<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Amendment No. 1)
(Mark One)
(X) Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
-----------------------------
( ) Transition report under Section 13 or 15(d) of the Exchange Act For the
transition period from ____________________ to ____________________
Commission File Number: 028836
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Paradigm Advanced Technologies, Inc.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 33-0692466
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
25 Leek Crescent, Richmond Hill, Ontario, L4B 4B3, CANADA
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(Address of Principal Executive Offices)
(905) 707-2172
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(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
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As of May 9, 2000 the issuer had 52,844,361 shares of its common stock
issued and outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
PARADIGM ADVANCED TECHNOLOGIES, INC.
CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
MAR 31, 2000 MAR 31, 1999
ASSETS
Current Assets
<S> <C> <C>
Cash $ 1,003,837 $ 10,898
Miscellaneous Receivables $ 18,044 $ 1,342
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Total Current Assets $ 1,021,881 $ 12,240
Capital Assets (Note 1, Note 4) $ 148,662 $ 180,451
------------ -----------
Total Assets $ 1,170,543 $ 192,691
============ ===========
LIABILITIES
Current Liabilities
Accounts payable $ 630,334 $ 480,135
Loans payable (Note 5) $ 351,581 $ 541,179
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Total Liabilities $ 981,915 $ 1,021,314
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SHAREHOLDERS' EQUITY
Share Capital (Note 6, Note 8)
Authorized 100,000,000 Common Stock
at $0.0001 par value
Issued and outstanding stock
52,660,361 as of March 31, 2000
29,796,662 as of March 31, 1999 $ 14,286,057 $ 3,755,618
Common Share Purchase Options (Note 7) $ 5,936,166 --
Deficit $(20,033,595) $(4,584,241)
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Total Shareholders' Equity $ 188,628 $ (828,623)
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Total Liabilities & Shareholder's Equity $ 1,170,543 $ 192,691
============ ===========
</TABLE>
<PAGE>
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
For the For the
Three months Three months
Ended March 31, Ended March 31,
2000 1999
Operating Expenses
Selling, General and
Administration (Note 10) $ 271,740 $ 145,773
Research & development $ 14,836,666 $ 956
Interest Expense $ 13,604 $ 9,750
Amorization $ 13,341 $ 838
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Total Expenses $ 15,135,351 $ 157,317
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Loss for the period $(15,135,351) $ (157,317)
============ ===========
Loss per Share $ (0.44) $ (0.01)
===============================
Average common shares
outstanding during period 34,660,258 29,796,662
============ ===========
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM CONSOLIDATED STATEMENTS OF DEFICIT
(Unaudited)
For the For the
Three months Three months
Ended March 31, Ended March 31,
2000 1999
Deficit - Beginning of the period $(4,898,244) $(4,426,924)
Loss for the period (15,135,351) (157,317)
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Deficit - end of period $(20,033,595) $(4,584,241)
============ ===========
PARADIGM ADVANCED TECHNOLOGIES, INC.
INTERIM CONSOLIDATED CASH FLOW STATEMENTS
(Unaudited)
For the Three For the Three
Months Months
Ended March 31 Ended March 31
2000 1999
Cash flows from operating activities
Net loss for the period $(15,135,351) $(157,317)
Items not requiring an outlay of cash:
Amortization of capital assets $ 13,341 $ 838
Common Share Purchase Options $ 19,500 -
Research and development included in
PowerLOC acquisition $ 14,836,666 -
Net changes in non-cash working capital items
related to operations
Miscellaneous Receivable $ (11,725) $ (40)
Prepaids and Deposits - $ (13,089)
Accounts Payable $ (138,175) $ 19,726
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TOTAL CASH FLOW USED IN $ (415,744) $(149,882)
OPERATIONS ------------ ----------
Cash From Financing Activities
Proceeds of Common Stock Issuance $ 1,920,439 -
Loans Payable $ (200,923) $ 149,864
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TOTAL CASH FROM FINANCING
ACTIVITIES $ 1,719,516 $ 149,864
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Cash Flows Used In Investing Activities
Acquisition of Fixed Assets $ (300,000) $ (1,940)
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TOTAL CASH FLOWS USED IN
INVESTING ACTIVITIES $ (300,000) $ (1,940)
------------ ---------
<PAGE>
NET INCREASE (DECREASE) IN CASH
FOR THE PERIOD $ 1,003,772 $ (1,958)
Cash - beginning of the period $ 65 $ 12,856
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Cash - end of the period $ 1,003,837 $ 10,898
============ =========
Paradigm Advanced Technologies, Inc.
Notes To Interim Statement
For the Period Ended March 31, 2000
(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 month period ended March
31, 2000 is 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.
<PAGE>
d) Capital assets
Capital Assets are recorded at cost less accumulated depreciation.
Depreciation is provided using the following annual rates:
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) Financial Instruments
The carrying amount of cash and cash equivalents, miscellaneous
receivables, accounts payable and loans payable approximates fair value at
the period end.
g) 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.
h) 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.
i) 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.
j) 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.
k) Revenue recognition
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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.
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 March 31, 2000, the
Company raised approximately $1,900,000 through the exercising of stock
options and warrants and through the issuance of common shares for cash.
Note 4. CAPITAL ASSETS
Cost Accumulated Net Book Net Book
Depreciation Value Value
Mar 31, 2000 Mar 31, 2000 Mar 31, 2000 Mar 31, 1999
Furniture, Fixtures
and Computers $ 20,744 $14,414 $ 6,330 $ 12,287
Patent Agency Rights $155,271 $12,939 $142,332 $168,164
-------- ------- -------- --------
$176,015 $27,353 $148,662 $180,451
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Note 5. LOANS PAYABLE
Loans payable include:
(a) Loans amounting to $200,581, are payable on demand to related parties and
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 $151,000, 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 and are the subject of a dispute described in note 9.
The remaining $126,000 are due and payable in 2000. Interest is payable on
these convertible promissory notes at a rate of 12.5% per annum.
Note 6. CAPITAL STOCK
Common Shares
Number $ Value
Balance at December 31, 1998 29,796,662 $ 3,755,618
Debentures redeemed 200,000 10,000
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Balance at December 31, 1999 29,996,662 $ 3,765,618
Acquisition of PowerLOC (note 8) 3,650,000 8,600,000
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Debentures redeemed 5,005,875 242,260
Options & warrants 7,765,839 1,200,159
Issued during period 6,241,985 478,020
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Balance at March 31, 2000 52,660,361 $14,286,057
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Note 7. COMMON SHARE PURCHASE OPTIONS
March 31, 2000 March 31, 1999
Acquisition of PowerLOC (note 8) $ 5,916,666 -
Patent Agency Agreement 19,500 -
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$ 5,936,166 -
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Note 8. STOCK OPTIONS AND WARRANTS
a) Options to purchase Common Shares have been issued under the Company's stock
option plan to directors, officers, employees and consultants of the Company.
Options outstanding at March 31, 2000 are as follows:
Year Granted Expiry Date Price Range No. of Options
1996 Jan 2001 $0.05 7,383,334
1997 Oct - Nov 2000 $0.12 - $0.40 355,000
1998 Mar 2001 $0.05 - $0.08 2,350,000
1999 Sep 2002 $0.01 - $0.05 11,650,000
2000 Mar 2003 $0.20 - $1.00 4,166,666
2000 1,350,000 (1)
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TOTAL STOCK OPTIONS OUTSTANDING 27,255,000 (2)
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(1) The 1,350,000 options issued in 2000 are Exchangeable Shares and arise out
of the acquisition of PowerLOC (note 9). 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.
(2) Options outstanding at December 31, 1999 22,303,201
Exercised in 2000 (564,867)
Issued in 2000 5,516,666
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TOTAL STOCK OPTIONS OUTSTANDING 27,255,000
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b) The following warrants were outstanding at March 31, 2000:
Expiry Date Price Range No. of Warrants
2000 $0.50 420,000
2001 $0.05 - $0.25 5,700,000
2003 $0.02 - $0.25 11,199,000
<PAGE>
2004 $0.125 453,500
2005 $2.75 120,000
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TOTAL WARRANTS OUTSTANDING 17,892,500
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Note 9. 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:
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
Issuance of 4,166,666 options for common shares @ market
value of $1.42 5,916,666
Costs incurred 20,000
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$14,836,666
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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%
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 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.
Note 10. LEGAL PROCEEDINGS
<PAGE>
In February 1998, the Company acquired all the shares of 1280884 Ontario Inc.
and its wholly owned subsidiary North York Leasing Inc. (the "Acquired
Companies"). The Company issued 3,720,000 Common Shares to the vendors of the
Acquired 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 has
instituted legal action against the legal firm who represented all the parties
in the above transaction and who was the escrow agents for the above shares and
is claiming that these shares be canceled and that damages be paid to the
Company. The Company has obtained a full release from the vendors, whereby they
agreed to waive their rights to receive any additional shares in connection with
this transaction.
In March 2000, the Company was named as the defendant in a lawsuit
brought by Luigi Brun in Canada. The complaint claimed 300,000 common shares and
additional monetary damages arising out of disputes relating to an alleged
obligation to issue common shares. Subsequent to the quarter, the Company issued
300,000 common shares in full settlement of this claim.
In March 2000, the Company was named as the defendant in a lawsuit
brought by Pines International, Inc. in Canada. The complaint claimed specific
performance and monetary damages arising out of a dispute relating to an alleged
financing agreement. Subsequent to the quarter, the Company obtained a full
release from the complaint, and did not issue any additional payments or shares.
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 claimed over 500,000 common shares and monetary
damages arising out of a dispute relating to the terms of a convertible
promissory note. The Company issued 250,000 common shares in full settlement of
this claim.
NOTE 10. RECLASSIFICATION
Certain items in the interim financial statements have been reclassified and the
amounts for the prior period have been restated accordingly.
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 March 31, 2000 As Compared to the Three Months Ended March
31, 1999
The Company recorded no sales for the three months ended March 31, 2000 and
<PAGE>
March 31, 1999. The Company expects to have its PowerLOC products ready for
distribution towards the end of the current fiscal year.
Selling, General and Administration Expenses for the three months ended March
31, 2000 were $271,740 as compared to $145,773 for the three months ended March
31, 1999. The increase is mainly due to higher professional fees and costs
related to the patent agency agreement. As a result of the acquisition of
PowerLOC Technologies Inc., the Company expects to increase its operating
expenses substantially 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.
The net loss for the three months ended March 31, 2000 amounted to $15,135,351
as compared to a loss of $157,317 for the three months ended March 31, 1999. The
loss for the 2000 period includes non-cash charges of $14,836,666 for the
expensing of the technology acquired on the acquisition of PowerLOC. The higher
loss is due to the increased selling, general and administration expenses,
higher interest charges and the amortization of the patent agency agreement.
Liquidity and Capital Resources
The Company had cash on hand of $1,003,837 at March 31, 2000. The Company
raised over $1,600,000 for cash during the first quarter, through the price paid
to exercise stock options and warrants and through the issuance of common
shares. As of May 9, 2000, the Company had approximately $700,000 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 and government funding, 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.
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
<PAGE>
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 in May
2000 announced a strategic alliance with Compugen Systems Ltd. of Richmond Hill,
Ontario to distribute and license the PowerLOC products. The Company also plans
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 and is also considering the
acquisition of companies or businesses with complementary technologies.
Research and Development
A significant amount of time and effort was placed on research and
development at the Company's inception. The Company uses contractors and third
party companies to continue its research and development activities. 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-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 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 for the year ended December 31, 1999. 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 1. Legal Proceedings
See Note 9 to Interim Statement, incorporated herein by reference.
Item 2. Changes in Securities
<PAGE>
During the first three months of 2000, the Company issued 5,565,000 shares
of common stock to approximately 16 accredited investors in private placements.
The total purchase price in the private placements was approximately $390,000.
The shares issued in the private placements were issued without registration
under the Securities Act of 1933, as amended (the "Securities Act"), in reliance
upon the exemption in Section 4(2) of the Securities Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description of Exhibit
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27 Financial Data Schedule
(b) Reports on form 8-K.
The Company filed a current report on 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: May 12, 2000
By: /s/ David Kerzner
-------------------------------
David Kerzner
President and CEO
By: /s/ Selwyn Wener
-------------------------------
Selwyn Wener
Chief Financial Officer
