<PAGE>
                     U.S. SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                              --------------------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORT

                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

(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, 2001

                                       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 Registrant as Specified in Its Charter)

        DELAWARE                                                 33-0692466
(State or Other Jurisdiction of                                (IRS Employer
Incorporation or Organization)                               Identification No.)

       30 LEEK CRESCENT, SUITE 103, RICHMOND HILL, ONTARIO, CANADA L4B 4N4
               (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

       Registrant's telephone number, including area code: (905) 764-3701

        Securities Registered Pursuant to Section 12(b) of the Act: None

           Securities Registered Pursuant to Section 12(g) of the Act:
                    COMMON STOCK, PAR VALUE $0.0001 PER SHARE

         Indicate by checkmark whether the registrant: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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 [ ]

         Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not 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-K or any
amendment to this Form 10-K [ ].

         As of March 22, 2002, the aggregate market value of the registrant's,
common stock held by non-affiliates of the registrant (based upon the per share
closing price of $0.20 on March 22, 2002, and for the purpose of this
calculation only, the assumption that all of the registrant's directors and
executive officers are affiliates) was approximately $26,342,322.

         As of as at March 22, 2002, there were 149,560,562 shares of the
registrant's common stock outstanding.


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                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's proxy statement for the 2002 Annual Meeting of
Stockholders which will be filed with the Securities and Exchange Commission
within 120 days after the end of the year ended December 30, 2001, are
incorporated by reference in Part III, Items 10, 11, 12 and 13 of this Form
10-K.

                                TABLE OF CONTENTS

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ITEM 1.  Description of Business..................................................................................1


ITEM 2.  Properties..............................................................................................13


ITEM 3.  Legal Proceedings.......................................................................................13


ITEM 4.  Submission of Matters to a Vote of Security Holders.....................................................13


ITEM 5.  Market For Common Equity and Related Stockholder Matters................................................14


ITEM 6.  Selected Financial Data.................................................................................19


ITEM 7.  Management's Discussion and Analysis of Financial Condition and Results of Operation....................20

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk..............................................39


ITEM 8.  Financial Statements and Supplementary Data.............................................................41


ITEM 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure....................71

ITEM 10. Directors and Executive Officers of the Registrant......................................................71


ITEM 11. Executive Compensation..................................................................................71


ITEM 12. Security Ownership of Certain Beneficial Owners and Management..........................................71


ITEM 13. Certain Relationships and Related Transactions..........................................................71


ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.........................................71
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              CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

         This Form 10-K contains forward-looking statements that reflect the
current expectations of Paradigm Advanced Technologies, Inc. (the "Company,"
"Paradigm," "us" or "we") about its future operating results, performance, and
opportunities that involve substantial risks and uncertainties. When used in
this Form 10-K, the words "anticipate," "believe," "estimate," "plan," "intend,"
"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 anticipated. Factors that insight
contribute to such differences include, but are not limited to, limited capital
resources, lack of operating history, intellectual property rights, 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-K or for any other reason.

ITEM 1. DESCRIPTION OF BUSINESS

DEVELOPMENT AND OVERVIEW

         The Company was initially incorporated in Delaware in 1996. In 2000,
the Company began the process of acquiring assets in order to capitalize on the
demand for interactive Global Positioning System location, tracking and
navigation based technologies. The Company's prime focus in this area has been
the development of technologies and services that have applications in the
location tracking and navigation markets.

         In the second half of 2000 the Company introduced L-Biz(TM) software,
Tracker(TM) computer server and the PowerLOC location devices (described below),
an end-to-end solution that leverages existing infrastructures, including the
Global Positioning System, wireless networks and the internet, to enable users
(both companies and individuals) to efficiently manage their mobile resources.
This solution includes a proprietary hardware and software platform that
integrates wireless internet connectivity with a Global Positioning System
receiver. A device is installed in each vehicle or carried by a person that
receives signals transmitted from Global Positioning System satellites to
determine the location and velocity of the vehicle or person. This data and
information is then transmitted over wireless networks to the Tracker server
operated by a Location Service Provider, or LSP. Users can then access the data
through the internet and retrieve it from their or our web site using an
internet browser.

         In addition, in July of 2001 we introduced our navigation based
software product named Destinator(TM). By combining real time GPS information
with detailed map displays and turn-by-turn guidance, the Company offers
software that can be embedded on to a laptop computer, personal digital
assistant or terminal, certain cellular telephones or other portable
technology-based equipment to provide navigational assistance. The Company
includes points-of-interest information that assists drivers in easily locating
and obtaining directions to restaurants, lodgings, gas stations, hospitals and
other facilities that serve the mobile tourist or business professional.
Destinator combines a GPS antenna and our proprietary software installed on any



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device that uses the Windows(TM) operating system (laptop computer, personal
digital assistant or terminal, cellphone, etc.) so that the device can be used
as a portable, low cost, in-vehicle navigation system that provides ongoing,
self-adjusting routing and real time travel information. One advantage of the
Destinator technologies is that the software uses proprietary technology that
allows the users to install detailed street map and points-of-interest
information in devices with limited memory or process capabilities. The
Destinator product provides the Company with a foundation from which it can
provide additional products and services to the users of vehicles and location
based services. In addition, the Company provides a software development kit or
development tools to the manufacturers of original equipment that allows them to
include the Destinator technology in the products that they offer. The software
development kit has been written in a variety of computer languages to ensure
that it can be widely used.

         In addition, the Company has made two key acquisitions over the last
two years.

PowerLOC Technologies Inc.

         In March 2000, the Company acquired, for cash, share and option
consideration of $14,846,397, 100% of Power Point Micro Systems Inc. and
PowerLOC Technologies Inc., PowerLOC Technologies Inc. is a research and
development company, now a wholly-owned subsidiary, that has developed a
low-cost, miniature mobile-location GPS unit and server technology designed to
track devices that transmit their positions to a computer server using existing
personal communications system, pager or cellular phone wireless networks.
Power Point Micro Systems Inc., also now a subsidiary, is an international
telecommunications consulting firm specializing in wireless and wireline
products, voice and data systems integration.

NaftEL Technologies Ltd.

         In February 2001, the Company entered into an asset purchase agreement
to purchase all of the assets of an Israeli company, NaftEL Technologies Ltd.
for $5,000,000 in shares. NaftEL is engaged in the development, manufacturing
and marketing of interactive navigational and fleet management devices,
including a map compression format, and owns certain related intellectual
property rights. The agreement provides for additional consideration as
disclosed in the Notes to the Consolidated Financial Statements, which are
attached.

OVERVIEW OF GLOBAL POSITIONING SYSTEM (GPS)

         The Company's products utilize Global Positioning System, or GPS,
technology. GPS, first made available by the U.S. government for commercial use
in 1983, is a worldwide navigation system that allows users of GPS devices to
determine their precise geographic locations using established satellite
technology. The system consists of a number of satellites that orbit the earth.
The network of satellites and their ground control and monitoring stations are
maintained and operated by the United States Department of Defense, which
maintains an ongoing satellite replenishment program to ensure continuous global
system coverage. Access to the system for all users is currently provided free
of charge by the U.S. government.

         Reception of GPS signals from the satellites requires unobstructed
visibility between the satellites and the receiver. GPS receivers generally do
not work indoors and when a receiver is




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outside, buildings, hills and dense foliage may block reception. GPS receivers
typically are very compact; it is not necessary to have a large dish antenna to
receive GPS signals.

         Prior to May 2000, for reasons of national security the U.S. Department
of Defense intentionally degraded GPS signals to civilian users allowing
civilian users to only obtain accurate information regarding their geographic
locations accurate as to within a radius of 100 meters. On May 2, 2000, the U.S.
Department of Defense eased restrictions on civilian use of GPS technology,
allowing civilian users to now calculate their geographical positions to an
accuracy of 10 meters or less. This change in policy significantly improves the
utility of GPS for most applications. If for some reason the Company is unable
to use the GPS signals, there are a number of alternative satellite systems
available for determining geographical locations for devices. The Company cannot
say with any certainty that it will be able to use any of those other systems or
that it will be able to use them without additional costs. The Company's GPS
software uses a combination of system architecture and proprietary mathematical
algorithms to minimize traditional line-of-sight limitations on reception of GPS
signals. The Company does this by increasing system sensitivity and computation
accuracy and minimizing the effect of certain factors that often cause location
errors.

PRODUCTS

Vehicle and Personal Navigation

         The Company's vehicle and personal navigation software is named
"Destinator(TM)". Destinator combines a GPS receiver with proprietary software
that can be installed on any mobile device that uses the Windows(TM) operating
system (e.g. laptop computer, personal digital assistant or terminal, cell
phone, etc.). A device equipped with Destinator can be used as a portable, low
cost, in-vehicle or personal navigation system that provides ongoing,
self-adjusting routing and real-time travel information in six languages.
Destinator allows its users to install map information and data in devices with
limited memory or process capabilities. Destinator's proprietary data
compression technology compresses map data by up to 95%. Destinator also assists
its users in locating a destination and reaching it through the most appropriate
route. It also provides the Company with a foundation from which it can provide
additional products and services to the users of vehicles and location based
services.

         In addition, the Company provides a software development kit or
development tool to manufacturers and suppliers of original equipment that
allows them to include the Company's Destinator product in the operating system
of the products that they offer. The software development kit has been written
in a variety of computer languages to ensure that it can be widely used. The
software is very flexible and supports several leading map data formats.
However, most of the applications developed to date use the maps and points of
interest information supplied by Navigation Technologies Corporation (NAVTECH).
The Company is currently shipping the Destinator product with graphics and voice
prompts available to the user in six languages: English, French, Spanish,
German, Italian and Hebrew.

         The Company also has recently entered into agreements for the sale of
its Destinator-based MapBuilder software development kit. The MapBuilder
software development kit allows automotive manufacturers and suppliers to modify
their current navigation-based products to




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work in conjunction with the standard Destinator software or a version of the
Destinator modified for a particular customer.

         The table below summarizes the Company's current product line in the
navigation market:

Destinator        Vehicle navigation software that provides real time
Software          driving directions, points-of-interest information and other
                  destination assistance for laptop computers, personal digital
                  assistants and cell phone devices.

MapBuilder        Provides original equipment manufacturers (OEMs) with an
Software          opportunity to modify their product offering by including
Development       the Company's Destinator vehicle navigation software.
Kit

Vehicle, Personal and Asset Tracking

         The Company currently offers a range of vehicle tracking products under
the PowerLOC brand that can be used depending upon the type of cellular
technology available and the coverage required by the client. In each of the
devices, a GPS receiver collects data from up to 10 satellites and uses it to
calculate the exact position (within 3-10 meters) and velocity of the receiver.
The user can elect to have the information delivered on a continuous or periodic
basis. The device then transmits location information, speed, acceleration and
other information via a wireless network to a computer server called Tracker(TM)
that runs the Company's proprietary L-Biz wireless location services and
tracking software. The Company licenses the Tracker servers to customers that
act as authorized location service providers such as operators of monitoring
stations, taxi dispatchers, emergency service or security providers and fleet
managers. Location service providers can access the information processed by the
Tracker via the internet using the Company's proprietary client software and use
this information to locate, track and manage vehicles, people and other assets
and to provide emergency or other services to them.

         The Company's server is currently capable of serving up to 50,000
mobile units simultaneously and it can be expanded so that it is capable of
serving up to 1 million mobile devices or units.

         The Company sells, distributes and supports the client software through
the internet where customers are able to download the software and any
associated maps that are required to ensure the most efficient use of their
vehicles.

         The table below summarizes the Company's current product offerings:

VLD101            A vehicle location device that is installed in vehicles and is
                  used for the consumer market. Offers real time automatic
                  vehicle location and roadside assistance features reported
                  using the Cellemetry or Aeris networks.

VLD103            A vehicle location device that is installed in vehicles and is
                  used for the





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                  commercial market. Offers real time automatic vehicle location
                  identification using the Mobitex (analog) cellular networks
                  and optional two-way messaging services.

VLD104            A vehicle location device that is installed in vehicles and is
                  used for the commercial market. Offers real time automatic
                  vehicle location identification using the GSM/GPRS (digital)
                  cellular networks and optional two-way messaging services.

PowerLOC L-Biz    A computer server and software that allows the user to provide
Software and      a wide range of location-based services and real time content.
Tracker Server    The Tracker software supplies the intelligence that allows the
                  monitoring and control of vehicles, assets and work team
                  personnel. It is capable of being combined with most location
                  based information and any wireless network and map database
                  format. In addition, the user is able to determine a variety
                  of information about the usage of the vehicle, asset or
                  personnel (speed, direction, location, etc.) and can be
                  programmed by the user to ensure that the vehicles are
                  operated according to the rules that it determines are
                  important and relevant.

         To date, Destinator software, MapBuilder software, VLD101, VLD103 and
L-Biz Tracker have been sold; VLD104 will be introduced in April, 2002 and
PowerLOC Secure-IT-Trak will be introduced for sale in the second quarter of
2002.

         The Company also owns the rights to a portfolio of strategic patents
related to navigation, mobile business processes, the deployment of GPS and
location-based services. One of the patents, acquired in 2000 and for which
Paradigm paid $14,893,500 in common stock and options, protects the process of
transmitting location data computed using GPS satellites to a ground-based
station via a handheld device deployed on a cellular network. Based on
independent legal opinions and analysis, the Company feels that this patent will
form the basis of a preferred implementation of the E911 Federal Communications
Commission mandated initiative. The E911 initiative obligates the manufacturers
of cell phones and the providers of wireless communication, over the next three
years, to ensure that the location of a cell phone user can be determined with
relative accuracy in emergency situations. Also impacting on Paradigm's rights
under the patent are many other contemplated implementations of location-based
services provided through cellphone, personal digital assistants or terminals
and other handheld devices. The Company holds the exclusive worldwide licensing
rights for this patent that has been filed in the U.S. and Australia with
pending applications in Japan and Canada.

Other Products and Services

         All automobile and vehicle tracking devices require a connection to a
computer server via a wireless networks and to the internet. The Company's L-Biz
tracking system is capable of tracking the Company's devices as well as those
manufactured by other device manufacturers. The Company's Tracker server is
comprised of high reliability server technology from a recognized computer
manufacturer that is capable of being used in conjunction with the Company's
proprietary L-Biz software. In addition, the Company's software can be
installed on a



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client's pre-existing computer server. Use of the Tracker server and the
Company's proprietary L-Biz software allows customers to access data from the
Tracker through the internet.

         The Company is in the process of developing its new Secur-IT-Track
system that consists of software, hardware and GPS technology that will be used
by companies and government agencies to maintain security and control the
movement of trucks at border crossings as well as trucks carrying hazardous
materials.

         The Company is also developing additional devices for different uses
including devices for assets other than vehicles, pets and human beings. These
are in various stages of development. While the Company feels that it will
ultimately be able to bring these devices to market, there are a variety of
actions involved in finalizing these devices and the Company cannot give any
assurances that it will ever be able to sell these products and generate
revenues or profits from their sale.

MARKET OPPORTUNITY

         The market for location based or GPS-enabled products is projected to
grow rapidly during the next few years. Ovum Research LTD., UK ("Ovum"), has
indicated that the market is expected to grow from US$10 billion to US$73
billion by the year 2005. The Company believes that the following are among the
key factors underlying the projected industry growth in both business and
consumer markets:

         o        improved accuracy of the GPS will lead to an increase in the
                  functions of devices using GPS;

         o        additional functions capable of being installed in devices
                  addressing GPS applications;

         o        increased efficiencies in being able to track valuable assets;

         o        the ability to provide relevant information (e.g. traffic
                  reports, weather reports, location of stores and restaurants
                  relative to the location of the vehicle) to occupants of
                  passenger vehicles;

         o        the ongoing miniaturization of technology products; and

         o        the trend towards combining navigation, communications and
                  information technologies in a single device for use in
                  vehicles.

         To date the Company has concentrated primarily on the vehicle
navigation and vehicle or asset tracking segments of the markets associated with
providing information to occupants of vehicles because of the significant
immediate market opportunity available in these markets. The Company believes
that GPS technology will be fundamental to delivering the next generation of
mobile vehicle services, including relevant and timely information and emergency
assistance.



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Vehicle Navigation

         The Company's navigation products address primarily the automotive
market both directed at consumers and commercially. The market is quite large
with over 155 million vehicles with 15 million new vehicle sales and 37 million
used vehicle sales annually. It can be directed at the aftermarket, through
companies selling traditional computer electronics and automotive electronics.
In addition, the Company is able to directly sell to individual consumers
requiring a navigation product through its e-commerce platform found on the
Destinator internet web site. The Company feels that it is also able to sell its
software directly to the manufacturers of products for new automobiles as part
of a more detailed product for the purchasers of new automobiles wishing
navigation-based products.

         Current trends and projections for each of the U.S. and European
markets for navigation based products and services are (based on VDC August 2000
and UBS Warburg, July 2001):

<TABLE>
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YEAR                                                                 1999   2000    2001    2002    2003      2004
-------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>    <C>     <C>     <C>   <C>       <C>
US Consumption of Navigation Systems                                  223    328     485     935   1,789     2,128
Units (Thousands)
-------------------------------------------------------------------------------------------------------------------
European Consumption of Navigation Systems                            500    850   1,250   1,900   2,480     3,000
Units (Thousands)
-------------------------------------------------------------------------------------------------------------------
</TABLE>


         Based on this data, the Company projects that by 2004 the market size
for all vehicle navigation products and systems will be in excess of $2 billion
in the U.S. and $3 billion in Europe, assuming an average price of US$1,000 per
hardware and software product/service sold. The Company feels that this
represents a reasonable assumption as to average price based on the combined
hardware/software products that currently sell for over $2,000 and mobile
products that sell for approximately $750.

Vehicle or Asset Tracking

         Real time information as to the location of a vehicle or asset,
delivered by linking a GPS receiver to a device that is connected to a cellular
network, allows the location of the vehicle or asset to be automatically
transmitted to a base station, dispatch center or a provider of emergency
services. In turn, this allows those parties that are monitoring the location of
the vehicle or asset to ensure that delivery and service fleet operations are
using the most effective method of getting to a location, to receive road and
weather conditions or to dispatch roadside assistance and emergency services,
such as police or ambulances. The primary users include asset management product
distributors, wireless carriers and security service bureaus. Vehicle fleet
managers, insurance companies and call center markets also provide opportunities
for the development of a profitable location-based services business. According
to Ovum, the location-based services market is estimated to grow to $25 billion
in annual revenues by 2005.

Wireless

         Additional services based on the delivery of time sensitive information
that, in many circumstances, may be classified as critical to a business or
individual will allow the demand for wireless services to continue to grow
rapidly. At the present time, wireless devices are capable of incorporating
elements of voice, text messaging, internet access and navigation/location-based




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information and services into a single unit. The Company believes that the
tailoring of services and content to the specific location of the end-user will
be one of the keys to success in the wireless services markets. This will be
particularly important to the industry that will be providing information to
users of vehicles. GPS is one of the technologies used to identify the location
of a vehicle that can be incorporated into wireless devices (such as cell
phones, pagers and personal digital assistants) that will ensure the delivery of
location specific content and services. Emergency assistance mandates, such as
the U.S. Federal Communications Commission's E911 initiative with respect to
obligating the manufacturers of cell phones and the providers of wireless
communication to ensure that the location of a cell phone user can be determined
with relative accuracy in emergency situations may also expand GPS wireless
product opportunities.

THE COMPANY'S STRATEGY

         The Company's goal is to become one of the leading suppliers of every
element of the systems and devices required for the delivery of services to
users as it relates to location based technologies. To achieve this goal, the
Company's strategy is to continually improve its technologies and increase its
sales of navigation, communications and information devices and products for use
by the Company's customers. The Company's goal is to design, produce, market and
support innovative products that will increase its sales in established location
based markets and provide the Company opportunities to expand its products and
sales into new markets. The key elements of the Company's strategy include:

Maintain the Company's Customer Focused Approach to Product Design

         To achieve the Company's goal it must serve its customers' needs by
continually designing products that offer superior value, higher quality and
lower cost of ownership than its competitors offer.

Emphasize Continuous Innovation

         The Company has introduced what it believes are industry-leading
innovations, ranging from small, low-cost, intelligent high performance
GPS-enabled devices to products that efficiently combine a broad range of
navigation, communications and information technologies that can be continually
expanded as new technologies evolve to be able to deliver a number of products
and services for the users of vehicles. The Company continually improves its
products on an ongoing basis by adding innovative features and incorporating new
technologies that offer improved performance and quality and lower cost.

Expand and Broaden the Company's Product Line

         To achieve the Company's goals, it will continue to offer a
comprehensive line of location-based navigation, communications and information
products that will appeal to a broad range of customer needs based on price,
requirements, technologies available and applications. By taking advantage of
the Company's previous experiences and earlier products, it is able to
efficiently use all of its resources and to utilize the improved economies of
scale in its expansion. In addition, the Company expects to enter the new market
for devices to be used in vehicles that combine GPS, communications and
information technologies. Where possible, the Company





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plans on aggressively developing its products based on licensing its
intellectual property and copyrighted technologies to other companies that
provide products or services to the users of vehicles.

Widen the geographic reach of our direct and indirect channels to the sales
markets

         Through the use of strategic alliances, Paradigm's products are now
offered in Canada, the United States, Venezuela, Italy, Spain, France, Germany,
Austria, Switzerland, Israel and Sweden. The Company continues to access
additional channels to sales market that allows us to introduce our products
into other countries.

SALES AND MARKETING

         The tracking and navigation product lines will be sold through
businesses that are already involved in various aspects of the navigation or
tracking business to take advantage of established customer bases, sales
personnel familiar with vehicle navigation, vehicle tracking, security or
wireless applications and government requirements for increased security
infrastructure.

         The Company's sales partners include or are expected to include:


Distributors      The Company has established a network of resellers within the
                  GPS, consumer electronics, data collection, automotive
                  aftermarket and roadside assistance markets. The Company has
                  also established an efficient customer relationship management
                  and financial infrastructure to build and manage a network of
                  retail resellers.

Location          The Company has acquired, and expects to continue to
Service           acquire, a number of customers that have built their
Providers         business through the provision of location based services
                  including the features offered by the vehicle location
                  devices and messaging infrastructure associated with
                  the server and software. Typical companies that would fall
                  into this group would include security and roadside assistance
                  call centers, data collection service aggregators, fleet
                  aggregators and wireless application service providers.

OEM's             The Company is currently involved with a number of automotive
                  and personal digital assistant manufacturers and their
                  suppliers who are incorporating vehicle navigation systems and
                  other location based applications.

Strategic         The Company has, or is in discussions with, a number
Partners          of strategic partners whose hardware or software platforms are
                  required for the delivery of tracking or navigation
                  applications, such as vendors of computers and personal
                  digital assistants, cell phones, mapping software, GPS
                  devices, computer modems, computer micro-processors and other
                  software and hardware companies. In many cases they require



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                  software and services to sell their respective products and
                  may have marketing programs to sell combined products. In some
                  cases the Company requires their software and/or services to
                  sell the Company's products or to provide more functions with
                  the Company's products.

Internet          The Company's products are available on the Company's websites
                  and the websites of other distributors.

         The Company's Destinator software sales are being made primarily
through automotive aftermarket and certain computer electronics distribution
channels. In addition, an e-commerce platform on the Destinator website provides
a service that allows consumers to purchase the software at full list price.
Additional opportunities exist with the manufacturers of both smart hand held
devices (similar to cell phones) and with companies that provide in-car
electronic systems.

         The Company's sales of tracking and location based products and
services are typically generated through companies that become location service
providers by purchasing the Company's Tracker software (and possibly one of the
Company's Tracker servers) and through distributors and retailers that are not
necessarily associated with the location service providers. In many cases,
fleets or individual users purchase the location devices directly from the
Company. The location service provider, in turn, ensures that the users of the
devices will be able to have their device(s) tracked and to obtain relevant
information regarding the movements of the device(s). Groups that have shown an
interest in the Company's devices and its software include asset management
product distributors, fleet management brokers, wireless communications service
providers and wireless application service providers. Additional revenues are
generated on a monthly basis as a percentage of the user's monthly airtime
charges.

         Marketing communications activities to generate product awareness
include e-mail marketing campaigns, product public relations activities, trade
show participation, and industry seminar presentations. The Company operates two
websites with product information; one for the Vehicle Tracking products
(www.powerloc.com) and one for navigation products (www.destinator1.com). The
Company has tried to ensure that the internet sites have been developed to take
advantage of the exposure available through internet search engines. Currently
the Company's products are featured on numerous internet sites.

STRATEGIC PARTNERS

         The Company has established business relationships with the
manufacturers of computer servers, wireless carriers, suppliers of location
based content and publishers and hardware vendors who provide the infrastructure
for products and services. Among the more prominent are included: Navigation
Technologies Corporation, supplier of NAVTECH(R), the world's leading digital
map supplier for vehicle navigation, internet and wireless applications and,
Compaq Computer Corporation and Hewlett-Packard Corporation, suppliers of both
computer servers and personal digital assistants that use the Company's
software.



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CUSTOMERS AND SUPPLIERS

         Distrel SPA and Criticom International are the Company's two largest
customers to date, directly accounting for 36% of the Company's revenues in
2001. These relationships are important to the Company, but management expects
their relative proportion of revenues to decline, as new distributors and
location service providers purchase its products in new and existing markets.

         The Company's principal suppliers for these products are its outsourced
manufacturers, Leadtek Research Inc. and Span Logistics, which have been able to
date to procure all the components needed for the products. The largest
component is the modem that is, in turn, procured from Research in Motion and
Standard Communications. Duplium Corporation is used by the Company to package
and distribute the Destinator product.

COMPETITION

         The market for navigation, communications and information products
related to location-based services is highly competitive and the Company expects
competition to increase. The Company believes that the principal competitive
factors that will differentiate the various competitors in this marketplace will
be product features, quality, customer service, brand, price positioning,
time-to-market and availability.

         The market for GPS-based products is relatively recent as a direct
result of the US government's removal of the GPS based filters in May 2000 to
allow for more accurate tracking. Most of the mid-size to larger companies in
the vehicle tracking market have larger, cumbersome and more expensive devices
and systems than the Company's. Many of the companies in the vehicle navigation
market have expensive systems that are permanently installed into the vehicle
and often involve a fee-based monthly subscription service. In addition,
traditional GPS device vendors have been offering products to the marine,
aviation and outdoors markets for several years.

         For its vehicle tracking and locating products, the Company considers
its principal competitors in the consumer market to be Lojack and Boomerang. For
the Company's commercial vehicle tracking products, its principal competitors
are Datacomm, AirIQ, @Road and Qualcomm. There are approximately 100 smaller
companies offering components of the products and services that the Company
presently offers but none that offer all the products and services that the
Company offers on a similar scale (i.e. capable of being used by the smallest
user to the largest companies).

         For the Company's vehicle navigation products, its competition is found
at three distinct levels: luxury automobile manufacturers with built-in systems
such as those installed in, for example, General Motors and Mercedes Benz high
end vehicles, automotive aftermarket electronics manufacturers such as Alpine,
Clarion, Pioneer Electronics and Visteon and GPS manufacturers such as Garmin
Corporation, Thales Navigation (Magellan brand) and Trimble Navigation Limited.
In addition, the Company's competition includes vendors of GPS/navigation
software that is used on conjunction with a manufactured personal assistant




                                       11
<PAGE>

device such as Pharos Science and Applications, Inc. (GPS Navigator), Teletype
Company (Teletype GPS) and TravRoute, a division of ALK Technologies, Inc.
(CoPilot).

INTELLECTUAL PROPERTY

         The Company's intellectual property assets includes patents,
copyrighted materials, trademarks and trade secrets, as well as confidentiality
agreements, to establish and protect the Company's proprietary rights. The
Company's primary intellectual property asset is a patent that covers the
process of combining GPS location technology and the transmission of the
geographic location of objects or people using cellular telephone technology to
a remote unit which allows for the identification of their location by a base
station which may be, for example, a response center or any computer that is
capable of displaying the location of the remote unit.

         In addition, the Company owns a variety of other patents that relate to
navigation based applications and are in the process of patenting the
proprietary compression technology that is used in its Destinator navigation
based product. Included in this portfolio are: map compression and optimization
algorithms, routing and maneuvering algorithms, map attachment algorithms as
well as multi-user on-board vehicle display systems. These algorithms form the
foundation for Destinator's ability to operate on a Pocket PC platform with its
size limitations while performing the complex calculations that are required to
display user-friendly maps, to perform routing calculations and to manage
points-of-interest data.

         The Company has also trademarked a variety of names for its processes
or products including Tracker(TM), L-Biz(TM), The Power of Where(TM), LSP(TM)
and Destinator(TM).

         To maintain its position in the marketplace, Paradigm continues to
spend a significant amount on Research and Development. While this declined from
$15,510,609 in 2000 to $6,494,751 in 2001, the major contributor to each year
was an acquisition: $14,846,397 spent for PowerLOC in 2000, and $4,940,000 spent
for NaftEL Technologies in 2001.

         It is possible that the above mentioned patents and trademarks, or
patents or trademarks which the Company may later acquire, may be successfully
challenged or invalidated in whole or in part by the courts or otherwise. It is
also possible that the Company may not obtain issued patents for inventions it
seeks to protect. It is also possible that the Company may not develop
proprietary products or technologies in the future that are patentable, or that
any patent issued to the Company may not provide it with any competitive
advantages, or that the patents of others will harm or altogether preclude the
Company's ability to do business. Legal protections afford only limited
protection for the Company's technology. Despite the Company's efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of its products or to obtain and use information that the Company regards as
proprietary. Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to protect its trade secrets, to determine the
validity and scope of the proprietary rights of others or to defend against
claims of infringement or invalidity. Any resulting litigation could result in
substantial costs and diversion of the Company's resources. The Company's means
of protecting its proprietary rights may not be adequate and the Company's
competitors may independently develop technology that is similar to its.



                                       12
<PAGE>

REGULATORY MATTERS

         As an equipment and systems supplier the Company is not directly
regulated. To the Company's knowledge, there are no existing or probable
government regulations that will directly affect its business. Many of the
Company's customers are subject to regulation by national, state and local
communications, public utility and other licensing and regulatory authorities,
as are the carriers with whom those customers interconnect. Many of the
regulations have to do with the configuration, signal strength of equipment and
systems in use. To the extent needed by customers and other users, the Company
is able to configure its equipment and systems so as to be compliant with the
regulatory requirements.

         There are no costs for the Company to comply with environmental laws.

EMPLOYEES

         The Company had fifty full-time employees worldwide at December 31,
2001, of which 41 were in Canada, eight were located in Israel and one was
located in the United States. From time to time, we also employ independent
contractors to support our organization. The Company believes that its
relationship with its employees is good.

ITEM 2. PROPERTIES

         The Company's principal executive offices are located in a 8,000 square
foot office facility at Suite 103, 30 Leek Crescent, Richmond Hill, Ontario,
Canada L4B 4N4, which is leased by the Company for a 10 year term which expires
in 2010, at an agreed upon rental rate. The annual rent for these premises is
$84,932 for the first five years and $95,227 for the next five years. In
addition, we also lease a research and development facility in Tel Aviv, Israel
for a lease term that expires in 2002. The annual rent for these is $19,665. The
Company subcontracts some of its manufacturing process and part of its
development and believes that it will be able to find additional suitable
facilities in the Greater Toronto area if and when required.

ITEM 3. LEGAL PROCEEDINGS

         Legal proceedings have been threatened against the Company by an
individual claiming an entitlement to 400,000 shares for services rendered to
the Company. Additionally, legal proceedings have been threatened against the
company by an individual claiming an entitlement to 625,000 shares as a result
of monies allegedly invested in the Company. The Company believes that these
claims are without merit and intends to vigorously defend any lawsuits filed
against the Company in connection with these claims. It is neither possible at
this time to predict the outcome of any lawsuit, including whether the Company
will be forced to issue shares, or to estimate the amount or range of potential
loss, if any.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of security holders of the Company
during the three months ended December 31, 2001.



                                       13
<PAGE>

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         The common stock of the Company is quoted on the National Association
of Securities Dealer's Over-the-Counter Bulletin Board under the symbol "PRAV."
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
which represent inter-dealer prices, without retail mark-up, mark-down or
commission and may not reflect actual transactions:

<TABLE>
<CAPTION>
       2000:                                        HIGH BID            LOW BID
       -----                                        --------            -------
       <S>                                          <C>                 <C>
       First Quarter                                  $4.375             $0.030
       Second Quarter                                 $3.490             $1.410
       Third Quarter                                   $4.55              $1.22
       Fourth Quarter                                  $2.88              $0.53
</TABLE>

<TABLE>
<CAPTION>
       2001:                                        HIGH BID            LOW BID
       -----                                        --------            -------
       <S>                                          <C>                 <C>
       First Quarter                                   $1.50              $0.47
       Second Quarter                                  $0.74              $0.35
       Third Quarter                                   $0.40              $0.14
       Fourth Quarter                                  $0.50              $0.15
</TABLE>

DIVIDENDS

         The Company has never declared or paid a cash dividend on the common
stock. There are no restrictions that limit the ability of the Company to pay
dividends on the common stock or that are likely to do so in the future.

HOLDERS

         As of February 28, 2002, there were 877 holders of record of the
Company's common stock.

RECENT SALES OF UNREGISTERED SECURITIES

         The following information is provided for all securities sold by the
Company for the year ended December 31, 2001 without registering the securities
under the Securities Act of 1933. There were no underwriters involved in the
sales.

<TABLE>
<CAPTION>
                             PERSON OR CLASS OF                                                   DOLLAR VALUE OF
                                 PERSONS                                                           OTHER TYPE OF
          DATE                 TO WHOM SOLD            NUMBER OF SHARES     CASH CONSIDERATION     CONSIDERATION
----------------------       ------------------        ----------------     ------------------    ---------------
<S>                    <C>                             <C>                  <C>                    <C>

January 2001           Jacob International, Inc.            1,500,000(1)           $929,840                  --

January 2001           Atcorp Limited                          25,000(2)                 --             $29,750

February 2001          NaftEL Technologies Ltd.             3,000,000(3)                 --          $5,000,000

February 2001          David Kerzner                        2,000,000(4)                 --             $67,657
</TABLE>



                                       14
<PAGE>

<TABLE>
<CAPTION>
                             PERSON OR CLASS OF                                                   DOLLAR VALUE OF
                                 PERSONS                                                           OTHER TYPE OF
          DATE                 TO WHOM SOLD            NUMBER OF SHARES     CASH CONSIDERATION     CONSIDERATION
----------------------   ---------------------------   ----------------     ------------------    ---------------
<S>                      <C>                           <C>                  <C>                    <C>

                         Level Jump Financial Group
February 2001            Inc.                                 200,000(5)                 --         $231,540

March 2001               Investors                            550,000(6)            $27,500               --

March 2001               Hunterpro S.A.                       100,000(7)                 --          $47,450

March 2001               Ozer Eshet                           241,667(8)           $145,000               --

April 2001               Harry Zarek (In Trust)             1,248,750(9)                 --               $0

June 2001                WorldLink USA, LLC                 4,800,000(10)                --               $0

May & June 2001          Consultants                          823,188(11)                --         $287,757

April to June 2001       Investors                          2,763,167(12)          $993,925               --

July to September
2001                     Investors                          1,287,387(13)          $249,347               --

July to September        Kile Goekjian Lerner & Reed
2001                     PLLC                                 610,000(14)                --         $243,750

July to September
2001                     Zakeni Limited                     4,166,667(15)          $750,000               --

                         Watson & Associates
August 2001              International Corp.                2,580,000(16)                --         $486,330

                         Eduardo Guendelman and
August 2001              Family                               600,000(17)                --         $113,100

August 2001              C-Saw Investments Ltd.               500,000(18)                --         $157,307

August 2001              Employees                            300,000(19)           $43,328               --

August & September       Pacific Continental
2001                     Securities Corp.                     336,343(20)           $35,468               --

September 2001           Employees                            997,095(21)          $110,944               --

October 2001             Ozer Eshet                           919,540(22)                --         $100,000

October & November
2001                     Investors                          3,174,532(23)          $554,000               --

October & November
2001                     Consultants                          246,000(24)                --          $47,300

November 2001            JAE Investments Limited              200,000(25)           $36,000               --

October to December      Pacific Continental
2001                     Securities Corp.                   4,962,179(26)          $759,663               --
</TABLE>



                                       15
<PAGE>

<TABLE>
<CAPTION>
                             PERSON OR CLASS OF                                                   DOLLAR VALUE OF
                                 PERSONS                                                           OTHER TYPE OF
          DATE                 TO WHOM SOLD            NUMBER OF SHARES     CASH CONSIDERATION     CONSIDERATION
----------------------   ---------------------------   ----------------     ------------------    ---------------
<S>                      <C>                              <C>                     <C>             <C>
December 2001            Jack Kerzner                       447,401(27)                  --          $48,767

December 2001            Whaler Holdings Ltd.             5,134,332(28)                  --         $909,162

December 2001            Cliff Richler                    1,000,000(29)             $65,000               --
</TABLE>


---------------------------

(1)  These shares were issued to this accredited investor as a result of a
     private placement. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Jacob International was provided with an
     opportunity to review information concerning formation and operations of
     the Company and had the opportunity to verify the information. It also had
     an opportunity to review the audited financial statements for 1999 and
     2000. It was given an opportunity to ask questions of management concerning
     Paradigm's affairs. Jacob International is sophisticated and had sufficient
     knowledge and experience in financial and business matters to allow it to
     evaluate the merits and risks of the investment.

(2)  These shares were issued to this non-accredited investor as a result of a
     private placement. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Atcorp was provided an opportunity to
     review information concerning formation and operations of the Company and
     had the opportunity to verify the information. It also had an opportunity
     to review the audited financial statements for 1999 and 2000. It was given
     an opportunity to ask questions of management concerning Paradigm's
     affairs. Atcorp is sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(3)  In February 2001, the Company issued 3,000,000 shares to Amnon Evron & Co.
     Trust Company Ltd. as escrow agent for NaftEL Technologies Ltd., the
     vendors of the NaftEL assets. NaftEL Technologies Ltd. is a non-accredited
     investor. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. NaftEL was provided an opportunity to
     review information concerning formation and operations of the Company and
     had the opportunity to verify the information. It also had an opportunity
     to review the audited financial statements for 1999 and 2000. It was given
     an opportunity to ask questions of management concerning Paradigm's
     affairs. NaftEL is sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(4)  These shares were issued to this accredited investor to cancel indebtedness
     owed to this person. The shares were issued pursuant to the exemption from
     registration provided by Regulation S. No public solicitation or public
     advertising was employed. Mr. Kerzner was an officer and director of the
     Company at the time of the sale.

(5)  These shares were issued to this non-accredited investor in payment for
     office furniture valued at $231,540 supplied to the Company. Level Jump
     Financial Group, Inc. was provided an opportunity to review information
     concerning formation and operations of the Company and had the opportunity
     to verify the information. It also had an opportunity to review the audited
     financial statements for 1999 and 2000. It was given an opportunity to ask
     questions of management concerning Paradigm's affairs. Level Jump Financial
     Group, Inc. is sophisticated and had sufficient knowledge and experience in
     financial and business matters to allow it to evaluate the merits and risks
     of the investment.

(6)  These share were issued to Kato Krauss, Marc Jaraim, Prichard Smith,
     non-accredited investors, as a result of a private placement. The Company
     received $27,500 from the exercise of options and warrants. The shares were
     issued pursuant to the exemption from registration provided by Regulation
     D, Rule 506. No public solicitation or public advertising was employed.
     Each of the investors was provided with an opportunity to review
     information concerning formation and operations of the Company and had the
     opportunity to verify the information. Each also had an opportunity to
     review the audited financial statements for 1999 and 2000. Each was given
     an opportunity to ask questions of management concerning Paradigm's
     affairs. The investors were sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(7)  These shares were issued to this non-accredited investor to cancel
     indebtedness for intellectual property acquired and services rendered with
     regard to such intellectual property as part of the acquisition agreement
     relating to the PowerLOC acquisition. The shares were issued pursuant to
     the exemption from registration provided by Regulation D, Rule 506.
     Hunterpro S.A. was provided with an opportunity to review information
     concerning formation and operations of the Company and had the opportunity
     to verify the information. It also had an opportunity to review the audited
     financial statements for 1999 and 2000. It was given an opportunity to ask
     questions of management concerning Paradigm's affairs. Hunterpro S.A. was
     sophisticated and had sufficient knowledge and experience in financial and
     business matters to allow it to evaluate the merits and risks of the
     investment.

(8)  These shares were issued to this non-accredited investor as a result of a
     private placement. These shares were issued to this non-accredited investor
     as a result of a private placement. The shares were issued pursuant to the
     exemption from registration provided by Regulation D, Rule 506. No public
     solicitation or public advertising was employed. Mr. Eshet was provided
     with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. He also had an opportunity to review the audited financial
     statements for 1999 and 2000. He was given an opportunity to ask questions
     of management concerning Paradigm's affairs. This investor was
     sophisticated and had sufficient knowledge and experience in financial and
     business matters to allow it to evaluate the merits and risks of the
     investment.






                                       16
<PAGE>


(9)  These shares were issued to Harry Zarek (In trust for himself and others)
     as partial consideration for the sale of PowerLOC and associated companies
     to the Company. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Mr. Zarek was provided with an opportunity
     to review information concerning formation and operations of the Company
     and had the opportunity to verify the information. He also had an
     opportunity to review the audited financial statements for 1999 and 2000.
     He was given an opportunity to ask questions of management concerning
     Paradigm's affairs. This investor was sophisticated and had sufficient
     knowledge and experience in financial and business matters to allow it to
     evaluate the merits and risks of the investment.

(10) 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 seek out companies with
     technologies in which WorldLink can make appropriate investments in new
     and. As part of the Agreement, the Company and Pangea agreed as follows:

          i)   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, issued to WorldLink. Of the 7,500,000
               common shares issued, 2,700,000 were issued in 2000 and 4,800,000
               were issued in 2001. 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.

          ii)  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.

          iii) The Company issued 1,000,000 common shares, valued at $35,000, in
               payment of professional and consulting fees.

          iv)  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.

(11) These shares were issued to these persons: C-Saw Investments Ltd., John
     Carswell, Moshe Benguigi, and Yehoshua Nir, to cancel indebtedness for
     consulting services. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Each investor was provided with an
     opportunity to review information concerning formation and operations of
     the Company and had the opportunity to verify the information. Each also
     had an opportunity to review the audited financial statements for 1999 and
     2000. Each was given an opportunity to ask questions of management
     concerning Paradigm's affairs. The investors were sophisticated and had
     sufficient knowledge and experience in financial and business matters to
     allow it to evaluate the merits and risks of the investment.

(12) These shares were issued to the following persons: C-Saw Investments Ltd.,
     David Steir, David Benhamu, and Pacific Continental Services Corp., Jacob
     International Inc, and Moishe Lipsycs as non-accredited investors as a
     result of a private placement. The shares were issued pursuant to the
     exemption from registration provided by Regulation D, Rule 506. No public
     solicitation or public advertising was employed. Each was also provided
     with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. Each also had an opportunity to review the audited financial
     statements for 1999 and 2000. Each was given an opportunity to ask
     questions of management concerning Paradigm's affairs. Each investor was
     sophisticated and had sufficient knowledge and experience in financial and
     business matters to allow it to evaluate the merits and risks of the
     investment:

(13) These shares were issued to Pacific Continental Securities Corp. and Moishe
     Lipsycs, non-accredited investors, as a result of a private placement. The
     shares were issued pursuant to the exemption from registration provided by
     Regulation D, Rule 506. No public solicitation or public advertising was
     employed. Each investor was provided with an opportunity to review
     information concerning formation and operations of the Company and had the
     opportunity to verify the information. Each also had an opportunity to
     review the audited financial statements for 1999 and 2000. Each was given
     an opportunity to ask questions of management concerning Paradigm's
     affairs. Each investor was sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(14) These shares were issued to this law firm, an accredited investor, as
     payment for legal services rendered to the Company. The shares were issued
     pursuant to the exemption from registration provided by Regulation D, Rule
     506. No public solicitation or public advertising was employed. It was
     provided with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. It also had an opportunity to review the audited financial
     statements for 1999 and 2000. It was given an opportunity to ask questions
     of management concerning Paradigm's affairs. It was sophisticated and had
     sufficient knowledge and experience in financial and business matters to
     allow it to evaluate the merits and risks of the investment.

(15) These shares were issued to this accredited investor pursuant an agreement
     relating to an equity line of credit. The shares were issued pursuant to
     the exemption from registration provided by Regulation D, Rule 506. No
     public solicitation or public advertising was employed. Zakeni was provided
     with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. It also had an opportunity to review the audited financial
     statements for 1999 and 2000. It was given an opportunity to ask questions
     of management concerning Paradigm's affairs. It was sophisticated and had
     sufficient knowledge and experience in financial and business matters to
     allow it to evaluate the merits and risks of the investment.

(16) These shares were issued to this non-accredited investor to cancel
     indebtedness owed to this person for consulting services. The shares were
     issued pursuant to the exemption from registration provided by Regulation
     D, Rule 506. No public solicitation or public advertising was employed.
     Watson was provided with an opportunity to review information concerning
     formation and operations of the Company and had the opportunity to verify
     the information. It also had an opportunity to review the audited financial
     statements for 1999 and 2000. It




                                       17
<PAGE>

     was given an opportunity to ask questions of management concerning
     Paradigm's affairs. It was sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(17) These shares were issued to this non-accredited investor as payment for
     consulting services. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. Mr. Guendelman was an
     officer and a director of the Company at the time of the sale.

(18) These shares were issued to C-Saw Investments Ltd., a non-accredited
     investor, to cancel indebtedness for consulting services. The shares were
     issued pursuant to the exemption from registration provided by Regulation
     D, Rule 506. No public solicitation or public advertising was employed.
     C-Saw was provided with an opportunity to review information concerning
     formation and operations of the Company and had the opportunity to verify
     the information. Each also had an opportunity to review the audited
     financial statements for 1999 and 2000. Each was given an opportunity to
     ask questions of management concerning Paradigm's affairs. C-Saw was
     sophisticated and had sufficient knowledge and experience in financial and
     business matters to allow it to evaluate the merits and risks of the
     investment.

(19) These shares were issued to employees (Elie Hantsis and Joseph Schembri),
     non-accredited investors, as a result of a private placement. The shares
     were issued pursuant to the exemption from registration provided by
     Regulation S. No public solicitation or public advertising was employed.
     Each employee was provided with an opportunity to review information
     concerning formation and operations of the Company and had the opportunity
     to verify the information. Each also had an opportunity to review the
     audited financial statements for 1999 and 2000. Each was given an
     opportunity to ask questions of management concerning Paradigm's affairs.
     The investors were sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow them to evaluate the
     merits and risks of the investment.

(20) These shares were issued to this non-accredited investor as a result of a
     private placement. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. The investor was provided with an
     opportunity to review information concerning formation and operations of
     the Company and had the opportunity to verify the information. It also had
     an opportunity to review the audited financial statements for 1999 and
     2000. It was given an opportunity to ask questions of management concerning
     Paradigm's affairs. It was sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(21) These shares were issued to employees of the Company (Gili Wolff, Oleg
     Stollerov, Vladimir Turowitz, Shay David, Tomer Bar Zeev, Ron Yekutiel,
     Helena Ye, John Weinberg, Warren Tom, Susan Sun, Michael State, Sidney
     Weinberg, Joe Shu, Yoram Shalmon, Joseph Schembri, Malcolm Robbins, Robert
     Morganstein, Alice Man, Svetlana Lucht, Jenny Liu, Ming He, Elie Hantsis,
     Orit Goldstein, Assaf Goldstein, Kathy Gardos, Alexi Garriline, Kelly Fogg,
     Yoram Elbay, Yevgeny Bondar, Moise Benedid, Charles Allen, Victor Lau, Ron
     Wilson, Kevin Tysiak and Eduardo Guendelman), non-accredited investors, as
     a result of a private placement. The shares were issued pursuant to the
     exemption from registration provided by Regulation S.

(22) These shares were issued to Ozer Eshet as a result of the conversion of a
     promissory note. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Mr. Eshet was provided with an opportunity
     to review information concerning formation and operations of the Company
     and had the opportunity to verify the information. It also had an
     opportunity to review the audited financial statements for 1999 and 2000.
     He was given an opportunity to ask questions of management concerning
     Paradigm's affairs. This investor was sophisticated and had sufficient
     knowledge and experience in financial and business matters to allow him to
     evaluate the merits and risks of the investment.

(23) These shares were issued to following accredited persons: Horace Davenport,
     Bayberry Ventures A Ltd., Gordon Chester and David Benhamu as a result of a
     private placement. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Each was also provided with an opportunity
     to review information concerning formation and operations of the Company
     and had the opportunity to verify the information. Each also had an
     opportunity to review the audited financial statements for 1999 and 2000.
     Each was given an opportunity to ask questions of management concerning
     Paradigm's affairs. The investors were sophisticated and had sufficient
     knowledge and experience in financial and business matters to allow it to
     evaluate the merits and risks of the investment.

(24) These shares were issued to the following persons: Moshe Ben Guigui, Sy
     Konkel and Moshe Lipsycs, non-accredited investors, as payment of
     consulting fees. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Each investor was provided with an
     opportunity to review information concerning formation and operations of
     the Company and had the opportunity to verify the information. Each also
     had an opportunity to review the audited financial statements for 1999 and
     2000. Each was given an opportunity to ask questions of management
     concerning Paradigm's affairs. The investors were sophisticated and had
     sufficient knowledge and experience in financial and business matters to
     allow them to evaluate the merits and risks of the investment.

(25) These shares were issued to JAE Investments Limited, a non-accredited
     investor, as a result of a private placement. The shares were issued
     pursuant to the exemption from registration provided by Regulation D, Rule
     506. No public solicitation or public advertising was employed. JAE was
     provided with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. It also had an opportunity to review the audited financial
     statements for 1999 and 2000. It was given an opportunity to ask questions
     of management concerning Paradigm's affairs. The investor was sophisticated
     and had sufficient knowledge and experience in financial and business
     matters to allow it to evaluate the merits and risks of the investment.

(26) These shares were issued to this non-accredited investor as a result of a
     private placement. The shares were issued pursuant to the exemption from
     registration provided by Regulation D, Rule 506. No public solicitation or
     public advertising was employed. Pacific Continental was provided with an
     opportunity to review information concerning formation and operations of
     the Company and had the opportunity to verify the information. It also had
     an opportunity to review the audited financial statements for 1999 and
     2000. It was given




                                       18
<PAGE>

     an opportunity to ask questions of management concerning Paradigm's
     affairs. It was sophisticated and had sufficient knowledge and experience
     in financial and business matters to allow it to evaluate the merits and
     risks of the investment.

(27) These shares were issued to Jack Kerzner, a non-accredited investor, in
     repayment of an outstanding loan and interest of $48,767. The shares were
     issued pursuant to the exemption from registration provided by Regulation
     S. No public solicitation or public advertising was employed. He was also
     provided with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. He also had an opportunity to review the audited financial
     statements for 1999 and 2000. He was given an opportunity to ask questions
     of management concerning Paradigm's affairs. The investors were
     sophisticated and had sufficient knowledge and experience in financial and
     business matters to allow it to evaluate the merits and risks of the
     investment.

(28) These shares were issued to Whaler Holdings Ltd. in payment for consulting
     fees. The shares were issued pursuant to the exemption from registration
     provided by Regulation D, Rule 506. No public solicitation or public
     advertising was employed. Whaler was provided with an opportunity to review
     information concerning formation and operations of the Company and had the
     opportunity to verify the information. It also had an opportunity to review
     the audited financial statements for 1999 and 2000. It was given an
     opportunity to ask questions of management concerning Paradigm's affairs.
     The investors were sophisticated and had sufficient knowledge and
     experience in financial and business matters to allow it to evaluate the
     merits and risks of the investment.

(29) These shares were issued to Cliff Richler as a result of the exercise of
     certain options for $65,000. The shares were issued pursuant to the
     exemption from registration provided by Regulation D, Rule 506. No public
     solicitation or public advertising was employed. Mr. Richler was provided
     with an opportunity to review information concerning formation and
     operations of the Company and had the opportunity to verify the
     information. He also had an opportunity to review the audited financial
     statements for 1999 and 2000. He was given an opportunity to ask questions
     of management concerning Paradigm's affairs. The investor was sophisticated
     and had sufficient knowledge and experience in financial and business
     matters to allow him to evaluate the merits and risks of the investment.

ITEM 6. SELECTED FINANCIAL DATA

         The following selected historical financial data are derived from our
Consolidated Financial Statements and the related notes thereto. Our
Consolidated Financial Statements as of December 31, 1997, 1998 and 1999, and
for the years then ended, have been audited by Bromberg & Associates,
independent accountants. Our Consolidated Financial Statements as of December
31, 2000 and 2001, and for the years then ended, have been audited by Schwartz
Levitsky Feldman LLP, independent accountants. Some of our Consolidated
Financial Statements are included elsewhere in this report.

         The information contained in this table should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes thereto
included elsewhere in this report.



                                       19
<PAGE>

<TABLE>
<CAPTION>

                                                                     YEARS ENDED DECEMBER 31,
                                            ---------------------------------------------------------------------------
                                                2001           2000            1999           1998           1997
                                            -------------  --------------  -------------  -------------  --------------
<S>                                         <C>            <C>             <C>            <C>            <C>
                                                          (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
 STATEMENT OF OPERATIONS DATA:

 Revenues

 Sales                                            $2,347             $20             $0            $24             $48
 Royalties                                             0              25
                                            -------------  --------------  -------------  -------------  --------------
                                                   2,347              45              0             24              48
 Cost of Sales                                     1,336              38              0              0             354
                                            -------------  --------------  -------------  -------------  --------------
 Gross Profit                                      1,010               7              0             24           (307)
 Operating Expenses:
 Research and development                          6,495          15,511             12             11              49
 Selling, general and administrative              13,195          28,905            408            538           1,109
                                            -------------  --------------  -------------  -------------  --------------
 Total operating expenses                         19,690          44,416            420            549           1,158
 Other Income and (Expenses):
 Interest income                                       0               0              0              0
 Interest and other expenses                       2,855           1,743             51            954              48
                                            -------------  --------------  -------------  -------------  --------------
 Net Loss                                        $21,535         $46,151          $(471)       $(1,479)       $(1,512)
                                            =============  ==============  =============  =============  ==============
 Basic and diluted net loss per share             $(0.22)         $(0.83)        $(0.02)        $(0.06)        $(0.10)
                                            =============  ==============  =============  =============  ==============
 Shares used in calculating basic and
 diluted net loss per share                   97,927,538      55,912,532     29,797,183     24,986,646      15,355,914
                                            =============  ==============  =============  =============  ==============

 STATEMENT OF CASH FLOWS DATA:

 Net cash used in operating activities           $(4,520)        $(3,397)         $(185)         $(629)         $(581)
 Net cash provided by financing &
 investing activities                              3,301           4,851            172            642             426
 Net (decrease) increase in cash                  (1,219)          1,454            (13)            13           (155)
                                            -------------  --------------  -------------  -------------  --------------
 Cash and cash equivalents at beginning
 of period                                         1,454               0             13             (0)            155
                                            -------------  --------------  -------------  -------------  --------------
 Cash and cash equivalents at end of
 period                                             $235          $1,454             $0            $13            $(0)
                                            =============  ==============  =============  =============  ==============

 BALANCE SHEET DATA:

 Cash and cash equivalents                          $235          $1,454             $0            $13              $0
 Capital Assets                                      468             167              7             11              14
 Intellectual property                            12,775          14,240              0              0               0
 Total Assets                                     15,534          16,903            188            180              50
 Current Liabilities                               4,172           2,413           1,21            852             779
 Total Stockholders Equity (Deficit)              10,002          14,490         (1,133)          (671)          (729)
</TABLE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATION

         The following discussion should be read in conjunction with the
Consolidated Financial Statements and the related notes included in this annual
report on Form 10-K. This annual report on Form 10-K contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those in such forward-looking statements as a
result of many factors, including those discussed in "Risk Factors," "Business"
and elsewhere in this annual report on Form 10-K.



                                       20
<PAGE>

OVERVIEW

         The Company designs, develops, manufactures and markets software and
hardware using state of the art technologies that allows for real time delivery
of information regarding the location of a person or an asset for the purposes
of tracking that person or asset or assisting them in navigation. The Company
does this by integrating Global Positioning System (GPS) technology, wireless
communications and the internet to enable users to efficiently manage their
mobile resources (whether vehicles, assets or persons) with relevant location
based information on a real time basis. As such, the Company supplies
location-based services; primarily in the areas of tracking, security,
navigation, communication and information devices and software, most of which
are enabled GPS technology.

         Our diverse family of products have been designed and developed to use
GPS technology for the purposes of tracking, security, navigation, communication
and general information purposes. Each of the Company's location based products
utilizes a proprietary combined circuit and receiver designed to collect,
calculate and display and communicate a person's or asset's location, direction,
speed and other information in a variety of formats depending upon the specific
consumer requirements. The Company's tracking, security and communications
service allows users to access information from their website to track the
location and movement of vehicles, goods, services and persons and to be able to
communicate with that resources. This service is a cost effective and
easy-to-use service that uses the internet to provide users with services
including the location of a resource, its speed, its direction together with the
ability to report about, dispatch and communicate with that resource and to
effectively and efficiently manage that resource.

         The Company's intellectual property assets include patents, copyrighted
materials, trademarks and trade secrets, as well as confidentiality agreements,
which establish and protect our proprietary rights. The Company's primary
intellectual property asset is a patent that covers process of combining GPS
locating technology and the transmission of the geographic location of objects
or people using cellular telephone technology to a remote unit which allows for
the identification of their location by a base station which may be, for
example, a response center or any computer that is capable of displaying the
location of the remote unit. In addition, the Company owns a variety of other
patents that relate to navigation-based applications and are in the process of
patenting the proprietary compression technology that is used in the Company's
Destinator navigation based product. Included in this portfolio are: map
compression and optimization algorithms, routing and maneuvering algorithms, map
attachment algorithms as well as multi-user on-board vehicle display systems.

         To date, the Company has sold its products and services both
domestically and internationally. The Company intends to expand its service
offerings to additional countries during the year 2002. Revenues from non-North
American market were not significant in 2001 but the Company expects that
revenues from international sales will be material in 2002.



                                       21
<PAGE>

RESULTS OF OPERATIONS

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

         Products Sales and Royalties Revenues

         Paradigm recorded product sales and royalties revenue of $2,346,506 for
the current year compared to $45,382 for the year ended December 31, 2000 as a
result of the commencement of the shipping of the PowerLOC L-BIZ(TM) products
towards the end of last year and commencement of sales of Destinator products in
the third quarter of 2001. This reflects an increase of 5,070% over revenues for
the year 2000.

         In the future, the Company expects to earn increased revenues through
the sale and licensing of its navigation products (Destinator(TM)) as well as
its tracking products (PowerLOC). In addition, it is anticipated that the
Company will be able to realize revenues from the licensing of its patents and
proprietary rights as well.

         Selling, General and Administrative Expenses

         Selling, General and Administration Expenses for the year ended
December 31, 2001 were $13,195,024 as compared to $28,904,722 for the year ended
December 31, 2000. These expenses reflect a decrease of approximately 50% in SGA
expenses in 2001 compared to expenses incurred in 2000. The expense for the year
ended December 31, 2001 includes non-cash compensation and other expenses of
$8,988,810 recorded for the issuance of stock options to employees and
consultants and in payment of other expenses, which amounted to $27,086,968 in
2000. The cash component of expenses in 2001 was $4,206,214 and this reflects an
increase of 131% over the cash expenses incurred in 2000 ($1,817,754). The cash
expenses increased as a result of costs associated with the acquisition of the
NaftEL assets on February 12, 2001 and higher corporate professional fees,
financing costs, consulting fees and patent-related expenses.

         Research and Development Expenses

         Research and Development Expenses for the year ended December 31, 2001
were $6,494,751 as compared to $15,510,609 for the year ended December 31, 2000.
That represents a decrease of 58% over the previous year. The expense for the
year ended December 31, 2001 includes a charge of $4,940,000 representing the
cost of the acquisition of the NaftEL assets while fiscal year 2000 expenses
reflect a charge of $14,846,397 representing the cost of the PowerLOC
acquisition. Research and Development Expenses are net of grants received from
National Research Council Canada through the Industrial Research Assistance
Program. This contribution will be repayable in the form of a royalty of 1% of
gross revenues for the year ending December 31, 2004, and is limited to a
maximum of $490,000. If the full amount of the assistance is not repaid at
January 1, 2005 the royalty continues until the earlier of full repayment, or
for ten years.

         Depreciation and Amortization Charges


                                       22
<PAGE>


         Depreciation and amortization charges for the year ended December 31,
2001 were $1,599,330 as compared to $728,449 for the year ended December 31,
2000, due principally to the amortization of certain intellectual property for a
full year in 2001.

         Net Gain (or Loss)

         The net loss for the year ended December 31, 2001 amounted to
$21,535,088 as compared to a loss of $46,151,350 for the year ended December 31,
2000. This represents a reduction of 54% compared to the previous year. The loss
for the 2001 fiscal year includes the expensing of a charge of $4,940,000
representing the one-time cost of the acquisition of the NaftEL assets that was
allocated to research and development expenses and $8,988,810 compensation and
other non-cash charges recorded for the issuance of stock options to employees
and consultants and for other associated expenses. The loss for the 2000 fiscal
year includes the expensing of a charge of $14,846,397 representing the cost of
the PowerLOC acquisition which was allocated to research and development
expenses and $27,086,968 compensation charges recorded for the issuance of stock
options to employees and consultants. The loss in fiscal year 2001 is also due
to the increased selling, general, development and administration expenses
relating to a full year of the PowerLOC business, the new NaftEL business from
its date of acquisition, higher professional fees and interest charges, and the
amortization of intellectual property and other capital assets.

         Income Taxes

         Since inception, we have incurred net losses for federal, provincial
and state tax purposes and except for only minimum taxes for an Israeli based
subsidiary the Company has not recognized any tax provision or benefit.

         Changing Prices

         The Company has conducted operations primarily using the currency of
Canada and the United States of America where inflation during 2001 and 2000 has
been low, which has not materially impacted our operating results. Foreign
currency exchange losses resulting from transactions with our wholly owned
subsidiaries located in Canada and Israel, which began business in 2001, were
not material during 2001 and were expensed as incurred.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

         Products Sales and Royalties Revenues

         The Company recorded licensing revenue of $25,000 for the year ended
December 31, 2000, resulting from the signing of the first licensing agreements
from its intellectual property in 2000. The Company recorded product sales of
$20,382 for the year ended December 31, 2000 as a result of the commencement of
the shipping of the PowerLOC L-BIZ products towards the end of the year. The
Company recorded no revenues for the year ended December 31, 1999.

         The Company earned interest revenue of $54,494 for the year ended
December 31, 2000 and no interest revenue for the year ended December 31, 1999,
due to the investment of cash received from the issuance of common shares and
debt financing.



                                       23
<PAGE>

         Selling, General and Administrative Expenses

         Selling, General and Administration Expenses for the year ended
December 31, 2000 were $28,959,216 as compared to $408,124 for the year ended
December 31, 1999. The expenses for the year ended December 31, 2000 includes
non-cash compensation charges of $26,735,448 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 28, 2000 and higher
corporate professional fees and patent related costs.

         Research and Development Expenses

         Research and Development Expenses for the year ended December 31, 2000
were $15,510,609 as compared to $11,820 for the year ended December 31, 1999.
The expenses for the year ended December 31, 2000 includes a charge of
$14,846,397 representing the cost of the PowerLOC acquisition, which was
allocated to research and development expenses in March 2000.

         Depreciation and Amortization Charges

         Depreciation and amortization charges for the year ended December 31,
2000 were $728,449 as compared to $3,351 for the year ended December 31, 1999
due to the amortization of intellectual property.

         Net Gain (or Loss)

         The net loss for the year ended December 31, 2000 amounted to
$46,151,350 as compared to a loss of $873,771 for the year ended December 31,
1999. The loss for the 2000 fiscal year includes the expensing of a charge of
$14,846,397 representing the cost of the PowerLOC acquisition which was
allocated to research and development expenses and $27,086,968 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 interest charges, and the amortization of intellectual property.

         Liquidity

         The Company had cash and cash equivalents on hand of $1,453,858 at
December 31, 2000. The Company raised in excess of $4,000,000 in cash during the
year ended December 31, 2000, through the price paid to exercise stock options
and warrants and through the issuance of common shares. The Company also raised
$1,000,000 through debt financing in 2000.

LIQUIDITY AND CAPITAL RESOURCES

         The Company had cash and cash equivalents on hand of $234,979 at
December 31, 2001. The Company raised in excess of $3,500,000 in cash during the
year ended December 31, 2001, through the exercise of stock options and warrants
and through the sale of common shares. 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





                                       24
<PAGE>

and government funding. The Company does not have any commitments for capital
expenditures and believes that its current cash balances, combined with its
financing activities and operating cash flows and the credit resources mentioned
below, 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.

         The Company leases an 8,000 square foot office facility for its head
office located in Richmond Hill, Ontario, Canada. The Company leases it for a
10-year term that expires in 2010. We also lease a research and development
facility in Tel Aviv, Israel for a lease term that expires in 2002. The rents
due at December 31, 2001, under these leases are:

<TABLE>
<CAPTION>
          <S>                                                        <C>
          Less than one year                                         $104,596
          1 to 3 years                                                254,795
          4 to 5 years                                                190,453
          After 5 years                                               289,647
                                                                      -------
          Total                                                      $839,491
                                                                     ========
</TABLE>


         In November 2001, the Company secured a $2.5 million purchase order and
an accounts receivable financing facility for its PowerLOC and Destinator
divisions from Production Finance International, LLC of Spokane, Washington and
KBK Financial, Inc. of Fort Worth, Texas. This combined financing facility has
been set up in order to finance the fulfillment of the purchase orders received
from its customers. As of December 31, 2001, we had not drawn against this
facility.

         In July 2001, the Company established an Equity Line of Credit, under
which the Company may, at its discretion, periodically issue and sell to Zakeni
Limited, shares of our common stock for a total purchase price of $10,750,000.
The Company has utilized $750,000 under this facility. Further draws under this
facility are subject to the registration of a registration statement for the
resale of the registrable securities to be declared effective by the Securities
and Exchange Commission. Zakeni will pay the Company a percentage (ranging from
80% to 90%) of the average of the lowest three closing bid prices of the
Company's common stock during the 10 trading days immediately preceding and 10
trading days immediately following the date in which the Company gives notice to
Zakeni of its demand - called a "put notice" - that it purchase a certain amount
of stock. Zakeni intends to resell any shares purchased under the Equity Line of
Credit at the then prevailing market price. There are formulas that limit the
amounts that may be included in a put notice that are based on the then-current
market prices and trading volumes for the Company's stock. At current share
prices and trading volumes, the Company is only entitled to have Zakeni purchase
a maximum of approximately $100,000 per month (on a monthly basis) and it is
unlikely the Company would be able to increase this amount in the absence of
increased share prices, increased trading volumes or an amendment to this
provision of the Equity Line of Credit. The Company was obligated to ensure that
the registration statement was effective by February 20, 2002 or pay a minimum
penalty of $75,000 to Zakeni. The Company has not yet filed an effective
registration statement and is, therefore, obligated to pay the amount of the
penalty to Zakeni.



                                       25
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

         In June 2001, the Financial Accounting Standards Board, or FASB, issued
Statement of Financial Accounting Standards, or SFAS, No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
No. 141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001and no longer permits the use of the
pooling-of-interests method. SFAS No. 142 requires that amortization of goodwill
cease and the carrying value of goodwill be evaluated for impairment at least
annually using a fair value test. Identifiable intangible assets will continue
to be amortized over their useful lives and reviewed at least annually for
impairment using a method appropriate to the nature of the intangible asset. We
adopted SFAS No. 141 and SFAS No. 142. We do not expect our adoption of SFAS No.
141 or SFAS No. 142 to have a material impact on our financial position or
results of operations.

         In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. It applies to all entities and
to legal obligations associated with the retirement of long-lived assets that
result from the acquisition, construction, development and/or normal operation
of long-lived assets, except for some lessee obligations. SFAS No. 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. We do not expect our adoption of SFAS No. 143 to have a material
impact on our financial position or results of operations.

         Also in August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The provisions of SFAS No. 144 are effective for financial statements issued for
fiscal years beginning after December 15, 2001. We do not expect our adoption of
SFAS No. 144 to have a material impact on our financial position or results of
operations.

CRITICAL ACCOUNTING POLICIES

         The preparation of financial statements in conformity with accounting
principals generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of our assets, liabilities,
revenues and expenses, and that affect our disclosure of contingent assets and
liabilities. While our estimates are based on assumptions we considered
reasonable at the time they were made, our actual results may differ from our
estimates, perhaps significantly. If results differ from our estimates, we will
make adjustments to our financial statements as we become aware of the necessity
for an adjustment. Specifically, we make estimates in the following areas:

Allowance for doubtful accounts

         We provide a reserve against our receivables for estimates losses that
may result from our customers' inability to pay. These reserves are based on
known uncollectable accounts, aged receivables, historical losses and our
estimate of our customers' credit-worthiness. Should a customer's account become
past due, we generally place a hold on the account and discontinue





                                       26
<PAGE>

further shipments to that customer, minimizing further risk of loss. The
likelihood of our recognition of a material loss on an uncollectable account
mainly depends on deterioration in the economic financial strength of the
customer and the general business environment. Distrel Spa and Criticom
International Corp. are our two largest customers, directly accounting for 36%
of our revenues in the year ended December 31, 2001. We believe that the
allowance for doubtful accounts as of December 31, 2001 is sufficient. The
Company does not maintain a specific allowance for doubtful accounts for any
specific customers; instead we review all accounts using the factors identified
above to determine which are doubtful and then create an allowance for that
specific account.

Inventory adjustments

         We state inventories at the lower of average cost, determined on the
first-in first-out method, or fair market value. We review the components of our
inventory on a regular basis for potential excess, obsolete and impaired
inventory, based on estimated future usage. The likelihood of any material
adjustment of our stated inventory depends on significant changes in the
competitive conditions in which we operate, new product introductions by us or
our competitors, or fluctuations in customer demand.

Principles of consolidation

         We determine whether the equity method of consolidation is appropriate
to account for our investments based on our ability to exercise control through
decision-making, our ability to exercise significant influence over management
of the company in which we have invested, and our equity ownership interest in
that company. If our ability to exercise significant influence or our
decision-making abilities change materially from our evaluation, or our
ownership interest in an investment increases or decreases, our operating
results could be impacted, either positively or negatively.

RISK FACTORS

         The following principal factors make the Company's common stock
speculative. Company Shares should not be held by persons who cannot afford the
loss of their entire investment.

Due to our limited operating history it is difficult to predict future operating
results or our stock price.

         An evaluation of our business is difficult because we have a limited
operating history. We initially commenced operations in 1996 and commercially
offered our first services in the second half of 2000. We may not continue to
grow or achieve profitability. We face a number of risks encountered by early-
stage companies in the Global Positioning System, wireless communications,
internet information industries and navigation and location based services,
including:

o        the uncertainty of market acceptance of our products or services;



                                       27
<PAGE>

o        our need to introduce reliable and robust products and services that
         meet the demanding needs of customers;

o        our need to expand our marketing, sales and support organizations, as
         well as our distribution channels;

o        our ability to anticipate and respond to market competition;

o        our need to manage expanding operations;

o        our dependence on wireless carriers;

o        our dependence on map data suppliers;

o        limited coverage of wireless networks; and

o        migration to new networks, which could cause our products to be
         incompatible or out of date.

Our business strategy may not be successful, and we may not successfully address
these risks.

         We have historically incurred losses and these losses may increase in
the future. We have never been profitable. As of December 31, 2001, we had an
accumulated deficit of $73,384,341. In order to become profitable and sustain
profitability, we will need to generate significant revenues to offset our cost
of revenues, and sales and marketing, research and development and general and
administrative expenses. We may not achieve or sustain our revenue or profit
goals and our losses may grow in the future. In order to facilitate the sale of
our services, we may sell our hardware below cost. As a result, we occasionally
experience negative gross margins on the sale of our hardware from time to time.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."

If we do not increase revenue from the sale of our services to new and existing
customers, our business may not be successful.

         Our success depends on our ability to increase revenue from the sale of
our products and services to new and existing customers and on market acceptance
of our products and services. We may not be able to achieve widespread adoption
of our products and services. If we are not able to expand our customer base and
increase our revenue from new and existing customers, our business will be
seriously harmed.

Our success depends on our ability to maintain and expand our sales channels.

         In order to increase our market awareness, customer base and revenues,
we need to expand our direct and indirect sales operations. There is strong
competition for qualified sales personnel in our business, and we may not be
able to attract and retain sufficient new sales personnel to expand our
operations. New sales personnel will require training and will take time to
achieve full productivity. In addition, we believe that our success is dependent
on expansion of our indirect distribution channels, including our relationships
with wireless carriers and



                                       28
<PAGE>

independent sales agents. To date, we have relationships with a limited number
of these wireless carriers and independent sales agents. We may not be able to
establish relationships with additional distributors on a timely basis, or at
all, and our distributors may not devote adequate resources to promoting and
selling our services.

We have limited resources and may be unable to manage our anticipated growth in
operations.

         If we fail to develop and maintain our products and services as we
experience rapid growth, demand for our products and services and our revenues
could decrease. Our development and expansion has placed, and will continue to
place, significant strain on our managerial, operational, and financial
resources. Due to the limited deployment of our products and services, we are
unable to assess our ability to grow the business and manage a substantially
larger number of customers and additional products and services.

If we cannot deliver the features and functionality our customers demand, we
will be unable to retain or attract new customers.

         Our success depends upon our ability to determine the features and
functionality our customers demand and to design and implement products and
services that meet their needs in an efficient manner. We cannot assure you that
we can successfully determine customer requirements or that our future services
will adequately satisfy customer demands. To date, the design of our products
and services has been based on our internal efforts and feedback from a limited
number of existing and potential customers. In addition, we may experience
difficulties that could delay or prevent the successful development,
introduction or marketing of new products and services and product/service
enhancements. If we cannot effectively deploy, maintain and enhance our products
and services, our expenses may increase, we may not be able to recover our costs
and our competitive position may be harmed.

We depend on wireless networks owned and controlled by others. If our customers
do not have continued access to sufficient capacity on reliable networks, we may
be unable to deliver services and our revenues could decrease.

         Our ability to grow and achieve profitability as it relates to our
tracking products and services depends on the ability of wireless carriers to
provide sufficient network capacity, reliability and security to our customers.
Even where wireless carriers provide coverage to entire metropolitan areas,
there are occasional lapses in coverage, for example due to tall buildings
blocking the transmission of data to and from vehicles. These effects could make
our services less reliable and useful, and customer satisfaction could suffer.

Defects or errors in our services could result in the cancellation or delays of
our services, which would damage our reputation and harm our financial
condition.

         We must develop our services quickly to keep pace with the rapidly
changing Global Positioning System, wireless communications, navigation systems
and internet markets. Products and services that address these markets are
likely to contain undetected errors or defects, especially when first introduced
or when new versions are introduced. Our services may not be free from errors or
defects, which could result in the cancellation or disruption of our services or



                                       29
<PAGE>

dissatisfaction of customers. This would damage our reputation, and result in
lost revenues, diverted development resources, and increased service and
warranty costs.

Our financial condition could be seriously harmed if our wireless carriers were
to increase the prices of their services, or to suffer operational or technical
failures.

         If wireless carriers do not expand coverage, we may be unable to offer
our tracking products and service to additional areas. If one or more of the
agreements we have with wireless carriers is terminated, we may be unable to
offer our products and services to our customers within the carrier's coverage
area. There are a limited number of wireless carriers offering services
compatible with our products and service. These wireless carriers have little
overlap in their primary service coverage areas. Our existing agreements with
wireless carriers may be terminated upon as little as fifteen-day written notice
or immediately upon the occurrence of certain conditions. If one or more of our
wireless carriers decides to terminate or not renew its contract with us, we may
incur additional costs relating to obtaining alternate coverage from another
wireless carrier outside of its primary coverage area, or we may be unable to
replace the coverage at all, causing a complete loss of service to our customers
in that coverage area.

Sales and licensing revenues may not meet our expectations and if other sources
are not available, our growth and profitability could be delayed or diminished.

         We began operations in 1996 and have experienced losses from operations
since inception. We incurred a net loss in 2001 and expect to incur an operating
loss in 2002. We will continue to incur substantial costs related to its
continued growth. We cannot be assured that our sales will meet our growth
expectations. Should this occur, we may elect to:

o        reduce the planned expansion of our operations; or

o        pursue other financing alterations such as borrowing or a rights
         offering;

         Our planned growth and profitability could be delayed or diminished if
we cannot implement either of the two options listed above.

We may need to raise additional capital to finance operations.

         We have relied on significant external financing to fund our
operations. Such financing has historically come from a combination of
borrowings, the sale of common stock to third parties, and funds provided by
certain officers and directors. We will need to raise additional capital to fund
our anticipated operating expenses and possible expansion. Among other things,
external financing may be required to cover our operating costs. We cannot
assure you that financing, whether from external sources or related parties,
will be available if needed or on favorable terms. Our inability to obtain
adequate financing would result in the need to curtail operations, would be
materially harmful to our business, and may result in a lower stock price.

         In addition, our certificate of incorporation limits the number of
shares of our common stock that we can issue to 250,000,000 shares. Once this
limit has been reached, we will not be able to sell any further shares of common
stock to raise additional capital until our stockholders approve an increase in
our authorized capital stock. We cannot assure you that any proposal to




                                       30
<PAGE>

increase the Company's authorized capital stock will be approved by the
stockholders. The failure to secure approval for an authorized capital increase
may have an adverse impact on our ability to sustain growth or achieve
profitability.

We have been the subject of a "going concern" opinion from our independent
auditors, which means that we may not be able to continue operations unless we
obtain additional funding.

         Our independent auditors have added an explanatory paragraph to their
audit opinion, issued in connection with our financial statements, which states
that our ability to continue as a going concern is uncertain due to our
continued operating losses, the excess of our liabilities over our assets and
uncertain conditions we face in our day-to-day operations. Our Consolidated
Financial Statements do not include any adjustments that might result from the
outcome of this uncertainty. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."

Our Global Positioning System products depend upon satellites maintained by the
United States Department of Defense. If a significant number of these satellites
become inoperable, unavailable or are not replaced or if the policies of the
United States government for the use of the Global Positioning System without
charge are changed, our business will suffer.

         The Global Positioning System is a satellite-based navigation and
positioning system consisting of a constellation of orbiting satellites. The
satellites and their ground control and monitoring stations are maintained and
operated by the United States Department of Defense. The Department of Defense
does not currently charge users for access to the satellite signals. These
satellites and their ground support systems are complex electronic systems
subject to electronic and mechanical failures and possible sabotage. The
satellites were originally designed to have lives of 7.5 years and are subject
to damage by the hostile space environment in which they operate. However, of
the current deployment of satellites in place, the average age is 6 years and
some have been operating for more than 11 years.

         If a significant number of satellites were to become inoperable,
unavailable or are not replaced, it may impair the current utility of our Global
Positioning System products and the growth of current and additional market
opportunities. In addition, there can be no assurance that the U.S. government
will remain committed to the operation and maintenance of Global Positioning
System satellites over a long period, or that the policies of the U.S.
government that provide for the use of the Global Positioning System without
charge and without accuracy degradation will remain unchanged. Because of the
increasing commercial applications of the Global Positioning System, other U.S.
government agencies may become involved in the administration or the regulation
of the use of Global Positioning System signals. Any of the foregoing factors
could affect the willingness of buyers of our products to select Global
Positioning System-based products instead of products based on competing
technologies.

         If for some reason we are unable to use the GPS signals, there are a
number of alternative satellite systems available for determining geographical
locations for devices. We cannot say with any certainty that we will be able to
use any of those other systems or that we will be able to use any of them
without additional costs.



                                       31
<PAGE>

Any reallocation of radio frequency spectrum could cause interference with the
reception of Global Positioning System signals. This interference could harm our
business.

         Our Global Positioning System technology is dependent on the use of
radio frequency spectrum. The assignment of spectrum is controlled by an
international organization known as the International Telecommunications Union
("ITU"). The Federal Communications Commission ("FCC") is responsible for the
assignment of spectrum for non-government use in the United States in accordance
with ITU regulations. Any ITU or FCC reallocation of radio frequency spectrum,
including frequency band segmentation or sharing of spectrum, could cause
interference with the reception of Global Positioning System signals and may
materially and adversely affect the utility and reliability of our products,
which would, in turn, cause a material adverse effect on our operating results.
In addition, emissions from mobile satellite service and other equipment
operating in adjacent frequency bands or in-band may materially and adversely
affect the utility and reliability of our products, which could result in a
material adverse effect on our operating results.

Ultra-Wideband radio devices could cause interference with the reception of
Global Positioning System signals.

         This interference could harm our business. On May 11, 2000, the FCC
issued a Notice of Proposed Rulemaking that proposes rules for the operation of
Ultra-Wideband ("UWB") radio devices on an unlicensed basis in the frequency
bands allocated to the Global Positioning System. If the FCC issues final rules
authorizing such operation, UWB devices might cause interference with the
reception of Global Positioning System signals. Such interference could reduce
demand for Global Positioning System products in the future. Any resulting
change in market demand for Global Positioning System products could have a
material adverse effect on our financial results.

If we are not successful in the continued development, introduction or timely
manufacture of new products and services, demand for our products and services
could decrease.

         We expect that a significant portion of our future revenue will
continue to be derived from sales of newly introduced products. Rapidly changing
technology, evolving industry standards and changes in customer needs
characterize the market for our products and services. If we fail to modify or
improve our products and services in response to changes in technology, industry
standards or customer needs, our products and services could rapidly become less
competitive or obsolete. We must continue to make significant investments in
research and development in order to continue to develop new products and
services, enhance existing products and services and achieve market acceptance
for such products and services. However, there can be no assurance that
development stage products and services will be successfully completed or, if
developed, will achieve significant customer acceptance.

         If we are unable to successfully develop and introduce competitive new
products and services, and enhance our existing products and services, our
future results of operations would be adversely affected. Our pursuit of
necessary technology may require substantial time and expense. We may need to
license new technologies to respond to technological change. These licenses may
not be available to us on terms that we can accept. We may not succeed in
adapting




                                       32
<PAGE>

our products to new technologies as they emerge. Development and manufacturing
schedules for technology products and services are difficult to predict, and
there can be no assurance that we will achieve timely initial customer shipments
of new products and services. The timely availability of these products and
services in volume and their acceptance by customers are important to our future
success. We have previously experienced delays in shipping certain of our
products and services and any future delays, whether due to manufacturing
delays, lack of market acceptance, delays in regulatory approval, or otherwise,
could have a material adverse effect on our results of operations.

If we do not correctly anticipate demand for our products, we may not be able to
secure sufficient quantities or cost-effective production of our products or we
could have costly excess production or inventories.

         The demand for our products depends on many factors and will be
difficult to forecast. We expect that it will become more difficult to forecast
demand as we introduce and support multiple products and as competition in the
market for our products intensifies.

         If forecasted demand does not develop, we could have excess production
resulting in higher inventories of finished products and components, which would
use cash and could lead to write-offs of some or all of the excess inventories.
Licensing revenue could be much less than anticipated. Lower than forecasted
demand could also result in excess manufacturing capacity at our facilities,
which could result in lower margins.

         If we do not correctly anticipate demand for our products, we may not
be able to secure sufficient quantities or cost-effective production of our
products or we could have costly excess production or inventories. In some
cases, we are obligated to purchase certain products and/or service by payment
of cash in advance that may have a negative impact on our ability to grow the
size of the Company from time to time.

         Since late 2000, we have experienced steady increases in demand for our
products and services and have generally been able to increase production to
meet that demand. However, the demand for our products and services depends on
many factors and will be difficult to forecast. We expect that it will become
more difficult to forecast demand as we introduce and support multiple products
and as competition in the market for our products intensifies. Significant
unanticipated fluctuations in demand could cause the following problems in our
operations:

o        If demand increases beyond what we forecast, we would have to rapidly
         increase production. We would depend on suppliers to provide additional
         volumes of components and those suppliers might not be able to increase
         production rapidly enough to meet unexpected demand.

o        Rapid increases in production levels to meet unanticipated demand could
         result in higher costs for manufacturing and supply of components and
         other expenses. These higher costs could lower our profit margins.
         Further, if production is increased rapidly, manufacturing quality
         could decline, which may also lower our margins.




                                       33
<PAGE>

o        If forecasted demand does not develop, we could have excess production
         resulting in higher inventories of finished products and components,
         which would use cash and could lead to write-offs of some or all of the
         excess inventories. Lower than forecasted demand could also result in
         excess manufacturing capacity at our facilities, which could result in
         lower margins.

Because our reporting currency is in U.S. Dollars and the functional currency of
our principal office is in Canadian dollars, exchange rate fluctuations impact
our financial statements.

         Foreign exchange effects on our financial statements can be material
because our reporting currency is in U.S. Dollars while the functional currency
of principal office is in Canadian dollars. We are exposed to foreign exchange
risks related to recurring foreign currency payments including the majority of
the salaries of employees, principally in Canadian Dollars. In addition,
fluctuations in exchange rates between the U.S. Dollar and the Canadian Dollar
may have an adverse impact on our consolidated financial statements.

We face competition from existing and potential competitors, our resulting loss
of competitive position could result in a loss in market share and revenues,
price reductions, fewer customer orders, and reduced margins.

         The market for our services is competitive and is expected to become
even more competitive in the future. Our customers choose our services primarily
on the basis of the functionality, price, ease of use, quality and geographic
coverage of our services. If we are unable to compete successfully in these
areas, competitive pressures may harm our business, resulting in a loss of
market share and revenues. Our current and potential competitors include:

o        other providers of vehicle-location services, such as Qualcomm, whose
         OmniTRACS service uses satellite communication technology to manage
         fleets of trucks that travel long distances and @Track Communications,
         Inc., and AtRoad, Inc.;

o        other wireless internet companies, such as Aether Systems, Openwave and
         Research in Motion;

o        other navigation and location based service companies, such as Garmin
         Corporation, Thales Navigation, Trimble Navigation Limited, Pharos
         Science and Applications, Inc., Teletype Company and TravRoute, a
         division of ALK Technologies, Inc.;

o        companies working on emergency-911 solutions, such as True Position;

o        companies with solutions that integrate location, wireless
         communications and call centers, such as Onstar (a division of General
         Motors Corporation), ATX Technologies Inc., and Mercedes Benz; and

o        companies that provide wireless, location-relevant applications, such
         as SignalSoft.

         Many of our existing and potential competitors have substantially
greater financial, technical, marketing and distribution resources than we do.
Additionally, many of these




                                       34
<PAGE>

companies have greater name recognition and more established relationships with
our target customers. These competitors may be able to respond more rapidly to
new or emerging technologies or changes in customer requirements. They may also
be able to devote greater resources to the development, promotion and sale of
their products. Increased competition could result in price reductions, fewer
customer orders, reduced margins and loss of market share. Our failure to
compete successfully against current or future competitors could seriously harm
our business, financial condition and results of operations. Furthermore, these
competitors may be able to adopt more aggressive pricing policies and offer
customers more attractive terms than we can.

         Our services also compete with alternative means of communication
between vehicles and their managers, including wireless telephones, two-way
radios and pagers. In addition, we expect that new competitors will enter the
market for location-relevant wireless information as businesses and consumers
increasingly demand information when they are mobile. Furthermore, the
widespread adoption of industry standards may make it easier for new market
entrants or existing competitors to offer the services we offer or may offer in
the future.

Our sales and gross margins for our products may fluctuate.

         Our sales and gross margins for our products may fluctuate from period
to period due to a number of factors, including product mix, competition and
unit volumes. In particular, the average selling prices of a specific product
tend to decrease over that product's life. To offset such decreases, we intend
to rely primarily on obtaining yield improvements and corresponding cost
reductions in the manufacture of existing products and on introducing new
products that incorporate advanced features and therefore can be sold at higher
average selling prices. However, there can be no assurance that we will be able
to obtain any such improvements or cost reductions or be able to introduce any
such new products in the future. To the extent that such cost reductions and new
product introductions do not occur in a timely manner or our customers' products
do not achieve market acceptance, our business, financial condition and results
of operations could be materially adversely affected.

Our quarterly operating results are subject to fluctuations, and our stock price
may decline if we do not meet the expectations of investors and analysts.

         Our quarterly revenues and operating results are difficult to predict
and may fluctuate significantly from quarter to quarter due to a number of
factors, many of which are outside our control. These factors include, but are
not limited to:

o        delays in market acceptance or implementation by customers of our
         products and services;

o        changes in demand by our customers for existing and additional products
         and services;

o        changes in or cancellations of our agreements with wireless carriers;

o        introduction of new products and services by us or our competitors;



                                       35
<PAGE>

o        changes in our pricing policies or those of our competitors or
         suppliers;

o        changes in our mix of sources of revenues; and

o        changes in accounting standards, including standards relating to
         revenue recognition, business combinations and stock-based
         compensation.

         Our expense levels are based, in part, on our expectation of future
revenues. As a result, any shortfall in revenues relative to our expectations
could cause significant changes in our operating results from quarter to
quarter. We believe period-to-period comparisons of our revenue levels and
operating results are not meaningful. You should not rely on our quarterly
revenues and operating results to predict our future performance. In some future
quarter our operating results may be below the expectations of public market
analysts and investors and, as a result, the price of our common stock may fall.

We are dependent on third party suppliers for various components used in our
current products.

         Some of the components that we procure from third party suppliers
include GPS devices, modems and microprocessors. The cost, quality and
availability of components are essential to the successful production and sale
of our products. Some components come from our sole source suppliers. Research
in Motion Ltd., Leadtek Research Inc., Span Manufacturing Limited, and Standard
Communications Corp. are each the sole source supplier to us of certain
equipment incorporating our proprietary designs which they manufacture for us.

         In the past, we have experienced shortages. In addition, if there are
shortages in supply of components, the costs of such components may rise. If
suppliers are unable to meet our demand for components on a timely basis and if
we are unable to obtain an alternative source or if the price of the alternative
source is prohibitive, or if the costs of components rise, our ability to
maintain timely and cost-effective production of our products would be seriously
harmed. In the last twelve months, we have experienced upward pricing pressures
on our high technology components. We continue to search for alternate sources
or redesign components for less expensive parts. However, if we are unable to
find alternate sources or are not able to effectively redesign components, our
business, financial condition and results of operations could be materially
adversely affected.

         We license mapping data for use in our products from various sources.
There are only a limited number of suppliers of mapping data for each
geographical region. If we are unable to continue licensing such mapping data
and are unable to obtain an alternative source, or if the price of the
alternative source is prohibitive, our ability to supply mapping data for use in
our products would be seriously harmed.

We rely on independent dealers and distributors to sell our products, and
disruption to these channels would harm our business.

         Because we sell a majority of our products to independent dealers and
distributors, we are subject to many risks, including risks related to their
inventory levels and support for our products. In particular, our dealers and
distributors maintain significant levels of our products in




                                       36
<PAGE>

their inventories. If dealers and distributors attempt to reduce their levels of
inventory or if they do not maintain sufficient levels to meet customer demand,
our sales could be negatively impacted.

         Our dealers and distributors also sell products offered by our
competitors. If our competitors offer our dealers and distributors more
favorable terms, those dealers and distributors may de-emphasize or decline to
carry our products. In the future, we may not be able to retain or attract a
sufficient number of qualified dealers and distributors. If we are unable to
maintain successful relationships with dealers and distributors or to expand our
distribution channels, our business will suffer.

If we fail to manage our growth and expansion effectively, we may not be able to
successfully manage our business.

         Our ability to successfully offer our products and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We continue to increase the scope of our operations
domestically and internationally and have grown our shipments and headcount
substantially. In addition, we plan to continue to hire a significant number of
employees within the next 12 months. This growth has placed, and our anticipated
growth in future operations will continue to place, a significant strain on our
management systems and resources.

Our business may suffer if we are not able to hire and retain sufficient
qualified personnel or if we lose our key personnel.

         Our future success depends partly on the continued contribution of our
key executive, engineering, sales, marketing, manufacturing and administrative
personnel. In particular, we rely on Eduardo Guendelman, our President and Chief
Executive Officer. We currently do not have employment agreements with some of
our key executive officers. We do not have key man life insurance on any of our
key executive officers and do not currently intend to obtain such insurance. The
loss of the services of any of our senior level management, or other key
employees, could harm our business. Recruiting and retaining the skilled
personnel we require to maintain our market position may be difficult. For
example, there is a nationwide shortage of qualified electrical engineers and
software engineers that are necessary for us to design and develop new products
and therefore, it may be challenging to recruit such personnel. If we fail to
hire and retain qualified employees, we may not be able to maintain and expand
our business.

We may establish alliances, raise additional capital or acquire technologies or
companies in the future, which could result in the dilution of our stockholders
and disruption of our business.

         We are continually evaluating business alliances, raising capital and
external investments in technologies related to our business. Acquisitions of
companies, divisions of companies, businesses or product, raising capital and
strategic alliances entail numerous risks, any of which could materially harm
our business in several ways, including:

o        diversion of management's attention from our core business objective
         and other business concerns;



                                       37
<PAGE>

o        failure to integrate the acquired company into our pre-existing
         business;

o        potential loss of key employees from either our pre-existing business
         or the acquired business;

o        dilution of our existing stockholders as a result of issuing equity
         securities; and

o        assumption of liabilities of the acquired company.

         Some or all of these problems may result from current or future
alliances, acquisitions, capital raised or investments. Furthermore, we may not
realize any value from these alliances, acquisitions or investments.

Our intellectual property rights are important to our operations, and we could
suffer loss if they infringe upon other's rights or are infringed upon by
others.

         We rely on a combination of patents, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
our proprietary rights. To this end, we hold rights to a number of patents and
trademarks and regularly file applications to attempt to protect our rights in
new technology. However, there is no guarantee that our patent applications will
become issued patents. Moreover, even if approved, our patents may thereafter be
successfully challenged by others or otherwise become invalidated for a variety
of reasons. In addition, the patents have been registered or registration is
pending in a number of jurisdictions including the United States which
represents a significant market for the company. Thus, any patents or trademarks
we currently have or may later acquire may not provide us a significant
competitive advantage.

         Third parties may claim that we are infringing their intellectual
property rights. Such claims could have a serious adverse effect on our business
and financial condition. Litigation concerning patents or other intellectual
property can be costly and time consuming. We may seek licenses from such
parties, but they could refuse to grant us a license or demand commercially
unreasonable terms. We might not have sufficient resources to pay for the
licenses. Such infringement claims could also cause us to incur substantial
liabilities and to suspend or permanently cease the use of critical technologies
or processes or the production or sale of major products.

Our business is subject to risks associated with doing business internationally.

         We estimate that approximately 42% of our net sales in the fiscal year
ended December 31, 2001 represented products shipped, services supplied, to
destinations outside North America. Accordingly, our future results could be
harmed by a variety of international factors, including:

o        changes in foreign currency exchange rates;

o        changes in a specific country's or region's political or economic
         conditions, particularly in emerging markets;

o        trade protection measures and import or export licensing requirements;



                                       38
<PAGE>

o        potentially negative consequences from changes in tax laws;

o        difficulty in managing widespread sales and manufacturing operations;
         and

o        less effective protection of intellectual property.

Our stock price is volatile, which may cause our investors to lose money and may
result in costly litigation that could divert our resources.

         Stock markets have recently experienced dramatic price and volume
fluctuations, particularly for shares of technology companies. These
fluctuations can be unrelated to the operating performance of these companies.
Broad market fluctuations may reduce the market price of our common stock and
cause you to lose some or all of your investment. These fluctuations may be
exaggerated if the trading volume of our common stock is low. In addition, due
to the technology-intensive and emerging nature of our business, the market
price of our common stock may rise and fall in response to:

o        announcements of technological or competitive developments;

o        acquisitions or strategic alliances by us or our competitors;

o        the gain or loss of a significant customer or order;

o        changes in estimates of our financial performance or changes in
         recommendations by securities analysts; and

o        security breaches.

         When the market price of a company's stock drops significantly,
stockholders often institute securities class action lawsuits against that
company. A lawsuit against us could cause us to incur substantial costs and
could divert the time and attention of our management and other resources from
our business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY EXCHANGE RATE EXPOSURE

         We are exposed to market risk related to fluctuations in foreign
currency exchange rates. Our exposure to market risk due to fluctuations in
foreign currency exchange rates relates primarily to sales of our products in
Europe and other foreign markets and the fact that most of our employees work in
Canada and are paid in Canadian dollars. Although we transact business in
various foreign countries, settlement amounts are usually based on the U.S.
dollar or New Israeli Shekels. Transaction gains or losses resulting from sales
revenues have not been significant in the past and we are not engaged in any
hedging activity on New Israeli Shekels or other currencies. Based on our
revenues derived from markets other than the United States for the year ended
December 31, 2001, a hypothetical 10% adverse change in New Israeli Shekels or
the Canadian dollar against the U.S. dollar would not result in a material
foreign exchange loss. Consequently, we do not expect that reductions in the
value of such sales denominated in foreign




                                       39
<PAGE>

currencies resulting from even a sudden or significant fluctuation in foreign
exchange rates would have a direct material impact on our financial position,
results in operations or cash flows.

         Notwithstanding the foregoing, the indirect effect of fluctuations in
interest rates and foreign currency exchange rates could have a material adverse
on our business, financial condition and results of operations. For example,
foreign currency exchange rate fluctuations may affect international demand for
our products. In addition, interest rate fluctuations may affect our customers'
buying patterns. Furthermore, interest rate and currency exchange rate
fluctuations may broadly influence the United States and foreign economies
resulting in a material adverse effect on our business, financial condition and
results of operations.



                                       40
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of
Paradigm Advanced Technologies, Inc.
(A Development Stage Enterprise)

         We have audited the accompanying consolidated balance sheets of
Paradigm Advanced Technologies, Inc. (incorporated in Delaware) as at December
31, 2001 and 2000 and the related consolidated statements of operations, cash
flows and changes in stockholders' equity for each of the years ended December
31, 2001 and 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
consolidated financial statements of Paradigm Advanced Technologies, Inc. as of
December 31, 1999, were audited by other auditors whose report dated April 11,
2000, expressed an unqualified opinion on those statements before restatement,
accompanied by an explanatory paragraph on the ability of the company to
continue as a going concern. We have also audited the adjustments described in
note 21 that were applied to restate the 1999 consolidated financial statements.
In our opinion, such adjustments are appropriate and have been properly applied.

         We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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. We believe that our audits provide a
reasonable basis for our opinion.

         In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Paradigm Advanced Technologies, Inc. as at December 31, 2001 and 2000 and the
consolidated results of its operations and its cash flows for each of the years
ended December 31, 2001 and 2000 in accordance with generally accepted
accounting principles in the United States of America.



                                       41
<PAGE>

         The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
3 to the consolidated financial statements, the Company has incurred significant
losses for the past three 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 3. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

Toronto, Ontario
March 1, 2002

                                              /s/ Schwartz Levitsky Feldman LLP
                                              Chartered Accountants



                                       42
<PAGE>

                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEETS
                  AS AT DECEMBER 31, 2001 AND DECEMBER 31, 2000
                       (AMOUNTS EXPRESSED IN U.S. DOLLARS)
                                    (AUDITED)

<TABLE>
<CAPTION>
                                                                                  AT DECEMBER 31,
                                                                      -----------------------------------------
                                                                            2001                     2000
                                                                      -----------------          --------------
<S>                                                                   <C>                        <C>
            ASSETS

   CURRENT ASSETS

   Cash and cash equivalents                                                  $234,979              $1,453,858
   Account and miscellaneous receivables                                       943,640                  85,321
   Inventory                                                                   282,327                  91,296
   Prepaids and deposits                                                       213,558                 251,451
                                                                      -----------------          --------------

   TOTAL CURRENT ASSETS                                                      1,674,504               1,881,926

   CAPITAL ASSETS (note 4)                                                     468,559                 167,095

   INTELLECTUAL PROPERTY (note 5)                                           12,775,394              14,240,400

   INVESTMENTS (note 11)                                                       613,550                 613,550

   Deferred tax recoverable (note 17)                                            1,996                      --
                                                                      -----------------          --------------
                                                                           $15,534,003             $16,902,971
                                                                      =================          ==============
</TABLE>


APPROVED ON BEHALF OF THE BOARD

/s/ Gordon Sharwood               Director
--------------------------------

/s/ Eduardo Guendelman            Director
--------------------------------



                                       43
<PAGE>


                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                           CONSOLIDATED BALANCE SHEETS
                  AS AT DECEMBER 31, 2001 AND DECEMBER 31, 2000
                       (AMOUNTS EXPRESSED IN U.S. DOLLARS)
                                    (AUDITED)

<TABLE>
<CAPTION>
                                                                                  AT DECEMBER 31,
                                                                      ----------------------------------------
                                                                           2001                      2000
                                                                      --------------            --------------
<S>                                                                   <C>                       <C>

            LIABILITIES

   CURRENT LIABILITIES

   Accounts payable and accrued liabilities (note 6)                      $4,021,509                 1,741,015
   Loans payable (note 7)                                                    150,500                   671,653
                                                                      --------------            --------------
                                                                           4,172,009                 2,412,668
                                                                      --------------            --------------
   Promissory Note Payable (note 8)                                        1,360,000                        --
                                                                      --------------            --------------
   Total Liabilities                                                       5,532,009                 2,412,668
                                                                      --------------            --------------

            STOCKHOLDERS' EQUITY

   CAPITAL STOCK (note 10)

   Share Capital (note 10)

   Authorized: 250,000,000 (100,000,000 at December 31, 2000)
   Common Stock, $0.0001 par value

        Issued and outstanding stock

                                127,751,410 as of December 31, 2001           12,775                        --
                                 77,973,829 as of December 31, 2000               --                     7,797

        Additional paid-in capital                                        83,110,567                66,316,298
        Cumulative other comprehensive income (note 14)                      262,993                    15,461

   DEFICIT                                                               (73,384,341)              (51,849,253)
                                                                      --------------            --------------

   TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY)                                10,001,994                14,490,303
                                                                      --------------            --------------

   TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                            $15,534,003               $16,902,971
                                                                      ==============            ==============
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.



                                       44
<PAGE>
                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                       (AMOUNTS EXPRESSED IN U.S. DOLLARS)
                                   (AUDITED)

<TABLE>
<CAPTION>
                                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                                ------------------------------------------------------
                                              CUMULATIVE
                                            SINCE INCEPTION            2001                2000               1999
                                                                                                          Restated
                                                                                                        (see note 21)

<S>                                         <C>                 <C>                 <C>                 <C>

REVENUE

Sales                                            $2,493,510          $2,346,506            $20,382                $--
Royalties                                            25,000                  --             25,000                 --
                                            ----------------    ----------------    ---------------     --------------
                                                  2,518,510           2,346,506             45,382                 --

COST OF GOODS SOLD                                1,776,020           1,336,164             38,035                 --
                                            ----------------    ----------------    ---------------     --------------

GROSS MARGIN                                        742,490           1,010,342              7,347                 --
                                            ----------------    ----------------    ---------------     --------------

OPERATING EXPENSES

Research and development (note 13)               22,131,989           6,494,751         15,510,609             11,820
Selling, general and administration              45,813,852          13,195,024         28,904,722            408,124
Depreciation and Amortization                     2,349,116           1,599,330            728,449              3,351
Interest                                          2,884,610           1,239,061          1,014,917            450,476
Write-off of investment in subsidiary               930,000                  --                 --                 --
                                            ----------------    ----------------    ---------------     --------------
                                                 74,109,567          22,528,166         46,158,697            873,771

LOSS BEFORE INCOME TAXES                        (73,367,077)        (21,517,824)       (46,151,350)          (873,771)

Income taxes (note 17)                               17,264              17,264                 --                 --
                                            ----------------    ----------------    ---------------     --------------

NET LOSS                                        (73,384,341)        (21,535,088)       (46,151,350)          (873,771)
                                            ================    ================    ===============     ==============

Loss per share                                                            (0.22)             (0.83)             (0.03)
                                                                ================    ===============     ==============

Average common shares outstanding during
year                                                                 97,927,538         55,912,532         29,797,183
</TABLE>


The accompanying notes are an integral part of these consolidated financial
statements.


                                       45
<PAGE>

                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                       (AMOUNTS EXPRESSED IN U.S. DOLLARS)
                                    (AUDITED)

<TABLE>
<CAPTION>
                                                                                      FOR THE YEAR ENDED DECEMBER 31,
                                                                               --------------------------------------------
                                                               CUMULATIVE
                                                             SINCE INCEPTION         2001           2000            1999
                                                             ---------------   ------------    ------------   -------------
                                                                                                              Restated (see
                                                                                                                  note 21)
<S>                                                            <C>             <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Loss for the period                                          $(73,384,341)   $(21,535,088)   $(46,151,350)   $   (873,771)
  Items not requiring an outlay of cash
     Amortization of capital assets                               2,349,117       1,599,331         728,449           3,351
     Research and development included in acquisition            18,816,666       4,940,000      13,876,666              --
     Options issued to consultants                               30,458,318       5,856,156      24,406,254              --
     Options issued to employees with strike price below
       market price                                               2,064,183         309,533       1,754,650              --
     Common stock and options issued in payment of expenses       2,550,918       2,370,340         180,578              --
     Warrants issued                                                680,000         680,000              --              --
     Conversion feature on settlement of loans                      351,520              --         351,520              --
     Fair value of cashless warrants granted                        393,966              --         393,966              --
     Amortization of conversion feature on debentures               792,858          19,000          45,000         135,593
     Patent license fee                                              29,000              --          29,000              --
     Common stock issued on acquisition of patent license            19,500              --          19,500              --
     Exercise of stock options and warrants                         (22,337)             --         (22,337)             --
     Increase in warrants regarding prior period adjustments        160,541              --          57,000          77,355
     Write-off of investment in subsidiary                          930,000              --              --              --
     Patent license write-off                                       129,393              --         129,393              --
     Capital assets written off                                      31,059              --              --              --
     Net changes in non-cash working capital items related
       to operations
     Miscellaneous receivables                                     (873,104)       (787,127)        (79,657)         (5,019)
     Deferred taxes recoverable                                      (2,087)         (2,087)             --              --
     Prepaids and deposits                                         (709,213)       (302,353)         (2,941)        169,307
     Accounts payable                                             4,284,008       2,535,767         979,732         308,100
     Inventory                                                     (295,787)       (203,611)        (92,176)             --
                                                               ------------    ------------    ------------    ------------

NET CASH FLOWS FROM OPERATING ACTIVITIES                        (11,245,822)     (4,520,139)     (3,396,753)       (185,084)
                                                               ------------    ------------    ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES

  Loans payable                                                   1,295,004        (232,500)        975,000         161,189
  Proceeds of common stock issuance                              11,334,743       3,508,080       4,061,045          10,000
                                                               ------------    ------------    ------------    ------------

NET CASH FLOWS FROM FINANCING ACTIVITIES                         12,629,747       3,275,580       5,036,045         171,189
                                                               ------------    ------------    ------------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES

  Acquisition of capital assets                                    (536,532)       (298,931)       (178,474)          1,104
  Acquisition of intellectual property                              (30,937)             --         (30,937)             --
  Acquisition of equity investment                                  (16,050)             --         (16,050)             --
  Acquisition of subsidiary                                        (930,000)             --              --              --
                                                               ------------    ------------    ------------    ------------

NET CASH FLOWS FROM INVESTING ACTIVITIES                       $ (1,513,519)   $   (298,931)   $   (225,461)   $      1,104
                                                               ------------    ------------    ------------    ------------

</TABLE>



                                       46
<PAGE>

<TABLE>
<CAPTION>
                                                                                           FOR THE YEAR ENDED DECEMBER 31,
                                                                                 ---------------------------------------------------
                                                                 CUMULATIVE
                                                               SINCE INCEPTION        2001              2000             1999
                                                               ---------------   ----------------  ----------------  ---------------
                                                                                                                      Restated (see
                                                                                                                        note 21)

<S>                                                            <C>               <C>               <C>               <C>
  Effect of foreign currency exchange rate changes                    $364,573     $   324,611        $   39,962           $     --
                                                               ---------------   -------------     -------------     --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
   FOR THE PERIOD                                                      234,979      (1,218,879)        1,453,793            (12,791)
                                                               ---------------

     Cash and cash equivalents - beginning of period                                 1,453,858                65             12,856
                                                                                 -------------     -------------     --------------

CASH AND CASH EQUIVALENTS - End of Period                              234,979         234,979         1,453,858                 65

     Cash and Cash equivalents are comprised as follows:
       Cash                                                                            234,979           463,568                 65
       Short-term investments                                                               --           990,290                 --
                                                                                 -------------     -------------     --------------
CASH AND CASH EQUIVALENTS - END OF YEAR                                                234,979         1,453,858                 65
                                                                                 =============     =============     ==============

INCOME TAXES PAID                                                                           --                --                 --
                                                                                 =============     =============     ==============

INTEREST PAID                                                                               --                --                 --
                                                                                 =============     =============     ==============
</TABLE>


Note: See note 14 for supplemental information.
The accompanying notes are an integral part of these consolidated financial
statements.



                                       47
<PAGE>
                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
                       (AMOUNTS EXPRESSED IN U.S. DOLLARS)
                                    (AUDITED)

<TABLE>
<CAPTION>
                                                                                                       CUMULATIVE OTHER
                                                                      ADDITIONAL                        COMPREHENSIVE
                                           SHARES        AMOUNT     PAID IN CAPITAL      DEFICIT             GAIN
                                      -------------     --------    ---------------   -----------      ----------------
<S>                                      <C>             <C>        <C>               <C>              <C>


Balance at December 31, 1999             29,996,662       $3,000      $  4,790,925    $ (5,697,903)          $     --
Foreign currency transactions                    --           --                --              --             15,461
Loss for the period                              --           --                --     (46,151,350)                --
Exercise of stock options and
warrants                                 15,419,592        1,542         2,423,617              --                 --
Issued for cash                           3,961,090          396         1,235,490              --                 --
Debentures redeemed                       8,141,250          814           442,511              --                 --
Issued on acquisition of PowerLOC         3,650,000          365        13,876,301              --                 --
Issued on acquisition of patent
license                                     100,000           10            48,490              --                 --
Issued for other consideration            2,305,235          230           180,353              --
Patent acquisition                        8,700,000          870        19,782,630              --
Issued for WorldLink USA L.L.P.           3,700,000          370           429,130              --
Loan converted to stock                   2,000,000          200           499,800              --
Options issued to consultants                    --           --        24,383,917              --
Options issued for patent rights                 --           --         4,350,000              --                 --
Options issued to employees                      --           --         1,754,650              --                 --
Subscriptions receivable                         --           --        (9,240,000)             --                 --
Conversion feature on loan and
debentures                                       --           --           396,518              --                 --
Fair value of warrants exercised                 --           --           393,966              --                 --
Common stock payable                             --           --           568,000              --                 --

Balance at December 31,2000              77,973,829        7,797        66,316,298     (51,849,253)            15,461

Foreign currency transactions                    --           --                --              --            247,532
Loss for the period                              --           --                --     (21,535,088)                --
Exercise of stock options and
warrants                                  5,981,819          598            91,902              --                 --
Issued for cash                          18,839,457        1,884         3,458,093              --                 --
Subscriptions receivable                         --           --                --              --                 --
Issued on acquisition of NaftEL
assets                                    3,000,000          300         4,999,700              --                 --
Issued for WorldLink Acquisition          4,800,000          480              (480)             --                 --
Exchangeable Shares issued re:
PowerLOC acquisition                      1,248,750          125              (125)             --                 --
Warrant feature on debentures                    --           --           680,000              --                 --
Conversion Feature on Debentures                 --           --            19,000              --                 --
Options and Warrants to
Employees and Consultants                        --           --         6,165,689              --                 --
</TABLE>


                                       48
<PAGE>

<TABLE>
<CAPTION>

                                                                                                            CUMULATIVE OTHER
                                                                       ADDITIONAL PAID                       COMPREHENSIVE
                                           SHARES        AMOUNT          IN CAPITAL         DEFICIT              GAIN
                                         ----------     --------      ----------------   ------------     ------------------
<S>                                      <C>               <C>         <C>                     <C>         <C>
Issued in payment of expenses            11,391,462        1,139         2,368,596              --                 --
Promissory note re: PowerLOC
purchase                                         --           --        (1,360,000)             --                 --
Loan converted to stock                   2,484,887          249           144,986              --                 --
Issued for other consideration            2,031,206          203           226,908              --                 --

Balance at December 31, 2001            127,751,410      $12,775       $83,110,567        $(73,384,341)      $262,993
</TABLE>



                                       49
<PAGE>
                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                        (A DEVELOPMENT STAGE ENTERPRISE)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 2001, 2000 AND 1999
                       (AMOUNTS EXPRESSED IN U.S. DOLLARS)
                                    (AUDITED)

1.       BUSINESS OVERVIEW

         Paradigm Advanced Technologies, Inc. (the "Company") is a technology
         development company incorporated in Delaware on January 12, 1996. Our
         Company designs, develops, manufactures and markets software and
         hardware using state of the art technologies that allows for real time
         delivery of information regarding the location of a person or an asset
         for the purposes of tracking the person or asset or assisting them in
         navigation. As such, we provide enabling technologies used to provide
         supply location-based services; primarily in the areas of tracking,
         security, navigation, communications and information devices and
         software, most of which are enabled by Global Positioning System (GPS)
         technology.

         We design, develop, manufacture and market a diverse family of products
         that use GPS for the purposes of tracking, security, navigation,
         communications and general information purposes. Each of our location
         based products utilizes our proprietary combined circuit and receiver
         designed to collect, calculate and display and communicate a person's
         or asset's location, direction, speed and other information in a
         variety of formats depending upon the specific consumer requirements.

         We offer a number of tracking, security, navigation, communications and
         information products, including servers capable of tracking large
         numbers of assets, tracking and security based software, a variety of
         devices that are installed on the assets and communicate information as
         to the geographical location of the asset, handheld navigation devices
         and navigation software that provides the user with street maps and
         points of interest.

         Our products are sold internationally through a network of master
         distributors serving wholesalers, retailers and dealers as well as
         through original equipment manufacturers for the navigation products
         and software. The demand for our products and our sales continue to
         grow as we develop greater brand and product recognition.

         In addition, our intellectual property assets include patents,
         copyrighted materials, trademarks and trade secret laws, as well as
         confidentiality agreements, to establish and protect our proprietary
         rights. Our primary intellectual property asset is a patent that covers
         the process of combining GPS locating technology and the transmission
         of the geographic location of objects or people using cellular
         telephone technology to a remote unit which allows for the
         identification of their location by a base station which may be, for
         example, a response center or any computer that is capable of
         displaying the location of the remote unit. In addition, we own a
         variety of other patents that relate to navigation-based applications
         and are in the process of patenting the proprietary compression



                                       50
<PAGE>

         technology that is used in our Destinator navigation based product.
         Included in this portfolio are: map compression and optimization
         algorithms, routing and maneuvering algorithms, map attachment
         algorithms as well as multi-user on-board vehicle display systems.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         a)       Use of estimates

         These consolidated financial statement have been prepared in accordance
         with generally accepted accounting principles in the United Stated of
         America. Because a precise determination of assets and liabilities, and
         correspondingly revenues and expenses, depend on future events, the
         preparation of consolidated financial statements for any period
         necessarily involves the use of estimates and assumptions. Actual
         amounts may differ from these estimates. These consolidated 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 accounts of
         the Company and its wholly owned subsidiaries. All significant
         inter-company accounts and transactions have been eliminated.
         Consolidation commenced with the effective dates of the acquisition of
         the operations of the wholly owned subsidiaries and these consolidated
         financial statements include the financial results of the wholly owned
         subsidiaries to December 31, 2001.

         c)       Cash and Cash Equivalents

         Cash and cash equivalents consist of cash balances with banks and
         short-term investments with maturities of less than three months.

         d)       Capital assets

         Capital Assets are recorded at cost less accumulated depreciation.
         Depreciation is provided using the following annual rates:

         Furniture and Fixture        20% - declining balance method
         Computer Equipment           30% - declining balance method
         Computer software            50% - straight-line method
         Leasehold improvements       over the initial term of the lease

         e)       Intellectual Property

         Intellectual property is recorded at cost less accumulated
         amortization. Amortization is provided over their estimated useful
         lives. Patent Rights are amortized over 10 years using the
         straight-line method. It is the Company's policy to assess periodically
         the




                                       51
<PAGE>

         carrying amount of the intellectual property to determine if there has
         been an impairment to their carrying value. Impairments of intellectual
         property are determined in accordance with Statement of Accounting
         Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
         and for Long-Lived Assets to Be Disposed Of" ("SFAS No.121")

         f)       Investments

         The Company has a 50% non-controlling investment in a private company,
         which is accounted for using the equity method of accounting. Under the
         equity method, the pro-rata share of the investee's earnings since
         acquisition is recorded as income and added to the carrying value of
         the investment shown on the balance sheet. Dividends received are
         considered a return of capital and are accordingly deducted from the
         carrying value of the investment. 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, accounts receivable,
         accounts payable and loans payable approximates fair value at the
         period end.

         h)       Foreign Currency Translation

         Wholly owned subsidiaries of the Company maintain their books and
         records in Canadian dollars and New Israeli Shekels. Foreign currency
         transactions are reflected using the temporal method. Under this
         method, all monetary items are translated into the functional currency
         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 consolidated financial statements of these
         wholly owned subsidiaries from their functional currencies 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 foreign amounts could have been or
         could be realized at the conversion rates. Adjustments resulting from
         the translation are included in cumulative other comprehensive income
         in stockholders' equity.

         i)       Loss per Share

         The Company has adopted Financial Accounting Standards No. 128,
         "Earnings per Share" ("SFAS 128"). SFAS 128 requires presentation of
         basic and diluted earnings or loss per share. The Company has
         potentially dilutive shares, but, because the Company has a loss, the
         potentially dilutive shares are deemed anti-dilutive and only the basic
         loss




                                       52
<PAGE>

         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

         The Company accounts for income taxes under the provisions of Statement
         of Financial Accounting Standards ("SFAS") No. 109, " Accounting for
         Income Taxes," which requires recognition of deferred tax assets and
         liabilities for the future tax consequences of events that have been
         include in the consolidated financial statements or tax returns.
         Deferred income taxes are provided using the liability method. Under
         the liability method, deferred income taxes are recognized for all
         significant temporary differences between the tax and financial
         statement bases of assets and liabilities.

         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
         assets 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.

         k)       Stock-based compensation plan

         In December 1995, SFAS No. 123, "Accounting for Stock-Based
         Compensation" was issued. It introduced 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.

<TABLE>
<CAPTION>
                                                                             FOR YEAR ENDED DECEMBER 31,
                                                                        -------------------------------------
                                                                           2001                      2000
                                                                        ----------               -----------
                  <S>                                                   <C>                      <C>
                  Net loss applicable to common shares:
                           Reported                                    (21,535,088)              (46,151,350)
                           Pro-forma                                   (25,203,482)              (60,803,431)

                  Basic loss per common share:
                           Reported                                          (0.22)                    (0.83)
                           Pro-forma                                         (0.26)                    (1.09)
</TABLE>


         l)       Research and Development



                                       53
<PAGE>

         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

         Revenues from the sale of products, and licenses for the rights to use
         and sell those products, are recognized upon shipment of the goods and
         the passage of title to the customer and where collection is reasonably
         assured.

         Software revenue is recognized upon delivery and acceptance by the
         customer and in accordance with Statement of Position Number 97-2 (SOP
         97-2).

         Patent royalty fees are recognized as income over the term of the
         applicable licenses.

         n)       Comprehensive income

         The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
         This standard requires companies to disclose comprehensive income in
         their consolidated 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.

         o)       Government assistance

         Government assistance towards research and development expenditures has
         been received as grants from National Research Council Canada,
         Industrial Research Assistance Program and in the form of investment
         tax credits. All assistance is credited against the related
         expenditures, when received.

         p)       Inventory

         Inventories are valued at the lower of cost, calculated on an average
         cost basis, or market determined by the selling price less a normal
         gross margin.

         q)       Long-Lived assets

         The Company has adopted the provisions of SFAS No. 121, "Accounting for
         the Impairment of Long-Lived Assets and for Long-Lived Assets to be
         Disposed of". SFAS No. 121 requires that long-lived assets to be held
         and used by an entity be reviewed for impairment whenever events or
         changes in circumstances indicate that the carrying amount of an asset
         may not be recoverable. Management used its best estimate of the
         undiscounted cash flows to evaluate the carrying amount and has
         determined that no impairment has occurred.

         r)       Concentration of Credit Risks

         The Company's receivables are unsecured and are generally due in 30
         days. The




                                       54
<PAGE>

         Company's customers are primarily purchasers of navigation and location
         devices. As of December 31, 2001, two major customers combined
         comprised 36% of the company's revenues. The combined receivables
         balance for these 2 customers is $447,088. As revenues and the number
         of customers increase, the risk from concentration of credit will
         likely decrease.

         s)       Recent Pronouncements

         In April 2001, the EITF reached a consensus with respect to EITF Issue
         No. 00-25, "Vendor Income Statement Characterization of Consideration
         to a Purchaser of the Vendor's Products or Services." The consensus
         included a conclusion that consideration from a vendor to a retailer is
         presumed to be a reduction to the selling prices of the vendor's
         products and, therefore, should be characterized as a reduction of
         revenue when recognized in the vendor's income statement. That
         presumption can be overcome, and the consideration may be characterized
         as a cost, if certain conditions are met. Such reclassification will
         reduce sales and gross margin, but will have no impact on operating
         income or net earnings. The Company is currently evaluating the impact
         of adoption of this EITF consensus.

         In June 2001, the Financial Accounting Standards Board, or FASB, issued
         Statement of Financial Accounting Standards, or SFAS, No. 141,
         "Business Combinations," and SFAS No. 142, "Goodwill and Other
         Intangible Assets." SFAS No. 141 requires that the purchase method of
         accounting be used for all business combinations initiated after June
         30, 2001and no longer permits the use of the pooling-of-interests
         method. SFAS No. 142 requires that amortization of goodwill cease and
         the carrying value of goodwill be evaluated for impairment at least
         annually using a fair value test. Identifiable intangible assets will
         continue to be amortized over their useful lives and reviewed at least
         annually for impairment using a method appropriate to the nature of the
         intangible asset. We adopted SFAS No. 141 and SFAS No. 142. We do not
         expect our adoption of SFAS No. 141 or SFAS No. 142 to have a material
         impact on our financial position or results of operations.

         In August 2001, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standard No. 143, "Accounting for
         Asset Retirement Obligation" (SFAS No. 143). SFAS No. 143 is effective
         for fiscal years beginning after June 15, 2002, and will require
         companies to record a liability for asset retirement obligations in the
         period for which they are incurred, which typically could be upon
         completion or shortly thereafter. The FASB decided to limit the scope
         to legal obligation and the liability will be recorded at fair value.
         The effect of adoption of this standard on the Company's results of



                                       55
<PAGE>

         operations and financial position will be evaluated.

         On October 2001, the Financial Accounting Standards Board issued
         Statement of Financial Accounting Standard No. 144. "Accounting for the
         Impairment or Disposal of Long-Lived Assets" (SFAS No. 144). SFAS No.
         144 is effective for fiscal years beginning after December 15, 2001. It
         provides a single accounting model for long-lived assets to be disposed
         of and replaces SFAS No. 121 "Accounting for the Impairment of
         Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The effect
         of adoption of this standard on our results of operations and financial
         positions is being evaluated.

3.       GOING CONCERN

         The Company is in the initial stages of developing its market, has been
         selling products and service since March of 2001, and has not yet
         achieved profitability. The Company has incurred losses since its
         incorporation in 1996 and has a working capital deficiency of
         $2,497,505 at December 31, 2001. 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 from January 1, 2001 to
         December 31, 2001, the Company raised approximately $3,500,000 through
         the exercising of stock options and warrants and through the issuance
         of common shares for cash. As the sale of the Company's products
         increases, the resulting positive cash flow will contribute to the
         financing of the business.

4.       CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                              DECEMBER 31,           DECEMBER 31,
                                                                 2001                   2000
                                                          -----------------       ----------------
              <S>                                         <C>                      <C>
              Furniture, fixtures and computers                   $ 604,570               $199,639
              Less:  accumulated depreciation                      (136,011)               (32,544)
                                                          -----------------        ---------------
                                                                  $ 468,559               $167,095
                                                          ==================       ================
</TABLE>


5.       INTELLECTUAL PROPERTY

<TABLE>
<CAPTION>
                                                            DECEMBER 31,            DECEMBER 31,
                                                               2001                     2000
                                                          ----------------        ----------------
              <S>                                         <C>                      <C>
              Patent Rights                                     $14,954,437            $14,924,437
              Less:  accumulated amortization                    (2,179,043)              (684,037)
                                                          -----------------        ---------------
                                                                $12,775,394            $14,240,400
                                                          =================        ===============
</TABLE>



         Patent Rights - During the year ended December 31, 2000 the Company
         issued 4,500,000 common shares, valued at $10,543,500 to acquire the
         licensing rights to US Patent # B1



                                       56
<PAGE>

         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. As at December 31, 2001, the
         vendor has not required the escrow agent to sell any shares.

         On January 10, 2002, the Company and the vendor entered into an
         amending agreement whereby the terms with respect to the sale of shares
         by the escrow agent have been modified. Under the terms of the amending
         agreement, upon the sale of the shares by the escrow agent, the escrow
         agent will remit the first $18,748 to the vendor and then the Company
         and the vendor will split $791,000 based on a 25/75 split assuming a
         share price in excess of $0.21/share and a 15/85 split if the share
         prices is less than $0.21/share and following recovery of that amount
         it will remit to the Company from the proceeds at a price per share of
         $0.75/share to $1.59/share.

         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 and the following
         assumptions:

<TABLE>
                     <S>                                             <C>
                     Risk-free interest rate                         6.7%
                     Dividend yield                                  0%
                     Expected life                                   4 years
                     Stock price volatility                          100%
</TABLE>


         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 was written off in the year ended December 31, 2000,
         resulting in a charge to earnings of $129,393.

         In February, 2001, as part of the acquisition of the assets of NaftEL
         (see note 11), the Company acquired six patents to which it allocated a
         value of $30,000.

6.       ACCOUNTS PAYABLE

         Accounts Payable and Accrued Liabilities are broken out as follows:

<TABLE>
<CAPTION>
                                                                      DECEMBER               DECEMBER
                                                                      31, 2001               31, 2000
                                                                    --------------        ------------

                  <S>                                               <C>                   <C>
                  Trade Payables                                          $752,990            $776,534
                  Accrued Liabilities                                    3,268,519             964,481
                                                                    --------------        ------------
                                                                        $4,021,509          $1,741,015
                                                                    ==============        ============
</TABLE>



                                       57
<PAGE>
         The accrued liabilities outstanding include $2,359,754 of accrued
         charges stemming from commitments before December 31, 2001 to issue
         shares at below fair market value after the year-end (note 9).

         The accrued liabilities outstanding also include a loan for $225,000
         that was converted to shares delivered in the first quarter of 2002.

7.       LOANS PAYABLE

         Loans payable are payable on demand, secured by a pledge over all the
         assets of the Company and bear interest at a rate of prime plus 4%.
         Accounts payable and accrued liabilities at December 31, 2001 includes
         $116,938 of interest accrued on these loans.

         The terms of repayment for the loan to a Corporation that is related to
         David Ghermezian, a director of the Company,  is:

         $250,000 on January 31, 2001; and
         225,000 plus accrued interest, on July 31, 2001

         This loan was repaid partly in cash and partly by the commitment to
         issue common stock during the year ended December 31, 2001. (See note 6
         and note 9.)

<TABLE>
<CAPTION>
                                                                     2001                     2000
                                                                    -------                 -------

           <S>                                                      <C>                     <C>
           Total loans payable                                      150,500                 671,653
           Loan owing to a corporation owned by a Director                0                 475,000

</TABLE>

8.       PROMISSORY NOTE PAYABLE

         In connection with the acquisition of PowerLOC Technologies (see note
         11), on August 20, 2001 the Company issued a promissory note to the
         original shareholders of PowerLOC for $1,360,000. Under the terms of
         the original agreement, the Company agreed to provide two of the three
         original PowerLOC shareholders (Eduardo Guendelman and Watson &
         Associates International Corp, which is also a consultant to the
         Company) with 3.65 million common shares of the Company as well as
         warrants and options in exchange for the PowerLOC acquisition. With
         respect to the shares issued, 25% of the shares vested at the end of
         each quarter following the closing of the transaction. The third
         original shareholder elected to accept common shares of a division of
         the Company convertible into common shares of the Company as the entire
         compensation for his role in PowerLOC transaction. Under the terms of
         the original agreement, if the vested shares were not free trading, or
         capable of becoming free trading, and/or their total value was less
         than $500,000 in each quarter ($2.0 million in total), the Company was
         obligated to "top-up" the shares by making a cash payment to those
         PowerLOC shareholders. The Company's obligation with respect to
         ensuring that the




                                       58
<PAGE>

         PowerLOC shareholders received $2,000,000 compensation was to be
         provided within the first year anniversary on a quarter-by-quarter
         basis. The amount of $640,000 was advanced to the two PowerLOC
         shareholders mentioned above in $320,000 increments on June 20, 2000
         and November 29, 2000. On August 20, 2001, the Company and these two
         PowerLOC shareholders executed a document ("the indebtedness letter")
         in which the shareholders agreed to formally postpone the payment of
         the indebtedness of the $1,360,000 (which is the balance between the $2
         million less the amount of the initial advances) for an additional
         period of time. Pursuant to the provisions of the indebtedness letter,
         upon receipt of the cash, the two PowerLOC shareholders undertook to
         return the proportionate share of the common shares originally issued
         to them in exchange for the cash paid. In addition, the Company agreed
         to provide those two PowerLOC shareholders with a 2-year promissory
         note commencing August 20, 2001, interest free and secured by a pledge
         over all the assets of the Company. Of the $1,360,000 still owed to
         these shareholders, $85,000 is owed to an officer and director of the
         Company and the balance to Watson.

         The Company issued 1,200,000 warrants to a PowerLOC shareholder at a
         strike price of $0.05 for postponement of the monies owing in respect
         of the PowerLOC transaction.

9.       RELATED PARTY TRANSACTIONS

         In February 2001, 2,000,000 restricted shares were issued through the
         conversion of a promissory note of $47,867 from David Kerzner a former
         officer and director of the Company, resulting in a charge to the
         income statement of approximately $18,000.

         On August 2, 2001 600,000 restricted shares were issued to Eduardo
         Guendelman at below fair market value in settlement of consulting fees
         valued at $90,000, resulting in an additional charge to the income
         statement of $23,100.

         The Company issued 1,200,000 options to Eduardo Guendelman at a strike
         price of $0.05 for consulting fees and postponement of the debt monies
         owing in respect of the PowerLOC transaction, resulting in an
         additional charge to the income statement of $204,000.

         On August 25, 2001, Eduardo Guendelman entered into a private placement
         transaction to acquire 1,031,031 restricted shares and 2,062,062
         warrants for consideration of $113,413.

         On August 25, 2001, David Kerzner entered into a private placement
         transaction to acquire 1,241,157 restricted shares and 2,482,314
         warrants for consideration of $136,587.

         All of the above warrants issued to Eduardo Guendelman and David
         Kerzner for each of the August 25, 2001 private placements have an
         exercise price of $ 0.15 and expire on August 29, 2004, resulting in a
         charge to the income statement of $227,219.

         On September 21, 2001 10,000,000 options were issued to Eduardo
         Guendelman at an exercise price of $ 0.05. In addition, 10,000,000
         options at a strike price of $0.66 owned by Eduardo Guendelman were
         cancelled and 5,000,000 options were issued at a strike




                                       59
<PAGE>

         price of $ 0.05, resulting in a charge to the income statement of
         $1,740,000. The options vested immediately. The Board of Directors
         agreed to issue the new options in recognition of the Mr. Guendelman's
         contribution to the Company, his participation in the development of
         future products and revenues, postponement of payment of the
         indebtedness with respect to the sale of the PowerLOC shares to the
         Company, his assistance in the acquisition of the NaftEL assets,
         assistance in the formation of the Company's Israeli based research and
         development company, GPSoft Ltd., postponement of payment of part of
         his quarterly bonuses and other strategic assistance to the Company.
         The options were issued to Eduardo Guendelman and to members of his
         family including a family trust. The options expire 3 years from
         vesting date.

         On September 21, 2001, 4,000,000 options at a strike price of $0.40
         were issued to David Kerzner. Of these, 1,000,000 options vest every 3
         months and have an expiry date of 3 years. This did not result in any
         charge to the income statement.

         On September 24, 2001, 2,640,670 restricted shares were committed to be
         issued as a result of the conversion by a company (which is related to
         David Ghermezian) of a loan of $225,000 (December 31, 2000 - $475,000)
         plus accrued interest of $66,833 based on a price of $0.11 per share
         (note 6 and note 7). In addition, 5,281,340 warrants were issued at an
         exercise price of $0.15 that are convertible into common shares at any
         time prior to September 24, 2004.

         During the year, the Company cancelled 20,000,000 options at prices
         ranging from $1.75 to $4.00 held by a company related to David
         Ghermezian. Six million warrants were reissued at a strike price of
         $0.40. These warrants expire October 2004.

         The fair value of the options and warrants granted or re-priced were
         estimated at $1,743,000 on the date of grant or re-pricing, using the
         Black-Scholes pricing model using the following assumptions

<TABLE>
                     <S>                                                  <C>
                     Risk-free interest rate                              3.0%-4.6%
                     Dividend yield                                       0%
                     Expected life                                        3-5 years
                     Stock price volatility                               100%
</TABLE>


         On October 20, 2001, the Company agreed to issue 2,000,000 restricted
         shares to Ron Yekutiel, a Paradigm Vice President and General Manager
         of the Company's GPSoft subsidiary and the Destinator Division, worth a
         total of $442,000, and 1,000,000 restricted shares to Shay David, the
         Manager of Business Development of the Company's Destinator Division,
         worth a total of $221,000. The Board of Directors agreed to issue
         these shares in recognition of their contributions to GPSoft Ltd.,
         their experience in navigation technologies, their assistance in the
         acquisition of the NaftEL assets, their participation in the
         development of future Destinator products and revenues their three
         year commitment to the Destinator division. Ron Yekutiel is the
         nephew of Eduardo Guendelman. Fifty percent of these amounts were
         charged to the income statement in 2001.

         During the year, the Company committed to issue 150,000 restricted
         common shares to Gordon Sharwood and also issued 400,000 options to
         him. These options vested quarterly commencing January 1, 2002, and
         were issued at a strike price of $0.16, expiring in 3 years. The
         options resulted in a charge to the income statement of $36,000 in
         2001.



                                       60
<PAGE>

         Any restricted shares issued by the Company may not be sold on the
         public market until a registration statement that has been filed with
         the Securities and Exchange Commission with respect to these shares has
         become effective or pursuant to Rule 144. For the financial impact of
         the cost of the issuance of restricted shares, the Company assumes a
         35% discount from Fair Market Value on the date of issuance.

10.      CAPITAL STOCK

         On July 5, 2001, the shareholders approved an increase in the
         authorized capital stock from 100,000,000 shares of Common Stock to
         250,000,000 shares of Common Stock.

         The Company has entered into a $10,750,000 equity financing facility
         with an investment group. Under the terms of this facility $750,000 was
         invested in the third quarter, through the issue of restricted shares,
         while the remaining $10,000,000 equity financing facility is at the
         option of the Company and is conditional on the effectiveness of a
         registration statement that the Company will file with the Securities
         and Exchange Commission. The equity financing facility will allow the
         Company to sell, at its discretion, up to $10 million worth of common
         shares of Paradigm's stock to the investor group until August 20, 2003.
         The Company was obligated to ensure that the registration statement was
         effective by February 20, 2002 or pay a penalty of $75,000 to the
         investment group. The Company has not yet filed an effective
         registration statement and is, therefore, obligated to pay the amount
         of the penalty to the investment group.

         The following table summarizes activity under the Company's stock
         option plan:


<TABLE>
<CAPTION>
                                                                  NUMBER OF                        WEIGHTED AVERAGE
                                                                   OPTIONS       PRICE PER SHARE    EXERCISE PRICE
                                                                 -----------     ---------------   ----------------

         <S>                                                      <C>            <C>               <C>
         Options outstanding, December 31, 1998                    9,803,201     $0.05 - $ 0.40          $0.06
         - Options granted                                        13,235,000     $0.01 - $ 0.08          $0.05

         Options outstanding, December 31, 1999                   23,038,201     $0.01 - $ 0.40          $0.06
         - Options granted                                        31,725,666     $0.05 - $12.50          $1.58
         - Options expired                                          (668,334)    $0.05 - $ 3.00          $0.87
         - Options exercised                                      (5,613,867)    $0.01 - $ 2.00          $0.06

         - Options outstanding, December 31, 2000                 48,481,666     $0.05 - $12.50          $1.04
         - Options granted                                        47,548,695     $0.05 - $ 4.00          $0.64
         - Options cancelled                                     (34,149,000)    $0.40 - $ 4.00          $1.64
         - Options expired                                        (4,021,666)    $0.25 - $ 4.00          $1.09
         - Options exercised                                      (6,350,000)    $0.05 - $ 0.08          $0.05

         Options outstanding, December 31, 2001                   51,509,695     $0.05 - $12.50          $0.40
</TABLE>

         The following table summarizes significant ranges of outstanding and
         exercisable options at December 31, 2001:





                                       61
<PAGE>

<TABLE>
<CAPTION>
                                                       OPTIONS OUTSTANDING                OPTIONS EXERCISABLE
                                                 --------------------------------      -----------------------------
                                   WEIGHTED         AVERAGE          WEIGHTED                           WEIGHTED
           RANGES OF EXERCISE      NUMBER OF     REMAINING LIFE        AVERAGE         NUMBER OF         AVERAGE
                 PRICES             OPTIONS         IN YEARS       EXERCISE PRICE       OPTIONS       EXERCISE PRICE
           ------------------      -----------   --------------    --------------      ---------      --------------

             <S>                   <C>            <C>              <C>                 <C>             <C>
            $0.05 - $ 0.36          41,039,028         2.5              $0.09          26,645,395         $0.07
            $0.40 - $ 1.03           7,555,667         2.4              $0.55           4,333,333         $0.63
            $1.16 - $ 2.50           1,025,000         3.6              $1.38             975,000         $1.35
            $3.50 - $12.50           1,440,000         2.7              $7.90             840,000         $5.68
                                     ---------         ---              -----             -------         -----
                                    51,059,695         2.6              $0.40          32,793,728         $0.32
</TABLE>

         The following warrants were outstanding at December 31, 2001:

<TABLE>
<CAPTION>
                  EXPIRY DATE                        PRICE RANGE                        NUMBER OF WARRANTS
                  <S>                               <C>                                 <C>
                     2002                           $0.05 - $0.25                            7,259,000
                     2003                           $0.04 - $2.50                            8,978,667
                     2004                           $0.05 - $1.00                           27,764,800
                     2005                           $0.20 - $2.75                            5,548,334
                     2006                           $0.20 - $0.45                           10,900,000
                     2008                           $1.00 - $9.00                           10,000,000
                     2010                               $1.00                               12,500,000

         Total warrants outstanding                                                         82,950,801
</TABLE>
         Employee Stock Option Plan

         The consolidated financial statements include a compensation charge of
         $84,312 for year ended December 31, 2001 (2000 - $1,754,650) resulting
         from employee stock options issued below market value at the grant
         dates.

         The 1996 stock option plan provides for the grant of incentive stock
         options for the purchase of the Company's common stock to officers,
         directors, employees and consultants of the Company or any subsidiary
         corporation. The total number of shares which may be issued under the
         plan is 10,000,000. A committee, appointed by the board of directors,
         administers the plan. The committee sets the price at which the option
         is granted, the dates on which it shall be exercisable and the
         expiration date.

         The company is in the process of filing a prospectus for its 2001 stock
         option plan. The 2001 stock option plan provides for the grant of
         incentive stock options for the purchase of the Company's shares of
         Common Stock to officers, directors, members of the advisory board,
         employees and consultants of the Company or any subsidiary corporation.
         The total number of shares that may be issued under the plan is
         40,000,000. A committee, appointed by the board of directors,
         administers the plan. The committee sets the price at which the option
         is granted, the dates on which it shall be exercisable and the
         expiration date. The 2001 stock option plan has been approved in
         principle by the Board of Directors and should be filed shortly. It is
         subject to ratification by the shareholders of the Company.

         Consultants' Stock, Options and Warrants



                                       62
<PAGE>

         The Company issued 2,580,000 shares of common stock to Watson, a
         consulting company at a price of $0.15 per share for payment of
         commissions due in the amount of $486,330 for consulting services
         relating to mobile unit design and production, tracking software
         application design and development, strategic marketing advice
         including market research and financial services including locating
         potential customers and investors for the Company in specific regions.
         The Company also entered into an agreement with Watson to issue 300,000
         common shares per month for 2001 as additional consulting fees in the
         amount of $1,194,267 relating to the above services. In addition, the
         Company issued to Watson 5,160,000 warrants at a strike price of $0.42
         per share of common stock for these services. Subsequent to the end of
         the quarter, these warrants were re-priced to a strike price of $0.05
         per share for their contribution. The Black-Scholes valuation of these
         warrants is $1,341,600. Watson and Associates is a corporate entity
         controlled by a cousin to an officer and director of the Company.

         In addition the Company issued 5,516,667 warrants to a number of
         consultants at market price on the day of issue. The fair value of
         these options was estimated using the Black-Scholes model with the
         following weighted average assumptions.

<TABLE>
                     <S>                                                  <C>
                     Risk-free interest rate                              4.10%
                     Dividend yield                                       0%
                     Expected life                                        4 years
                     Stock price volatility                               100%
</TABLE>

         This resulted in a charge to the income statement of $1,278,556.

         In addition, the Company issued 610,000 shares of common stock to one
         of its former law firms at a price of $0.40 per share in payment of
         legal services rendered in the amount of $243,750.

         The above transactions were all non-related party transactions.

11.      BUSINESS ACQUISITIONS

         a)       NaftEL acquisition

         In February 2001 the Company entered into an asset purchase agreement
         to purchase all of the assets of an Israeli company, NaftEL
         Technologies Ltd. ("NaftEL"). NaftEL is engaged in the development,
         manufacturing and marketing of interactive navigational and fleet
         management devices, including, a map compression format, and owns
         certain intellectual property rights pertaining thereto. The Company
         will account for this acquisition using the purchase method.
         Consideration given was as follows:

<TABLE>
         <S>                                                                      <C>
         Issuance of 3,000,000 common shares @ $1.66                                         $5,000,000
         The purchase price has been allocated as follows:
         Capital assets                                                                          30,000
         Patents                                                                                 30,000
         Research and development expenses                                                    4,940,000
                                                                                   --------------------
                                                                                              5,000,000
</TABLE>



                                       63
<PAGE>


         Included in the assets acquired was software and technology for the
         interactive navigational and fleet management devices, including a map
         compression format and intellectual property rights pertaining thereto.
         These development costs were allocated to research and development
         expenses in terms of FAS 2 (Accounting for Research and Development
         Costs).

         The agreement provides for additional consideration as follows:

o        When 3,000,000 common shares above, or part thereof, become free
         trading or eligible for registration, should the market value of those
         shares at that time not be at least $1.66 each, up to a maximum of
         2,000,000 additional common shares will be issued in order to, when
         combined with the 3,000,000 common shares issued, bring the total
         market value of the consideration to $5,000,000.

o        10,000,000 warrants for common shares are held in escrow for the
         vendors and are subject to a vesting schedule, based on the Company
         achieving specified progressive revenue targets, ranging from
         $1,000,000 to $5,000,000, from the commercialization of the purchased
         assets. The exercise prices of the warrants range from $1 to $9, based
         on the revenue targets achieved.

         b)       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 products, 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
           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).

         The shares of the acquired companies have been pledged as security for
         the performance of the Company under the terms of the agreement.



                                       64
<PAGE>

         The fair value of the options granted was estimated on the date of
         grant using the Black-Scholes pricing model using the following
         assumptions:

<TABLE>
              <S>                                                                        <C>
              Risk-free interest rate                                                       6.7%
              Dividend yield                                                                  0%
              Expected life                                                              3 years
              Stock price volatility                                                        100%
</TABLE>

         Under the terms of the original agreement, the Company agreed to
         provide the original PowerLOC shareholders (comprising Eduardo
         Guendelman and Watson & Associates International Corp.) with common
         shares of the Company at the end of each quarter following the closing
         of the transaction. In the event that the value of the shares provided
         was less than $500,000, the Company was obligated to "top-up" the
         shares by making a cash payment to those PowerLOC shareholders. The
         third party (Harry Zarek in trust) elected to accept common shares of
         the Company as the entire compensation for his role in PowerLOC
         transaction. The amount of $640,000 was advanced to the Eduardo
         Guendelman and Watson & Associates. Originally the $640,000 was paid as
         an advance and treated as a reduction in capital. The repayment of this
         loan was to be contingent upon future share price fluctuations of the
         value of the 3,650,000 common shares issued as above.

         On August 20, 2001, the Company and Eduardo Guendelman and Watson &
         Associates agreed to clarify the terms of the original agreement by the
         Company agreeing that it was obligated to provide those PowerLOC
         shareholders with the balance of moneys not previously paid ($1.36
         million) and the shareholders agreeing to return a portion of the
         shares previously issued to them. The Company agreed to provide those
         shareholders with a promissory note. The note has a 2 year term,
         (commencing August 20, 2001) is interest free and is secured by a
         pledge over all the assets of the Company. Of this loan, $85,000 was
         owing to Eduardo Guendelman and the balance to Watson & Associates.
         Watson & Associates is a Bahamas corporation that is owned and
         controlled by Lily Berlin, a cousin of Eduardo Guendelman.

         c)       WorldLink acquisition

         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 seek out companies
         with technologies in which WorldLink can make appropriate investments.
         As part of the Agreement, the Company and Pangea agreed as follows:

         i)       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, issued to WorldLink. Of the
                  7,500,000 common shares issued, 2,700,000 were issued in 2000
                  and 4,800,000 were issued in 2001. 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.



                                       65
<PAGE>

         ii)      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.

         iii)     The Company issued 1,000,000 common shares, valued at $35,000,
                  in payment of professional and consulting fees.

         iv)      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:

<TABLE>
         <S>                                                                 <C>
         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
</TABLE>

         The fair value of the options granted was estimated on the date of
         grant using the Black-Scholes pricing model using the following
         assumptions:

<TABLE>
         <S>                                                             <C>
         Risk-free interest rate                                         6.6%
         Dividend yield                                                  0%
         Expected life                                                   10 years
         Stock price volatility                                          100%
</TABLE>

12.      LEGAL PROCEEDINGS

         Legal proceedings have been threatened against the Company by an
         individual claiming an entitlement to 400,000 shares for services
         rendered to the Company. Additionally, legal proceedings have been
         threatened against the company by an individual claiming an entitlement
         to 625,000 shares as a result of monies allegedly invested in the
         Company. The Company believes that these claims are without merit and
         intends to vigorously defend any lawsuits filed against the Company in
         connection with these claims. It is neither possible at this time to
         predict the outcome of any lawsuit, including whether the Company will
         be forced to issue shares, or to estimate the amount or range of
         potential loss, if any.

13.      GOVERNMENT ASSISTANCE

         Under an agreement with National Research Council Canada, Industrial
         Research Assistance Program, Precommercialization Assistance of
         $323,000 was received for




                                       66
<PAGE>

         research and development. This contribution will be repayable in the
         form of a royalty of 1% of gross revenues for the year ending December
         31, 2004, and is limited to a maximum of $467,000. If the full amount
         of the assistance is not repaid at January 1, 2005 the royalty
         continues until the earlier of full repayment, or for ten years.

         Under a second agreement, an additional $263,968 was approved. This
         contribution will also be repayable in the form of a royalty of 1% of
         gross revenues for the year ending December 31, 2005, and is limited to
         a maximum of $396,000. If the full amount of the assistance is not
         repaid at October 1, 2005 the royalty continues until the earlier of
         full repayment, or for ten years.

         No amounts have been accrued with regard to these projects as the
         conditions for repayment have not yet been met.

         Government assistance has been applied to reduce research and
         development expense as follows:

<TABLE>
<CAPTION>
                                                          2001                     2000                  1999
                                                       ----------              ------------            --------

         <S>                                           <C>                      <C>                    <C>
         Research and development                      $6,790,231               $15,594,713            $11,820
         Government assistance                           (295,480)                  (84,104)                 0
                                                        6,494,751                15,510,609             11,820
</TABLE>


14.      SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

         Non-monetary transactions:

<TABLE>
<CAPTION>
                                                                   FOR THE YEAR ENDED      FOR THE YEAR ENDED     FOR THE YEAR ENDED
                                                                   DECEMBER 31, 2001       DECEMBER 31, 2000      DECEMBER 31, 1999
                                                                   ------------------      ------------------     ------------------

         <S>                                                       <C>                    <C>                     <C>
         Shares issued for acquisitions                                   5,000,000               8,600,000                     --
         Options and warrants issued for acquisitions                            --               5,916,666                     --
         Shares issued for redemption of
         convertible debentures                                              81,000                  86,325                     --
         Loan converted to stock                                            145,235                 500,000                     --
         Promissory Note issued                                          (1,360,000)                     --                     --
         Shares issued for other consideration                              146,111                      --                     --
         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, LLC                                        --                 297,500                     --
         Warrants issued for purchase of
         investment in WorldLink USA, LLC                                        --                 300,000                     --
</TABLE>



                                       67
<PAGE>


15.      COMPREHENSIVE LOSS

<TABLE>
<CAPTION>
                                              2001                          2000                       1999
                                         -------------                 -------------                ----------

         <S>                             <C>                           <C>                          <C>
         Net loss                        $(21,535,088)                 $(46,151,350)                $(873,771)
         Foreign currency
         translation adjustment               247,532                        15,461                        --

                                         $(21,287,556)                 $(46,135,889)                $(873,771)

</TABLE>



         The components of cumulative other comprehensive income are as follows:

<TABLE>
         <S>                                                                                                <C>
         Cumulative other comprehensive income - December 31, 1999                                                --
         Foreign currency translation adjustments for the year ended December 31, 2000                        15,461
         Cumulative other comprehensive income - December 31, 2000                                            15,461
         Foreign currency translation adjustments for the year ended December 31, 2001                       247,532
         Cumulative other comprehensive income - December 31, 2001                                           262,993
</TABLE>


16.      COMMITMENTS

         The Company leases premises under an operating lease with a ten year
         term. In addition the Company's R & D affiliate in Israel rents space
         with a one year term that ends on May 31, 2002 and has a one year
         renewal option. Rent expense during the year ended December 31, 2001
         was $211,442 (2000 - $50,375). Minimum lease commitments under the
         lease at December 31, 2001 were:

<TABLE>
                        <S>                                              <C>
                        2002                                                    $104,596
                        2003                                                      84,932
                        2004                                                      84,932
                        2005                                                      84,932
                        2006                                                      95,227
                        Thereafter                                               384,874
                                                                         ----------------
                                                                                $839,493
</TABLE>

         On June 14, 2001 the Company entered into a four-year license agreement
         for digital map data. The license fees are based on a variety of
         factors with a minimum annual fee of $500,000 per annum. Up to the end
         of December 31, 2001, $250,000 has been paid.

17.      INCOME TAXES

         The tax effect of significant temporary differences representing
         deferred tax assets is as follows:



                                       68

<PAGE>


<TABLE>
<CAPTION>
                                               December 31, 2001                   December 31, 2000
                                               -----------------                   -----------------

         <S>                                   <C>                                 <C>
         Deferred tax assets:
         Operating loss carry-forwards             5,781,996                           2,822,000


         Valuation allowance                      (5,780,000)                         (2,822,000)


         Deferred tax assets                           1,996                                   0
</TABLE>


         The Company has determined that realization is not more than likely and
         therefore a valuation allowance has been recorded against this deferred
         income tax asset.

         The Company's statutory and effective tax rate is 34%.

         The Company has certain non-capital losses of $17,000,000 available,
         which can be applied against future taxable income and which expire
         between 2007 and 2021.

18.      SEGMENTED INFORMATION

         The Company operates two product segments; one is the sale of GPS based
         location technology, and the second is GPS based navigation technology.
         The Company also operates in three Geographic Areas. Revenue by
         Geographic Area is determined based on the customer's location. The
         Revenue by Geographic Area for the fiscal year ended 2001 is as
         follows:

<TABLE>
<CAPTION>
                             North America          South America              Europe                  Total
                             -------------          -------------             --------              ----------

         <S>                 <C>                    <C>                       <C>                   <C>
         Location             $1,053,893              $410,953                $      0              $1,464,846
         Navigation              308,128                     0                 573,423                 881,551

         Total                $1,362,021              $410,953                $573,423              $2,346,397
</TABLE>


         The revenue for the fiscal year ended December 31, 2000 is all for
         Location Technology and can be broken down as follows:

         North America              $45,382

         The company's accounting records do not readily provide information on
         net loss by geographic area nor by product segment. Management is of
         the opinion that the proportion of net loss based principally on sales,
         presented below, would fairly present the results of operations by
         geographic area and by product segment for the period ended December
         31, 2001. In the year ended December 31, 2000 all loss is attributable
         to North America.

<TABLE>
<CAPTION>
                             North America          South America              Europe                  Total
                             -------------          -------------           -----------            -------------

         <S>                 <C>                    <C>                    <C>                     <C>
         Location            $ (9,683,679)          $(3,731,737)            $         0            $(13,415,416)
         Navigation            (2,912,597)                    0              (5,207,075)             (8,119,672)

         Total               $(12,596,276)          $(3,731,737)            $(5,207,075)           $(21,535,088)
</TABLE>

                                       69
<PAGE>



         There are no material total assets located outside of North America.

19.      SUBSEQUENT EVENTS

         There are no other subsequent events not already disclosed in other
         notes to the Consolidated Financial Statements.

20.      CREDIT FACILITIES

         In November 2001, the Company secured a $2.5 million purchase order and
         an accounts receivable financing facility for its PowerLOC division
         from Production Finance International, LLC of Spokane, Washington and
         KBK Financial, Inc. of Fort Worth, Texas. This combined financing
         facility has been set up in order to finance the fulfillment of the
         purchase orders received from its customers. As of December 31, 2001,
         there have been no drawdowns against this facility.

21.      ADJUSTMENTS

         During year ended December 31, 2000 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:

<TABLE>
                  <S>                                                    <C>
                  Risk-free interest rate                                5.0%
                  Dividend yield                                         0%
                  Expected life                                          3 to 5 years
                  Stock price volatility                                 170-180%
</TABLE>



                  As a result of these adjustments, the following have been
                  increased:

<TABLE>
<CAPTION>
                                                                      YEAR ENDED DECEMBER 31,
                                                      ---------------------------------------------------------
                                                             2001                2000               1999

                  <S>                                        <C>              <C>                <C>
                  Additional paid-in capital                  $0               $195,908           $195,908
                  Deficit                                                      (195,908)          (195,908)
</TABLE>





                                       70
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         Not applicable.

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The information called for by Item 10 with respect to the
identification of our directors and executive officer is incorporated herein by
reference to the material under the captions "Election of Directors" and
"Compensation and Other Information Concerning Directors and Executive Officers"
in our proxy statement for our 2002 annual stockholders meeting, which will be
filed with the Commission before April 30, 2002.

ITEM 11. EXECUTIVE COMPENSATION

         The information called for by Item 11 with respect to executive
compensation is incorporated by reference to the material under the caption
"Compensation and Other Information Concerning Directors and Executive Officers"
in our proxy statement for our 2002 annual stockholders meeting, which will be
filed with the Commission before April 30, 2002.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The information called for by Item 12 with respect to security
ownership of beneficial owners of more than 10% of our common stock and
management is incorporated herein by reference to the material under the caption
"Security Ownership of Certain Beneficial Owners and Management" in our proxy
statement for our 2002 annual stockholders meeting, which will be filed with the
Commission before April 30, 2002.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The information called for by Item 13 with respect to certain
relationships and related transactions is incorporated herein by reference to
the material under the caption "Compensation and Other Information Concerning
Directors and Executive Officers - Certain Relationships and Related
Transactions" in our proxy statement for our 2002 annual stockholders meeting,
which will be filed with the Commission before April 30, 2002.

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

FINANCIAL STATEMENTS

         Report of Independent Auditors

         Consolidated Balance Sheets as of December 31, 2001 and 2000

                                       71
<PAGE>

         Consolidated Statements of Operations for the years ended December 31,
         2001, 2000 and 1999

         Consolidated Statements of Cash Flows for the years ended December 31,
         2001, 2000 and 1999

         Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 2001, 2000 and 1999

         Notes to Consolidated Financial Statements

FINANCIAL STATEMENT SCHEDULES

         None.

REPORTS ON FORM 8-K

         None.

EXHIBITS

<TABLE>
         <C>               <S>
         3.1(i)*           Certificate of Incorporation of the Company

         3.1(ii)           Certificate of Amendment of the Certificate of Incorporation of the Company

         3.2*              By-laws of the Company

         10.1              Employment Agreement with Eduardo Guendelman, dated March 28, 2000

         10.2              Private Equity Line of Credit Agreement by and among certain Investors and the Company
                           dated as of June 28, 2001

         10.3              Registration Rights Agreement by and among certain Investors and the Company dated as
                           of June 28, 2001

         23.1              Consent of Schwartz Levitsky Feldman LLP
</TABLE>


         ---------------------

         *        Previously filed as an Exhibit to the Company's Form 10-K for
                  the year ended December 31, 1999.



                                       72
<PAGE>

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this annual report on Form
10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: April 1, 2002                PARADIGM ADVANCED TECHNOLOGIES, INC.


                                    By:      /s/ Eduardo Guendelman
                                             -------------------------------
                                             Eduardo Guendelman
                                             President, Chief Executive Officer
                                             and Director

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this annual report has been signed below by the following persons on behalf of
the Company in the capacities and on the date indicated.

<TABLE>
<CAPTION>
SIGNATURE                                   TITLE                                              DATE

<S>                                      <C>                                                   <C>
          /s/ Gordon Sharwood            Chairman of the Board of Directors                    April 1, 2002
----------------------------------------
            Gordon Sharwood

        /s/ Eduardo Guendelman           President, Chief Executive Officer                    April 1, 2002
---------------------------------------- (Principal Executive Officer) and Director
          Eduardo Guendelman

            /s/ David Ellis              Chief Financial Officer                               April 1, 2002
---------------------------------------- (Principal Financial and Accounting
              David Ellis                Officer)
</TABLE>



                                       73