PIPER & MARBURY

                                           L.L.P.
                                 1251 AVENUE OF THE AMERICAS
                                NEW YORK, NEW YORK 10020-1104
                                        212-835-6000
                                      FAX: 212-835-6001              BALTIMORE
                                                                    WASHINGTON
        WRITER'S DIRECT                                            PHILADELPHIA
             NUMBER                                                   EASTON
         212-835-6280
       FAX: 212-835-6001


                                      April 11, 1997





Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C.  20549


Dear Sir or Madam:

      Attached is the Form 10-KSB of Paradigm Advanced  Technologies,  Inc. (the
"Company")  for  the  period  ended  December  31,  1996.  Pursuant  to  general
instruction  3 of Form  10-KSB,  we  hereby  advise  you that the  Company  is a
development   stage  company  which  was   incorporated  on  January  12,  1996.
Accordingly,  the  Company  has no prior  periods  of  operation  to  which  the
financial statements contained in the Form 10-KSB can be compared.


                                   Sincerely,

                                   /s/ Paul J. Pollock
          
                                   Paul J. Pollock, Esq.

Enclosure



<PAGE>


                 U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

         X      Annual report under Section 13 or 15(d) of the
      -------   Securities Exchange Act of 1934
                For the fiscal year ended December 31, 1996

                               or

      ____      Transition report under Section 13 or 15(d) of the
                Securities Exchange Act of 1934
                For the transition period from __________ to _________


                         Commission File Number: 0-28836

               PARADIGM ADVANCED TECHNOLOGIES, INC.
          (Name of Small Business Issuer in Its Charter)

            Delaware                         33-0692466
 (State or Other Jurisdiction of            (IRS Employer
 Incorporation or Organization)          Identification No.)
 
       5140 Yonge Street
           Suite 1525
       North York, Ontario
             Canada                            M2N 6L7
 (Address of Principal Executive             (Zip Code)
            Offices)

     Registrant's telephone number, including area code: (416) 222-9629

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

    Securities Registered Pursuant to Section 12(g) of the Act:

                                        Name of Each Exchange
      Title of Each Class:              on which Registered:

     Common Stock, par value                    None
        $0.0001 per share


<PAGE>


      Check  whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter  period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. 
     Yes _X_   No  __

      Check if there is no disclosure of delinquent  filers pursuant to Item 405
of Regulation S-B contained in this form,  and no disclosure  will be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part III of this Form  10-KSB or any
amendment to this Form 10-KSB[ ].

      The issuer's revenues for its most recent fiscal year were $55,689.

      The  aggregate  market  value of the voting  stock held by  non-affiliates
as of April 9, 1997 is $2,007,258.

      The number of shares  outstanding of the Registrant's  Common Stock, as of
March 31, 1997 was 15,440,445 shares of Common Stock.




<PAGE>



                              PART I


ITEM 1.  Description of Business

      Paradigm Advanced Technologies,  Inc. (the "Company"), a development stage
company,  has  developed, markets and  distributes  digital  video  surveillance
security  software  products,  principally  the VideoBank  and VideoBank  Remote
products described below. On its date of incorporation, the Company acquired all
of the  right,  title and  interest  in a  security  and  surveillance  products
business established by Paradigm Advanced Technologies Joint Venture (the "Joint
Venture").  The Joint  Venture  was  dissolved  on the same day.  The  Company's
principal executive offices are located at 5140 Yonge Street,  Suite 1525, North
York, Ontario,  Canada, M2N 6L7, and its telephone number is (416) 222-9629. The
Company was incorporated in Delaware on January 12, 1996.

Distributor Agreement


      Until recently,  manufacturing of the Company's VideoBank product line was
outsourced  to  Alpha  Systems  Lab,  Inc.  ("ASL")  pursuant  to a  Distributor
Agreement.  Under this Distributor Agreement,  ASL was responsible for producing
the VideoBank and VideoBank Remote  products,  and the Company had the exclusive
right to purchase and distribute these products in Canada and the  non-exclusive
right to purchase and distribute them worldwide.


      The  distribution  rights granted under the Distributor  Agreement were to
expire in November, 2005, although that agreement provided for early termination
in certain  events.  ASL  notified  the  Company on October 4, 1996 that ASL had
terminated the Distributor  Agreement as a result of certain  non-performance by
the Company.  The Company permitted this termination to occur because,  although
ASL had been the Company's  sole supplier of products:  (1) the Company plans to
meet its long-term product needs through internal  production of new versions of
the VideoBank products that the Company currently is developing and testing; (2)
the Company  believes that it has adequate  inventory to meet expected  customer
demand for VideoBank  products in the near future;  and (3) the Company  expects
that it will have the ability to obtain additional product from ASL if necessary
in the near term,  although at higher prices.  Consequently the Company believes
that the  termination  of the  Distributor  Agreement  will not have a  material
adverse effect on the Company's  business or results of operations.  The Company
anticipates that its new versions of VideoBank products will be ready for market
in the second quarter of 1997 and that they will offer  improved  functionality,
better   compatibility   with  the   Windows-based   graphical   user  interface
environment,  and the ability to work with a variety of video capture cards made
by different manufacturers rather than solely with one proprietary card.

VideoBank and VideoBank Remote


      VideoBank  is a  software-based  video  surveillance  system.  This system
differs from conventional, hardware-based video surveillance systems, which rely
upon video cassette  recorders  (VCRs),  in that the VideoBank  system digitally
records images,  and stores them in and retrieves them from a computer's  memory
instead of a video cassette tape.  This system  eliminates  many of the problems
associated  with  operating a  VCR-based  security  system,  such as storage and
preservation of video cassette tapes and the possibility of mechanical  failures
and breakdowns of the VCR or other components of the system.  It also introduces
a measure of  efficiency  in  installing  improvements  to the  system,  because
improvements  can be made  simply  by  implementing  upgrades  to the  software,
instead of having to purchase and install new hardware  components.  At the same
time,  although  additional  image  storage  capacity  can be  added  simply  by
augmenting the computer's memory, the software-based  video surveillance  system
has the drawback of being highly dependent on low-cost,  high-capacity removable
data storage  media.  Based upon current  trends in computer  hardware  pricing,
however,  the Company believes that such low-cost,  removable data storage media
(including, for example, optical data disks) will continue to become more widely
available in the future.

<PAGE>

      VideoBank  Remote is a  predominantly  software-based  system  that allows
images  captured by  VideoBank to be  transmitted  digitally  over  conventional
telephone lines.  The Company will market and distribute the software  component
of this system.  Like  VideoBank,  VideoBank  Remote  operates on a conventional
personal  computer and modem. Its software is also designed to be user-friendly,
employing  an   icon-driven,   Windows-based   graphical  user   interface.   By
transmitting  over telephone lines, it obviates the need to link camera sites to
the remote observation post by installing  coaxial cables.  Advances in computer
technology  have made possible  VideoBank  Remote and its advances over existing
telephone  transmission  technology  in terms of clarity of image,  transmission
time, and cost of transmission. VideoBank Remote has demonstrably the best image
per transmission time of any existing  telephone-based system, primarily because
both the  VideoBank  and  VideoBank  Remote  systems  can  accept  images of any
resolution quality that the video camera itself is capable of producing,  and do
not  impose  any  limit  on the  maximum  resolution  of the  image  as do  many
competitive products such as Telesite and TVX.


      Although  VideoBank and VideoBank  Remote  utilize  computer  hardware and
other   physical   equipment,   these   systems   are   referred  to  herein  as
"software-based" systems because neither product requires the use of proprietary
hardware. Instead, both products can operate on any computer hardware that meets
the minimum system specifications. As noted above, the specification calls for a
conventional  personal  computer  with at least a 486-class  central  processing
unit.  Therefore,  these systems can be sold either as a software  package to be
installed upon any computer system that meets the system  specifications or as a
"turn-key"  hardware-software  system. In contrast,  to the Company's knowledge,
most of its  competitors  in the  marketplace  for video  surveillance  security
systems offer systems that are based on proprietary  hardware or equipment.  See
"Competition."


      The VideoBank and VideoBank Remote systems are  Windows-based and offer an
icon-driven user interface.  When installed on a computer that has 850 megabytes
(MB) of available  internal hard disk drive storage space,  VideoBank is capable
of recording at least 24 hours of data at the rate of one high resolution  color
frame per second.  In addition,  if there is an alarm  condition,  the system is
capable  of  recording  15  frames  per  second  for  a  limited  time  span  of
approximately   16   minutes.   This   capacity   is   sufficient   to   provide
high-resolution,  multiple-frame motion video of several alarm conditions,  each
having a duration of two or three minutes. In addition,  the ability to transmit
video images over a telephone line, rather than via coaxial or other specialized
closed-circuit  cable,  makes the VideoBank Remote system easier to use and less
expensive  than   traditional   remote   surveillance   systems.   In  addition,
improvements  and upgrades to the VideoBank  system can be made by  implementing
upgrades to the software itself,  rather than through equipment upgrades.  These
software   upgrades   permit  the  addition  of  new  functions  such  as  Video
Transmission, Image Downloading, Multi-Plexing and Video Motion Sensing. Because
neither VideoBank nor VideoBank Remote require proprietary hardware, the Company
is not reliant on a limited number of suppliers for raw materials.

New Versions of Products


      The Company is engaged in the development of new versions of the VideoBank
and VideoBank Remote  software-based video surveillance systems and to introduce
a mobile  surveillance  tracking  system  using GPS  technology,  and  currently
expects to have such products available for marketing and sale during the second
quarter of 1997. The Company presently expects that such products will have most
of the same  capabilities  and features as the VideoBank  and  VideoBank  Remote
Version 1 products  currently have, as well as additional  features and improved
functionality,  better  compatibility  with  the  Windows-based  graphical  user
interface  environment  and  the ability to work with a variety of video capture
cards made by different manufacturers.


      The Company  estimates that it has spent  approximately  $80,000 since its
date of  incorporation  on research and development  activities.  This figure is
comprised principally of salaries paid to the Company's engineering staff.

Competition


     The VideoBank  system is referred to as a  "software-based"  system because
the product does not require the use of proprietary  hardware.  In contrast,  to
the Company's  knowledge,  most of its  competitors in the marketplace for video
surveillance  security offer products that are based on proprietary  hardware or
equipment. There are


<PAGE>

approximately 20  companies that  manufacture  video  transmission  systems for
security  applications.  Though some  competitors  may have  developed  software
products  for use in video  security  and  surveillance  products,  the existing
competitive  products  are  primarily  hardware-based.   For  example,  Hymaturn
Industries of France has developed Memocom,  a proprietary  hardware system that
records  black and white  images.  In  addition,  Dedicated  Micros,  an English
company,  has  developed a hardware  solution  that allows for the  recording of
video to a computer disk.


      To the  Company's  knowledge,  none of its  competitors  have  developed a
software-based  product with the  capabilities  of  VideoBank.  The Company also
believes  that it can offer its  products  for  substantially  lower prices than
those  of its  competitors  because  of the  system's  non-proprietary  hardware
specification  and the  availability  of the  bundled  hardware-software  system
incorporating  equipment  that the Company or the user can  purchase at a volume
discount.

Regulatory Matters


      To the Company's  knowledge,  there are no existing or probable government
regulations  that will  have an effect  upon the  Company's  business.  Although
end-users of surveillance  equipment in Canada,  and elsewhere,  are required to
give  notice  of  the  use of  such  equipment,  there  are  no  known  absolute
prohibitions either on the ownership or the use of surveillance  equipment.  The
Company knows of no existing or probable  government  regulations that either do
or may affect the Company's right to distribute,  sell, manufacture or otherwise
deal  with  digital   video   surveillance   security   systems   including  any
environmental laws.

Employees


      As of December 1996, the Company  employed ten people on a full-time basis
and two  people  on a  temporary  or  part-time  basis.  None  of the  Company's
employees  is  represented  by a  labor  union  or is  subject  to a  collective
bargaining agreement.  The Company considers its relations with its employees to
be good.

Dependence on a Few Major Customers


      In its current  development  stage, the Company  estimates that 80% of its
sales  are  to  three  major   customers.  The Company expects to diversify  its
customer  base as  the  VideoBank  products are  fully  developed,  however,  it
believes that sales to the three customers will remain a substantial  portion of
the Company's aggregate sales.

ITEM 2.  Description of Properties


      The Company's executive offices are located in 1,000 square feet of office
space in North  York,  Ontario,  Canada,  which is  leased by the  Company  on a
monthly  basis  at a rental  rate of  Can$600.  The  Company  leases  additional
technical  support and  distribution and marketing  offices,  comprised of 1,560
square  feet in  Irvine,  California  The lease for the  technical  support  and
distribution  office in  California  expires in 1998 (after giving effect to all
renewal options),  and the monthly rental rate is currently $1,404.  The Company
believes that its facilities are adequate for its needs and that  alternative or
additional  space will be  available  as required  and that the  facilities  are
adequately covered by insurance.

ITEM 3.  Legal Proceedings


      The Company is not currently  engaged in any legal  proceedings and is not
aware of any pending or threatened litigation that could have a material adverse
effect on the Company's business, financial condition or results of operations.

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


      None.


<PAGE>

                                     PART II

Item 5.    Market For Common Equity and Related Stockholder Matters


      On April 12,  1996,  the Common  Stock of the  Company  was  approved  for
trading on the NASDAQ-OTC Electronic Bulletin Board under the symbol "PRAV." The
following table sets forth the range of high and low closing  representative bid
prices for the Company's  Common Stock from April 12, 1996 through  December 31,
1996 (as  reported by NASDAQ),  which  represent  inter-dealer  prices,  without
retail mark-up, mark-down or commission and may not reflect actual transactions:


      Quarter Ended             High Bid  Low Bid
      June 30, 1996
      (From April 12, 1996)    $0.1845    $0.1562
      September 30, 1996       $0.2915    $0.1710
      December 31, 1996        $0.4375    $0.125

      As of December 23, 1996,  there were 46 holders of record of the Company's
Common  Stock.  The Company has not  declared or paid any cash  dividends on its
Common Stock since its inception,  and its Board of Directors  currently intends
to retain all earnings for use in the business for the foreseeable  future.  Any
future  payment  of  dividends  will  depend  upon  the  Company's   results  of
operations,  financial  condition,  cash  requirements  and other factors deemed
relevant by the Company's Board of Directors.


      The Company has undertaken the following  unregistered sales of its Common
Stock.  All of the  following  sales were exempt from  registration  pursuant to
Sections  3(b) and 4(2) of the  Securities  Act of 1933,  as amended  (the "1933
Act") and Regulation D promulgated by the Securities  Exchange  Commission  (the
"SEC")   thereunder.   None  of  the  following   unregistered   sales  involved
underwriters, and there were no underwriting discounts or commissions.

                         Person or Class  Number of   Total Cash
Date,    Title    of       of Persons      Shares      Price or
Securities Sold           to Whom Sold               Consideration

January 12, 1996;       Paradigm          6,000,000      Assets and
Common Stock            Advanced                        liabilities
                        Technologies                      valued at
                        Joint Venture                       $56,145

February, 1996; Common  Private           3,000,000        $300,000
Stock                   Placement
                        investors

February, March, April  Private           2,800,000        $700,000
and May, 1996; Common   Placement
Stock                   investors

June through November,  Private           2,158,351        $647,500
1996; Common Stock      Placement
                        investors

November, 1996; Common  PTI Financial       165,418         $49,625
Stock                   Corp.


Item 6.  Management's Discussion and Analysis or Plan of Operation


      This section contains  forward-looking  statements regarding the Company's
business and financial condition.  No assurance can be given that actual results
of operations  will not differ  materially from the  forward-looking  statements
contained herein.

<PAGE>

      The Company has a limited  history of operations.  It was  incorporated on
January 12, 1996. In connection with its  organization,  the Company acquired an
existing security and surveillance  products  business  established by the Joint
Venture.   During  the  succeeding  months,  the  Company  raised  approximately
$1,000,000  in capital  through two private  placements  completed in accordance
with Rule 504 promulgated under the 1933 Act. The Company recently  concluded an
additional  private  placement in accordance with Rule 505 promulgated under the
1933 Act, in which it raised approximately  $647,500 in capital, and has entered
into a lending  relationship  with PTI  Financial  Corp.  pursuant  to which the
Company  will borrow  between  $150,000 and $500,000  from PTI  Financial  Corp.
Management  expects that the proceeds of these  private  placements  and of this
lending  relationship will satisfy the Company's cash  requirements  through the
first quarter of 1997.  However,  management  estimates that the total amount of
"seed capital" required in order to proceed with current operations and to bring
the Company's own product to market will be $2,500,000,  including approximately
$600,000 for research and development,  approximately  $900,000 for advertising,
marketing and  promotional  efforts,  and  approximately  $1,000,000 for working
capital.


      The  Company's  efforts  during its first twelve  months have centered and
will continue to center on the  development,  marketing and  distribution of its
two principal products,  VideoBank and VideoBank-Remote.  The Company has worked
on developing  and  solidifying  its  manufacturer's  representative  network by
entering into distribution or sales representation agreements with manufacturers
and developers of  software-based  video  surveillance  systems,  developing its
advertising and promotional  materials and customer database,  and planning of a
public relations campaign, and will continue to work on all of these activities.
The Company  currently has  relationships  with Industry  Marketing  Service,  a
marketing  consulting  company  located  in  Tempe,  Arizona,  and with  Adler &
Schinkel, an advertising agency based in Phoenix, Arizona. The Company currently
plans to continue to use its existing  marketing and distribution  methods,  but
also is reviewing and  evaluating  these  methods in order to determine  whether
better or more  efficient  practices  may be  available.  The Company  also will
continue to concentrate on generating revenues from existing  relationships with
businesses  that are  already  familiar  with the  Company's  products  and have
expressed a  willingness  to buy.  The  Company  will  continue  to  concentrate
particularly on consolidating  its distribution  networks,  cementing its client
relationships,  and  establishing  an image and brand-name  recognition  for the
Company in the marketplace in which it competes.


      The Company does not currently  have any  intentions to acquire a plant or
any  significant  equipment.  The Company's  warehouse and  production  facility
requirements  are  minimal  because the  Company's  products  consist  simply of
software  stored on three or four floppy disks and boxed with a user manual.  To
the extent  that the  Company  sells  integrated  or  bundled  hardware-software
systems, the integrator or hardware manufacturer installs the Company's software
and then  "drop-ships"  the system  directly  to the  customer.  The Company may
increase  the  number  of its  employees  as it  continues  to grow and  further
solidifies and consolidates its distribution networks.

Item 7.  Financial Statements


      The  financial  statements of the Company,  including  the notes  thereto,
together with the report of independent  certified public  accountants  thereon,
are presented beginning at page F-1.

Item  8.  Changes  In  and   Disagreements   with   Accountants  on
Accounting and Financial Disclosure


      None.


<PAGE>


                             PART III

Item  9.  Directors,  Executive  Officers,  Promoters  and  Control
Persons; Compliance with Section 16(a) of the  Exchange Act


      The  directors  and  executive  officers  of the Company are listed on the
following table. There are no other promoters or control persons:


       Name            Age            Position, Term in Office

Jack Y. L. Lee        47              Chief    Executive     Officer,
                                      Secretary-Treasurer,        and
                                      Director     (all     positions
                                      January 12, 1996, to present)

David Kerzner         36              President  and  Director  (both
                                      positions  January 12, 1996, to
                                      present)

Jacob Kerzner         38              Director  (January 12, 1996, to
                                      present)

      The following is a brief  description of the  professional  experience and
background of the directors and executive officers of the Company.


      Jack Y. L. Lee:  Mr.  Lee has  served as the Chief  Executive
Officer,  Treasurer-Secretary  and a director of the Company  since
its  founding.  Between 1987 and January 12,  1996,  Mr. Lee served
as President  and as a syndicator  for Syndicate  Management  Inc.,
which  specializes  in the  syndication  of real  estate  and other
investments.   In  1974,   Mr.  Lee   qualified   as  a   Chartered
Accountant  while  employed  at  Clarkson,  Gordon,  & Co., a major
independent  accounting  firm which has  subsequently  merged  into
the accounting firm of Ernst & Young LLP.


      David  Kerzner:  Mr.  Kerzner has served as the President and
a director of the Company  since its  founding.  From 1990 to 1994,
Mr.  Kerzner was  employed by ISTI  Corporation/Intertec  Security,
most  recently  as  President  of  ISTI   Corporation  and  as  the
Marketing  Manager of, and as a consultant to,  Intertec  Security.
From  1987 to 1992,  Mr.  Kerzner  was the owner  and  operator  of
Interactive  Security  Systems  Inc.,  a  full  service  electronic
security company.


      Jacob  Kerzner:  Mr.  Kerzner has served as the a director of
the Company since its founding.  Mr.  Kerzner  currently  serves as
the  President   and  Chief   Executive   Officer  of   Nightingale
Healthcare  Inc.,  a  privately-owned  hospital  and  nursing  home
staffing  company  founded by Mr.  Kerzner in 1986.  Mr. Kerzner is
the brother of David Kerzner.


      Section 16(a) of the Securities  Exchange Act of 1934 (the "Exchange Act")
requires the Company's officers and directors, and persons who own more than ten
percent  of a  registered  class of the  Company's  equity  securities,  to file
reports of ownership and changes in ownership with the SEC. Officers,  directors
and greater  than ten percent  shareholders  are required by SEC  regulation  to
furnish the Company with copies of all Section 16(a) reports they file.

<PAGE>

      Based  solely on review of the  copies of such  reports  furnished  to the
Company during or with respect to fiscal 1996, or written  representations  that
no Forms 5s were  required,  the  Company  believes  that during the fiscal year
ended December 31, 1996, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with, except that initial statements on beneficial  ownership were filed late by
each of the  directors and officers of the Company and Mendel  Raksin,  the only
person known to the Company to be the beneficial  owner of more than ten percent
of the Company's  securities,  has not filed any statements  required by Section
16(a).

Item 10.  Executive Compensation

Summary Compensation Table


      The following  table sets forth the  compensation  earned by the Company's
Chief  Executive  Officer  and the  registrant's  four most  highly  compensated
executive officers other than the Chief Executive Officer during the fiscal year
ended December 31, 1996:


                                                   
                                                   
                                                   Shares
                                                   of
                                      Annual       Common
                                   compensation    Stock         All
Name and                         ----------------- underlying    other
principal position        Year   Salary   Bonus   options        compensation

Jack Y. L. Lee            1996   $66,000   0      1,875,0000     0
Chief Executive           
Officer and
Secretary-Treasurer of
the Company

David Kerzner
President                 1996   $75,000      0   3,187,500     0

C. Richard Brogan (1)     1996   $80,000      0     ----        0


(1) Mr. Brogan's employment with the Company terminated in February 1997.

Stock Option Grants Table


      The  following  table  provides  information  with regard to stock options
granted to the Company's Chief Executive  Officer and the registrant's four most
highly  compensated  executive  officers other than the Chief Executive  Officer
during the fiscal year ended December 31, 1996:



                     Number of    Percent of Total Exercise
                     Securities     Options/SARs    or Base  Expiration
                     Underlying       Granted        Price    Date
Name               Options/SARs   to Employees in   ($/Sh.)
                      Granted       Fiscal Year

Jack Y. L. Lee     1,875,000            37.0%         $0.05    1/12/01
                                                               


David Kerzner      3,187,500            63.0%         $0.05    1/12/01
                                                               



<PAGE>


Employment Contracts


     In February 1996, the Company entered into ten-year consulting  agreements,
which may be extended for  additional  five-year  terms by the mutual consent of
the parties,  with Jack Y. L. Lee, the Chief  Executive  Officer of the Company,
and David  Kerzner,  President  of the  Company.  Mr.  Lee's  and Mr.  Kerzner's
consulting  agreements  provide  for annual  salaries  of $66,600  and  $75,000,
respectively  for the first ten-year term and for  compensation to be negotiated
if the  consulting  agreement is extended for additional  terms.  The consulting
agreements  may  be  terminated  early  by  the  Company  in  the  event  of the
resignation,  death or disability or other incapacity of Mr. Lee or Mr. Kerzner,
as the case may be. The consulting  agreements also contain provisions regarding
confidentiality   of   information,   ownership  of   inventions   and  patents,
non-competition and non-solicitation.  Both Mr. Lee and Mr. Kerzner are eligible
to receive a bonus upon the approval of the Company's board of directors.

      The Company  entered into a consulting  agreement  dated  January 12, 1996
with Sarah Casse.  Ms. Casse serves as a marketing,  business and  technological
consultant to the Company. The agreement grants Ms. Casse the option to purchase
up to 1,875,000  shares of the Common Stock of the Company as  compensation  for
her services at the price of $0.05 per share.


      In January  1996,  the  Company  entered  into a one-year  agreement  with
Industry   Marketing  Service  ("IMS")  to  oversee  the  Company's   marketing,
advertising and public relations functions.  The Company paid IMS an initial fee
of $8,000 at the  beginning of the term of the  agreement and pays a monthly fee
of $6,000.

Directors' Compensation


      The Company's  policy is not to pay compensation to directors who are also
employees  of  the  Company  for  their  service  as  directors.   Additionally,
non-employee  directors do not presently receive  compensation for their service
as directors. The Company will, however,  reimburse directors a fixed amount for
out-of-pocket expenses incurred for attendance at meetings.

Item 11.  Security  Ownership  of  Certain  Beneficial  Owners  and Management


      The following table sets forth  information with respect to the beneficial
ownership  of the  outstanding  Common  Stock of the  Company by each  director,
executive  officer,  all five percent (5%)  stockholders  of the Company and all
directors and officers as a group:


                        Beneficial               Warrants  Percent
                        Ownership     Current    or        of Class
Name and Address        of Common     Percent    Options   if Fully
                          Stock       of Class    Granted  Exercised
Jack Y. L. Lee, Chief
Executive Officer      1,458,334        10.3%    1,958,334   13.8%
    28 Old Park Lane
    Richmond Hill,
    Ontario L4B 2L4

David Kerzner,         2,337,500        16.6%    3,187,500   22.3%
President
    120 Arnold Avenue
    Thornhill,
    Ontario L4B 2L4
<PAGE>

C. Richard Brogan,       104,000         0.7%      ----       0.4%
Vice President for
Marketing and Sales
    3242 S. Birchett
     Drive
    Tempe, Arizona
    85282

Jacob Kerzner,              ----         ----    562,500      2.3%
Director
    148 Faywood Blvd.
    Downsview,
    Ontario M3H 2W7

Sarah Casse            1,475,000        10.4%    1,875,000   13.5%
    63 Otter Crescent
    North York
    Ontario M5N 2W7

George Sukornyk
    49 St. Clair       1,250,000         8.9%      ----       5.1%
    Avenue W., Ste 104
    Toronto, Ontario
    M4V 1K6

Mendel Raksin
    338 Crown Street   1,666,680        11.8%    1,666,680   13.5%
    New York, NY 11225

All directors,
executive officers     8,291,514        58.7%    9,250,014   70.9%
and 5% owners, as a
group:

Item 12.  Certain Relationships and Related Transactions


      On January 12, 1996, the Company issued 6,000,000  unregistered  shares of
its Common Stock to the participants in the Joint Venture in exchange for all of
the right, title and interest in the security and surveillance products business
established  by the  Joint  Venture.  Certain  of the  Company's  directors  and
officers were  participants in the Joint Venture and as a result received shares
of the Common  Stock of the  Company in the  transaction.  The  Company's  Chief
Executive Officer,  Jack Y. L. Lee, received 1,875,000 shares (including 500,000
shares in trust), and the Company's President,  David Kerzner received 2,337,500
shares. In addition, Lisa Kerzner, the wife of director Jacob Kerzner,  received
412,500 shares of Common Stock in the transaction. Lastly, Sarah Casse, a holder
of more than 5% of the Company's issued and outstanding  Common Stock,  received
1,375,000 shares of Common Stock in the transaction.


      The Company has entered  into a Consulting  Agreement  with Jack Y. L. Lee
under which he receives an annual salary of up to $66,600.  The Company also has
entered into a Consulting  Agreement  with David Kerzner under which he receives
an annual salary of $75,000.

Item 13.  Exhibits, List and Reports on Form 8-K

      (a)  Index to Financial Statements
           Report of Independent Auditors, page F1
           Financial Statements
                Balance Sheets - December 31, 1996,  September 30, 1996 and June
                30, 1996, page F2
                Statement  of Income for the year ended  December 31, 1996 (from
                inception) and the fiscal quarter ended December 31, 1996, 
                page F5
                Statement of Share Capital from Inception (January
                12, 1996 through December 31, 1996), page F7
                Statements of Cash Flows for the year ended December 31, 1996
                Notes to Financial Statements, page F9

<PAGE>

Exhibits


      3.1*     Certificate of Incorporation of the Company.

      3.2*     By-Laws of the Company.

      4.1*     Stock Option Plan.

      10.1*    Distributor  Agreement with Alpha Systems Lab,  Inc.,  
               dated November 29, 1995, together with Amending Agreement, 
               dated January 24, 1996.

      10.2*    Consulting   Agreement   with  Jack  Y.  L.  Lee,  dated
               February 1, 1996.

      10.3*    Consulting Agreement with David Kerzner,  dated February
               1, 1996.

      10.4*    Consulting  Agreement with Industry Marketing Service,  
               dated January 1, 1996.

      10.5*    Agreement with Sarah Casse, dated January 12, 1996.

      23.1**   Consent of Bromberg & Associate.


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

   *  Previously filed with the SEC as Exhibits to, and  incorporated  herein by
      reference  from, the Company's  Registration  Statement on Form 10-SB,  as
      amended, filed with the SEC on August 1, 1996.

  **  Previously filed with the SEC as Exhibits to, and  incorporated  herein by
      reference  from,  the  Company's  Registration  Statement on Form SB-2, as
      amended, filed with the SEC on December 31, 1996, as amended.

 (b)  No reports on Form 8-K were filed during the fiscal year 1996.



<PAGE>



                            SIGNATURES

      In  accordance  with Section 13 or 15(d) of the Exchange Act of 1934,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                               PARADIGM ADVANCED TECHNOLOGIES, INC.



                               By:  /s/ Jack J.L. Lee
                                    Jack Y. L. Lee
                                    Chief  Executive   Officer  and
                                    Chief Financial Officer



                               By:  /s/ David Kerzner
                                    David Kerzner
                                    President


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

           Signature                Title                Date

  /s/ Jack Lee              President, Chief Executive   April 8, 1997
  Jack Lee                  Officer, Chief Financial
                            Officer and Director

  /s/ David Kerzner         President and a Director     April 8, 1997
  David Kerzner             


  /s/ Jacob Kerzner         Director                     April 8, 1997
  Jacob Kerzner


<PAGE>
Page F1



     BROMBERG & ASSOCIATE                       1177 Finch Avenue West Suite 21
----------------------------                              

     CHARTERED ACCOUNTANTS                          Downsview, Ontario M3J 2E9
                                                        Office: (416) 663-1974
                                                          Fax:  (416) 630-1345





                         AUDITOR'S REPORT




TO THE SHAREHOLDERS OF
PARADIGM ADVANCED TECHNOLOGIES, INC.

      We have audited the balance sheet of Paradigm Advanced Technologies,  Inc.
as at  December  31,  1996 and the  statements  of income,  deficit,  changes in
shareholders'  equity and  changes in  financial  position  for the period  then
ended.  These  audited  financial  statements  are  the  responsibility  of  the
corporation's  management.  Our  responsibility  is to express an opinion on the
audited financial statements based on our audit.


      We conducted  our audit in accordance  with  generally  accepted  auditing
standards.  These standards  require that we plan and perform an audit to obtain
reasonable  assurance  whether  the  audited  financial  statements  are free of
material  misstatement.  An audit includes  examining on a test basis,  evidence
supporting the amounts and disclosures in the audited financial  statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management  as  well as  evaluating  the  overall  financial
statement presentation.


      In our opinion, these audited financial statements presents fairly, in all
material respects,  the financial position of the Corporation as at December 31,
1996 and the results of its operations and the changes in its financial position
for the period  then ended in  accordance  with  generally  accepted  accounting
principles.






                                  /s/ BROMBERG & ASSOCIATE


                                  CHARTERED ACCOUNTANTS

      DOWNSVIEW, ONTARIO

      March 18,1997



<PAGE>
Page F2

                      PARADIGM ADVANCED TECHNOLOGIES, INC. 

                          (A Development Stage Company)

                                  BALANCE SHEET


                              ASSETS

-----------------------------------------------------------------------
                  December 31,1996     September       June 30, 1996
                                        30,1996

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


CURRENT ASSETS
-----------------------------------------------------------------------
-----------------------------------------------------------------------
   Bank                 $154,702          $25,411       $338,132
                        
-----------------------------------------------------------------------
-----------------------------------------------------------------------
   Accounts               69,162
   Receivable
-----------------------------------------------------------------------
-----------------------------------------------------------------------
   Inventories           286,593          357,838          354562
   (Note 1a)
-----------------------------------------------------------------------
-----------------------------------------------------------------------
   Prepaid                19,915           26,781          16,418
   expenses and                           
   deposit


-----------------------------------------------------------------------
-----------------------------------------------------------------------
   Share                 202,500            25000
   Subscription
   Receivable
-----------------------------------------------------------------------
-----------------------------------------------------------------------
                         732,872          709,112          709,112
                         
-----------------------------------------------------------------------
-----------------------------------------------------------------------

   Capital                49,000           23,302          19,668
   Assets (Notes          ------           ------          ------
   1b, 3)
-----------------------------------------------------------------------
-----------------------------------------------------------------------


   TOTAL ASSETS          781,872         $458,332          $728,780
                         -------         --------          --------
                                
-----------------------------------------------------------------------





<PAGE>
Page F3


                                   LIABILITIES

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


CURRENT LIABILITIES
------------------------------------------------------------------------
------------------------------------------------------------------------
   Accounts                  68,989            25,344      26,190
   Payable

------------------------------------------------------------------------
------------------------------------------------------------------------
   Loan Payable            395,000
------------------------------------------------------------------------
------------------------------------------------------------------------
   TOTAL                   463,989            25,344       26,190
   LIABILITIES



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






<PAGE>
PAge F4





                       SHAREHOLDERS' EQUITY

-------------------------------------------------------------------------
   Authorized 30,000,000
   common shares at
   $0.0001 par value per
   share
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Issued and outstanding       1,753,270      1,418,645       1,306,145
   14,123,769

-------------------------------------------------------------------------
-------------------------------------------------------------------------
   12,633,340 and
   10,140,000 common
   shares
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Deficit                    (1,435,387)      (985,657)       (603,555}
                           -----------      ---------       ---------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Shareholders'            317,883        432,988         702,590
   Equity


-------------------------------------------------------------------------
-------------------------------------------------------------------------
Total Liabilities &            781,872        458,332         728,780
Shareholders' Equity   


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


<PAGE>
Page F5

                      PARADIGM ADVANCED TECHNOLOGIES, INC.

                          (A Development Stage Company)

                               STATEMENT OF INCOME



                       For the Three       From
                       Months ended    Inception on
                       Dec 31, 1996    January 12,
                                      1996, through
                                      Dec. 31, 1996


REVENUES
  Sales                  $  55,689       $ 55,689
  
  Cost of Sales
  
   Purchases                44,807        402,645
  
   Inventory, period       357,838        354,762
   end
   
  Total Cost Of             47,883         47,883
  Sales                                    
  
  Gross Profit           $    7806       $   7806
                          ========        =======


OPERATING EXPENSES:
  Selling, General &       407,194       1,377,028
  Admin.
  
  Research &                42,000         55,188
  Development
  
  Depreciation               8,343         10,977
  
  TOTAL EXPENSES           457,537       1,443,193
                         =========       =========


NET GAIN (LOSS) FOR
  THE PERIOD             $(449,731)      $(1,435,387)
                         ==========      ============


Net gain (loss) per
  average common         $  (0.04)       $(0.1430)
  share                   ---------       ---------
  
Average common
  shares outstanding
  during period         10,061,885        10,061,885
                      
<PAGE>
Page F6

Accumulated deficit
  at period-end
                         $ 985,657       $1,435,387
                          --------        ---------








<PAGE>
Page F7

               PARADIGM ADVANCED TECHNOLOGIES, INC.

                    (A Development Stage Company)

                    STATEMENT OF SHARE CAPITAL

             JANUARY 12, 1996 THROUGH DECEMBER 31,1996





                                                    PAID IN
                              SHARES                CAPITAL


Issuance of common
shares to purchase all
of the assets and
liabilities
of Paradigm Advanced
Technologies Joint          6,000,000              $   56,145
Venture



Issuance of common
shares in February
1996 in
connection with a
private                    3,000,000                 300,000
placement offering



Issuance of common
shares
in March 1996 in
connection
with a private             1,140,000                 285,000
placement offering


<PAGE>
Page F8

Issuance of common
shares
in May 1996 in
connection
with a private             1,660,000                 415,000
placement
offering



Issuance of common
shares in June, 1996
in connection with a
private                      1,208,343             $   362,500
placement



Issuance of  common
shares in July, 1996
in connection with a
private                        950,000              $ 285,000
placement.



Issuance of common
shares in December,
1996 in
                               165,418               $ 49,625
connection with a
private placement


                             14,123,769            $ 1,753,270


<PAGE>
Page F9



                      PARADIGM ADVANCED TECHNOLOGIES, INC.

                          (A Development Stage Company)

                             STATEMENT OF CASH FLOWS



                                           From
                       For the Three   Inception on
                       Months ended    January 12,
                         December     1996, through
                          31,1996        December
                                         31,1996
CASH FLOWS FROM
OPERATING ACTIVITIES
Net gain (loss) for      $(449,731)      $(1,435,387)
  the period

Adjustment to
  reconcile net loss
  to net cash used
  in operating
  activities

Depreciation                 8,343         10,977

Changes to assets,
  liabilities
  Decrease
  (Increase) in
  Accounts Receivable     (69,162)       (69,162)

  Decrease                 71,245      (286.593)
  (Increase) in
  Inventory

  Decrease               (177,500)      (202,500)
  (Increase) in
  Share Subscriber
  Receivable

  Decrease
  (Increase) in
  sundry assets               6866       (19,915)
  Increase

  (Decrease) in
  accounts payable          43,645         68,989
                         ---------       --------
  Net Cash Provided
  by (Used in)
  Operating
  Activities
                         $(566,293)      $(1,933,591)


<PAGE>
Page F10


CASH FLOWS FROM
INVESTING ACTIVITIES
  Increase                (34,041)       (59,977)
  (Decrease) in
  capital assets                         

  Net Cash Provided
  by(used in)
  Investing
  Activities
                         $,(34,041)      $(59,977)

CASH FLOWS FROM
FINANCING ACTIVITIES

  Loan Payable             395,000        395,000

  Received for
  issuance of common
  stock                    334,625       1,753,270
                         ---------       ---------


  Net Cash Provided
  by Financing
  Activities             $729,625       $2,148,270
                          =======        =========
                           

NET INCREASE IN CASH     $ 129,291       $154,702
                         =========       ========
FOR PERIOD
Cash, beginning of       $  25,411       $     --
period                   ---------       --------
  

Cash, end of period      $ 154,702       $154,702
                          ========        =======

Supplemental cash
  flow disclosure
  Cash paid for
                                --             --
      Interest
                                --             --
      Income taxes




<PAGE>
Page F11



                    PARADIGM ADVANCED TECHNOLOGIES, INC.

                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS

                       FOR THE YEAR ENDED DECEMBER 31 1996


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


     a)  INVENTORIES


          Inventories  are  valued  at the  lower of cost  (first-in,  first-out
          method) and net realizable value.


     b)  CAPITAL ASSETS


          Capital  assets are  recorded at cost less  accumulated  depreciation.
          Depreciation  is provided  using the  declining  balance  basis at the
          following annual rate:


          Furniture and fixtures - 20%


     c)  METHOD OF ACCOUNTING


          i) The  Company  maintains  its  books and  prepares  its
          financial statements on the accrual basis of accounting.


          ii)  The  Company's  financial  statements  are  prepared
          according  to  Canadian  GAAP.   There  are  no  material
          differences between Canadian and U.S. GAAP.


2.   INCORPORATION, FISCAL YEAR END


     The Company was  incorporated  on January 12, 1996 in the state of Delaware
     and has elected a December 31 fiscal year end for book and tax purposes.


3.   INVENTORY


     The inventory consists of computer security equipment.


4.   CAPITAL ASSETS

                                                                        
                                       Accumulated                   Net
                            Cost       Depreciation                  Book-value
                                       
     Furniture
     and
     fixtures,
     Dec 31, 1996           $59,977     $10,977                      $ 49,000
                       
<PAGE>
Page F12



5.    LOAN PAYABLE AND SUBSEQUENT EVENTS


      The Loan is  convertible  and bears  interest  at a rate of prime plus 1%.
      Subsequent to December 31,1996, the loan was converted to 1,316,667 common
      shares at a rate of $.30 per share, along with warrants at a rate of $0.30
      per share.


6    STOCK OPTIONS  AND WARRANTS


     As at December 1,1996,  8,000,000 common stock are reserved for issuance to
     directors,  officers and employees  under the Company's  stock option plan.
     The  exercise  price is $0.05 and the expiry date of the options is January
     12, 2001. On July 30,1996,  1,208,343 warrants were issued,  exercisable at
     $0.30 per share, and not exercisable for six months from the date of issue,
     and are due to expire on July 30,1999.


7    ACQUISITIONS


     On January 12,1996, the Company acquired 100% of the assets and liabilities
     of  Paradigm  Advanced  Technologies  Joint  Venture  for  $56,145,  by the
     issuance of 6,000,000  common shares.  The company recorded the acquisition
     using the purchase method,





<PAGE>
Page F13

                                                                   EXHIBIT 23.1



                CONSENT OF INDEPENDENT ACCOUNTANTS



The Board of Directors
Paradigm Advanced Technologies, Inc.:

We consent to the use of our report  included herein and to the reference to our
firm under the heading "Experts" in the prospectus.



                                    Bromberg & Associate



Downsview, Ontario
February 3, 1997