<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 2000
---------------
[_] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________________ to ____________________
Commission File Number: 028836
------------------------------
Paradigm Advanced Technologies, Inc.
------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 33-0692466
---------------- ----------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25 Leek Crescent, Richmond Hill, Ontario. L4B 4B3 CANADA
--------------------------------------------------------
(Address of Principal Executive Offices)
(905) 707-2158
--------------
(Issuer's Telephone Number, Including Area Code)
-------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
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
-------- ---------
As of November 8, 2000 the issuer had 70,978,679 shares of its common
stock issued and outstanding.
Traditional Small Business Disclosure Format (check one):
Yes No X
-------- ---------
________________________________________________________________________________
Page 1
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS AS AT
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31,
2000 1999
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 2,519,879 $ 65
Miscellaneous receivables 60,693 6,321
Prepaids and deposits 123,743 248,843
Inventory 39,421 -
-------------- ---------------
Total Current Assets 2,743,736 255,229
Deferred tax recoverable (note 14) 806,000 -
Capital Assets (note 3) 91,670 6,730
Intellectual Property (note 5) 14,613,511 155,075
Investments (note 8) 613,550 -
-------------- ---------------
Total Assets $ 18,868,467 $ 417,034
============== ===============
LIABILITIES
Current Liabilities
Accounts payable $ 1,285,797 $ 768,508
Loans payable (note 6) 1,316,389 552,504
-------------- ---------------
Total Liabilities 2,602,186 1,321,012
-------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Share Capital (note 6) 7,092 3,000
Authorized: 100,000,000 Common Stock at $0.0001
par value
Issued and outstanding stock:
70,922,812 as of September 30, 2000
29,996,662 as of December 31, 1999
Additional paid in capital 54,472,282 4,273,481
Common stock purchase options 6,109,737 195,908
Warrants 678,536 321,536
Cumulative other comprehensive loss (note 9) (5,912) -
Deficit (44,995,454) (5,697,903)
-------------- ---------------
Total Stockholders' Equity (Deficiency) 16,266,281 (903,978)
-------------- ---------------
Total Liabilities and Stockholders' Equity $ 18,868,467 $ 417,034
============== ===============
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenue
Royalties $ 10,000 $ - $ 10,000 $ -
Interest 17,532 - 21,361 -
--------------------------------------------------------------------------------
27,532 - 31,361 -
--------------------------------------------------------------------------------
Operating Expenses
Research and development 194,214 - 15,124,385 2,040
Selling, general and administration 23,342,472 66,800 24,367,598 293,264
Amortization 318,262 838 345,032 2,514
Interest 70,884 94,081 297,897 208,477
--------------------------------------------------------------------------------
Total Operating Expenses 23,925,832 161,719 40,134,912 506,295
--------------------------------------------------------------------------------
Loss before income tax (23,898,300) (161,719) (40,103,551) (506,295)
Deferred tax recovery (note 14) 492,000 - 806,000 -
--------------------------------------------------------------------------------
Loss for the period $ (23,406,300) $ (161,719) $ (39,297,551) $ (506,295)
================================================================================
Loss per Share $ (0.37) $ (0.01) $ (0.78) $ (0.02)
================================================================================
Average common shares
outstanding during period 63,111,076 29,762,662 50,376,885 29,762,662
================================================================================
</TABLE>
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
(a development stage enterprise)
CONSOLIDATED CASH FLOW STATEMENTS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
2000 1999
---- ----
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities
Loss for the period $ (39,297,551) $ (506,295)
Items not requiring an outlay of cash
Amortization of capital assets 345,032 2,514
Deferred tax (806,000)
Research and development included in PowerLOC acquisition 14,516,666
Options issued to consultants 20,992,417
Options issued to employees with strike price below market price 1,660,250
Amortization of debt discount to interest expense 239,962 173,602
Write-off of patent agency rights 129,392
Common stock and options issued in payment of expenses 147,524
Net changes in non-cash working capital items related to operations
Miscellaneous receivables (54,372) (40)
Prepaids and deposits (33,058) (13,351)
Accounts payable 572,335 178,698
Inventory (39,421)
------------------------------------
NET CASH FLOWS FROM OPERATING ACTIVITIES (1,626,824) (164,872)
------------------------------------
Cash flows from financing activities
Loan payable 1,000,000 160,864
Proceeds of common stock issuance 3,272,704
------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 4,272,704 160,864
------------------------------------
Cash flows from investing activities
Acquisition of capital assets (93,167) (3,715)
Acquisition of intellectual property (10,937) -
Acquisition of equity investment (16,050)
------------------------------------
NET CASH FLOWS FROM INVESTING ACTIVITIES (120,154) (3,715)
------------------------------------
Effect of foreign currency exchange rate changes (5,912)
------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FOR THE PERIOD 2,519,814 (7,723)
Cash and cash equivalents - Beginning of the period 65 12,856
------------------------------------
Cash and cash equivalents - End of the period $ 2,519,879 $ 5,133
====================================
Cash and cash equivalents are comprised as follows:
Cash $ 1,552,344 $ 5,133
Short-term investments 967,535 -
------------------------------------
Cash and cash equivalents - End of the period $ 2,519,879 $ 5,133
====================================
</TABLE>
Note: See Note 8 for supplemental information
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Common Cumulative
Stock other
Shares Amount Additional Purchase comprehen- Deficit
paid in capital Options Warrants sive loss
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 29,796,662 2,980 3,752,638 (4,426,924)
Adjustment (note 12) 510,863 195,908 321,536 (799,659)
Loss for the period (471,320)
Debentures redeemed 200,000 20 9,980
-----------------------------------------------------------------------------------
Balance at December 31, 1999 29,996,662 3,000 4,273,481 195,908 321,536 (5,697,903)
Loss for the period (39,297,551)
Exercise of stock options and warrants 11,859,835 1,186 1,848,593 (22,337)
Exercise of convertible debt 45,000 57,000
Issued for cash 6,940,288 694 1,832,306
Debentures redeemed 5,430,875 543 272,717
Issued on acquisition of PowerLOC 3,650,000 365 8,279,635 5,916,666
Issued on acquisition of patent license 100,000 10 28,990 19,500
Issued for other consideration 545,152 54 49,133
Patent acquisition 8,700,000 870 19,782,630
Issued for WorldLink USA L.L.P. 3,700,000 370 129,130 300,000
Options issued to consultants 20,992,417
Options issued for patent rights 4,350,000
Options issued to employees 1,660,250
Subscriptions receivable (9,240,000)
Common stock payable 168,000
Cumulative comprehensive loss (5,912)
-----------------------------------------------------------------------------------
Balance at September 30, 2000 70,922,812 7,092 54,472,282 6,109,737 678,536 (5,912) (44,995,454)
===================================================================================
</TABLE>
The accompanying notes are an integral part of these Financial Statements.
<PAGE>
Paradigm Advanced Technologies, Inc.
(a development stage enterprise)
Notes To Consolidated Financial Statements
(unaudited)
Note 1. BUSINESS OVERVIEW
a) Paradigm Advanced Technologies, Inc. (the "Company") is a technology
development company incorporated in Delaware on January 12, 1996. The
Company owns the licensing rights to a broad based patent that covers
the process by which satellite location signals are transmitted over a
cellular network to a base unit. The Company is developing, through
its PowerLOC subsidiary, a complete location based commerce solution,
using a proprietary system architecture that includes mobile units
that integrate global positioning system (GPS) receivers along with
wireless cellular transceivers, as well as tracking servers.
b) The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods
ended September 30, 2000 are not necessarily indicative of the results
that may be expected for the year ended December 31, 2000. The
unaudited consolidated condensed financial statements should be read
in conjunction with the consolidated financial statements and the
footnotes thereto, included in the company's annual report on form 10-
K for the year ended December 31, 1999.
Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Use of estimates
These consolidated financial statements have been prepared in
accordance with accounting principles in the United States. Because a
precise determination of assets and liabilities depends on future
events, the preparation of financial statements for any period
necessarily involves the use of estimates and approximation. Actual
amounts may differ from these estimates. These financial statements
have, in management's opinion, been properly prepared within
reasonable limits of materiality and within the framework of the
accounting policies summarized below.
b) Principles of Consolidation
The Company's consolidated financial statements include the assets,
liabilities and results of operations of subsidiaries. All significant
inter-company accounts and transactions have been eliminated.
c) Cash and Cash Equivalents
Cash and cash equivalents consist of cash balances with banks and
short-term investments with original maturities of less than three
months.
d) Capital assets
Capital Assets are recorded at cost less accumulated depreciation.
Amortization is provided using the following annual rates:
________________________________________________________________________________
Page 6
<PAGE>
Computer Equipment - 30% - declining balance method
Furniture and Fixtures - 20% - declining balance method
e) Intellectual Property
Intellectual properties are recorded at cost less accumulated
amortization. Amortization is provided over their estimated useful
lives:
Patent Rights - 10 years - straight-line method
License rights - 3 years - straight-line method
f) Investments
The Company has a non-controlling investment in a non-publicly traded
company, which is accounted for using the equity method of accounting.
The Company monitors this investment for impairment and makes
appropriate reductions in carrying values when appropriate.
g) Financial Instruments
The carrying amount of cash and cash equivalents, miscellaneous
receivables, accounts payable and loans payable approximates fair
value at the period end.
h) Foreign Currency Translation
A subsidiary of the Company maintains its books and records in
Canadian dollars. Foreign currency transactions are reflected using
the temporal method. Under this method, all monetary items are
translated into Canadian funds at the rate of exchange prevailing at
balance sheet date. Non-monetary items are translated at historical
rates. Income and expenses are translated at the rate in effect on the
transaction dates. Transaction gains and losses are included in the
determination of earnings for the year.
The translation of the financial statements of this wholly-owned
subsidiary from Canadian dollars into United States dollars is
performed for the convenience of the reader. Balance sheet accounts
are translated using closing exchange rates in effect at the balance
sheet date and income and expense accounts are translated using an
average exchange rate prevailing during each reporting period. No
representation is made that the Canadian dollar amounts could have
been or could be realized at the conversion rates. Adjustments
resulting from the translation are included in the accumulated other
comprehensive loss in stockholders' equity.
i) Loss per Share
The Company has adopted Financial Accounting Standards No. 128,
"Earnings per Share" ("FAS 128"). FAS 128 requires presentation of
basic and diluted earnings or loss per share. The Company has
potentially dilutive shares, however, because the Company has a loss,
the potentially dilutive shares are deemed anti-dilutive and only the
basic loss per share is presented. Loss per share is computed by
dividing net income by the weighted average number of shares
outstanding during the period.
j) Income taxes
Current income tax expense (recovery) is the amount of income taxes
expected to be payable (recoverable) for the current year. A deferred
tax asset and/or liability is computed for both the expected future
impact of differences between the financial statement and tax bases of
asset and liabilities and for the expected future tax benefit to be
derived from tax losses. Valuation allowances are established when
necessary to reduce deferred tax asset to the amount expected to be
"more likely than not" realized in future returns. Tax law and rate
changes are reflected in income in the period such changes are
enacted.
________________________________________________________________________________
Page 7
<PAGE>
k) Stock-based compensation plan
In December 1995, SFAS No. 123, Accounting for Stock-Based
Compensation was issued. It introduces the use of a fair value-based
method of accounting for stock-based compensation. It encourages, but
does not require, companies to recognize stock-based compensation
expenses to employees based on the new fair value accounting rules.
Companies that choose not to adopt the new rules will continue to
apply the existing accounting rules continued in Accounting Principles
Board Opinion No. 25, Accounting for stock issued to employees.
However, SFAS No. 123 requires companies that choose not to adopt the
new fair value accounting rules to disclose pro forma net income and
earnings per share under the new method. The Company has adopted the
disclosure provisions of SFAS No. 123.
l) Research and Development
Research and development costs, other than capital expenditures but
including acquired research and development costs, are charged against
income in the period incurred.
m) Revenue recognition
Sales are recognized upon delivery of goods and passage of title to
customers.
Licence fees are recognized as income over the terms of the licences.
n) Comprehensive income
The Company has adopted SFAS No. 130 Reporting Comprehensive Income.
This standard requires companies to disclose comprehensive income in
their financial statements. In addition to items included in net
income, comprehensive income includes items currently charged or
credited directly to stockholders' equity, such as foreign currency
translation adjustments.
Note 3. GOING CONCERN
The Company is in its development stage and has not yet earned any
significant revenues. Consequently, the Company has incurred losses
since its incorporation in 1996. The Company has funded its operations
to date through the issuance of shares and debt.
The Company 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 September
30, 2000, the Company raised approximately $3,272,000 through the
exercising of stock options and warrants and through the issuance of
common shares for cash.
Note 4. CAPITAL ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
-------------- -------------
2000 1999
---- ----
<S> <C> <C>
Furniture, Fixtures and Computers $113,911 $20,744
Less: Accumulated Amortization 22,241 14,014
-------- -------
$ 91,670 $ 6,730
======== =======
</TABLE>
Note 5. INTELLECTUAL PROPERTY
<TABLE>
<CAPTION>
September 30, December 31,
-------------- -------------
2000 1999
---- ----
<S> <C> <C>
Patent Rights $14,924,437 $ -
Patent Agency Rights - 155,075
----------- --------
</TABLE>
________________________________________________________________________________
Page 8
<PAGE>
<TABLE>
<S> <C> <C>
14,924,437 155,075
Less: Accumulated Amortization 310,926 0
----------- --------
$14,613,511 $155,075
=========== ========
</TABLE>
Patent Rights - During the third quarter the Company issued 4,500,000
common shares, valued at $10,543,500 to acquire the licensing rights
to US Patent # 5,043,736. The patent is for a broad based process
patent, which covers the apparatus and method of transmitting position
information from satellite navigational signals (such as GPS) over
cellular systems to a base unit and displays the location of a person
or object, so equipped.
The vendor was also issued 4,200,000 common shares subject to an
escrow agreement which the Company has recorded as a subscription
receivable. The vendor may, at any time after July 16, 2001, require
the escrow agent to sell the shares, and remit to the Company from the
proceeds at a price per share of $2.20, up to July 16, 2002, and that
amount plus $0.20 per share per year, thereafter.
The Company also issued 3,000,000 options for common shares for
services rendered in acquiring the licensing rights to the patent. The
fair value of the options granted was estimated at $4,350,000 on the
date of grant using the Black-Scholes pricing model using the
following assumptions:
Risk-free interest rate 6.7%
Dividend yield 0%
Expected life 4 years
Stock price volatility 100%
As the agreements terminated the previously owned agency rights to
license the use of the patent, the net book value of the patent agency
agreement has been written off, resulting in a charge to earnings of
$129,392.
Note 6. LOANS PAYABLE
a) Loans payable include loans amounting to $1,196,389 (1999 -
$243,842) which are payable on demand and are secured by a pledge over
all the assets of the Company. Interest is payable on $196,389 of
these secured loans at a rate of prime plus 4% and on $1,000,000 at a
rate of 10%. Of these loans, $1,067,322 at September 30, 2000 was
owing to directors of the Company or a company with which they are
affiliated.
Subsequent to September 30, 2000, the Company renegotiated the terms
of repayment on the $1,000,000 loan as follows:
. $500,000 by the exercise in November 2000 of 2,000,000 existing
warrants at $0.25 per share;
. $25,000 in November 2000;
. $250,000 on January 31, 2001; and
. 225,000 plus accrued interest, on July 31, 2001
The lender has the option to convert the balance of the loan at any
time into common stock at a price of $1.00 per share.
b) Convertible promissory notes of $120,000 (1999 - $216,000) are
convertible into common shares at rates of $0.02 - $0.05 per share
(1999 -$0.02 - $0.05 per share). The notes currently outstanding are
due and payable December 31, 2000. Interest is payable on these
convertible promissory notes at a rate of 12.5% per annum. A portion
of these convertible promissory notes has been allocated to the
intrinsic value of the beneficial conversion feature and recognized as
additional paid in capital (note 12). The effective interest rate of
the amortization of the intrinsic value and the actual rate is a
combined 86% (1999 - 107%).
Note 7. STOCK OPTIONS AND WARRANTS
<TABLE>
<CAPTION>
Weighted average
Options outstanding Number Range exercise price
<S> <C> <C> <C>
Balance, December 31, 1999 22,303,201 $0.01 - 0.40 $0.05
Granted during the period 37,821,666 $0.20 - 12.50 2.03
Exercised during the period (2,973,201) $0.01 - 0.20 0.05
---------- ------------- -----
</TABLE>
________________________________________________________________________________
Page 9
<PAGE>
<TABLE>
<S> <C> <C> <C>
Balance, September 30, 2000 57,151,666 $ 0.01 - 12.50 $1.36
========== ============= =====
</TABLE>
Options outstanding include 1,248,750 Exchangeable Shares which arise out of the
acquisition of PowerLOC (note 8).
On September 7, 2000, the Company entered into an agreement for consulting
services for two years with compensation of 1,600,000 common stock options. The
options are to be issued evenly over the period October 1, 2000 to July 1, 2002
at prices ranging from $2.00 to $12.50 and are exercisable three years from the
respective issue dates.
The following warrants were outstanding at September 30, 2000:
<TABLE>
<CAPTION>
Expiry date Price range Number
<S> <C> <C>
2001 $0.05 - 0.25 5,700,000
2003 $0.02 - 2.50 11,820,333
2005 $ 2.75 120,000
2010 $ 1.00 12,500,000
----------
TOTAL WARRANTS OUTSTANDING 30,140,333
==========
</TABLE>
Services Paid by Stock Options
In consideration for services rendered by a number of consultants, the Company
granted a total of 17,040,000 options for the nine months ended September 30,
2000 and 17,040,000 options for the three months ended September 30, 2000,
resulting in a charge to the consolidated financial statements of $20,992,417
for the nine months ended September 30, 2000 and $20,992,417 for the three
months ended September 30, 2000. The fair value of these options was estimated
using the Black-Scholes model with the following weighted average assumptions:
Risk-free interest rate 6.1 - 6.7%
Dividend yield 0%
Expected life 3 - 6 years
Stock price volatility 100%
If the 17,040,000 options, issued or commited, were all exercised at their
weighted average strike price of $2.33 per share, the company would receive a
cash infusion, for capital stock, amounting to $39,668,500.
Employee Stock Option Plan
The consolidated financial statements include a compensation charge of
$1,660,250 (1999: nil) for the nine months ended September 30, 2000 and
$1,367,850 (1999: nil) for the three months ended September 30, 2000 resulting
from employee stock options issued at a value below market value at the grant
dates.
Note 8. BUSINESS ACQUISITIONS
1. PowerLOC acquisition
On March 29, 2000, the Company completed the acquisition of 100% of Power Point
Micro Systems Inc. and PowerLOC Technologies Inc (a Bahamas company),
("PowerLOC"). The acquisition has been accounted for using the purchase method.
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. Consideration was as follows:
<TABLE>
<S> <C>
Cash $ 300,000
Issuance of 3,650,000 common shares @ market value of $1.72 6,278,000
Issuance of 1,350,000 exchangeable shares @ market value of $1.72 2,322,000
</TABLE>
________________________________________________________________________________
Page 10
<PAGE>
<TABLE>
<S> <C>
Issuance of 4,166,666 options for common shares @ market value of $1.42 5,916,666
Costs incurred 29,731
------------
$ 14,846,397
============
</TABLE>
The definitions of beneficial ownership and the number of shares outstanding
apply to shares of common stock and exchangeable shares as though they were the
same security.
The purchase price was allocated to research and development expenses in terms
of FAS 2 (Accounting for Research and Development Costs).
PowerLOC Technologies Inc. (Bahamas) remains the owner of the location
technology acquired in the transaction and any improvements. Another subsidiary
of Paradigm, PowerLOC Technologies Inc. (an Ontario corporation) is currently
marketing and enhancing the technology under license from PowerLOC.
The shares of the acquired companies have been pledged as security for the
performance of the Company under the terms of the agreement.
The fair value of the options granted was estimated on the date of grant using
the Black-Scholes pricing model using the following assumptions:
Risk-free interest rate 6.7%
Dividend yield 0%
Expected life 3 years
Stock price volatility 100%
A loan of $320,000 to the vendor of PowerLOC has been advanced pursuant to the
acquisition agreement and treated as a reduction of paid in capital. The
Company committed to register and make freely tradable 25% of the 5,000,000
common shares issued in connection with the transaction in each of the following
four quarters. The Company further agreed that if at the end of each quarter,
the number of Paradigm shares made free trading have an aggregate value of less
than $500,000, the Company shall issue to the vendor additional shares, or the
equivalent amount as shall be necessary so that the aggregate value of free
trading shares becoming unrestricted in such quarter for the benefit of the
vendor shall not be less than $500,000. The remaining commitment is for the
Company to advance up to an additional $1,680,000 over a period of one year
after closing, to the extent that the shares made freely trading in each quarter
do not exceed a market value of $500,000. The amounts advanced will be repaid
to the Company upon shares becoming freely trading, provided that such shares
have a market value that exceeds the committed amount.
2. Worldlink acquisition
In the third quarter, the Company entered into an agreement ("the
Agreement") with Pangea Petroleum Corporation ("Pangea") to form a
strategic alliance. The primary activity of the joint venture will be
to act as an incubator in seeking out companies with technologies in
which WorldLink can make appropriate investments in new and
complimentary technologies. As part of the Agreement, the Company and
Pangea agreed as follows:
a) The Company acquired all of the Class B membership units of Worldlink
USA, L.L.C. ("Worldlink") for 7,500,000 common shares and 12,500,000
warrants, to WorldLink. These units represent 50% of the membership
units of Worldlink. Worldlink is a development stage company that owns
or licenses video streaming, a library of concerts and Audio Streaming
Format production.
b) The Company has issued only 2,700,000 of the common shares and has a
commitment to issue the remaining 4,800,000 common shares to WorldLink
within five days of the approval of the Company's shareholders to an
increase in the authorized share capital of the Company, but in no
event later than February 26, 2001. The value of the stock committed
of $168,000 is recorded as common stock payable.
________________________________________________________________________________
Page 11
<PAGE>
c) Pangea acquired all of the Class A Membership Units of Worldlink in
exchange for 12,500,000 warrants of Pangea, issued to WorldLink. These
units also represent 50% of the membership units in Worldlink.
d) The Company issued 1,000,000 common shares, valued at $35,000, in
payment of professional and consulting fees.
e) In the event of the liquidation of Worldlink, the Class A membership
units have a liquidation preference in and to the Paradigm securities,
and the Class B membership units have a liquidation preference in and
to the Pangea securities.
The acquisition has been accounted for using the purchase method. The
assets of Worldlink acquired and the consideration given by the Company are
summarized as follows:
a) Assets acquired (50% interest):
Equipment $ 1,000
Investments 612,550
---------
$ 613,550
=========
b) Consideration given:
8,500,000 common shares $ 297,500
12,500,000 warrants 300,000
Costs incurred 16,050
---------
$ 613,550
=========
The fair value of the options granted was estimated on the date of grant using
the Black-Scholes pricing model using the following assumptions:
Risk-free interest rate 6.6%
Dividend yield 0%
Expected life 10 years
Stock price volatility 100%
Note 9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-monetary transactions:
<TABLE>
<CAPTION>
Nine months Nine months
ended ended
September 30, September 30,
2000 1999
<S> <C> <C>
Shares issued for purchase of patent rights $ 10,543,500 -
Options issued for purchase of patent rights 4,350,000 -
Shares issued for subscription receivable - patent rights 9,240,000 -
Subscription receivable - patent rights (9,240,000) -
Shares issued for purchase of investment in WorldLink USA, L.L.C. 297,500 -
Warrants issued for purchase of investment in WorldLink USA, L.L.C. 300,000 -
Shares issued for PowerLOC acquisition 8,600,000 -
Options issued for PowerLOC acquisition 5,916,666 -
Shares issued for redemption of convertible debentures 241,325 -
Shares issued for accounts payable 55,046 -
Note 10. COMPREHENSIVE LOSS
Nine months Nine months
ended ended
Page 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
<S> <C> <C>
Net loss $(39,297,551) $ (506,295)
Foreign currency translation adjustment (5,912) -
------------ -------------
Comprehensive loss $(39,303,463) $ (506,295)
============ =============
</TABLE>
The components of accumulated comprehensive loss are as follows:
Accumulated other comprehensive loss - January 1, 2000 $ -
Foreign currency translation adjustments for the nine months
ended September 30, 2000 5,912
----------
Accumulated other comprehensive loss - September 30, 2000 $ 5,912
==========
Note 11. LEGAL PROCEEDINGS
Legal proceedings have been threatened against the company by an individual
claiming an entitlement to 400,000 common shares for services rendered. The
Company believes that this claim is without merit and intends to vigorously
defend any such lawsuit should it be filed against the Company. It is neither
possible at this time to predict the outcome of any lawsuit, including whether
the Company will be forced to issue common shares, or to estimate the amount or
range of potential loss, if any.
Note 12. ADJUSTMENTS
During the period the company made retroactive adjustments for the following:
a) Options granted to consultants in prior periods not previously recorded. The
value of the options granted at that time had been determined using the Black
Scholes model with the following assumptions:
Risk free interest rate 5%
Expected life in years 3 to 5 years
Expected dividend yield 0%
Volatility 170% to 180%
As a result of these adjustments, the following have been increased:
September 30,
2000
Share capital $ -
Common share purchase options 195,908
Deficit (195,908)
---------
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<PAGE>
Total shareholders' equity (deficiency) $ -
==========
b) Convertible debt issued in prior periods has been adjusted to comply with
Topic D-60, APB 14 and EITF 98-5. As a result, for convertible debt where the
exercise price is less than the market price at the date of issuance, a portion
of the proceeds from the sale has been allocated to the intrinsic value of the
beneficial conversion feature and recognized as additional paid-in capital. The
related discount has been amortized over the period from the date of issuance to
the security's first convertibility date. For convertible debt where the
exercise price is more than the market price at the date of issuance, no portion
of the proceeds is attributable to the conversion feature. For convertible debt
issued with detachable stock purchase warrants, the portion of the proceeds
allocable to the warrants is included as paid-in capital.
As a result of these adjustments, the following have been increased:
For the three For the nine
months ended months ended
September 30, 1999 September 30, 1999
Interest expense $ 81,256 $ 173,602
Loss for the period $ 81,256 $ 173,602
December 31,
1999
Prepaid expenses $ 228,648
----------
Total assets $ 228,648
==========
Share capital $ -
Warrants 321,536
Additional paid in capital 510,863
Deficit (603,751)
----------
Total shareholders' equity (deficiency) $ 228,648
==========
Note 13. CUMULATIVE FINANCIAL INFORMATION
Cumulative total of Consolidated Statements of Operations, since inception of
the Company:
Sales revenue $ 126,622
Royalty & interest 31,361
-----------
Total Revenue 157,983
-----------
Research and development 15,251,014
Selling, general and administration 28,027,210
Cost of sales 401,821
Interest 983,023
Amortization 366,369
Write-off investment in subsidiary 930,000
-----------
Total expenses 45,959,437
Deferred tax recovery 806,000
-----------
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<PAGE>
Cumulative loss $44,995,454
===========
NOTE 14. INCOME TAXES
The following is a reconciliation from the estimated statutory income tax
recovery to the Company's actual income tax recovery:
<TABLE>
<CAPTION>
For the nine For the nine
months ended months ended
September 30, 2000 September 30, 1999
<S> <C> <C>
Estimated income tax recovery at
Statutory tax rate $ 800,000 $(172,000)
Book amortization in excess of tax amortization 6,000 -
Valuation allowance - 172,000
--------- ---------
Deferred income tax (recovery) $(806,000) $ -
========= =========
</TABLE>
Item 2. 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."
Three Months Ended September 30, 2000
The Company recorded licensing revenue of $10,000 for the three months ended
September 30, 2000 as it started to earn revenues from the patent. The Company
recorded no revenues for the three months ended September 30, 1999. The Company
expects to earn increased licensing revenue from the patent in the future as it
increases its licensing activities and expects to starting earning revenue from
its PowerLOC products towards the end of the current fiscal year.
The Company earned interest revenue of $17,532 for the three months ended
September 30, 2000 and no interest revenue for the three months ended September
30, 1999, due to the investment of cash received from the issuance of common
shares and debt financing.
Selling, General and Administration Expenses for the three months ended
September 30, 2000 were $23,342,472 as compared to $66,800 for the three months
ended September 30, 1999. The expenses for the three months ended September 30,
2000 includes non-cash compensation charges of $22,360,267 recorded for the
issuance of stock options to employees and consultants. The higher operating
expenses result from the acquisition of PowerLOC Technologies Inc., on March
29, 2000. The Company hired technical, sales and administrative staff during the
quarter ended September 30, 2000 and incurred professional fees, travel and
consulting fees relating to the PowerLOC business. The Company also incurred
higher corporate professional fees and additional patent related costs.
Research and development costs amounted to $194,214 for the three months ended
September 30, 2000, while no research and development costs were incurred for
the three months ended September 30, 1999. The research and development costs
includes direct labor, sub contractor, materials and equipment costs incurred in
the development of the PowerLOC vehicle and personal tracking solutions.
________________________________________________________________________________
Page 15
<PAGE>
The Company expects to increase its operating expenses in the future by hiring
additional staff and incurring additional research and development, selling,
marketing and administrative costs. The Company also expects to incur additional
licensing costs as it increases its patent licensing activities.
Depreciation and amortization charges for the quarter ended September 30, 2000
were $318,262 as compared to $838 for the quarter ended September 30, 1999 due
to the amortization of the patent agency agreement.
The net loss before income tax for the three months ended September 30, 2000
amounted to $23,898,300 as compared to a loss of $161,719 for the three months
ended September 30, 1999. The higher loss is due to the non-cash compensation
charges of $22,360,267 recorded for the issuance of stock options to employees
and consultants and increased operating expenses relating to the PowerLOC
business, higher professional fees and the amortization of the patent agency
agreement.
The Company recorded a deferred tax recovery of $492,000 for the three months
ended September 30, 2000 representing the expected income tax recovery for
the period. This resulted in the Company recording a net loss after income
tax of $23,406,300. There was no deferred tax recovery for the three months
ended September 30, 1999.
Nine Months Ended September 30, 2000
The Company recorded licensing revenue of $10,000 for the nine months ended
September 30, 2000 and no revenue for the nine months ended September 30, 1999.
The Company's PowerLOC personal and vehicle tracking products were under
development during the nine months ended September 30, 2000 and the Company
expects to starting earning revenue from its PowerLOC products towards the end
of the current fiscal year. The Company is also increasing its patent licensing
activities, as a result of the acquisition of the licensing rights in September
2000.
The Company earned interest revenue of $21,361 for the nine months ended
September 30, 2000 and no interest revenue for the nine months ended September
30, 1999, due to the investment of cash received from the issuance of common
shares and debt financing.
Selling, General and Administration Expenses for the nine months ended September
30, 2000 were $ 24,367,598 as compared to $293,264 for the nine months ended
September 30, 1999. The expenses for the nine months ended September 30, 2000
includes non-cash compensation charges of $ 22,652,667 recorded for the issuance
of stock options to employees and consultants. Operating expenses increased as a
result of the acquisition of PowerLOC Technologies Inc., on March 29, 2000 and
higher corporate professional fees and patent related costs.
Depreciation and amortization charges for the nine months ended September 30,
2000 were $345,032 as compared to $2,514 for the nine months ended September 30,
1999 due to the amortization of the patent agency agreement.
The net loss before income tax for the nine months ended September 30, 2000
amounted to $40,103,551 as compared to a loss of $506,295 for the nine months
ended September 30, 1999. The loss for the 2000 period includes non-cash charges
of $14,516,666 for the expensing of the technology acquired on the acquisition
of PowerLOC and $ 22,652,667 compensation charges recorded for the issuance of
stock options to employees and consultants. The higher loss is also due to the
increased selling, general, development and administration expenses relating to
the PowerLOC business, higher professional fees and the amortization of the
patent agency agreement.
The Company recorded a deferred tax recovery of $806,000 for the nine months
ended September 30, 2000 representing the expected income tax recovery for
the period. This resulted in the Company recording a net loss after income
tax of $39,297,551. There was no deferred tax recovery for the nine months
ended September 30, 1999.
Liquidity and Capital Resources
The Company had cash and cash equivalents on hand of $2,519,879 at September 30,
2000. The Company raised in excess of $3,200,000 cash during the first three
quarters , through the price paid to exercise stock options and warrants and
through the issuance of common shares. This amount was primarily the result of
private sales of common shares and the price paid in connection with the
exercise of warrants. The Company also raised $1,000,000 through debt financing
in July 2000. 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 and government
funding. The Company
________________________________________________________________________________
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<PAGE>
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 four 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.
Plan of Operation
In September 2000, the Company acquired the licensing rights to a broad based
patent (US Patent # 5,043,736) 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 acquired the rights to US Patent # 5,043,736
previously owned by Eastern Investments, LLC, in exchange for 4,500,000 shares
of Common Stock, and issued an additional 4,200,000 shares subject to an escrow
agreement whereby the vendor may, at any time after July 16, 2001, require the
escrow agent to sell the shares, and remit to the Company from the proceeds at a
price per share of $2.20, up to July 16, 2002; and that amount, plus $0.20 per
share per year, thereafter. The Company plans to license parties using this
process and expects to earn licensing revenue from these agreements. The Company
announced the signing of two licensees in the second quarter of the 2000 fiscal
year and plans to increase its licensing activities, as result of the
acquisition of the licensing rights. The Company acquired a 50% interest in
WorldLink USA L.L.C. and issued 2,700,000 common shares and 12,500,000 stock
warrants to WorldLink, USA L.L.C. and will issue an additional 4,800,000 common
shares. WorldLink, USA L.L.C. will seek investments in companies with
complementary and strategic technologies. The Company announced four agreements
for the sale and licensing of its PowerLOC tracking solutions during the third
quarter of the 2000 fiscal year and expects to start shipping products before
the end of the 2000 fiscal year. The Company is increasing its development
activities relating to the vehicle and personal GPS tracking devices and plans
to negotiate additional distribution or sales representation agreements with
location service providers and systems integrators to distribute these products.
In May 2000 the Company announced a strategic alliance with Compugen Systems
Ltd. of Richmond Hill, Ontario to distribute and license the PowerLOC products.
The Company also announced the hiring of a public relations firm in Canada at
the end of the second quarter and an USA corporate development-consulting firm
in September 2000 as well as an USA marketing consulting firm in July 2000.
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 and is also considering the
acquisition of companies or businesses with complimentary technologies.
Research and Development
A significant amount of time and effort was placed on research and development
at the Company's inception. The Company has hired a number of software and
hardware engineers for its PowerLOC subsidiary and also uses contractors and
third party companies to continue its research and development activities. The
Company plans to hire additional engineers and is planning to increase its
research and development activities in order to develop a set of location
tracking solutions for various applications.
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Form 10-Q 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-Q, 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
________________________________________________________________________________
Page 17
<PAGE>
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" in the Company's Form 10-KSB which was filed on April 14,
2000. 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-Q or for any other reason.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
----------- ----------------------
27 Financial Data Schedule
(b) Reports on form 8-K.
The Company filed Form 8-K on April 14, 2000 regarding the acquisition of
PowerLOC Technologies, Inc.
SIGNATURES
In accordance with the Exchange Act, the registrant caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Paradigm Advanced Technologies, Inc.
Date: November 14, 2000
By: /s/ Eduardo Guendelman
---------------------------
Eduardo Guendelman
President and Chief Executive Officer
By: /s/ Selwyn Wener
---------------------------
Selwyn Wener
Chief Financial Officer
________________________________________________________________________________
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