuit, including whether the Company will be forced
to issue common shares or to estimate the amount or range of potential loss, if
any.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
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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. The
following table sets forth the range of high and low closing representative bid
prices for the Company's Common Stock for each quarterly period indicated (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, 1998............. High Bid Low Bid
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First Quarter................................ $0.172 $0.047
Second Quarter............................... $0.078 $0.031
Third Quarter................................ $0.188 $0.047
Fourth Quarter............................... $0.141 $0.047
Fiscal Year Ended December 31, 1999
First Quarter................................ $0.094 $0.047
Second Quarter............................... $0.063 $0.031
Third Quarter................................ $0.063 $0.031
Fourth Quarter............................... $0.078 $0.016
As of April 10, 2000, there were 116 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.
During 1999, the Company issued convertible debentures having an aggregate
principal amount of $166,000 to eight parties. These debentures were sold
pursuant to an exemption from registration under the Securities Act of 1933. The
debentures pay interest at the rate of 12.5% per annum and are convertible into
common shares at the price of $.05 per share.
Item 6. Management's Discussion and Analysis of Plan of Operation
The discussion below contains certain forward-looking statements (as such
term is defined in Section 21E of the Securities Exchange Act of 1934) that are
based on the beliefs of the Company's management, as well as assumptions made
by, and information currently available to, the Company's management. The
Company's results, performance and achievements in 2000 and beyond could differ
materially from those expressed in, or implied by, any such forward-looking
statements. See "Cautionary Note Regarding Forward-Looking Statements."
Liquidity and Capital Resources
The Company had cash on hand of $65 at December 31, 1999. Subsequent to the
year end, the Company raised in excess of $1,500,000 through the price paid to
exercise stock options and warrants and through the issuance of common shares.
As of April 10, 2000, the Company had approximately $800,000 cash on hand. 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
and the assumption of additional debt, although there can be no assurance that
such financing will be available when needed or, if available, on terms that are
favorable to the Company and its stockholders. The Company does not have any
commitments for capital expenditures and believes that its current cash balances
will be sufficient to meet its operating and development needs for at least the
next six months. If the Company has not obtained additional financing prior to
that time it will need to delay or eliminate some of its development activities.
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Plan of Operation
The Company is the exclusive licensing agent for a broad based patent which
covers an invention comprising a portable locating unit useful both as a
cellular telephone and portable global positioning system that provides latitude
and longitude information remotely to a base unit display. The system includes a
small hand held receiver that receives signals from a satellite GPS and timing
and computing circuits to provide location information signals. The hand held
unit also includes a modem and transmitter to a cellular telephone network which
is connected to the base unit computational system and display. The location of
an individual or object can thus be determined at the remote station through the
use of the cellular telephone network. The Company plans to license parties
using this process and expects to earn licensing revenue from these agreements.
The Company announced the signing of its first licensee in April 2000. As a
result of the acquisition of PowerLOC Technologies Inc. and the projected growth
in wireless location services, the Company is increasing its development
activities relating to the miniature GPS tracking device. The Company plans to
negotiate distribution or sales representation agreements with manufacturers and
systems integrators to distribute these products and to hire a public relations
and advertising firm.
The Company does not currently have any intentions to acquire a plant or
any significant equipment, as the Company plans to subcontract its manufacturing
activities. The Company plans to hire additional technical, sales and
administrative employees prior to December 2000.
Research and Development
A significant amount of time and effort was placed on research and
development since the Company's inception. The Company uses contractors and
third party companies to continue its research and development activities. The
Company plans to hire a number of engineers for its PowerLOC subsidiary, who
will be responsible for part of the development and who will supervise the work
done by the contractors and third party engineers.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-KSB contains forward-looking statements that reflect the
Company's current expectations about its future operating results, performance,
and opportunities that involve substantial risks and uncertainties. When used in
this Form 10-KSB, the words "anticipate," "believe," "estimate," "plan,"
"intend," and "expect," and similar expressions, as they relate to the Company
or its management, are intended to identify such forward-looking statements.
These forward looking statements are based on information currently available to
the Company and are subject to a number of risks, uncertainties, and other
factors that could cause the Company's actual results, performance, prospects,
and opportunities to differ materially from those expressed in, or contribute to
such differences include, but are not limited to, limited capital resources,
lack of operating history, intellectual property rights, reliance on one product
line for revenue, and other factors discussed under "Risk Factors." Except as
required by the federal securities law, the Company does not undertake any
obligation to release publicly any revisions to any forward-looking statements
to reflect events or circumstances after the date of this Form 10-KSB or for any
other reason.
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RISK FACTORS
The Company has limited capital resources making its ability to continue
operations uncertain; independent auditors' report contains uncertainty
paragraph
The Company has experienced recurring losses from operations since its
inception and has limited resources. The Company has historically relied upon
equity and debt financings to fund its operations because its internally
generated cash flows from operations have historically been, and continue to be,
insufficient for its cash needs. Because of its limited resources, the viability
of the Company is dependent upon its ability to quickly raise sufficient capital
to meet its cash requirements. The accompanying financial statements have been
prepared assuming that the Company will continue as a going concern. However,
the accompanying Independent Auditors' Report states that the Company has
incurred significant losses in the past and continues to have negative working
capital and that these conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
The Company faces risks associated with dependence on intellectual property
rights
The Company's success is dependent to a significant degree on its
intellectual property rights. Effective protection may not be available for
these rights. Accordingly, although there can be no assurance that the patent
will provide adequate protection for the process covered by the patent or that
the license will permit the Company to fully execute its business plan.
Any inability to adequately protect its rights under the patent could
seriously harm the Company's business. In addition, litigation may be necessary
in the future to enforce the Company's intellectual property rights. Such
litigation, whether successful or unsuccessful, could result in substantial
costs and diversions of resources, either of which could negatively affect the
Company's business.
The arrangement with Pangea and World Link USA will dilute the ownership of
the Company's existing stockholders and the anticipated benefits of the
arrangement may not materialize.
Based on the common shares outstanding as of April 10, 2000, the Company
expects to issue approximately 12% of its common shares to Pangea. In connection
with this arrangement, the Company also expects to issue warrants to Pangea and
World Link USA which may be convertible into common shares of the Company. This
arrangement will dilute the percentage ownership held by the Company's
stockholders when compared to such ownership prior to the arrangement.
The joint venture that would be formed as a result of this arrangement
would compete in the Internet broadcasting business. This business involves
rapidly changing technology and the Company's management team has limited
experience in the Internet broadcasting field. The anticipated benefits of the
Pangea arrangement may not materialize.
The Company is a development stage company without any operating history
The Company is a development stage company. Accordingly, we do not have any
operating history upon which you can evaluate our business and prospects. You
must consider the risks and uncertainties frequently encountered by early stage,
single-product technology companies like ours in a new and evolving market, such
as GPS tracking technology. If we are unsuccessful in addressing these risks and
uncertainties, our business will be seriously harmed.
The PowerLOC suite of products and licensing fees will be the Company's
primary source of revenue
The Company has a limited number of products in development. Developing
additional products would require a substantial investment of time and money.
Therefore, the Company does not expect to be in a position to sell additional
products in the foreseeable future. As a result, the Company's success is
largely dependent on generating licensing revenue and successfully completing
development of, and marketing the PowerLOC products. If the Company is not
successful in generating licensing revenue or in marketing the PowerLOC
products, the Company's business will be seriously harmed.
The Company has incurred losses and may not be profitable in the future
Since inception in January 1996, the Company has incurred net losses from
research and development and operating costs. At December 31, 1999, the Company
had an accumulated deficit of approximately $4.9 million. The Company expects to
continue to incur significant research and development costs. In addition, as
the PowerLOC products approach marketability, the Company expects to
significantly increase its sales and marketing and general and administrative
expenses. The Company's business strategies may not be successful and the
Company may not be profitable in any future period. If the Company does become
profitable, it is not certain that such performance could be sustained or
increased on a quarterly or annual basis.
The market in which the Company competes is highly competitive
The Company believes that competition in the telecommunications industry in
general, and in the new and existing markets served by the Company in
particular, is intense and likely to increase substantially. The Company's
ability to compete successfully in the future will depend on several factors,
including:
. the cost effectiveness, quality, price, service and market acceptance
of the Company's products;
. its response to the entry of new competitors or the introduction of
new products by the Company's competitors;
11
<PAGE>
. its ability to keep pace with changing technology and customer
requirements;
. the timely development or acquisition of new or enhanced products; and
. the timing of new product introductions by the Company or its
competitors.
The Company believes that its primary competitors are OnStar, a division of
General Motors Corporation, @Track Communications, Inc. (fka HighwayMaster
Communications, Inc.), ATX Technologies Inc. and Trimble Navigation Limited Many
of the Company's competitors or potential competitors are more established than
the Company and have greater financial, manufacturing, technical and marketing
resources. Furthermore, the Company expects its competitors to continually
improve their design and manufacturing capabilities and to introduce new
products and services with enhanced performance characteristics and/or lower
prices. This competitive environment could result in significant price
reductions or the loss of orders from potential customers which could seriously
harm the Company's business.
We may be required to delay, reduce or eliminate some or all of our
research and development activities or sales and marketing efforts if we fail to
obtain additional funding that may be required to satisfy our future capital
expenditure needs
We plan to continue to spend substantial funds to continue our research and
development activities and to expand our sales and marketing efforts. Our future
liquidity and capital requirements will depend upon numerous factors, including
actions relating to the cost and timing of research and development and sales
and marketing activities, the extent to which our PowerLOC products gain market
acceptance and competitive developments. Any additional required financing may
not be available on satisfactory terms, if at all. If we are unable to obtain
financing, we may be required to delay, reduce or eliminate some or all of our
research and development activities or sales and marketing efforts.
The loss of, or interruption of supply from, key vendors could limit our
ability to develop and distribute the PowerLOC products
Upon the selection of manufacturing partners, the Company will be
substantially dependent upon a limited number of suppliers for the manufacture
of its PowerLOC products. The dependence upon these suppliers will subject the
Company to risks associated with an interruption of supply if the Company is not
able to find alternative sources on a timely basis. There can be no assurance
that any delay, disruptions, or quality problems resulting from the use of such
suppliers will not have a significantly negative effect on the Company's
business.
Future sales of our common stock in the public market could cause our stock
price to fall
If our shareholders sell substantial amounts of our common stock in the
public market, the market price of our common stock could fall. As of April 10,
2000, the Company has 52,637,027 outstanding shares of common stock, 27,171,674
outstanding options and 19,739,000 outstanding warrants. Except for (1)
27,160,932 shares of common stock (including 2,000,000 shares held by
affiliates), and (2) all of the outstanding options and warrants, all of these
securities are freely tradeable. The holders of a majority of the remaining
securities will be entitled to have the resale of their shares registered under
the Securities Act of 1933, and such shares are expected to become freely
tradeable during the third quarter of this year.
12
<PAGE>
The Company may be unsuccessful in integrating acquired products and
businesses. The Company is continuously evaluating alliances and external
investments in technologies related to its business, and has already entered
into certain strategic alliances and has formed strategic partnerships with GPS
related technology companies. Acquisitions of companies, divisions of companies,
or products and alliances and strategic investments entail numerous risks,
including:
. the potential inability to successfully integrate acquired operations
and products or to realize anticipated synergies, economies of scale,
or other value;
. diversion of management's attention;
. loss of key employees of acquired operations; and
. inability to recover strategic investments in development stage
entities.
Any such problems could seriously harm the Company's business. No assurances can
be given that the Company will not incur problems from current or future
alliances, acquisitions, or investments. Furthermore, there can be no assurance
that the Company will realize value from any such strategic alliances,
acquisitions, or investments.
Item 7. Financial Statements
The financial statements of the Company, including the notes thereto,
together with the report of independent certified public accountants thereon,
are presented beginning at page F-1.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The directors and executive officers of the Company are listed on the
following table. There are no other promoters or control persons.
Name Age Position
---- --- --------
David Kerzner 39 Chief Executive Officer, President,
Secretary-Treasurer, and Director
Selwyn Wener 49 Chief Financial Officer
Jacob Kerzner 42 Director
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
13
<PAGE>
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 a director of the Company since
its inception. 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.
Compliance with Section 16(a) of the Exchange Act
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 1999, or written representations that
no Forms 5s were required, the Company believes that during the fiscal year
ended December 31, 1999, 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,
1999.
<TABLE>
<CAPTION>
Shares of
Common
Annual Compensation Stock
Name and --------------------------- Underlying
principal position Year Salary Bonus options/SARS
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
David Kerzner 1999 $100,000 $0 7,000,000
President
1998 $ 75,000 $0 0
1997 $100,000 $0 0
</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.
14
<PAGE>
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 provides
for a fee of $100,000 per year. 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.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table provides information concerning beneficial ownership of
the Company's Common Stock as of April 10, 2000 for:
. each person or group that the Company knows own more than 5% of the
outstanding common stock;
. the chief executive officer;
. each of the Company's directors; and
. all of the Company's directors and executive officers as a group.
The following table lists the applicable percentage of beneficial ownership
based on 52,637,027 shares of Common Stock outstanding as of April 10, 2000.
Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission, and generally includes voting power and/or
investment with respect to the securities held. The fourth column shows
separately shares of common stock subject to options currently exercisable or
exercisable within 60 days after April 10, 2000 by the directors and chief
executive officer individually and all directors and executive officers as a
group. These shares are included in the first column of the table below. Shares
of common stock which may be acquired by exercise of stock options are deemed
outstanding for purposes of computing the percentage beneficially owned by the
persons holding such options but are not deemed outstanding for purposes of
computing the percentage beneficially owned by any other person. Except as
otherwise noted, the persons or entities named have sole voting and investment
power with respect to all shares shown as beneficially owned by them.
15
<PAGE>
<TABLE>
<CAPTION>
Amount and Nature of Percent Shares Subject
Name and Address of Beneficial Owner Beneficial Owner of Class to Options
- ------------------------------------ ---------------- -------- ----------
<S> <C> <C> <C>
David Kerzner, President and CEO 13,187,500 20.3% 12,187,500
Jacob Kerzner, Director 2,562,500 4.7% 1,562,500
Selwyn Wener, Chief Financial Officer 5,000,000 8.7% 5,000,000
Jack Y. L. Lee 3,416,668 6.3% 1,675,000
28 Old Park Lane
Richmond Hill, Ontario L4B 2L4
Sarah Casse 3,350,000 6.0% 1,875,000
C-Saw Investments 8,800,000 15.5% 4,250,000
80 Broad Street, 26th Floor
New York, NY 11125
Rachelle Heller 4,983,336 9.1% 2,300,000
333 Wilson Avenue
Suite 400, Toronto, Ontario M3H 1T2
Watson & Associates 5,775,000 10.5% 2,625,000
6A-49 The Donway West
Suite 1122, Toronto, Ontario M3C 2E8
All directors and executive officers as a
group (3 persons) 20,750,000 29.1% 18,750,000
</TABLE>
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 September 1999, the Company granted to Selwyn Wener, the Chief Financial
Officer of the Company, an option to acquire 4,000,000 common shares at an
exercise price of $0.05. The option vested immediately and is exercisable over a
three-year period.
Item 13. Exhibits, List and Reports on Form 8-K
(a) Index to Financial Statements
Report of Independent Auditors
Financial Statements
Balance Sheets at December 31, 1998 and 1999
Statement of Income for the years ended December 31, 1998 and
1999
16
<PAGE>
Statements of Deficit for the years ended December 31, 1998 and
1999
Statements of Cash Flows for the years ended December 31, 1998
and 1999
Notes to Financial Statements
Exhibits
2.1* Agreement dated as of February 18, 2000 between Paradigm Advanced
Technologies, Inc., Watson & Associates International Corp., Eduardo
Guendelman and Harry Zarek relating to the purchase of PowerLOC
Technologies Inc. in Trust.
3.1* Certificate of Incorporation of the Company.
3.2* By-Laws of the Company.
3.3 Certificate of Amendment to Certificate of Incorporation.
4.1 Form of Subscription Agreement relating to January, February and March
2000 private placements.
4.2 Form of Warrant relating to January, February and March 2000 private
placements.
4.3 Form of Debenture relating to 1999 private placements.
10.1* Consulting Agreement with David Kerzner, dated February 1, 1996.
10.2* Paradigm Advanced Technologies, Inc. Stock Option Plan.
10.3 Agency Agreement dated as of June 10, 1998 by and between Eastern
Investments, LLC and Paradigm Advanced Technologies, Inc. including
Amendments dated as of October 10, 1998, November 6, 1998,
January 15,1999, December 9, 1999 and February 9, 2000.
10.4 License Agreement dated as of June 10, 1998 by and between Eastern
Investments, LLC and Paradigm Advanced Technologies, Inc. including
Amendments dated as of October 10, 1998, November 6, 1998, January 15,
1999 and February 2, 2000.
10.5 Consulting Agreement with Jacob International, Inc. dated as of March 7,
2000.
23.1 Consent of Bromberg & Associate.
24.1 Power of Attorney (included in the signature page to this report).
27.1 Financial Data Schedule.
_______________
* Previously filed with the SEC as an Exhibit to, and incorporated herein
by reference from, the Company's Current Report on Form 8-K, filed with
the SEC on April 14, 2000.
** 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) There were no Reports on Form 8-K filed during the last quarter of 1999.
17
<PAGE>
Paradigm Advanced Technologies, Inc.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors....................................................... F-2
Balance Sheet at December 31, 1998 and 1999.......................................... F-3
Statements of Income for years ended December 31, 1998 and 1999...................... F-4
Statements of Deficit for the years ended December 31, 1998 and 1999................. F-5
Statements of Cash Flows for the years ended December 31, 1998 and 1999.............. F-6
Notes to Financial Statements........................................................ F-7
</TABLE>
F-1
<PAGE>
Bromberg & Associate 1183 Finch Avenue West Suite 305
- ---------------------- Downsview, Ontario M3J 2G2
CHARTERED ACCOUNTANTS Office: (416) 663-7521
Fax: (416) 663-1546
AUDITORS' 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 1999 and the statements of income, deficit, changes
in shareholders' equity and cash flows for the years 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 1999 and the results of its operations and the cash flows for the year
then ended in accordance with generally accepted accounting principles.
/s/ Bromberg & Associate
CHARTERED ACCOUNTANTS
DOWNSVIEW, ONTARIO
April 11, 2000
F-2
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Balance Sheets as at
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Bank $ 65 $ 12,856
Miscellaneous Receivable $ 6,321 $ 1,302
Prepaids and deposits (Note 3) $ 175,271 $ 155,075
------------ ------------
$ 181,657 $ 169,233
LONG-TERM ASSETS
Capital Assets (Notes 1, 4) $ 6,730 $ 11,185
------------ ------------
TOTAL ASSETS $ 188,387 $ 180,418
============ ============
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 768,509 $ 460,409
Loans Payable (Note 5) $ 552,504 $ 391,315
------------ ------------
TOTAL LIABILITIES $ 1,321,013 $ 851,724
------------ ------------
SHAREHOLDERS' EQUITY
Share Capital (Notes 5, 7)
Authorized 100,000,000 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:
29,996,662 as of December 31, 1999
29,796,662 as of December 31, 1998 $ 3,765,618 $ 3,755,618
Deficit $ (4,898,244) $ (4,426,924)
------------ ------------
Total Shareholders' Equity $ (1,132,626) $ (671,306)
------------ ------------
Total Liabilities & Shareholders' $ 188,387 $ 180,418
Equity ============ ============
</TABLE>
F-3
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Income
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUES
Sales Revenue $ 0 $ 23,465
Cost of Sales $ 0 $ 0
----------- ------------
Gross Profit $ 0 $ 23,465
----------- ------------
OPERATING EXPENSES:
Selling, General & Administrative $ 408,124 $ 538,429
Research & Development $ 11,820 $ 10,712
Depreciation and Amortization $ 3,351 $ 2,796
Interest Expense $ 48,025 $ 20,850
Write-off Investment in Subsidiary (Note 7) $ 0 $ 930,000
----------- ------------
TOTAL EXPENSES $ 471,320 $ 1,502,787
----------- ------------
===========
$ (471,320) $ (1,479,322)
NET (LOSS) FOR THE YEAR =========== ============
Earnings Per Share (0.02) (0.06)
=========== ============
Average common shares outstanding
during year 29,797,183 24,986,646
=========== ============
</TABLE>
F-4
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Deficit
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Deficit - Beginning of the Year $(4,426,924) $(2,947,602)
Net Loss - Current Year $ (471,320) $(1,479,322)
----------- -----------
Deficit - End of Year $(4,898,244) $(4,426,924)
=========== ===========
</TABLE>
F-5
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Statements of Cash Flow
For the Years Ended December 31,
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net gain (loss) for the year $ (471,320) $ (1,479,322)
Items not requiring an outlay of Cash:
Amortization of Fixed Assets $ 3,351 $ 2,796
Write Off Investment in Subsidiary $ 0 $ 930,000
Net Changes in non-cash working
capital items related to operations:
Miscellaneous Receivable $ (5,019) $ 34,214
Prepaids and Deposits $ (20,196) $ (155,075)
Accounts Payable $ 308,100 $ 38,401
---------- ------------
Total Cash Flow Used in Operations $ (185,084) $ (628,986)
========== ============
CASH FROM FINANCING ACTIVITIES
Loan Payable $ 161,189 $ 34,543
Proceeds of Common Stock Issuance $ 10,000 $ 1,537,438
---------- ------------
Net Cash Used in Financing Activities $ 171,189 $ 1,571,981
========== ============
CASH USED IN INVESTING ACTIVITIES
Acquisition of Fixed Assets $ (3,714) $ 0
Sale of Fixed Asset $ 4,818 $ 0
Write-off of Subsidiary $ 0 $ 930,000
---------- ------------
Net Cash Used in Investing Activities $ 1,104 $ (930,000)
========== ============
NET INCREASE (DECREASE) IN CASH FOR
THE YEAR $ (12,791) $ 12,995
Cash - Beginning of year $ 12,856 $ (139)
---------- ------------
CASH - END OF YEAR $ 65 $ 12,856
========== ============
</TABLE>
F-6
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Notes To Financial Statements
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 issuance 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. In the period January 1, 2000 to March 31, 2000, the Corporation
raised over $1,500,000 through the exercising of stock options and warrants and
through the issue of common shares. In addition, during the same period the
Corporation raised approximately $475,000 through sales of its common shares.
CAPITAL ASSETS
Capital Assets are recorded at cost less accumulated depreciation. Depreciation
is provided using the Declining Balance basis at the following annual rate.
Computer Equipment - 30%.
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.
F-7
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Notes To Financial Statements
Note 4. CAPITAL ASSETS
COST ACCUMULATED NET BOOK NET BOOK
DEPRECIATION VALUE VALUE
1999 1999 1999 1998
FURNITURE
AND FIXTURES $20,744 $14,014 $6,730 $11,185
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 $256,325, convertible into common shares at
rates of $0.02-$0.05 per share. $25,000 of these notes were due and payable on
December 31, 1999. The remaining $231,325 are due and payable in 2000. 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 31,1999, are as follows:
Year Granted Expiry Date Price Range No. of Shares
1996 Jan 2001 $ 0.05 7,743,201
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
1999 Sep 2002 $0.05-$0.10 11,000,000
1999 Dec 2002 $ 0.01 650,000
----------
TOTAL STOCK OPTIONS OUTSTANDING 22,303,201
==========
b) As at December 31,1999 3,742,211 warrants were issued, exercisable at a
prices of $0.18 to $0.30 per share for each warrant owned. These warrants expire
in March 2000. An additional 420,000 warrants are exercisable at $0.50 per share
for each warrant owned and expire in September 2000. An additional 10,007,000
warrants were issued during 1998 and 1999, exercisable at prices of $0.10-$0.25
per share for each warrant owned. These warrants are exercisable over a three-
year period.
F-8
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(A Development Stage Company)
Notes To Financial Statements
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. In February and March
2000, the Company obtained a release from certain vendors of these companies,
who held 3,255,999 Common Shares. These vendors agreed to waive their rights to
receive additional shares based on the abovementioned formula. The Company
disposed of its investment in the above companies in June 1998.
Note 8. Subsequent Events
On March 29, 2000, the Company completed the acquisition of Power Point Micro
Systems Inc. and PowerLOC Technologies, Inc, both of which are based in Toronto,
Ontario. PowerLOC Technologies, Inc. is a research and development company that
has developed a low-cost, miniature mobile-location GPS unit that transmits its
position to a base station through existing PCS, pager or cellular phone
wireless networks. Power Point Micro Systems Inc. is an international
telecommunications consulting firm specializing in wireless and wireline, voice
and data systems integration. The acquisition was completed through the issue of
common shares and stock options as well as a cash payment.
F-9
<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.
Signature Title Date
- --------- ----- ----
/s/ David Kerzner
- ---------------------- President, Chief Executive April 14, 2000
David Kerzner Officer (Principal Executive
Officer) and Director
/s/ Selwyn Wener
- ---------------------- Chief Financial Officer April 14, 2000
Selwyn Wener (Principal Financial Officer)
/s/ Jacob Kerzner
- ---------------------- Director April 14, 2000
Jacob Kerzner
<PAGE>
Exhibit 3.3
State of Delaware
Office of the Secretary of State PAGE 1
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE
OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE
AND CORRECT COPY OF THE CERTIFICATE OF AMENDMENT OF
"PARADIGM ADVANCED TECHNOLOGIES, INC.", FILED IN THIS
OFFICE ON THE THIRTIETH DAY OF SEPTEMBER, A.D. 1999,
AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED
TO THE KENT COUNTY RECORDER OF DEEDS.
/s/ Edward J. Freel
-----------------------------------
Edward J. Freel, Secretary of State
[SEAL]
2580946 8100 AUTHENTICATION: 0002758
991412459 DATE: 09-30-99
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/30/1999
991412459 - 2580946
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
PARADIGM ADVANCED TECHNOLOGIES, INC.
------------------------------------------------
Pursuant to Sections 103 and 242 of the
Delaware General Corporation Law
------------------------------------------------
PARADIGM ADVANCED TECHNOLOGIES, INC. (the "Corporation"), a
corporation organized and existing under and by virtue of the Delaware General
Corporation Law, hereby certifies:
1. Paragraph "FOURTH" of the Certificate of Incorporation of the
Corporation is hereby amended in its entirety to read as follows:
FOURTH: The total number of shares of all classes which
the Corporation shall have authority to issue is one hundred
million (100,000,000) shares, par value $0.0001 per share.
2. The foregoing amendment was duly adopted in accordance
with Sections 103 and 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be executed on February 26, 1999.
PARADIGM ADVANCED TECHNOLOGIES,
INC.
By: /s/ David Kerzner
--------------------------
David Kerzner
President
ATTEST:
- --------------------------
<PAGE>
Exhibit 4.1
PARADIGM ADVANCED TECHNOLOGIES, INC.
SUBSCRIPTION AGREEMENT
Paradigm Advanced Technologies, Inc.
1 Concorde Gate
Suite 201
Toronto, Ontario M2C 3N6
Canada
Ann.: Mr. David Kerzner, President
Gentlemen:
1. Application. The undersigned, intending to be legally bound,
hereby subscribes for shares (the "Shares") of Common Stock (the "Common
Stock") of Paradigm Advanced Technologies, Inc., a Delaware corporation (the
"Company"), at a purchase price of $ ( ) per Share. In addition
to the shares the undersigned shall also receive warrants to purchase 1 common
share of Common Stock of the Company for every share acquired in terms of this
Agreement at a purchase price of $ ( ) per Share. These
warrants shall terminate on , .
2. Representations and Warranties of the Subscriber. The
undersigned represents and warrants to the Company as follows:
(a) The undersigned, in making the decision to purchase the
Shares subscribed for, has relied upon independent investigations made by
him and his representatives, if any, and the undersigned and/or his
advisors have had a reasonable opportunity to ask questions of and receive
answers from the Company concerning the Shares.
(b) The undersigned has been supplied with or has sufficient
access to all information, including financial statements and other
financial information of the Company, and has been afforded an opportunity
to ask questions of and receive answers from an officer of the Company
concerning information to which a reasonable investor would attach
significance in making investment decisions, so that as a reasonable
investor the undersigned has been able to make the undersigned's decision
to purchase the Shares.
(c) The undersigned is not subscribing for the Shares as a
result of or subsequent to any advertisement article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio, or presented at any seminar or meeting,
or any solicitation of a subscription by a person not previously known to
the undersigned in connection with investments in securities generally.
(d) The undersigned is able to bear the substantial economic
risks of an investment in the Shares for an indefinite period of time, has
no need for liquidity in such
<PAGE>
investment, has made commitments to investments that are not readily
marketable which are reasonable in relation to the undersigned's net worth
and, at the present time, could afford a complete loss of such investment.
(e) The undersigned has such knowledge and experience in
financial, tax and business matters so as to enable the undersigned to
utilize the information made available to the undersigned in connection
with the offering of the Shares to evaluate the merits and risks of an
investment in the Shares and to make an informed investment decision with
respect thereto.
(f) The undersigned acknowledges that the purchase of the Shares
involves a high degree of risk and further acknowledges that he can bear
the economic risk of the purchase of the Shares, including the total loss
of his investment. The undersigned is not relying on the Company with
respect to the tax and other economic considerations of an investment in
the Shares, and the undersigned has relied on the advice of, or has
consulted with, only the undersigned's own advisor(s).
(g) The undersigned has full right and power to perform pursuant
to this Subscription Agreement and make an investment in the Company.
(h) The undersigned will not sell or otherwise transfer the
Shares without registration under the Securities Act of 1933, as amended
(the "Securities Act"), or an exemption therefrom and fully understands
that the Shares have not been registered under the Securities Act or under
the certain state securities laws and, therefore, cannot be resold,
pledged, assigned or otherwise disposed of unless the securities are
subsequently registered under the Securities Act and under the applicable
state securities laws unless an exemption from such registration is
available in the opinion of counsel for the holder, which counsel and
opinion are reasonably satisfactory to counsel for the Company. The
undersigned is purchasing the Shares for the undersigned's own account, for
investment purposes only and not with a view to resale or distribution
except in compliance with the Securities Act. The undersigned is aware that
an exemption from the registration requirements of the Securities Act
pursuant to Rule 144 promulgated thereunder is not presently available;
that the Company has no obligation to make available an exemption from the
registration requirements pursuant to such Rule 144; and that even if an
exemption under Rule 144 were available, Rule 144 permits only routine
sales of securities in limited amounts in accordance with the terms and
conditions of such Rule 144.
(i) The undersigned agrees to the placement of a legend on the
Shares and on any certificate or other document evidencing the Shares
stating that they have not been registered under the Securities Act (and a
stop transfer order may be placed with respect thereto).
(j) The undersigned understands that the Shares is being offered
and sold to him in reliance on specific exemptions from the registration
requirements of federal and state securities laws and that the Company is
relying upon the truth and accuracy of the representations, warranties,
agreements, acknowledgments and understandings of the
-2-
<PAGE>
undersigned set forth herein in order to determine the applicability of
such exemptions and the suitability of the undersigned to acquire the
Shares. The representations, warranties and agreements contained herein are
true and correct as of the date hereof and may be relied upon by the
Company, and the undersigned will notify the Company immediately of any
adverse change in any such representations and warranties which may occur
prior to the acceptance of the subscription and will promptly send the
Company written confirmation thereof. The representations, warranties and
agreements of the undersigned contained herein shall survive the execution
and delivery of this Subscription Agreement and the purchase of the Shares.
3. Accredited Investor Status. The undersigned further represents and
warrants as indicated below by the undersigned's initials:
(a) ____ I certify that I am an accredited investor because
I have had individual income (exclusive of any income earned by my
spouse) of more than $200,000 in each of the most recent two years and
I reasonably expect to have an individual income in excess of $200,000
for the current year.
(b) ____ I certify that I am an accredited investor because
I have had joint income with my spouse in excess of $300,000 in each
of the two most recent years and I reasonably expect to have joint
income with my spouse in excess of $300,000 for the current year.
(c) ____ I certify that I am an accredited investor because
I have an individual net worth, or my spouse and I have a joint net
worth, in excess of $1,000,000.
4. Miscellaneous.
(a) This Subscription Agreement shall survive the death or
disability of the undersigned and shall be binding upon the undersigned's
heirs, executors, administrators, successors and permitted assigns.
(b) This Subscription Agreement has been duly and validly
authorized, executed and delivered by the undersigned and constitutes the
valid, binding and enforceable agreement of the undersigned. If this
Subscription Agreement is being completed on behalf of a corporation,
partnership or trust, it has been completed and executed by an authorized
corporate officer, general partner or trustee.
(c) This Subscription Agreement and the documents referred to
herein constitute the entire agreement between the parties hereto with
respect to the subject matter hereof and together supersede all prior
discussions or agreements in respect thereof.
(d) Within five (5) days after receipt of a written request from
the Company, the undersigned agrees to provide such information, to execute
and deliver such documents and to take, or forbear from taking, such
actions or provide such further
-3-
<PAGE>
assurances as reasonably may be necessary to correct any errors in
documentation, to comply with any and all laws to which the Company is
subject.
(e) The Company shall be notified immediately of any change in
any of the information contained above occurring prior to the undersigned's
purchase of the Shares or at any time thereafter for so long as the
undersigned is a holder of the Shares.
(f) This Subscription Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of
which shall constitute a single document.
[signature page follows]
-4-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Revised
Subscription Agreement as of day of , 2000.
-----------------------------------
Name
Social Security
or Taxpayer
Identification No.
-----------------
U.S. Citizen
Yes No
--- ---
Business Address:
-----------------------------------
Street
-----------------------------------
City State Zip Code
Mailing Address (if different
from Residence or Business
Address):
-----------------------------------
Street
-----------------------------------
City State Zip Code
ACCEPTED AND AGREED TO:
PARADIGM ADVANCED TECHNOLOGIES, INC.
By:
----------------------
Name:
--------------------
Title:
-------------------
Date:
---------------,2000
-5-
<PAGE>
Exhibit 4.2
THIS WARRANT (THIS "WARRANT") AND THE SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAW. NEITHER THIS WARRANT NOR SUCH SHARES OF
COMMON STOCK NOR ANY INTEREST OR PARTICIPATION HEREIN OR
THEREIN MAY BE SOLD, ASSIGNED, MORTGAGED, PLEDGED,
HYPOTHECATED, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT IN
COMPLIANCE WITH THE ACT AND APPLICABLE STATE SECURITIES LAWS.
PARADIGM ADVANCED TECHNOLOGIES, INC,
WARRANT
Warrant No. W-_______ Original Issue Date: , 2000
This Warrant is the Warrant referred to and issued pursuant to the
terms of that certain Letter Agreement dated as of the date hereof, by and
between the Company and (the "Letter Agreement").
FOR VALUE RECEIVED, is entitled to purchase from
Paradigm Advanced Technologies, Inc. (the "Company"), during the period
specified in this Warrant, fully paid and non-assessable shares (subject
to adjustment as hereinafter provided) of Common Stock (the "Warrant Stock"),
of the Company at the purchase price per share provided in Section 1.2 of this
Warrant (the "Warrant Exercise Price"), all subject to the terms and conditions
set forth in this Warrant.
Section 1. Period for Exercise and Exercise Price.
1.1 Period for Exercise. The right to purchase shares of Warrant
Stock represented by this Warrant shall be immediately exercisable, and shall
expire at 5:00 p.m., Chicago local time, (the "Expiration Date").
From and after the Expiration Date this Warrant shall be null and void and of
no further force or effect whatsoever.
1.2 Warrant Exercise Price The Warrant Exercise Price per share of
Warrant Stock shall be $ per share (subject to adjustment as hereinafter
provided).
<PAGE>
2
Section 2. Exercise of Warrant.
2.1 Manner of Exercise. The holder hereof may exercise this Warrant, in whole
or in part, immediately, but not after the Expiration Date, during normal
business hours on any business day by surrendering this Warrant to the Company
at the principal Office of the Company, accompanied by a subscription in
substantially the form annexed hereto duly executed by such holder and by
payment of the Warrant Exercise Price for the number of shares of Warrant Stock
for which this Warrant is then exercisable, either (i) in immediately available
funds, (ii) by delivery of instrument evidencing indebtedness owing by the
Company to the holder in the appropriate amount, (iii) by authorizing the
Company to retain shares of Common Stock which would otherwise be issuable upon
exercise of this Warrant having a fair market value (defined as the last
reported closing price of the Common Stock on the date immediately preceding the
date of the subscription notice) on the date of delivery equal to the aggregate
Warrant Exercise Price, or (iv) in a combination of (i), (ii) or (iii) above.
2.2 When Exercise Effective. Each exercise of this Warrant shall be deemed
to have been effected on the day on which all requirements of Section 2.1 shall
have been met with respect to such exercise. At such time the person in whose
name any certificate for shares of Warrant Stock shall be issuable upon such
exercise shall be deemed for all corporate purposes to have become the holder of
record of such shares, regardless of the actual delivery of certificates
evidencing such shares.
2.3 Delivery of Stock Certificates. As soon as practicable after each
exercise of this Warrant, and in any event no later than 3 days after such
exercise, the Company at its expense will cause to be issued in the name of and
delivered to the holder hereof or as such holder may direct, a certificate or
certificates for the number of shares of Warrant Stock to which such holder
shall be entitled upon such exercise.
Section 3. Adjustment of Purchase Price and Number of Shares. The Warrant
Exercise Price and the kind of securities issuable upon exercise of the Warrant
shall be adjusted from time to time as follows:
3.1 Subdivision or Combination of Shares, (Stock Splits). If the Company at
any time effects a subdivision or combination of the outstanding Common Stock
(through a stock split or otherwise), the Warrant Exercise Price shall be
decreased and the number of shares of Warrant Stock shall be increased, in the
case of a subdivision, or the Warrant Exercise Price shall be increased and the
number of shares of Warrant Stock shall be decreased, in the case of a
combination, in the same proportions as the Common Stock is subdivided or
combined, in each case effective automatically upon, and simultaneously with,
the effectiveness of the subdivision or combination which gives rise to the
adjustment.
3.2 Stock Dividends. If the Company at any time pays a dividend, or makes
any other distribution, to holders of Common Stock payable in shares of Common
Stock,
<PAGE>
3
or fixes a record date for the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in shares of Common Stock,
the Warrant Exercise Price shall be decreased by multiplying it by a fraction:
(a) the numerator of which shall be the total number of sbares of Common
Stock outstanding immediately prior to such dividend or distribution, and
(b) the denominator of which shall be the total number of shares of Common
Stock outstanding immediately after such dividend or distribution (plus, if the
Company paid cash instead of fractional shares otherwise issuable in such
dividend or distribution, the number of additional shares which would have been
outstanding had the Company issued fractional shares instead of cash),
in each case effective automatically as of the date the Company shall take a
record of the holders of its Common Stock for the purpose of receiving such
dividend or distribution (or if no such record is taken, as of the effectiveness
of such dividend or distribution).
3.3 Reclassification, Consolidation or Merger. If at any time, as a result
of:
(a) a capital reorganization or reclassification (other than a subdivision,
combination or dividend provided for elsewhere in this Section 3), or
(b) a merger or consolidation of the Company with another corporation
(whether or not the Company is the surviving corporation),
the Common Stock issuable upon exercise of the Warrants shall be changed into or
exchanged for the same or a different number of shares of any class or classes
of stock of the Company or any other corporation, or other securities
convertible into such shares, then, as a part of such reorganization,
reclassification, merger or consolidation, appropriate adjustments shall be made
in the terms of the Warrants (or of any securities into which the Warrants are
exercised or for which the Warrants are exchanged), so that:
(y) the holders of Warrants or of such substitute securities shall
thereafter be entitled to receive, upon exercise of the Warrants or of such
substitute securities, the kind and amount of shares of stock, other securities,
money and property which such holders would have received at the time of such
capital reorganization, reclassification, merger, or consolidation, if such
holders had exercised their Warrants immediately prior to such capital
reorganization, reclassification, merger or consolidation, and
(z) the Warrants or such substitute securities shall thereafter be adjusted
on terms as nearly equivalent as may be practicable to the adjustments
theretofore provided in this Section 3.3.
No consolidation or merger in which the Company is not the surviving corporation
shall be consummated unless the surviving corporation shall agree, in writing,
to the provisions
<PAGE>
4
of this Section 3.3. The provisions of this Section 3.3 shall similarly apply to
successive capital reorganizations, reclassifications, mergers and
consolidations.
3.4 Other Action Affecting Common Stock. If at any time the Company takes
any action affecting its Common Stock, other than an action described in any of
Sections 3.1 - 3.3 which, in the opinion of the Board of Directors of the
Company (the "Board"), would have an adverse effect upon the exercise rights of
the Warrants, the Warrant Exercise Price or the kind of securities issuable upon
exercise of the Warrants, or both, shall be adjusted in such manner and at such
time as the Board may in good faith determine to be equitable in the
circumstances; provided, however, that the purpose of this Section is to prevent
the Company from taking any action which has the effect of diluting the number
of shares of Warrant Stock issuable upon exercise of this Warrant.
3.5 Notice of Adjustment Events. Whenever the Company contemplates the
occurrence of an event which would give rise to adjustments under this Section
3, the Company shall mail to each Warrant holder, at least 20 days prior to the
record date with respect to such event or, if no record date shall be
established, at least 20 days prior to such event, a notice specifying (i) the
nature of the contemplated event, and (ii) the date on which any such record is
to be taken for the purpose of such event, and (iii) the date on which such
event is expected to become effective, and (iv) the time, if any is to be fixed,
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable in connection with such event.
3.6 Notice of Adjustments. Whenever the Warrant Exercise Price or the kind
of securities issuable upon exercise of the Warrants, or both, shall be adjusted
pursuant to Section 3, the Company shall make a certificate signed by its
President or a Vice President and by its Chief Financial Officer, Secretary or
Assistant Secretary, setting forth, in reasonable detail, the event requiring
the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated (including a description of the basis on which the
Board made any determination hereunder), and the Warrant Exercise Price and the
kind of securities issuable upon exercise of the Warrants after giving effect to
such adjustment, and shall cause copies of such certificate to be mailed (by
first class mail postage prepaid) to each Warrant holder promptly after each
adjustment.
Section 4. Reservation of Stock, etc. The Company covenants and agrees that
it will at all times have authorized, reserve and keep available, solely for
issuance and delivery upon the exercise of this Warrant, the number of shares of
Warrant Stock from time to time issuable upon the exercise of this Warrant. The
Company further covenants and agrees that this Warrant is, and any Warrants
issued in substitution for or replacement of this Warrant and all Warrant Stock,
will upon issuance be duly authorized and validly issued and, in the case of
Warrant Stock, upon issuance will be fully paid and non-assessable and free from
all preemptive rights of any stockholder, and from all taxes, liens and charges
with respect to the issue thereof (other than transfer taxes) and, if the
<PAGE>
5
Common Stock of the Company is then listed on any national securities exchanges
(as defined in the Exchange Act of 1934, as amended (the "Exchange Act")) or
quoted on NASDAQ, shall be, subject to the restrictions set forth in Section 5,
duly listed or quoted thereon, as the case may be. In the event that the number
of authorized but unissued shares of such Common Stock shall not be sufficient
to effect the exercise of this entire Warrant, then in addition to such other
remedies as shall be available to the holder of this Warrant into Warrant Stock,
the Company shall promptly take such corporate action as may be necessary to
increase its authorized but unissued shares of such Common Stock to such number
of shares as shall be sufficient for such purpose.
Section 5. Ownership, Transfer and Substitution of Warrants.
5.1 Ownership of Warrants. The Company may treat the person in whose name
any Warrant is registered on the register kept at the principal office of the
Company as the owner and holder thereof for all purposes, notwithstanding any
notice to the contrary, but in all events recognizing any transfers made in
accordance with the terms of this Warrant.
5.2 Transfer and Exchange of Warrants. Upon the surrender of any Warrant,
properly endorsed, for registration of transfer or for exchange at the principal
office of the Company, the Company at its expense will execute and deliver to
the holder thereof, upon the order of such holder, a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder may direct, for such
number of shares with respect to each such Warrant, the aggregate number of
shares in any event not to exceed the number of shares for which the Warrant so
surrendered had not been exercised.
5.3 Restrictive Legend. Each certificate representing any shares of Common
Stock into which this Warrant may be converted shall be inscribed with the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY STATE
SECURITIES LAWS. NEITHER SUCH SECURITIES NOR ANY INTEREST OR PARTICIPATION
THEREIN MAY BE SOLD, ASSIGNED, OFFERED FOR SALE, PLEDGED, HYPOTHECATED,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT
FILED UNDER THE ACT AND SUCH LAWS OR PURSUANT TO EXEMPTIONS FROM SUCH
REGISTRATION.
5.4 Exemption from Registration. If an opinion of counsel provides that
registration is not required for the proposed exercise or transfer of this
Warrant or the proposed transfer of the Warrant Stock and that the proposed
exercise or transfer in the absence of registration would require the Company to
take any action including executing and filing forms or other documents with the
Securities and Exchange Commission (the "SEC") or any state securities agency,
or delivering to the Warrantholder any form or
<PAGE>
6
document in order to establish the right of the Warrantholder to effectuate the
proposed exercise or transfer, the Company agrees promptly, at its expense, to
take any such action; and provided, further, that the Company will reimburse
the Warrantholder in full for any expenses (including but not limited to the
fees and disbursements of such counsel, but excluding brokers' commissions)
incurred by the Warrantholder or owner of Warrant Stock on his, her or its
behalf in connection with such exercise or transfer of the Warrant or transfer
of Warrant Stock.
Section 6. No Rights or Liabilities as Shareholder. Nothing contained in this
Warrant shall be construed as conferring upon the holder hereof any rights as a
shareholder of the Company or as imposing any liabilities on such holder to
purchase any securities or as a shareholder of the Company, whether such
liabilities are asserted by the Company or by creditors of the Company.
Section 7. Rule 144 Sales. In the event that the Company (a) has or registers a
class of securities under Section 12 of the Exchange Act, or (b) has or
commences to file reports under Section 13 or 15(d) of the Exchange Act, then at
the request of any holder who proposes to sell securities in compliance with
Rule 144 of the SEC, the Company will (i) forthwith furnish to such holder a
written statement of compliance with the filing requirements of the SEC as set
forth in Rule 144, as such rules may be amended from time to time and (ii) make
available to the public and such holders such information as will enable the
holders to make sales pursuant to Rule 144.
Section 8. Miscellaneous.
8.1 Amendment and Waiver. This Warrant may be amended with, and only with,
the written consent of the Company and the holder of this Warrant. Any waiver of
any term, covenant, agreement or condition contained in this Warrant shall not
be deemed a waiver of any other term, covenant, agreement or condition, and any
waiver of any default in any such term, covenant, agreement or condition shall
not be deemed a waiver of any later default thereof or of any default of any
other term, covenant, agreement or condition.
8.2 Representations and Warranties to Survive Closing. All representations,
warranties and covenants contained herein shall survive the execution and
delivery of this Warrant and the issuance of any Warrant Stock upon the exercise
hereof.
8.3 Severability. In the event that any court or any governmental authority
or agency declares all or any part of any Section of this Warrant to be unlawful
or invalid, such unlawfulness or invalidity shall not serve to invalidate any
other Section of this Warrant, and in the event that only a portion of any
Section is so declared to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate the balance of such Section.
<PAGE>
7
8.4 Binding Effect; No Third Party Beneficiaries. All provisions of this
Warrant shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, executors, administrators, legal representatives,
successors, and permitted transferees and assigns. No person other than the
holder of this Warrant and the Company shall have any legal or equitable right,
remedy or claim under or in respect of, this Warrant.
8.5 Notices. All communications in connection with this Warrant shall be in
writing and shall be deemed properly given if sent by facsimile, hand delivered
or sent by overnight courier with adequate evidence of delivery or sent by
registered or certified mail, return receipt requested at such Warrant holder's
address as shown on the books of the Company or its transfer agent, and if to
the Company, at:
Paradigm Advanced Technologies, Inc.
1 Concorde Gate, Suite 201
Toronto, Ontario, Canada
M3C 3N6
Attention: David Kerzner
Fax: 416-447-3974
or such other addresses or persons as the recipient shall have designated to the
sender by a written notice given in accordance with this Section. Any notice
called for hereunder shall be deemed given when received.
8.6 Taxes, Costs and Expenses. The Company covenants and agrees that
it will pay when due and payable any and all federal, state and local taxes
(other than income taxes) and any other costs and expenses which may be payable
in respect of the preparation, issuance, delivery, exercise, surrender or
transfer of this Warrant pursuant to the terms of this Warrant or the issuance
of any shares of Warrant Stock as a result thereof. If any suit or action is
instituted or attorneys employed to enforce this Warrant or any part thereof,
the Company promises and agrees to pay all costs and expenses associated
therewith, including reasonable attorneys' fees and court costs.
8.7 Governing Law. The validity, meaning and effect of this Warrant shall
be determined in accordance with the laws of the State of Delaware, without
regard to its conflicts of law principles.
8.8 Loss of Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of indemnification in
form and substance acceptable to the Company in its reasonable discretion, and
upon surrender and cancellation of this Warrant, if mutilated, the Company shall
execute and deliver a new Warrant of like tenor and date.
<PAGE>
8
8.9 Entire Agreement. This Warrant and the related Letter Agreement of even
date herewith represent the entire agreement and understanding between the
parties concerning the subject matter hereof and supercede all prior and
contemporaneous agreements, understandings, representations and warranties with
respect thereto.
8.10 Headings. The headings used herein are used for convenience
only and are not to be considered in construing or interpreting this Warrant.
COMPANY:
Paradigm Advanced Technologies, Inc.
By:
-------------------------------
Its:
------------------------------
<PAGE>
WARRANT EXERCISE FORM
---------------------
Date:________________
________________________________
________________________________
________________________________
Ladies and Gentlemen:
The undersigned, being the registered holder of your Warrant number W-________
accompanying this letter, hereby irrevocably exercises such Warrant for _______
shares of Warrant Stock (as defined in said Warrant), and herewith makes payment
therefor in the amount of ($__________)(via "cash-less exercise" in accordance
with the Warrant), and requests that such shares of Warrant Stock be issued in
the name of, and delivered to (the undersigned) (_____________________ ), at the
address shown below the signature line hereof.
If said number of shares shall not be all the shares issuable upon exercise of
the attached Warrant, a new Warrant is to be issued in the name of the
undersigned for the balance remaining of such shares less any fraction of a
share paid in cash.
________________________________
Printed Name of Registered Warrant Holder
________________________________
Signature of Registered Warrant Holder
________________________________
________________________________
________________________________
Address
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Exhibit 4.3
THIS CONVERTIBLE SECURED PROMISSORY NOTE AND THE SHARES OF COMMON STOCK ISSUABLE
UPON THE CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAW. NEITHER THIS NOTE NOR
SUCH SHARES OF COMMON STOCK NOR ANY INTEREST OR PARTICIPATION HEREIN OF, THEREIN
MAY BE SOLD, ASSIGNED, MORTGAGED, PLEDGED, HYPOTHECATED, ENCUMBERED OR OTHER-
WISE TRANSFERRED EXCEPT IN, COMPLIANCE WITH THE ACT AND APPLICABLE STATE
SECURITIES LAWS, AND WITH THE TERMS AND CONDITIONS HEREOF.
PARADIGM ADVANCED TECHNOLOGIES, INC.
CONVERTIBLE PROMISSORY NOTE
$ , 1999
Paradigm Advanced Technologies, Inc., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to (the
"Holder"), in legal tender of the United States of America, the principal sum
of ($ ) on , (the
"Maturity Date"), and to pay interest thereon at the rate of Twelve and one half
percent (12.5%) per annum. Interest shall be computed on the basis of a 365-day
year and the number of actual days elapsed.
Section 1. Time and Place of Payment. (a) The entire unpaid principal
balance of this Note, together with any accrued and unpaid interest thereon,
shall be due and payable on the Maturity Date. Principal and interest on this
Note shall be paid by wire transfer of immediately available funds or by check
delivered to the Holder's registered address as it appears upon the books of the
Company. Upon the payment in full of this Note, the Holder shall immediately
surrender this Note to the Company at its executive offices.
(b) Any payment made under this Note, whether upon acceleration, final
maturity or otherwise, shall be applied first to the payment of any
accrued and unpaid interest and the balance (if any) shall be applied
on account of principal.
(c) Whenever any payment to be made under this Note shall be due on a
Saturday, Sunday or any day on which banks are required or authorized
by law or regulation to close in New York City (any other day being a
"Business Day"), such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case not be
included in the computation of interest accrued.
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(d) Notwithstanding any other provision of this Note, in the event that any
portion of the principal amount of this Note is converted into any shares of the
Company's Common Stock in accordance with the provisions of Section 3 below,
then no interest shall be payable on the portion so converted for the period
following the date of conversion.
Section 2. Prepayments. The Company shall have the right to prepay this
Note, in whole or in part, at any time upon fifteen (15) days prior written
notice to the Holder.
Section 3. Conversion.
(a) Subject to the approval by the stockholders of the Company of an
amendment to the Company's Certificate of Incorporation increasing the
authorized number of shares of Common Stock to not less than 100,000,000 (the
"Recapitalization Date"), the Holder shall have the right, at its option, on or
prior to the Maturity Date to convert the principal amount of this Note,
together with all accrued interest thereon in accordance with the provisions of
and upon satisfaction of the conditions contained in this Note, into fully paid
and non-assessable shares of the Company's Common Stock at a conversion price of
$.05 per share (the "Conversion Shares").
(b) The Holder's conversion right set forth in this Section may be
exercised at any time and from time to time but prior to payment in full of the
principal amount of and accrued interest on this Note.
(c) The Holder may exercise the right to convert all or any portion of the
principal amount of this Note only by delivery of (i) this Note and (ii) a
properly completed conversion notice on a Business Day to the Company's
principal executive offices. Such conversion shall be deemed to have been made
immediately prior to the close of business on the Business Day of such delivery
of this Note and the conversion notice (the "Conversion Date"), and the Holder
shall be treated for all purposes as the record holder of the shares of Common
Stock into which this Note is converted as of such date.
(d) As promptly as practicable after the conversion of this Note, the
Company at its expense shall issue and deliver to the Holder of this Note a
stock certificate or certificates representing the number of Conversion Shares
into which this Note has been converted.
(e) Upon conversion of this Note and the delivery of the items set forth in
Section 3(d), the Company shall be forever released from all of its obligations
and liabilities under this Note.
(f) If, prior to the Conversion Date, the Company shall (i) pay a stock
dividend or make a distribution to all holders of Common Stock in
shares of its Common Stock, (ii) subdivide its outstanding shares of
Common Stock, (iii) combine its outstanding shares of Common Stock
into a smaller number of shares, or (iv) issue by reclassification of
its shares of
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Common Stock any shares of capital stock of the Company, the number of
Conversion Shares shall be proportionately increased or decreased, as
the case may be.
(g) The Company has included the shares that will be issued upon
conversion of the debenture, in our current registration statement and
confirm that there will be no additional restrictions on these shares
after they are registered by the SEC.
(h) The Company agrees that the holder shall retain the right to convert
even if the Company indicates its willingness to repay the loan.
Section 4. Reservation of Stock Issuable Upon Conversion. At all times
after the Recapitalization Date that this Note shall be convertible into shares
of Common Stock, the Company shall reserve and keep available out of its
authorized but unissued shares of Common Stock solely for, the purpose of
effecting the conversion of this Note such number of its shares of such Common
Stock as shall from time to time be sufficient to effect the conversion of this
Note in full. In the event that the number of authorized but unissued shares of
such Common Stock shall not be sufficient to effect the conversion of the entire
outstanding principal amount of this Note, then in addition to such other
remedies as shall be available to the Holder, the Company shall promptly take
such corporate action as may be necessary to increase its authorized but
unissued shares of such Common stock to such number of shares as shall be
sufficient for such purpose.
Section 5. Transfer Restrictions.
(a) This Note may not be transferred except upon satisfaction of all of
the requirements of the Act and applicable state securities laws. Without
limiting the generality of the foregoing, the Holder agrees that (i) this Note
and the Conversion Shares have not been registered under the Act and may not be
sold or transferred without registration under the Act or unless an exemption
from such registration is available; (ii) the Holder has acquired this Note and
will acquire the Conversion Shares for its own account for investment purposes
only and not with a view toward resale or distribution; (iii) stop transfer
instructions may be placed with the Company's transfer agent or registrar (which
may be the Company) so as to restrict the transfer of this Note and any
Conversion Shares in accordance with the provisions of the Note; and (iv) each
certificate representing any shares of Common Stock into which this Note may be
converted shall be inscribed with the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER ANY
STATE SECURITIES LAWS. NEITHER SUCH SECURITIES NOR ANY INTEREST OR
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PARTICIPATION THEREIN MAY BE SOLD, ASSIGNED, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT FILED UNDER THE ACT AND SUCH LAWS OR PURSUANT TO
EXEMPTIONS FROM SUCH REGISTRATION.
Section 6. Loss of Note. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this Note,
and (in the case of loss, theft or destruction), of indemnification in form and
substance acceptable to the Company in its reasonable discretion, and upon
surrender and cancellation of this Note, if mutilated, the Company shall execute
and deliver a new Note of like tenor and date.
Section 7. Entire Agreement. This Note and the related subscription
agreement of even date represent the entire agreement and understanding between
the parties concerning the subject matter hereof and supersede all prior and
contemporaneous agreements, understandings, representations and warranties with
respect thereto.
Section 8. Binding Effect; No Third Party Beneficiaries. All provisions of
this Note shall be binding upon and inure to the benefit of the parties and
their respective heirs, legatees, executors, administrators, legal
representatives, successors, and permitted transferees and assigns. No person
other than the Holder and the Company shall have any legal or equitable right,
remedy or claim under, or in respect of, this Note.
Section 9. Amendments and Waivers. This Note may be amended, changed or
modified only by a written instrument executed by the Company and the Holder of
this Note. Any waiver of any breach of any of the terms of this Note, and any
consent required or permitted to be given hereunder, shall be effective if in
writing and executed by or on behalf of the Holder of this Note. No waiver of
any breach nor consent to any transaction shall be deemed a waiver of or consent
to any other or subsequent breach or transaction.
Section 10. Waiver of Presentment, etc. The Company hereby waives
presentment for payment, demand, notice of non-payment, protest and notice of
protest, and hereby agrees to all extensions and renewals of this Note, without
notice.
Section 11. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements and
instruments made and wholly performed and paid in that state, without regard to
its conflicts of law principles.
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Section 12. Headings. The headings used in this Note are used for
convenience only and are not to be considered in construing or interpreting this
Note.
IN WITNESS WHEREOF, the Company has caused this Note to be signed and
attested to by its duly authorized officers.
PARADIGM ADVANCED TECHNOLOGIES, INC.
By:
---------------------------
Name:
---------------------------
Title:
-------------------------
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<PAGE>
EXHIBIT A
CONVERSION NOTICE
(To be signed only upon conversion of this Note)
TO: PARADIGM ADVANCED TECHNOLOGIES, INC.
The undersigned, the registered holder of the 12.5% Convertible Promissory
Note (the "Note") of Paradigm Advanced Technologies, Inc. (the "Company"),
hereby surrenders the Note for conversion into shares of Common Stock of the
Company ("Common Stock") to the extent of $ unpaid principal amount of
the Note, all in accordance with the provisions of such Note. The undersigned
requests (i) that a certificate representing shares of Common Stock, bearing the
appropriate legends, be issued to the undersigned, and (ii) if the unpaid
principal amount so converted is less than the entire unpaid principal amount of
the Note, that a new substitute note representing the portion of said unpaid
principal amount that is not so converted be issued in accordance with the
provisions of the Note. The undersigned further requests payment of all accrued
and unpaid interest under the Note on said principal amount if the date of the
effectiveness of the conversion shall be an Interest Payment Date, as defined in
the Note.
Dated:
------------------ -------------------------------------
(Signature and name of the registered holder)
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Exhibit 10.4
LICENSE AGREEMENT
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This License Agreement ("Agreement") is made effective as of June 10,
1998 by and between
EASTERN INVESTMENTS, LLC,
a Connecticut limited liability company having its principal offices at
7 Goodwin Place, West Hartford, Connecticut 06127, United States
(referred to in this Agreement as "LICENSOR"), and
PARADIGM ADVANCED TECHNOLOGIES, INC.,
a Delaware corporation having its principal place of business at
One Concorde Gate, Suite 201, Toronto, Ontario, M3C 3N6, Canada
(referred to in this Agreement as "LICENSEE").
RECITALS
WHEREAS, LICENSOR represents that it has been granted by BI, Incorporated
(hereinafter "BI"), through the BI Agreement (hereinafter defined and attached
as Appendix A), the exclusive right in the Exclusive Field and the non-exclusive
right in the Non-exclusive Field (hereinafter defined) to grant licenses under
United States Patent No. 5,043,736 issued on August 27, 1991 and Reexamination
Certificate B1 5,043,736 issued on September 6, 1994 (collectively referred to,
inter alia, in this Agreement as the "Patent");
WHEREAS, LICENSOR represents that it has or may acquire patent rights from BI in
the Exclusive Field and the Non-exclusive Field related to the subject matter of
the Patent in certain foreign countries (collectively referred to in this
Agreement as the "Foreign Patent Rights");
WHEREAS, LICENSOR desires to grant to LICENSEE a Non-exclusive License under and
for the Patent and the Foreign Patent;
WHEREAS, LICENSEE desires to obtain a Non-exclusive License in a defined field
of use under the Patent and under the Foreign Patent Rights, that LICENSOR may
have or acquire in the future;
Now, therefore, in consideration of the mutual covenants and undertakings set
out herein and other good and valuable, consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
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1. Definitions.
A. "Excluded Field" means any field of use for any system, product, process,
method, machine, apparatus, manufacture or service covered by any claim of the
Patent or Foreign Patents relating to criminal justice, penal systems,
behavioral corrections, probation, parole, pretrial confinement, or court
ordered uses, which system, product, process, method, machine, apparatus,
manufacture or service may include, but is not limited to, locating, monitoring
or tracking persons, vehicles (except vehicles used by law enforcement
personnel), and other chattels.
B. "Non-exclusive Field" means any field of use for any system, product,
process, method, machine, apparatus, manufacture or service covered by any claim
of the Patent or Foreign Patents used by a law enforcement agency to track
vehicles that are used by law enforcement personnel.
C. "Exclusive Field" means any field of use for any system, product, process,
method, machine, apparatus, manufacture or service covered by any claim of the
Patent or Foreign Patents not covered by the Excluded Field or the Non-exclusive
Field.
D. "Licensed Product(s)" means systems, products, processes, methods, machines,
apparatus, manufactures and/or services covered by one or more of the claims of
the Patent or Foreign Patents.
E. "Calendar Year" means the time period beginning on January 1 of any year and
ending on December 31 of that same year.
F. "Unit" means each apparatus, machine or product as defined under "Exclusive
Field and Non-exclusive Field and that is a Licensed Product."
G. "Monitoring" and "Monitoring Services" mean monitoring, locating, tracking,
providing of directions, emergency response services, and other services for a
person or object equipped with a Unit from a remote location within the scope
of the claims of the Patent.
H. "End Use" means use by a person or other entity of a Unit so that the person,
the person's or entity's chattel, or a chattel in the person's or entity's
custody is monitored in accord with the terms of the Patent.
I. "End Use Unit" means a Unit suitable for End Use.
J. "End User" means a person or other entity making End Use of a Unit.
K. "End Use License" means a license for End Use that is issued for a particular
Unit of Licensed Product(s) in the Exclusive Field or Non-exclusive Field and
which remains in force for the life of the Unit so long as all license
restrictions, including but not limited to the field of use restrictions, are
obeyed. A prototype End Use License is attached as Appendix B.
L. "Sale" means, when performed by LICENSEE, sale, lease or rental of
Licensed Products.
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M. "Service Provider" means an individual, business, or other entity or
organization which provides Monitoring Services in accord with the terms of the
patent.
N. "Product Reseller" means a person, business or other organization that
resells Licensed Products other than services.
O. "Provider Services" means services provided to a Service Provider including
but not limited to maintenance, support, upgrading, and leasing.
P. "Monitoring License" means one of the licenses defined below allowing a
Service Provider to provide Monitoring Services for End Use of a Unit or Units
in the Exclusive Field and the Non-exclusive Field.
Q. "Commercial Monitoring License" means a Monitoring License for a Service
Provider to provide Monitoring Services to the general public, businesses, and
other organizations and that requires the Service Provider to pay a monthly fee
for each End User Unit for which it provides Monitoring Services in a calendar
month or partial calendar month.
R. "Reseller Unit Monitoring License" means a Monitoring License sold only with
an End User Unit that is sold to: a) a Product Reseller which is also a Service
Provider and that does not have a Commercial Monitoring License; or b) a
Product Reseller that sells End User Units together with Monitoring Services
Agreements with a third party Service Provider which does not have a Commercial
Monitoring License. A Reseller Unit Monitoring License allows the Product
Reseller to provide Monitoring Services for the End User Unit with which it is
sold for the life of that End User Unit or until the Service Provider obtains a
Commercial Monitoring License. The Reseller Unit Monitoring License can be
purchased for a lump-sum payment, or on a monthly installment basis. The
Reseller Unit Monitoring License is not transferable to other Units or other
Service Providers and terminates when the Service Provider obtains a Commercial
Monitoring License, violates the field of use restrictions provided in this
Agreement, or the end Unit with which it is sold is taken out of service. A
prototype Reseller Unit Monitoring License is attached as Appendix C.
S. "Self Monitoring License" means a Monitoring License for a Service Provider
to provide Monitoring Services only to itself, that is, monitoring of persons,
vehicles or other chattels employed, owned or otherwise controlled by the
Service Provider. A Self Monitoring License is either "Annually Renewable" or
"Permanent". When granted under the authority of LICENSEE, these licenses are
called "Sublicenses". Prototype Self Monitoring Licenses are included in
Appendix D and Appendix E.
T. "Monitoring Services Agreement" means an agreement between a Service
Provider and an End User for Monitoring Services. Licensed Monitoring Services
Agreement means a Monitoring Services Agreement for which the service provider
has a Monitoring License.
U. "Provider Services Agreement" means an agreement between LICENSEE and a
Service Provider for LICENSEE to supply Provider Services to the Service
Provider.
V. "Gross Sales" means gross sales or lease price (invoiced price when an
invoice is issued) less the sum of sale taxes, transportation charges
separately itemized, and allowances or credits
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actually granted because of rejections or returns. In the event that LICENSEE
sells to an affiliated person or entity, the Gross Sales price shall be the
greater of the Gross Sales price as calculated based on the sale from LICENSEE
to the affiliated person or entity or the sales price from the affiliated person
or entity to the End User. An affiliated person or entity is related to LICENSEE
such that: 1) LICENSEE or any one or more of its shareholders, directors or
officers exercises control or can share in Twenty (20%) Percent or more of the
profits of the affiliated person or entity whether there are any profits or not;
or 2) the person or entity or any one or more of such entity's owners,
shareholders, directors or officers exercises control of or can share in Twenty
(20%) Percent or more of the profits of LICENSEE.
W. "$" -- Unless otherwise specified, all currency amounts herein are in United
States Dollars ($).
X. "BI Agreement" means the Novation License Agreement between BI, Incorporated
and Eastern Investments LLC effective June 18, 1998.
2. License Provisions.
A. Non-exclusive License
(i) LICENSOR hereby grants to LICENSEE and LICENSEE accepts from LICENSOR,
a Non-exclusive License to make and have made for LICENSEE Licensed Products in
the Exclusive Field and the Non-exclusive Field. Additionally, LICENSOR hereby
grants to LICENSEE and LICENSEE accepts from LICENSOR, a Non-exclusive License
to offer for sale, sell, lease and distribute Licensed Products within the
Exclusive Field or Non-exclusive Field to End Users, Product Resellers, and
Service Providers. No rights to use are granted under this Section 2A(i).
LICENSEE agrees to the following conditions regarding sale or lease of Licensed
Products.
(a) All End Use Units must be sold or leased with an End Use License.
(b) All End Use Units sold or leased to End Users must be sold with a means
for the End User to obtain both:
a Licensed Monitoring Services Agreement with a Service Provider with
a Commercial Monitoring License; and
a Self Monitoring License.
(c) All End Use Units sold to Product Resellers that are Service Providers:
without a Commercial Monitoring License; or
that resell Units together with Monitoring Services Agreements with a
third party Service Provider that does not have a Commercial Monitoring
License
must be sold with a Reseller Unit Monitoring License.
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<PAGE>
(d) All Units sold to Product ReSellers that are NOT Service Providers or that
resell Units without a Monitoring Services Agreement must be sold with
restrictions that require the Product Reseller to include a means for the End
User to obtain both:
a Licensed Monitoring Services Agreement with a Service Provider that has
a Commercial Monitoring License; and
a Self Monitoring License.
(e) LICENSEE agrees to accept the return of End Use Units from direct
customers of LICENSEE who do not accept the terms of the End Use License
provided that such Units are returned in original condition with all packaging
except the outside wrapper within ten (10) days of original purchase. LICENSEE
agrees to require as a condition of purchase that Product Resellers selling
Units purchased from LICENSEE provide the same return option to their direct
customers.
(f) LICENSEE agrees to accept the return of End Use Units sold with Reseller
Unit Monitoring Licenses from Product Resellers who do not accept the terms of
the Reseller Unit Monitoring License provided that such Units are returned in
original condition with all packaging except the outside wrapper within ten (10)
days of the receipt of such Units by the Product Reseller.
(ii) LICENSOR hereby grants to LICENSEE and LICENSEE accepts from LICENSOR, a
Non-exclusive License to use Licensed Products in the Exclusive Field or the
Non-exclusive Field.
(iii) LICENSOR hereby grants to LICENSEE and LICENSEE accepts from LICENSOR, a
Non-exclusive Commercial Monitoring License that allows LICENSEE to enter into
Licensed Monitoring Services Agreements with End Users and purchasers of
Licensed Products. All Licensed Monitoring Services Agreements under this grant
must be for an initial term of at least one year. The form of all Licensed
Monitoring Services Agreements is subject to prior written approval from
LICENSOR, which approval may be withheld at LICENSOR's reasonable discretion if
it does not contain the restrictions required by Sections 2A(iii), 2G, 2H, 3,
8E and 12 of this License Agreement.
(iv) LICENSOR hereby grants to LICENSEE and LICENSEE accepts from LICENSOR, a
Non-exclusive License to sell and provide Provider Services and to enter into
Provider Services Agreements with Service Providers. All Provider Services
Agreements under this grant must be for an initial term of at least one year.
The form of all Provider Services Agreements is subject to prior written
approval from LICENSOR, which approval may be withheld at LICENSOR's reasonable
discretion if it does not contain the restrictions required by Sections 2A(iv),
2G, 2H, 3, 8E and 12 of this License Agreement.
(v) LICENSOR hereby grants to LICENSEE and LICENSEE accepts from LICENSOR, the
non-exclusive authority to grant Permanent Self Monitoring Sublicenses and
Annually Renewable Self Monitoring Sublicenses having LICENSEE as the licensor
in the Exclusive Field and the Non-exclusive Field. No authority to grant any
other type of Sublicense is granted to LICENSEE under this Section 2A. LICENSEE
agrees to include the field of use restrictions
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specified herein in these Sublicenses from LICENSEE. LICENSOR has the right to
review and approve the form of all such Sublicenses; however, such approval
shall not be unreasonably withheld.
(vi) LICENSOR hereby grants to LICENSEE and LICENSEE accepts from LICENSOR,
the non-exclusive authority to use subcontractors to provide Monitoring
Services. LICENSEE agrees that only subcontractors with Commercial Monitoring
Licenses may be used by LICENSEE. If LICENSEE does use subcontractors to provide
Monitoring Services, and provided that the subcontractors pay LICENSOR its
royalties in accordance with the terms of their license, LICENSEE shall not be
obligated to pay a second royalty for Monitoring Services. LICENSEE also agrees
to pay royalties on software used by subcontractors at the rates provided in
Section 2A(vii) based upon the greater of the price paid by the subcontractor or
the list price offered by LICENSEE on the open market to Service Providers which
are not subcontractors or then current customers of LICENSEE.
(vii) Royalties for Non-exclusive License.
LICENSEE, in consideration for the license hereby granted to it, shall
pay LICENSOR the following:
(a) for sales of Licensed Products other than Monitoring Services,
subject to Subsections (d)-(j) below, a percentage Royalty of:
5% up to $10 million in sales;
4% from $10 million to $20 million in sales;
3% from $20 million to $30 million in sales;
2% from $30 million to $40 million in sales;
1% over $40 million in sales;
based on Gross Sales of Licensed Products for activities encompassed within the
claims of the Patent and Foreign Patents which are taken for the convenience of
the parties in assessing the value of the patent rights granted to include,
among other things, for products related to cellular telephones and GPS, sale,
lease or rental of hardware units, sale or licensing of software, and Provider
Services Agreements;
(b) for sales of Monitoring Services subject to Subsections (d)-(j)
below and in accordance with Section 5B(ii), a fixed Royalty of:
for each Unit including a Reseller Unit Monitoring License sold under
Section 2A(i), $60.00 to be paid in installments of $1.00 per month for five
years, or until the holder signs a Commercial Monitoring License, or a one-time
payment of $36.00, which Reseller Unit Monitoring Licenses must be purchased
monthly by LICENSEE using the Reseller Unit Monitoring License Purchase Order
form attached as Appendix F, with the total amount which LICENSEE may owe
LICENSOR for Reseller Unit Monitoring Licenses sold on installment capped for
all countries collectively at six million dollars ($6,000,000);
$60.00 for each Unit including a Permanent Self Monitoring Sublicense
granted under Section 2A(v);
$1.00 per month for each Unit covered by a Commercial Monitoring
License for which LICENSEE is the Service Provider; and
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$12.00 per year paid in advance for each Unit covered by an Annually
Renewable Self Monitoring Sublicense granted under Section 2A(v);
(c) upon execution of this Agreement, LICENSEE shall pay to LICENSOR
$14,000 towards LICENSOR's legal expenses for preparation and negotiation of
Agreements to date between LICENSOR and LICENSEE;
(d) as a minimum Royalty starting on November 1, 1998 and continuing
through the twelfth month of the first year of this Agreement based on the
effective date of June 10, 1998, $3,000 per month due and payable at the start
of each and every month to be applied towards the royalty due for that calendar
year under Section 2A(vii)(a) above; and
(e) as a minimum Royalty starting on June 10, 1999, until June 10, 2001 of
this Agreement, $5,000 per month due and payable at the start of each and every
month to be applied towards the royalty due for that calendar year under Section
2A(vii)(a) above;
(f) if LICENSEE purchases Licensed Product(s) from another licensee of
LICENSOR and royalties have been paid on such Licensed Product(s), then, subject
to Section 2A(vii)(g) below, with the exception of the minimum Royalty in
Sections 2A(vii)(d) and (e) above, LICENSEE shall not have to pay a second
royalty for the sale of such Licensed Product(s);
(g) if LICENSEE is buying Licensed Product(s) from or selling Licensed
Products(s) to another licensee of LICENSOR, LICENSOR agrees to allow LICENSEE
and the other Licensee to determine which of them shall pay the royalty to
LICENSOR;
(h) LICENSEE shall have an annual credit of up to 5% of royalties paid by
LICENSEE on Licensed Products sold in that calendar year, which credit may be
applied towards royalty payments due on sales of Licensed Products which are
charged off as bad debts in that calendar year;
(i) LICENSEE's obligation to pay the minimum Royalty in Sections
2A(vii)(d) and (e) above shall cease when LICENSEE has paid $600,000 to LICENSOR
under this Agreement from any source whatsoever or, unless otherwise specified
in Section 8, this Agreement has been terminated.
(j) For LICENSEE's sales of Licensed Product(s) in Canada other than
Monitoring Services, LICENSEE shall be entitled to a 35% discount on the
percentage royalties as set forth in Section 2A(vii)(a). For sales of Monitoring
Services by LICENSEE for Unit(s) which have Canadian phone numbers, LICENSEE
shall pay LICENSOR the following fixed royalties in Canadian dollars in
accordance with Section 5B(ii):
for each Unit including a Reseller Unit Monitoring License sold under
Section 2A(i), $90.00 to be paid in installments of $1.50 per month
for five years, or until the holder signs a Commercial Monitoring
License, or a one-time payment of $54.00, to be discounted to 65% for
the first six months from the date the Canadian Patent issues;
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$58.50 for each Unit including a Permanent Self Monitoring Sublicense;
$0.98 per month for each Unit covered by a Commercial Monitoring
License for which LICENSEE is the Service Provider; and
$11.70 per year paid in advance for each Unit covered by an Annually
Renewable Self Monitoring Sublicense.
For purposes of clarification, royalties for the sale of Licensed Product(s) in
Canada that are made in Canada or countries where the Patent and Foreign
Patent(s) have not issued, or for sales of Monitoring Services being provided
from Canada to Unit(s) with Canadian phone numbers shall only be due effective
when and if the Canadian Patent issues.
(viii) This Section 2A shall be effective in the United States for a term
in accord with the provisions of Sections 6 and 8. This Section 2A shall be
effective in other countries when and if LICENSOR obtains Foreign Patent rights
in those countries and for the term of those Patents consistently with the
provisions of Sections 6 and 8.
B. This Section 2B is intentionally omitted.
C. LICENSEE agrees that any making, selling or distribution for use in the
Excluded Field is outside the scope of this License. LICENSEE agrees to exercise
reasonable efforts to ensure that no Licensed Products are used in or for the
Excluded Field under any purported authority of the LICENSOR. These efforts
shall at least include utilizing marketing and advertising materials, media
content and packaging which informs potential purchasers of the field of use
restrictions prior to purchase, utilizing only written agreements with
purchasers which ensure that End Users have an End Use License, which prohibits
use in or for the Excluded Field, ascertaining the bona fides of product
resellers, service providers, purchasers and users other than individual
consumers by requiring them to make a written statement to LICENSEE and LICENSOR
which recites the Exclusive Field, the Non-Exclusive Field and the Excluded
Field and to represent that they will not use or provide Monitoring Services for
the Licensed Products in the Excluded Field or resell the Licensed Products for
use in the Excluded Field, and will not sell or ship Licensed Products to
purchasers who do not have an End Use License or a Monitoring License and who do
not agree to the above restrictions on use. Failure to comply with this
paragraph shall be a material breach of this Agreement.
D. This Section 2D is intentionally omitted.
E. As a condition of the grant of the license in this License Agreement,
LICENSEE shall pay to LICENSOR all royalties due for the calendar month within
30 days of the end of that month. LICENSEE may make monthly royalty payments on
an estimated basis and make quarterly reports within thirty (30) days from the
end of each calendar quarter with adjustments for over or underpayment.
F. This Section 2F is intentionally omitted.
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<PAGE>
G. LICENSEE shall include the following statements as specified with the
specified Licensed Products. With End Units intended for use with a Commercial
Monitoring License: "If your Service Provider becomes unlicensed to provide
Monitoring Services, you must switch to a Service Provider having a Commercial
Monitoring License." With products under Annually Renewable Self Monitoring
Sublicenses: "If your Licensor becomes unlicensed you must obtain an Annually
Renewable Self Monitoring Sublicense from another authorized Licensor."
H. Under no circumstance will LICENSOR be bound by or liable or responsible for
any obligation, commitment, indemnity, warranty or other agreement of LICENSEE
to or with any third party including any holders of Monitoring Services
Agreements or Provider Service Agreements, nor will LICENSOR be liable or
responsible for any act or failure to act of LICENSEE. The provisions of this
Section 2H shall be placed by LICENSEE in all Services Agreements and
Sublicenses.
I. LICENSEE agrees to indemnify and hold harmless LICENSOR from all claims for
compensation or damages arising from alleged acts or omissions of LICENSEE
alleged to have caused injury or any other loss provided such claims are not
caused by action of LICENSOR.
J. LICENSEE agrees that the prototype End Unit License, Self Monitoring Licenses
and Reseller Unit Monitoring Licenses attached as appendices to this License
Agreement may be modified from time to time in the reasonable discretion of
LICENSOR.
K. LICENSEE recognizes that LICENSOR may give other licensees more favorable
license terms or royalty rates than the terms and royalty rates contained in
this Agreement. LICENSEE further acknowledges that because of other business
arrangements between LICENSOR and LICENSEE, LICENSEE will have knowledge of the
terms and conditions of other licenses granted by LICENSOR which would normally
be the confidential information of LICENSOR. LICENSEE hereby agrees not to seek
a reduction in its royalty rates or any other changes to the terms of this
Agreement for any reason.
L. Licensee agrees that where an End Use License, a Reseller Unit Monitoring
License, an Annually Renewable Self-Monitoring License, or a Permanent Self-
Monitoring License are called for under the terms of this Agreement, the forms
of these licenses as provided in Appendices B through E will be incorporated
into applicable documents provided with the sale or lease of goods and services
covered within this Agreement. Licensee agrees that the contents of the form
licenses appearing in the appendices may be changed from time to time in
LICENSOR's reasonable discretion and that the new form licenses shall be
appended to this Agreement and enumerated as, e.g., "B1" for the first version
of Appendix B, "B2" for the second version and so forth. Licensee agrees to
apply the new terms in all applicable documents printed after the effective date
of the changes.
M. LICENSOR and LICENSEE agree to respond in a timely manner to any request made
by the other. All written requests shall be responded to in writing. All verbal
requests may be answered either verbally or in writing at the discretion of the
responding party.
N. (i) Any improvements, extensions or enhancements to the Patent made by
LICENSOR or persons or entities affiliated with LICENSOR either by way of
administrative process or improvement patent(s) shall automatically be licensed
to LICENSEE under the terms and
Page 9 of 22
<PAGE>
conditions of this Agreement effective on the date of issue. This grant is
limited to improvements, extensions or enhancements made by LICENSOR or persons
or entities affiliated with LICENSOR.
(ii) LICENSOR shall automatically have a license to make, use, sell and
sublicense any improvements, extensions or enhancements to the Patent made by
LICENSEE or persons or entities affiliated with LICENSEE either by way of
administrative process or improvement patent(s). LICENSEE agrees that LICENSOR
shall have the sole right to sublicense such improvements, extensions or
enhancements to other licensees of LICENSOR, provided however, that LICENSEE
acting reasonably shall have the right to approve the terms of such sublicenses,
which approval may not be withheld if the terms and conditions of such
sublicenses are reasonably similar to the terms and conditions given by LICENSEE
to third parties. This grant shall terminate with the termination of this
Agreement subject to Section 2N(iii) below. LICENSOR shall pay LICENSEE a
royalty of 65% of any revenues earned by LICENSOR only from LICENSOR's revenues
which are attributable to sublicensing of the improvements, extensions or
enhancements obtained from LICENSEE, but shall not include other revenues of
LICENSOR. This grant is limited to improvements, extensions or enhancements made
by LICENSEE or persons or entities affiliated with LICENSEE.
(iii) If this Agreement terminates for reasons other than a default by
LICENSEE, then LICENSOR shall continue to have rights to the improvements or
enhancements obtained from LICENSEE only to the extent that LICENSOR has
sublicensed such improvements and enhancements, and LICENSOR shall have one year
from when this Agreement terminates to conclude negotiations with all parties
with which LICENSOR has commenced discussions for sublicensing of such
improvements or enhancements obtained from LICENSEE hereunder. If this Agreement
terminates because of a material default by LICENSEE, then LICENSOR's rights to
continue making, using, selling and sublicensing the improvements or
enhancements obtained from LICENSEE shall continue. Notwithstanding the above,
if this Agreement terminates because of a material default by LICENSOR, then
LICENSOR's rights under Section 2N(ii) shall cease immediately and LICENSEE
shall assume the sublicenses granted by LICENSOR under its rights in Section
2N(ii).
(iv) The parties agree that an improvement or enhancement means any
modification of a Licensed Product described in the Patent and Foreign Patents
or any other patents covering the Licensed Product(s) which are owned by
LICENSOR or LICENSEE or persons or entities affiliated with LICENSOR or
LICENSEE, provided such modification, if unlicensed, would infringe one or more
claims of the Patent and/or Foreign Patents. The parties agree that the term
extension means any extensions to the term of the Patent and or Foreign Patents
by way of government action.
O. Notwithstanding anything else herein contained in this Agreement, the parties
agree to act reasonably at all times between themselves and with all third
parties in the exercise of any discretion, authority, or direction, action or
inaction resulting from this Agreement. However, where LICENSOR has discretion
with respect to enforcement or directing the enforcement of the Patent or
Foreign Patents, the application of a standard of correctness and reasonableness
to the exercise of discretion shall not be deemed to derogate any such
discretion on the part of LICENSOR to select any correct and reasonable option
from among any of the possible correct or reasonable options.
Page 10 of 22
<PAGE>
P. Payments that are more than 30 days past due shall be subject to a monthly
interest charge of the lesser of 1.25% or the amount allowed by law.
3. Marking.
A. LICENSEE will permanently mark all Licensed Products, including software,
systems, machines, apparatus and manufactures made, sold or distributed by
LICENSEE (such markings for the software at least in any source code, screen
displays, user manuals and advertising materials) with the appropriate patent
number(s) in accordance with the statutes or other laws of the United States or
any other applicable country relating to the marking of patented articles,
including 35 U.S.C. (S) 287(a) (e.g., in the form "Licensed under U.S. Patent
No. B1 5,043,736."). Such Licensed Products when produced for distribution in
North America shall include marking for all patents issued in North America.
LICENSEE agrees that it will mark with the words "Patent Pending" or similar
marking as appropriate all products which would be Licensed Products in the
applicable foreign country were an applicable Foreign Patent to issue if an
application for patent is pending in the applicable foreign country when the
product is manufactured or sold. LICENSEE agrees to comply with all applicable
laws of any foreign jurisdiction regarding the marking of goods while a patent
is pending or unexpired.
B. LICENSEE will permanently mark all Licensed Products, including software,
systems, processes, methods, machines, apparatus and manufactures made, sold or
distributed by LICENSEE and all manuals and bills of sale with a Limited Field
of Use notice as follows: "This [product] is licensed for and only for use which
does not relate to criminal justice, penal systems, behavioral corrections,
probation, parole, pretrial confinement, or court ordered uses."
C. LICENSEE will permanently mark all Licensed Products, including software,
systems, processes, methods, machines, apparatus and manufactures made, sold or
distributed by LICENSEE and all manuals and bills of sale with a Limited Use
notice as follows: "This [product] is licensed solely for use in conjunction
with a Licensed Monitoring Services Agreement and may not be used without a
valid End Use License."
D. LICENSEE covenants that it will insure that all Sublicenses negotiated by
LICENSEE require compliance with the marking provisions of this Section 3 and
will make reasonable efforts to monitor and enforce such compliance.
E. Licensed Products shall be considered permanently marked if such markings are
placed on the Licensed Products in accordance with industry standards for
permanently marking similar products.
4. Sublicenses.
LICENSEE may only grant sublicenses in its name under this Agreement as provided
in Sections 2A(v).
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<PAGE>
5. Reporting.
A. LICENSEE shall keep or cause to be kept, in accordance with generally
accepted accounting principles, books, records and accounts covering its
operations applicable to this Agreement and containing all information necessary
for the accurate determination of amounts payable hereunder. LICENSEE also
agrees to permit a certified public accountant to inspect or audit, at
LICENSOR's expense, at reasonable intervals, upon three business days prior
notice and during regular business hours, such books, records and accounts as
may be necessary to determine the completeness and accuracy of reports required
to be made hereunder. In the event any such inspection or audit reveals that any
report provided by LICENSEE pursuant to Section 5B below understates Gross
Sales, the number of Licensed Products sold or Units covered under Monitoring
Services Agreements and Provider Service Agreements entered into pursuant to
Section 2 herein by five percent (5%) or more, then LICENSEE shall bear the cost
of such inspection.
B. LICENSEE shall provide LICENSOR with:
(i) a master copy of the form used for all Licensed Monitoring Services
Agreements and Provider Services Agreements;
(ii) a list of all service/monitoring centers owned or controlled by
LICENSEE, including those operated by subcontractors, and a list of the total
number of Units serviced by each such service/monitoring center during each
month in a calendar quarter within thirty (30) days after the end of each
calendar quarter where for the purpose of determining royalties the total
number of Units serviced in a month shall be the number of Units covered by
Monitoring Services Agreements in that month;
(iii) a list of the number of Monitoring Services Agreements entered into
each calendar month and the total number of Units covered under such Services
Agreements within thirty (30) days after the end of each calendar quarter;
(iv) a list of the Reseller Unit Monitoring Licenses sold each calendar month
including the name, address and phone number of the purchaser, the number sold
to each purchaser and the model name and/or number and serial or other
individual Unit identification number of each Unit sold to each purchaser within
thirty (30) days after the end of each such calendar month, this requirement
being deemed fulfilled by LICENSEE by using the Reseller Unit Monitoring License
Purchase Order form attached as Appendix F and delivering copies to LICENSOR;
(v) a list of the Renewable Self Monitoring Licenses sold each calendar month
including the name, address and phone number of the purchaser, and the start
date and term of the License within thirty (30) days after the end of each
calendar quarter;
(vi) a list of the Permanent Self Monitoring Licenses sold each calendar
month including the name, address and phone number of the purchaser, and the
start date of the License within thirty (30) days after the end of each calendar
quarter;
Page 12 of 22
<PAGE>
(vii) a list of all of its suppliers of Licensed Products and the amount
and type of goods or materials supplied by each such supplier within thirty (30)
days after the end of each calendar quarter;
(viii) a report in writing, certified by an officer of LICENSEE, setting
forth the number and type of all other Licensed Products sold during each
calendar month by LICENSEE within thirty (30) days after the end of each
calendar quarter; and
(ix) a reviewed annual summary report of all information required in
Sections 5B(i)-5B(viii) prepared at the expense of LICENSEE within one hundred
twenty (120) days after the completion of each Calendar Year, prepared by an
independent accounting firm which at the time shall be used by LICENSEE as its
accountants at the expense of LICENSEE.
C. This Section 5C is intentionally omitted.
D. All quarterly reports required under this Section 5 shall accompany the
monthly payment of royalties required in Section 2E for the quarter in which
they are due.
E. LICENSEE shall provide LICENSOR, within 30 days after completion, with:
copies of any financial information or reports filed with any governmental
agencies; and any financial statements, and balance sheets.
F. When reasonably feasible and appropriate LICENSEE shall make all reports to
LICENSOR in digital electronic form and in a format acceptable to LICENSOR in
its reasonable discretion provided that this requirement does not materially add
to the cost of reporting by LICENSEE.
G. LICENSEE agrees to promptly deliver all reports required under this Section
5.
H. Notwithstanding this Section 5, if the reports required herein are not made
by LICENSEE on a timely basis, or if LICENSEE underestimates royalty payments in
any calendar quarter by more than 25%, then LICENSOR may require LICENSEE to
make all such reports on a monthly basis until all such reports are delivered to
LICENSOR on a timely basis for a period four (4) months. Furthermore, if
LICENSEE underestimates royalty payments by more than 25% for any quarter in any
year, LICENSOR may in its reasonable discretion require that the reviewed annual
statement required under Section 5B(ix) be audited, and the cost of such audit
shall be borne by LICENSEE.
6. Bankruptcy.
LICENSOR may terminate this Agreement if, at any time, LICENSEE shall file in
any court or agency pursuant to any statute or regulation of any state or
country, a petition in bankruptcy or insolvency or for reorganization or for an
arrangement or for the appointment of a receiver or trustee of LICENSEE or of
its assets, or if LICENSEE proposes a written agreement of composition or
extension of its debts, or if LICENSEE shall be served with an involuntary
petition against it, filed in any insolvency proceeding, and such petition shall
not be dismissed within sixty (60) days after the filing thereof, or if LICENSEE
shall propose or be a party to any dissolution or liquidation, or if LICENSEE
shall make an assignment for the benefit of its creditors.
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<PAGE>
7. Confidentiality.
This Agreement and all of its terms and conditions shall be kept confidential by
LICENSEE and shall not be disclosed without the prior written consent of
LICENSOR, except as may be required by law or by order of a court. LICENSEE may
disclose that it has a license under the Patent and Foreign Patent Rights.
LICENSEE may disclose this Agreement to its legal and financial advisors,
directors, influential shareholders, or potential shareholders other than
licensees or potential licensees of LICENSOR, provided that LICENSEE obtains
signed non-disclosure agreements prior to any such disclosure. The form of such
non-disclosure agreement shall be subject to approval by LICENSOR in LICENSOR's
reasonable discretion. LICENSEE may not under any circumstances show a copy of
this Agreement or disclose the terms of this Agreement to other licensee's of
LICENSOR.
8. Term and Termination.
A. This Agreement shall be effective as of the dates first set forth above and
shall continue in effect until the expiration or lapsing of the Patent and/or
Foreign Patents, unless the Agreement is terminated in accordance with other
express provisions hereof. LICENSEE's obligation to LICENSOR for royalty
payments for Licensed Products shall cease only with the lapse or expiration of
the Patent and/or Foreign Patents.
B. (i) LICENSOR may terminate this Agreement, and the licenses granted and made
herein only if LICENSEE defaults in the performance of, or breaches any material
obligation and fails to use its best efforts to cure such default or violation
within 30 days after written notice from LICENSOR and does not so cure within 30
days after said notice. If such default or breach is not reasonably capable of
being cured within 30 days, and LICENSEE demonstrates that LICENSEE is
proceeding diligently to cure such default or breach, then LICENSEE shall have
reasonable additional time to cure.
(ii) LICENSEE may terminate this Agreement, and the licenses granted and made
herein in accordance with Section 20B hereof, or if LICENSOR defaults in the
performance of, or breaches any material obligation and fails to use its best
efforts to cure such default or violation within 30 days after written notice
from LICENSEE and does not so cure within 30 days after said notice. If such
default or breach is not reasonably capable of being cured within 30 days, and
LICENSOR demonstrates that LICENSOR is proceeding diligently to cure such
default or breach, then LICENSOR shall have reasonable additional time to cure.
C. The foregoing notwithstanding, LICENSEE acknowledges and agrees that monetary
damages for any breach or threat of breach of LICENSEE's obligations under the
field of use restrictions, including but not limited to Section 2C, or under
Sections 3, 11 and 12 would be inadequate compensation to LICENSOR for such
breach or threat of breach and that LICENSOR shall, therefore, be entitled to
seek and obtain temporary and permanent injunctive relief for any breach or
threat of breach of its obligations under the field of use restrictions,
including but not limited to Section 2C, or under Sections 3, 11 and 12 without
prejudice to any other right or remedy to which LICENSOR may be entitled under
law or equity and without providing LICENSEE with the opportunity to cure within
thirty (30) days as required under Section 8B above.
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<PAGE>
D. Upon termination of this Agreement, LICENSEE agrees that it will immediately
stop making, using and selling Licensed Products, and that LICENSEE will
immediately cease and desist from servicing existing Licensed Monitoring
Services Agreements and Provider Services Agreements or entering into any
additional Licensed Monitoring Services Agreements and Provider Services
Agreements. If this Agreement terminates, LICENSEE may continue to use, buy and
resell Licensed Products from vendors that are licensees of LICENSOR provided
such licensees are in good standing with LICENSOR. If this Agreement is
terminated by either party and the other party invokes the arbitration
provisions in accordance with Section 22, then such termination shall be stayed
in accordance with Section 22C pending the outcome of the arbitration
proceedings.
E. Upon termination of this Agreement, LICENSEE shall have the limited right for
ninety (90) days to sell-off any remaining inventory in accordance with the
terms and conditions of this Agreement, provided that payments for royalties are
paid every 7 days. At LICENSOR's option, all remaining inventory may be
purchased by LICENSOR from LICENSEE at LICENSEE's cost of manufacture. If
LICENSOR does not purchase all of LICENSEE's remaining inventory, then LICENSEE
shall have an additional ninety (90) days following notice by LICENSOR of no
desire to purchase such inventory to sell off remaining inventory, but may only
sell such remaining inventory to other persons or entities that are Licensed by
LICENSOR or to persons or entities that are outside of the United States or
other countries where Foreign Patents have issued provided the products are
shipped to a country other than the United States or any country where the
Foreign Patent has issued, and must make royalty payments every seven (7) days.
If LICENSEE sells and ships its remaining inventory to a location outside of the
United States or a country where the Foreign Patent has not issued, then
LICENSEE shall obtain a written statement from each purchaser containing the
name, address and contact information for the purchaser, the location where the
product is being shipped to, and an agreement by the purchaser that it will not
to sell or ship the product to the United States or any country where the
Foreign Patent has issued, and shall provide LICENSOR with copies of those
statements before the product is shipped. After the second ninety (90) days any
remaining inventory shall be destroyed by LICENSEE.
F. Challenge by LICENSEE of the validity or enforceability of the Patent, or any
Foreign Patent, in any proceeding including but not limited to court
proceedings, administrative agency proceedings or arbitration, shall be
considered a material breach of this Agreement and shall give LICENSOR the right
to terminate this Agreement immediately upon written notification to LICENSEE.
G. If this Agreement is terminated for a material breach by LICENSEE, then
LICENSEE's obligation to pay the monthly minimum royalty in accordance with
Sections 2A(vii)(d) and (e) hereof, shall continue, but only to the extent of
payments due for the initial 36 months from the effective date of this Agreement
(June 10, 1998).
H. For purposes of clarification. a material breach shall be defined as:
(i) Failure to pay or monetary default;
(ii) Challenge of the validity or enforceability of the patent;
(iii) Failure to follow the field of use restrictions;
(iv) Failure to follow the marking provisions where such failure
jeopardizes the
Page 15 of 22
<PAGE>
validity or enforceability of the patent, or LICENSOR's rights
under the patent.
(v) Committing an act that jeopardizes the validity or enforceability of
the patent provided that a reasonable person acting prudently would
conclude that such an act would have the effect of jeopardizing the
validity or enforceability of the patent.
(vi) Committing fraud or misrepresentation with the intent to commit
fraud by either party.
9. Effect of Waiver.
The failure by LICENSOR or LICENSEE to exercise any of their rights under this
Agreement shall not be deemed to constitute waiver of any of such rights or of
any other rights under this Agreement.
10. Representations and Warranties.
A. LICENSOR AND LICENSEE EACH WARRANT TO THE OTHER THAT IT IS A CORPORATION,
PARTNERSHIP, OR OTHER LAWFUL ENTITY DULY ORGANIZED AND IN GOOD STANDING UNDER
THE LAWS OF ITS JURISDICTION; AND THAT IT HAS THE NECESSARY CORPORATE OR OTHER
POWER AND AUTHORITY TO ENTER INTO AND PERFORM UNDER THIS AGREEMENT.
B. LICENSOR MAKES NO REPRESENTATIONS, EXTENDS NO WARRANTIES, EXPRESS OR IMPLIED,
AND ASSUMES NO LIABILITIES OR RESPONSIBILITIES WITH RESPECT TO THE MANUFACTURE,
USE, SALE, DISTRIBUTION OR OTHER DISPOSITION BY LICENSEE, ANY AFFILIATE,
SUBLICENSEE, PURCHASER, TRANSFEREE, OR END USER OF LICENSED PRODUCTS OR ANYTHING
COVERED BY ANY CLAIM OF THE PATENT. LICENSOR SHALL NOT ASSUME ANY LIABILITY
RESULTING FROM ANY EXERCISE OR FAILURE TO EXERCISE OF RIGHTS GRANTED UNDER THIS
AGREEMENT. LICENSOR SPECIFICALLY DOES NOT MAKE ANY WARRANTIES OR
REPRESENTATIONS, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER WITH RESPECT TO
THE PATENT AND THE TECHNOLOGY AND SYSTEMS COVERED THEREBY. IN PARTICULAR, ANY
AND ALL WARRANTIES OF VALIDITY, ENFORCEABILITY, SCOPE, MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE AND CONCERNING WHETHER OR NOT THE EXERCISE OF
THE RIGHTS GRANTED UNDER THIS AGREEMENT WILL OR WILL NOT RESULT IN INFRINGEMENT
OF ANY PATENT OR OTHER INTELLECTUAL PROPERTY RIGHT, OR CAUSE DAMAGE, LOSS OR
OTHER INJURY OR DISADVANTAGE ARE EXPRESSLY EXCLUDED.
C. LICENSEE REPRESENTS THAT IT HAS RETAINED ITS OWN LEGAL COUNSEL TO ASSESS THIS
AGREEMENT, THE PATENT AND/OR FOREIGN PATENTS INCLUDING SPECIFICALLY PATENT
VALIDITY, SCOPE AND ENFORCEABILITY AND IS RELYING ON ITS OWN ASSESSMENTS OF SUCH
AND THE ADVICE OF ITS OWN LEGAL COUNSEL AND HAS NOT RELIED ON REPRESENTATIONS
FROM LICENSOR OR LICENSOR'S LEGAL COUNSEL WITH REGARD TO MATTERS OF LAW
NOTWITHSTANDING ANY FACTUAL OR DOCUMENTARY DATA OR MATERIAL MADE AVAILABLE TO
LICENSEE FOR USE IN MAKING ITS OWN
Page 16 of 22
<PAGE>
DETERMINATIONS.
11. Prosecution and Infringement
A. Nothing contained in this Agreement shall be construed as imposing on either
party any obligation to file any patent application to secure any patent, to
prosecute or maintain in force any patent application or patent or to seek
reissue, reexamination, or an extension of any patent.
B. LICENSEE agrees to assist, cooperate with and provide information and
documents to LICENSOR in connection with any dispute regarding the validity,
enforceability, scope or infringement of the Patent and any Foreign Patents.
C. LICENSEE agrees not to voluntarily assist, cooperate with or provide
information and documents to third parties in connection with any dispute with
third parties regarding the validity, enforceability, scope or infringement of
the Patent or any Foreign Patents. Nothing in this paragraph is intended to
prohibit or inhibit LICENSEE from complying with orders by courts of competent
jurisdiction or in responding reasonably to any subpoena which LICENSEE
reasonably believes to be in accordance with law. However, LICENSEE must give
LICENSOR notice of any such orders of courts or subpoenas within forty-eight
(48) hours of their receipt exclusive of Saturdays, Sundays and United States or
Canadian holidays, and allow LICENSOR the opportunity to file motions relating
to such orders of courts or subpoenas prior to responding. Notwithstanding the
above, if the hearing date for such court orders or subpoenas is within three
(3) days or less of receipt by LICENSEE, then notice must provided to LICENSOR's
legal counsel within twenty-four (24) hours of receipt by LICENSEE, but notice
to LICENSOR may be made within forty-eight (48) hours as specified above.
D. If LICENSEE becomes aware of any infringement or potential infringement of
the Patent or any Foreign Patents, whether in the Exclusive Field or Non-
exclusive Field or Excluded Field, or becomes aware of anything which would be a
potential infringement if it were in a territory in which it would be covered by
the Patent or any Foreign Patents, LICENSEE will immediately notify LICENSOR in
writing. If LICENSEE is threatened with any claim or suit or becomes the subject
of any legal action challenging or concerning the Patent or any Foreign Patents
or the making, using or selling of anything covered by any claim of the Patent
or any Foreign Patents, LICENSEE will immediately notify LICENSOR in writing.
LICENSEE agrees that LICENSOR is under no obligation to LICENSEE to institute
suit against any infringer, or to defend any suit or action brought by a third
party which challenges or concerns the validity or enforceability of the
Patent. LICENSEE shall have no right or be under any obligation to institute
suit against any infringer or to defend any suit or action brought by a third
party which challenges or concerns the validity or enforceability of the Patent
or any Foreign Patents.
E. With respect to any suit or action relating to infringement, validity or
enforceability of the Patent or any Foreign Patents, LICENSOR shall have the
option, but is under no obligation, to bring or defend or to assume the
prosecution or defense of such suit or action. LICENSEE agrees to be joined as a
named co-plaintiff or co-defendant in any suit or action involving the Patent or
any Foreign Patents if it is required by a court in order for LICENSOR to be
able to proceed with such suit or action.
F. The existence of any known or suspected infringement by another of the Patent
or any Foreign Patents shall not entitle LICENSEE to cease the payment of
royalties hereunder.
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<PAGE>
G. LICENSOR shall have no obligation under this Agreement to institute or
participate in any re-examination or re-issue proceedings relating to the Patent
or any Foreign Patents. LICENSEE shall not under authority of this Agreement
institute or participate in any re-examination or re-issue proceedings relating
to the Patent or any Foreign Patents.
12. Conformance with Applicable Laws.
LICENSEE agrees that it will not knowingly perform acts or execute contracts
which jeopardize the enforceability of the Patent or the Foreign Patents under
any law of the applicable jurisdiction. In addition LICENSEE agrees that it will
not commit acts of fraud or misrepresentation with respect to LICENSOR or in
activities on behalf of LICENSOR including but not limited to activities with
regard to the Patent and any Foreign Patent Rights.
13. Assignability.
This Agreement, and the licenses granted herein, may not be assigned by LICENSEE
without prior written approval of LICENSOR, such approval not to be withheld
unreasonably. If LICENSOR consents to an assignment, LICENSEE agrees to guaranty
payment of the monthly minimum royalty in accordance with Section 2A(vii)(d)
and (e). LICENSOR has the right to assign this Agreement and to assign its
rights under this Agreement, in whole or in part, at any time without LICENSEE's
consent, LICENSOR shall give LICENSEE notice of assignment within seven days
after the assignment.
14. Trademarks.
Except as provided for in Section 3 and in connection with the negotiation of
licenses by either party, nothing in this Agreement shall be construed as
conferring upon either party the right or duty to include in advertising,
packaging, or other commercial activity any reference to the other party, its
trademarks, trade names, service marks, or other trade identity in any manner.
15. Right of LICENSOR to License.
LICENSOR retains the right to enter into non-exclusive licenses with any and all
other parties, including competitors of LICENSEE.
16. Retention of Counsel and Waiver of Conflicts.
A. Malin, Haley, DiMaggio & Crosby, P.C. shall at the discretion of LICENSOR
continue to be legal counsel to LICENSOR for enforcing the patent, and
enforcement will be conducted according to their recommendations. LICENSEE
covenants to waive any conflicts of interest so that Malin, Haley, DiMaggio &
Crosby, P.C. can continue to represent LICENSOR and members or managers of
LICENSOR, in the event of any disputes between LICENSOR and LICENSEE. Further,
if LICENSOR retains other counsel in the future, LICENSEE covenants to waive any
conflicts of interest in the same fashion as described in this Section 16A so
that LICENSOR may retain the counsel of its choice.
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<PAGE>
B. LICENSEE waives any and all conflicts of interest that may arise from
participation by members or managers of LICENSOR in business activities on
behalf of LICENSEE.
17. Notices.
A. Each party must immediately notify the other of any change of address. All
notices, including notices of address change and facsimile number, required to
be given hereunder must be in English and in writing and will be deemed to have
been received upon the date of receipt after having been properly sent by U.S.
Postal Service, Express Mail, or if sent to a location outside of the United
States or from outside of the United States, by Federal Express, DHL, or if
neither of these is available, by another major courier service providing
service to or from the United States with the capacity to track parcels.
B. Notwithstanding the above Section 17A, and except for notices as required
under Section 11C of this Agreement, all notices may be sent by facsimile
transmission or as proscribed in Section 17A above. Any notices that are sent by
facsimile transmission will be deemed to have been received upon the date of
receipt if the receiving party acknowledges the notice by signing the final page
of the notice and initialing a copy of all other pages and sending a copy of the
notice back to the sending party by facsimile transmission. If notice is sent
and acknowledged as proscribed in this Section 17B, the receiving party shall
accept responsibility for sending a copy of the notice to its counsel, and the
sending party shall be relieved of that obligation. If the notice is not
acknowledged by the receiving party, then the sending party must send the notice
as proscribed in Section 17A above in order for the notice to be deemed validly
sent.
C. All notices shall be sent to the following addresses or facsimile numbers:
To LICENSOR: Mr. Paul Lagassey
Eastern Investments, LLC
P.O. Box 270734
West Hartford, CT 06127
Facsimile Number: 860-523-1675
with a copy to: Mr. Barry Haley
Malin, Haley, DiMaggio & Crosby, P.A.
One East Broward Boulevard
Fort Lauderdale, FL 33301
To LICENSEE: Mr. David Kerzner
Paradigm Advanced Technologies, Inc.
One Concorde Gate, Suite 201
Toronto, Ontario, M3C 3N6, Canada
Facsimile Number: 416-447-3974
with a copy to: Mr. Larry Krauss
Grubner, Krauss
Barristers & Solicitors
5140 Yonge Street, Suite 1540
Page 19 of 22
<PAGE>
Toronto, Ontario, M2N 6L7, Canada
18. No Agent.
Nothing contained in this Agreement shall be construed as making either party
the partner, joint venturer, agent, or employer/employee of the other. Neither
party shall have the authority to make any statements, representations, or
commitments of any kind, or to take any action, which shall be binding on the
other, except and unless as expressly and explicitly provided for herein or
expressly and explicitly authorized in writing by the party to be bound. Except
as otherwise agreed to in writing by the parties, neither party shall have the
right to share in the income, revenues or profits of the other.
19. Construction.
(i) The parties agree that the validity, interpretation and enforcement of
this Agreement shall be governed by and construed in accordance with the laws
and public policies of the State of New York, United States that are applicable
to contracts fully negotiated, made and performed in New York. LICENSEE further
consents to the jurisdiction over it of the state and federal courts located in
New York County, New York, United States for the purpose of resolving any
disputes, claims or controversies arising out of or related to this Agreement.
The parties agree that the captions are for the convenience of the parties and
that they are not for use in construing or limiting the terms of the Agreement.
The parties agree that enumerations of certain acts or omissions as material
breaches are illustrative and not exclusive.
20. Survivorship.
A. Notwithstanding anything to the contrary in the Agreement, all provisions of
this Agreement are hereby limited to the extent mandated by any applicable law,
and shall only apply to and be effective where such provisions are legal and
enforceable. If any provision or portion of this Agreement is determined by any
court of competent jurisdiction to be invalid, illegal or unenforceable, and
such determination shall become final, to that extent and within the
jurisdiction in which it is invalid, illegal or unenforceable, such provision or
portion shall be deemed to be severed and deleted herefrom and the remaining
provisions shall survive and continue to be enforced so as to give effect to the
intentions of the parties insofar as that is possible, as if this Agreement had
been written without such provision.
B. LICENSOR may in its sole and absolute discretion alter or renegotiate the BI
Agreement. LICENSEE agrees that renegotiation of the BI Agreement is not and
will not constitute a breach of this License Agreement. LICENSEE agrees that if
the BI Agreement is renegotiated so as to alter LICENSOR's rights in the Patent
and/or Foreign Patents such that the new terms reduce the rights that LICENSOR
may grant under this License Agreement, LICENSEE agrees that within forty five
(45) days of receiving notice of the need for a modification of this License
Agreement that at LICENSEE's option it will either: a) modify this License
Agreement to reflect those changes to the satisfaction of LICENSOR; or b)
terminate this License Agreement by giving notice to LICENSOR.
Page 20 of 22
<PAGE>
If LICENSOR renegotiates its rights under the BI Agreement, LICENSOR agrees to
make reasonable efforts not to reduce its rights under the BI Agreement, or to
make reasonable efforts to arrange for LICENSEE to be able to obtain those
reduced rights directly. If LICENSOR is unable to do so, then the reduced rights
to LICENSEE shall no longer be covered by the terms of this Agreement and
LICENSEE shall no longer be obligated to LICENSOR for those reduced rights.
21. Entire Agreement.
This written Agreement constitutes the entire understanding between the parties
hereto relating to the subject matter hereof and supersedes and replaces all
prior and contemporaneous agreements relating thereto. No variation or
modification of this Agreement or waiver of any of the terms or provisions
hereof shall be deemed valid unless in writing and signed by both parties
hereto.
22. Arbitration.
A. Except as otherwise provided herein, if there is a disagreement between the
parties, or if either party is of the opinion that it has been dealt with
unfairly or unreasonably, LICENSOR and LICENSEE agree to binding arbitration for
resolution of these disputes if such disputes cannot be resolved between them
within 30 days of one party notifying the other in writing that it intends to
seek arbitration. Either party has the authority to initiate the arbitration
process 30 days after such notice is given. LICENSOR's right to obtain temporary
or permanent injunctive relief under Section 8C shall not be subject to
arbitration; however, the final determination as to termination or monetary
damages shall be subject to arbitration whether or not LICENSOR obtains such
injunctive relief. There shall be no arbitration to determine whether a monetary
default by either party, or a challenge by LICENSEE of the validity or
enforceability of the Patent or Foreign Patents is a material breach of this
Agreement. All arbitration under this Agreement shall be conducted in accordance
with the rules of the American Arbitration Association as then existing in New
York, New York, and judgment upon the determination rendered may be entered in
any court having jurisdiction.
B. Notwithstanding the above, the arbitration panel shall consist of three
parties. Both LICENSOR and LICENSEE shall each appoint one arbitrator, and the
two arbitrators together shall select a third arbitrator. The cost of
arbitration shall be paid for by LICENSEE unless the arbitration panel
determines that LICENSOR was not correct in its position or was not acting
reasonably in which event the arbitration panel shall determine how the costs
of arbitration are to be allocated between LICENSOR and LICENSEE.
C. If the subject matter of a disagreement between the parties is not addressed
by the terms of this Agreement or if a matter has been referred to arbitration,
then the parties agree to maintain the status quo in effect prior to the
disagreement arising or the matter being referred to arbitration, until the
disagreement is settled or until an arbitration panel rules on the issue,
provided that LICENSEE is paying royalties and subject to LICENSOR's rights to
injunctive relief in accordance with Section 8C.
Page 21 of 22
<PAGE>
23. Execution by Facsimile
The parties agree that this Agreement may be transmitted between them by
facsimile machine and the parties intend that a fad Agreement containing either
the original and/or copies of the signature of all parties shall constitute a
binding Agreement.
AGREED TO AND ACCEPTED:
PARADIGM ADVANCED
EASTERN INVESTMENTS, LLC TECHNOLOGIES, INC.
By: /s/ Paul J. Lagassey 1/20/99 By: /s/ David Kerzner 1/20/99
------------------------------- -------------------------------
Paul J. Lagassey, Manager David Kerzner, President
Duly Authorized Duly Authorized
Page 22 of 22
<PAGE>
Exhibit 10.5
CONSULTING AGREEMENT (M&A)
THIS CONTRACT PROVIDES FOR BINDING ARBITRATION OF ANY AND ALL
DISPUTES BETWEEN THE PARTIES UNDER THE FEDERAL ARBITRATION ACT
RECITALS
THIS CONSULTING AGREEMENT (the "Agreement") is made and entered into effective
the date it is signed by the last to sign as set forth below by and between
JACOB INTERNATIONAL, INC., A Wyoming Corporation, (the "Consultant"); whose
principal place of business is 1980 Post Oak Boulevard, Suite 1777, Houston, TX
77056-3809 and PARADIGM ADVANCED TECHNOLOGIES, INC. (hereinafter referred to as
"Client"), whose principal place of business is 1 Concorde Gate, Suite 201,
Toronto, Ontario, Canada M3C 3N6 (Tel: 416-447-3235; Fax 416-447-3974; email:
www.virtualir.com/prav).
WHEREAS, Consultant provides management consulting services for mergers,
acquisitions, fund raising and investor relations, and its affiliate, Rapid
Release Research, LLC., provides shareholder information and public relations,
by and through itself and/or its subsidiary or affiliated enterprises (all
referred to as "Consultant") which have personnel knowledgeable and experienced
in utilizing electronic communications such as internet chat rooms, multi-party
conference calls and audio-video media; and
Whereas, Consultant and its affiliate, Rapid Release Research, LLC., have
heretofore assisted Client in obtaining shareholder and investor awareness,
investment opportunities and raising funds; and,
WHEREAS, the Client deems it to be in its best interest to retain Consultant to
render to the Client such services as may be needed; and
WHEREAS, Consultant is ready, willing and able to render such consulting and
advisory services to the Client as hereinafter described on the terms and
conditions more fully set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants set forth
in this Agreement, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows.
1. CONSULTING SERVICES. The Client hereby retains the Consultant as a business
consultant and public relations counsel to the Client and the Consultant hereby
accepts and agrees to such retention. The Consultant shall render to the Client
such services as set forth on Exhibit A, attached hereto and by reference
incorporated herein.
It is acknowledged and agreed by the Client that Consultant carries no
professional licenses, other than any that may be listed on Exhibit A; and is
not agreeing to act as a market-maker or render legal advice or perform
accounting services, nor act as an investment advisor or broker-dealer within
the meaning of applicable state and federal securities laws. It is further
acknowledged and agreed by the Client that the services to be provided to the
Client hereunder are presently not
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contemplated to be rendered in connection with the offer and sale of Securities
in a capital raising transaction; although Client may request services of
Consultant therefor and have reached a basis for compensation if such services
regarding Transactions are rendered. The services of Consultant shall not be
Exclusive nor shall Consultant be required to render any specific number of
hours or assign specific personnel to the Client or its projects.
2. INDEPENDENT CONTRACTOR. Consultant agrees to perform its consulting duties
hereto as an independent contractor. Nothing contained herein shall be
considered as creating an employer-employee relationship between the parties to
this Agreement. The Client shall not make social security, workers' compensation
or unemployment insurance payments on behalf of Consultant. The parties hereto
acknowledge and agree that Consultant cannot guarantee the results or
effectiveness of any of the services rendered or to be rendered by Consultant
hereunder. Rather, Consultant shall conduct its operations and provide its
services in a professional manner and in accordance with good industry practice.
Consultant will use its best efforts and does not promise results. Consultants
are affiliated with Pangea Petroleum Corporation (OTC:BB- "PAPO"), WHICH MAY BE
AN INTERESTED PARTY TO A MERGER OR ACQUISITION, and Client agrees that such
representation shall not be the basis of any claim of conflict of interest or
cancellation of any agreement between Client and Consultants and/or Pangea.
3. TIME, PLACE AND MANNER OF PERFORMANCE. The Consultant shall be available
for advice and counsel to the officers and directors of the Client at such
reasonable and convenient times and places as may be mutually agreed
upon. Except as aforesaid, the time, place and manner of performance of the
services hereunder, including the amount of time to be allocated by the
Consultant to any specific service, shall be determined at the sole discretion
of the Consultant and Consultant may have services performed by and through its
subsidiary or affiliated enterprises, at its sole discretion.
4. TERM OF AGREEMENT. The term of this Agreement shall be Six (6) months
commencing on the date of this Agreement, both subject to prior termination as
hereinafter provided.
5. COMPENSATION AND EXPENSES. In full consideration of the services to be
provided for the Client by the Consultant as fully set forth in Exhibit "A", the
Client agrees to compensate Consultant in the manner set forth in Exhibit "B".
In addition, the Client shall reimburse the Consultant for all pre-approved
expenses and disbursements incurred by the Consultant on behalf of the Client in
connection with the performance of consulting services pursuant to this
Agreement. Consultant shall be solely responsible for all expenses and
disbursements anticipated to be made in connection with its performance under
this Agreement. Compensation is not to be prorated over the term of this
Agreement and is non-refundable; Provided, if Consultant is terminated for cause
as provided below, then the Compensation shall be prorated on a monthly basis.
6. DUTIES AND OBLIGATIONS OF CLIENT.
(a) Client shall furnish to Consultant such current information and data as
necessary for Consultant to understand and base its advice to the Client, and
shall provide such current information on a regular basis, including at a
minimum:
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(i) Financial Information:
Balance Sheet, Income Statement, Cash Flow Analysis and Sales
Projections; Officers and Directors Resumes or Curriculum Vitae; and,
(ii) Shareholder Information:
Shareholder(s) List; Debenture or Preferred Stock or Option or Warrant
Agreements which may affect the number of shares to be issued or outstanding.
(b) Client shall furnish Consultant with full and complete copies of all
filings with all Federal and States Securities Agencies, with full and complete
copies of all Shareholder Reports and Communications whether or not prepared
with assistance of Consultant; with all data and information supplied to any
Analyst, Broker/Dealer, Market-Maker, or any other member of the Financial
Community, including specifically most recently filed Form 10 or Form 15c2(11)
or Offering documents (such as 504; 505 or 506) or Private Placement Documents.
(c) Client will notify Consultant of any private or public offering of
securities, including S-8 or Regulation S or A, at least Ten (10) days prior to
making such an offering during the term of this Consulting Agreement.
(d) Client will not cause to be effected a change or split of the Client
stock during the terms of this Agreement without ten (10) days prior written
notice to Consultant.
(e) Client shall be responsible for advising Consultant of any information
or facts which would affect the accuracy of any prior data and information to
Consultant so that Consultant.
7. TERMINATION
(a) Without cause, Consultant's relationship with the Client hereunder may
be terminated at any time by mutual written agreement of the parties hereto.
(b) Without cause, this Agreement shall terminate upon the dissolution,
bankruptcy or insolvency of the Client.
(c) Without cause, and without excusing the Client's obligations under
Section 5 herein above. Consultant shall have the right and discretion to
terminate this Agreement should the Client violate any law, ordinance, permit or
regulation of any governmental entity, except for violations which either
singularly or in the aggregate do not have or will not have a material adverse
effect on the operations of the Client.
(d) Without cause, this Agreement may be terminated by either party upon
giving written notice to the other party if the other party is in default
hereunder and such default is not reasonably cured within fifteen (15) days
after written notice of such default.
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<PAGE>
(e) For cause(s) as set forth below, this Agreement may be terminated by
Client after giving written notice specifically detailing all and any event(s)
of default to Consultant if such specified event(s) of default is not reasonably
cured within fifteen (15) days after receipt of written notice of such events of
default(s):
(i) Any willful breach of duty by Consultant;
(ii) Any material breach by Consultant of the obligations in Section 9;
(iii) Any material acts or events which inhibit Consultant from fully
performing its responsibilities under this Agreement in good faith.
8. WORK PRODUCT. It is agreed that all information and materials produced for
the Client shall be the property of the Consultant, free and clear of all claims
thereto by the Client, and the Client shall retain no claim of authorship
therein.
9. CONFIDENTIALITY. The Consultant recognizes and acknowledges that it has and
will have access to certain confidential information of the Client and its
affiliates that are valuable, special and unique assets and property of the
Client and such affiliates. The Consultant will not, during the term of this
Agreement, disclose, without the prior written consent or authorization of the
Client, any of such information to any person, for any reason or purpose
whatsoever. In this regard, the Client agrees that such authorization or consent
to disclose may be conditioned upon the disclosure being made pursuant to a
secrecy agreement, protective order, provision of statute, rule, regulation or
procedure under which the confidentiality of the information is maintained in
the hands of the person to whom the information is to be disclosed or in
compliance with the terms of a judicial order or administrative process.
10. CONFLICT OF INTEREST. Consultant and its affiliates shall be free to perform
services for other persons and receive compensation from third parties
therefore; Provided, Consultant shall disclose its involvement to Client and not
interfere with contracts of Client.
11. DISCLAIMER OF RESPONSIBILITY FOR ACTS OF THE CLIENT. The obligations of
Consultant described in this Agreement consist solely of the furnishing of
information and advice to the Client in the form of services. In no event shall
Consultant be required by this Agreement to represent or make management
decisions for the Client. All final decisions with respect to acts and omissions
of the Client or any affiliates and subsidiaries, shall be those of the Client
or such affiliates and subsidiaries, and Consultant shall under no circumstances
be liable for any expense incurred or loss suffered by the Client as a
consequence of such acts or omissions.
12. INDEMNIFICATION. The Client shall protect, defend, indemnify and hold
Consultant and its assigns and attorneys, accountants, employees, officers and
directors harmless from and against all losses, liabilities, damages, judgments,
claims, counterclaims, demands, actions, proceedings, costs and expenses
(including reasonable attorneys' fees) of every kind and character resulting
from, relating to or arising out of (a) the inaccuracy, non-fulfillment or
breach of any representation, warranty, covenant or agreement made by the
Client; or (b) any legal action,
4
<PAGE>
including any counterclaim, based on any representation, warranty, covenant or
agreement made by the Client herein; or (c) negligence or willful misconduct by
the Client.
The Consultant shall protect, defend, indemnify and hold harmless the Client
and its assigns and attorneys, accountants, employees, officers and directors
harmless from and against all losses, liabilities, damages, judgments, claims,
counterclaims, demands, actions, proceedings, costs and expenses (including
reasonable attorneys' fees) of every kind and character (except those based on
information supplied by the Client) resulting from, relating to or arising out
of (a) the inaccuracy, non-fulfillment or breach of any representation,
warranty, covenant or agreement made by the Consultant herein except those based
on information furnished by the Client or its representatives; or (b) any legal
action, including any counterclaim, based on any representation, warranty,
covenant or agreement made by the Consultant herein; or (c) negligent or willful
misconduct by the Consultant.
13. NOTICES. Any notices required or permitted to be given under this Agreement
shall be sufficient if in writing and delivered or sent by:
(a) Registered or Certified Mail to the principal office of the other
party, postage prepaid with return receipt requested deposited in a
proper receptacle of the United States Postal Service or its
successors. Said notice shall be addressed to the intended recipient.
A written notice sent in conformity with this provision shall be
deemed delivered as of the date shown "delivered" on the return
receipt; or,
(b) Transmitted by Prepaid Telegram or by Telephone Facsimile Transmission
if receipt is acknowledged by the addressee. Notice so transmitted by
telegram or facsimile transmission shall be effective only if receipt
of transmission is acknowledged by an appropriate machine or written
confirmation, and such notice shall be deemed effective on the next
business day after transmission; or,
(c) Notice given in any other manner shall be effective only if and when
proven to have been received by the addressee.
For purposes of notice, the address of each party shall be the address set
forth above; Provided, however, that each party shall have the right to
change his respective address for notices hereunder to another location(s)
within the continental United States by giving 30 days' written notice to
the other party in the manner set forth hereinabove.
14. WAIVER OF BREACH. Any waiver by either party of a breach of any provision of
this Agreement by the other party shall not operate or be construed as a waiver
of any subsequent breach by any party.
15. ASSIGNMENT. This Agreement and the rights and obligations of the Consultant
hereunder shall not be assignable without the written consent of the Client.
16. APPLICABLE LAW. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder be construed in accordance
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with and under and pursuant to the laws of the State of Texas and that in any
action, special proceeding or other proceeding that may be brought arising out
of, in connection with or by reason of this Agreement, the laws of the State of
Texas shall be applicable and shall govern to the exclusion of the law of any
other forum, without regard to the jurisdiction on which any action or special
proceeding may be instituted.
17. SEVERABILITY. All agreements and covenants contained herein are severable,
and in the event any of them shall be held to be invalid by any competent court,
the Agreement shall be interpreted as if such invalid agreements or covenants
were not contained herein.
18. ENTIRE AGREEMENT. This Agreement constitutes and embodies the entire
understanding and agreement of the parties and supersedes and replaces all prior
understanding, agreements and negotiations between the parties (except signed
promissory notes or option agreements per prior agreements.)
19. WAIVER AND MODIFICATION. Any waiver, alteration, or modification of any of
the provisions of this Agreement shall be valid only if made in writing and
signed by the parties hereto. Each party hereto, may waive any of its rights
hereunder without effecting a waiver with respect to any subsequent occurrences
or transactions hereof.
20. BINDING ARBITRATION. As concluded by the parties hereto, any controversy
between the parties hereto involving any dispute or claim by, through or under,
or the construction or application of any terms, covenants, or conditions of
this agreement shall on the written request of one party served upon the other,
be submitted to arbitration, and such arbitration shall comply with and be
governed by the provisions of the Federal Arbitration Act as it may be amended;
Provided, that Arbitration shall be conducted in Harris County, Texas and be
conducted by the American Arbitration Association ("AAA"). The FAA rules shall
apply, and the AAA rules shall apply if not in conflict with the FAA rules. All
evidence shall be subject to the Federal Rules of Civil Evidence. There will be
three (3) Arbiters, one to be selected by Client and one to be selected by
Consultant. The two selected Arbiters will select a third Arbiter who will be an
attorney or former judge having been licensed for at least 5 years as an
attorney in Texas; and who shall be the administrator of the panel.
21. COUNTERPARTS AND FACSIMILE SIGNATURE. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument. Execution and delivery of this Agreement by exchange of facsimile
copies bearing the facsimile signature of a party hereto shall constitute a
valid and binding execution and delivery of this Agreement by such party. Such
facsimile copies shall constitute enforceable original documents.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Agreement, effective as of the date set forth above.
CLIENT: CONSULTANT:
PARADIGM ADVANCED TECHNOLOGIES, INC. JACOB INTERNATIONAL, INC.
BY: BY:
---------------------------- ----------------------------
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<PAGE>
/s/ Selwyn Werner /s/ Marc H Nathan
Selwyn Werner, Chief Financial Officer Marc H Nathan, President
Its Authorized Officer Its Authorized Officer
Signed Date: 3/7/2000 Signed Date: 2/28/2000
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"EXHIBIT A"
Consultant shall provide services to Client as an independent management
consultant. Consultant shall make itself available to consult with the board of
directors, officers, employees and representatives and agents of the Client at
reasonable times, concerning matters pertaining to the overall business and
financial operations of the Client, as well as the organization of the
administrative staff of the Client, the fiscal policy of the Client, and in
general, concerning any problem of importance concerning the business affairs
of the Client. Consultant may, at the request of the Client, assist in the
preparation of written reports on financial, accounting, or marketing matters,
review final information, analyze markets and report to the Client's Chairman of
the Board of Directors or Chief Executive Officer or President or a Vice-
President or Treasurer on proposed investment opportunities, and develop short
and long term strategic business plans. In addition, Consultant shall provide
liaison services to the Client with respect to the Client's relationships with
unaffiliated third parties. Consultant does not undertake as part of this
Agreement to provide loans, investments or financing for the Client, although
such financial benefits may be made available to Client during the course of
Consultant's engagement. Consultant will not perform any activities that could
subject Consultant or Client to violations of Federal or applicable state
securities law.
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<PAGE>
"EXHIBIT B"
Client shall compensate Consultant for its services rendered by Consultant
under this Agreement, as follows:
I. Client shall pay to Jacob International, Inc., One Thousand (1,000) of
the total issued and outstanding common shares of the Client, to be
delivered upon signing, which shares shall, not be registered and will
be subject to provisions of Rule 144, in the name of Jacob
International, Inc. In addition, Jacob has agreed to convert its
$15,325.00 convertible promissory note dated January 3, 2000 into common
stock of Client at the conversion rate of $0.02 US per share, for the
principal sum. It is hereby agreed that the accrued interest on the
convertible promissory note at 12.5% interest (approximately $319.27)
shall be converted into 15,000 shares of the Client's stock ($0.02 US
per share.)
A. UNLESS OTHERWISE STATED ABOVE, THE SHARES TO BE ISSUED HEREUNDER OR TO
BE RECEIVED BY CONSULTANT OR ITS AFFILIATE HEREUNDER SHALL BE SUBJECT TO
RESTRICTIONS AS TO TRANSFER UNDER RULE 144 PROMULGATED BY THE SECURITIES
EXCHANGE COMMISSION ("SEC"). All of the above stock so issued will have
"piggyback registration rights" to be included in any Registration
Statement undertaken by Client, without cost or expense to Consultant.
Upon registration, the shares shall be unrestricted as to
transferability.
B. The parties acknowledge that the recent trading volume is not a fair
indication of value for this transaction based on restricted shares. It
is hereby agreed that the value of the stock for this transaction, based
on the number of shares and recent trading volume is Two Dollars ($2.00)
per share.
C. All transactions shall be denominated in United States Currency.
II. Client shall reimburse Consultant for reasonable "Costs" incurred
or expended for and on behalf of the Client for those costs which the
Client approves in advance. Consultant agrees to maintain written
records of the time and effort, or costs incurred or expended by it on
behalf of Client, which records shall be available to Client upon
request. "Costs" shall include, among those items normally considered to
be "costs", the actual sum or sums paid or incurred by Consultant for or
on behalf of Client for document production, photocopying, facsimile
transmission, long distance telephone, postage, delivery service,
filing fees, publication costs, bond premiums, computer time and
charges, electronic database and communications costs, library charges,
travel and transportation charges. Costs shall be billed at the amount
actually incurred to third party providers, or if the cost is incurred
"in-house", at the usual and regular charges for the service provided
made to other like clients or according to the fee and charge schedule
published or utilized from time to time by the Consultant (which at the
present time is the same as used by third party providers such as
Kinko's or Copy Club.) If the Consultant incurs or expends costs for any
item or items which are or can be used by other clients, Consultant, in
his sole discretion, may make a reasonable allocation of
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<PAGE>
such costs incurred or expended and Client agrees to pay such allocated
amount to Consultant.
III. Transaction Compensation. In the course of its services to Client,
Consultant may consult regarding various financial and/or strategic
options for consideration by Client. Such options may include without
limitation, acquisitions, asset sales or purchases, mergers,
consolidations, joint ventures, or other business combinations,
recapitalization, spin-offs, and equity and debt financing through
public offerings, private placements, institutional borrowing, or
otherwise, in each case involving Client and a third party or parties
introduced by Consultant on the other hand ("Transactions"). The
parties agree that the name of the third party or parties introduced by
Consultant hereunder shall be listed by Written Notice from Consultant
and shall be annexed to this Agreement. If Client has prior contact
with the third party, Client shall give Written Notice to Consultant
within One (1) business day setting forth that Client has prior contact
with the named third party and Consultant shall then be entitled to
only such reasonable fee as the Client and Consultant may agree in
writing. Client agrees that Consultant may receive compensation from
the third party in the event of any transaction with the Client;
provided, such compensation shall be disclosed by Consultant to Client
prior to the time of closing.
If one or more Transactions are consummated during the period commencing
on the date hereof and ending two (2) years from the date this Agreement is
terminated, then for each such Transaction, Client shall pay to Consultant the
compensation for Consultant's services for such Transaction(s) (herein referred
to as "Transactional Compensation"), a fee equal to:
i. Ten (10%) percent of the first One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
ii. Five Percent (5%) of the second One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
iii. Four Percent (4%) of the third One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
iv. Three Percent (3%) of the fourth One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
v. Two Percent (2%) of the fifth One Million Dollars and No Cents
($1,000,000.00) of aggregate consideration; and,
vi. One Percent (1%) of all amounts in excess of Six Million Dollars and No
Cents ($6,000,000.00) of aggregate consideration.
The term "Aggregate Consideration", as used herein, of the Transaction,
payable at the time and from time to time as such consideration is received. For
purposes hereof, aggregate consideration shall mean the total value of all
cash, securities, notes, rights under escrow
10
<PAGE>
arrangements, and any other consideration paid or payable, directly or
indirectly, in connection with a Transaction, as well as institutional debt for
borrowed money which is being assumed in connection therewith, and without
credit, reduction or set-off for any compensation paid to Consultant by third
parties to the Transaction. If a portion of Consideration includes stock,
debentures, options, warrants, bonds, contingent payments, "Aggregate
Consideration" shall also include One Hundred Percent (100%) of the face value
of such payments, when and if made, in which event that portion of the fee
payable to Consultant hereunder shall be evidenced by an appropriate issuance of
either (a) stock, convertible debenture(s), options or warrants; or (b)
debentures, bonds or promissory note(s) ("Note") secured by the contingent
payment, said Note to be payable to Consultant coincident with payment of such
contingent payments. Should regulatory requirements and/or economic constraints
indicate a lower percentage fee, then Client shall not enter into any financing
arrangement with a party named in the schedule hereto without the prior written
consent of Consultant. If any of the aggregate consideration is to be made in
the form other than cash or good funds, then the Client shall deliver to
Consultant an assignment of a prorata portion of the aggregate consideration in
whichever form such aggregate consideration is to be paid (for example,
$1,000,000 cash and $1,000,000 note will be paid to Consultant as follows:
Total compensation due: 10% of $1,000,000 and 5% of $1,000,000=$150,000.
Cash portion (50% of $150,000)=$75,000
Cash at Closing; Deferred portion (50% of $150,000)=$75,000 Note
11
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this report on Form 10-KSB of our report dated
April 11, 2000, on our audit of the consolidated financial statements of
Paradigm Advanced Technologies, Inc., as of December 31, 1998 and 1999, and for
the years ended December 31, 1999, 1998, and 1997, which report is included in
this Annual Report on Form 10-KSB.
/s/ Bromberg & Associate
CHARTERED ACCOUNTANTS
Downsview, Ontario
April 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
UNAUDITED FINANCIAL STATEMENTS, DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 6,321
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 181,657
<PP&E> 20,744
<DEPRECIATION> (14,014)
<TOTAL-ASSETS> 188,387
<CURRENT-LIABILITIES> 1,321,013
<BONDS> 0
0
0
<COMMON> 3,765,618
<OTHER-SE> (4,898,244)
<TOTAL-LIABILITY-AND-EQUITY> 188,387
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 423,295
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,025
<INCOME-PRETAX> (471,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (471,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471,320)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
