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, 1997

                     OR

  [   ]    Transition  report under Section 13 or 15(d) of the
           Securities Exchange Act of          1934  for  the  transition
           period from __________ to __________.



                         Commission File Number: 0-28836

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

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

   1 Concorde Gate, Suite 201
        Toronto, Ontario
         Canada M3C 3N6                        M3C 3N6
   --------------------------                  -------
 (Address of Principal Executive             (Zip Code)
            Offices)

  Registrant's telephone number, including area code: (416) 447-3235

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

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

                                        Name of Each Exchange
      Title of Each Class:              on which Registered:
      -------------------               ---------------------
     Common Stock, par value                    None
        $0.0001 per share


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

<PAGE>

      Check if there is no disclosure of delinquent  filers pursuant to Item 405
of  Regulation  S-B is not  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 $47,468.

      The  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked prices of such stock, as of October 23, 1998, is $1,988,732.

      The number of shares  outstanding of the Registrant's  Common Stock, as of
October 23, 1998 was 29,796,662 shares of Common Stock.


                                      -2-
<PAGE>


                                     PART I

ITEM 1. Description of Business

      Paradigm  Advanced  Technologies,  Inc.  (the  "Company") is a development
stage incorporated in Delaware on January 12, 1996 that was formed to capitalize
on the need for digital image and interactive  GPS tracking  technology in North
America   and  abroad.   The  Company   develops,   markets,   and   distributes
software-based  digital video  surveillance and GPS tracking systems that can be
used for security or other purposes.  The Company's  products  currently include
VideoBank,  a software-based  video surveillance system that permits the user to
store  video  images  on a  computer  disk  drive  rather  than on  conventional
videotape,  and VideoBank Remote, a similar  software-based  video  surveillance
system that permits the  transmission  of video images using ordinary  telephone
lines rather than coaxial or  proprietary  transmission  lines.  In addition the
Company  has  GPS  tracking  technology  for  personal  tracking  as well as for
vehicular tracking purposes.  The Company believes that these products represent
improvements  over existing video  surveillance and GPS technology,  not only in
terms  of ease  of use of the  products,  but  also in  terms  of the  products'
capabilities for recalling and  manipulating  video data, the ability to upgrade
the systems without needing to replace  hardware  components,  and the products'
general independence from particular or proprietary  hardware components.  There
are essentially  three sources of revenue for the company which include the sale
of GPS  products,  Licensing  users of the  GPS/CELLULAR  technology  under "the
patent", and the sale of VideoBank products.  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 specific GPS and digital image products  presently being developed are
as follows:

      "R-2" is a vehicle  or  personal  security  device  that  enables  instant
      transmission  of a location  to a central  monitoring  station or personal
      computer via the Internet.  A person's  position can be tracked on a panic
      or alarm initiated transmission,  accurate to within 2-5 meters, instantly
      available at the monitoring station through the use of GPS satellites. The
      system  is also  designed  as a  management  tool  that  can  archive  the
      whereabouts of a vehicle or individual on an ongoing basis;

      "VideoBank DVR" is a fully integrated software program, which will record,
      store and playback full motion,  high-resolution  color images in the same
      fashion  as  a  time-lapse  VCR   (videocassette   recorder  for  security
      applications).  The software will allow for remote viewing of video images
      stored in the VideoBank,  as well as for the  transmission  of images over
      various types of communication  mediums such as, standard telephone lines,
      ISDN, Cellular, T1, ADSL, and Satellite.


      The  market for  security  products  in general is very  strong and is not
periodic or cyclical in its growth patterns. Growth has averaged over 8% for the
past 10 years.  However, the GPS market has experienced enormous growth. In 1996
the overall GPS market was a $2 billion dollar industry.  U.S. manufacturers own
approximately  75% of the  worldwide  market  share.  The market size has almost
quadrupled  from 1993 when it stood at $510 million.  Sales of GPS receivers are
expected  to reach  $9.6  billion  by the year  2000.  The  market  for GPS over
cellular is estimated at $8.5 billion by the year 2005.


                                      -3-
                                     <PAGE>

      Demand is very  strong  and the  VideoBank  and GPS line of  products  are
expected to be one of the first digital recording and transmission  devices with
GPS tracking  capabilities to reach this fertile market.  Recent  breakthroughs,
involving the  introduction  of "Wavelet"  compression  algorithms  allowing for
significantly  faster transfer speeds,  and proprietary  correcting  algorithms,
will  springboard  the company  into  vertical  markets  that until now were not
technologically viable. The ability to tap pent-up demand will allow for instant
market penetration.

      The  company  has  key  strategic   relationships   with  highly   skilled
engineering firms. The research and development  carried out by these firms is a
key  strategy  to gain and  maintain  market  share.  To stay ahead of the game,
improved video compression techniques and increased  functionality will continue
to be developed.  Our software engineering  contractors are comprised of some of
the leading experts in video  compression  algorithms and  microprocessor  based
technology.

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  nonperformance  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.


Manufacturing and Engineering Agreements

      Engineering and manufacturing of the Company's VideoBank software is being
supplied by Enhanced  Video Systems based in Vancouver,  British  Colombia which
will  provide the  VideoBank  software  with great  improvement  in  compression
techniques,  enhancing  the  products  performance  significantly.  The  Company
anticipates  that  its new  versions  of  VideoBank  with  the  new  compression
algorithm  will be ready for  market in the first  quarter of 1999 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.


                                      -4-
<PAGE>

      The GPS product line is currently  being  engineered and  manufactured  by
Adastra, Inc. based in Montreal,  Quebec pursuant to a subcontracting Agreement.
The  products  are  now  ready  for  beta  testing  and it is  anticipated  that
production units will be available by the first quarter of 1999.


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.

      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
"The Company--Competition."

                                      -5-
<PAGE>

      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  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  upgrading the equipment  itself.
These  software  upgrades  permit the  addition of new  functions  such as Video
Transmission, Image Downloading, Multi-Plexing and Video Motion Sensing.


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 currently
expects to have its first such product  available  for marketing and sale during
the first quarter of 1999. 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.


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   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,
Hymatom  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.

GPS  "R2" Vehicle Safety System

      The R2 vehicle  safety  system  has been  designed  to  provide  real-time
warning and recording of an automotive and/or driver unsafe condition along with

                                      -6-
<PAGE>

location,  real-time recovery and two-way communication  capabilities for a wide
variety of applications.  All the relevant date,  together with position,  time,
date and real time velocity may be either  automatically  transmitted  to one or
more control  centers located at various  selected  geographical  locations,  or
stored in memory for eventual download and replay.  Multiple control centers can
be connected in a network with full information exchange capability.

      Precision in establishing  position is obtained  utilizing the information
provided by the Navstar GPS (Global  Positioning  System) satellite system and a
proprietary signal-processing algorithm to further enhance the precision.

      GPS provides world-wide coverage; it delivers latitude, longitude. The GPS
system falls under the  regulatory  arm of the US military,  the  Department  of
Defense, and for national security purposes, the signal is purposely degraded to
within 100  meters  accuracy.  To  counter  that  problem,  an error  correcting
algorithm  developed by Paradigm's  contractors  improves GPS accuracy levels to
within +2 to + 5 meters.

Geofencing

      The R2 can  be  programmed  to  operate  within  a  certain  perimeter  or
pre-programmed  route.  This  will  allow  a user to  report  by  exception  for
pre-determined  alert  criteria.  For example an armored  vehicle can have a set
route.  If the vehicle would be re-routed for any reason,  the unit would report
back its exact location.

      The R2 vehicle safety system CPU (central  processing  unit) processes the
information  provided  by the  sensors,  provides  an alert  signal  for  unsafe
conditions and transmits the relevant information to either a monitoring station
or to a storage unit for later review.  Using the R2 safety system  hardware and
software  components,  a virtually  unlimited number of vehicles and individuals
can be tracked simultaneously.

      Each  remote  unit is  serialized  with a  unique  identity  code  that is
transmitted at the beginning of each message to provide the  monitoring  station
the information to distinguish one mobile unit from another.

Optional Features

      R2  pilot  projects,  which  are  expected  to be  underway  by the end of
November 1998,  are designed to be full featured,  with the ability to carry out
numerous tasks.  This will help the companies  testing the units to decide which
features  and  functions  are  really  necessary  for  their  applications.  The
following outlines some of these features:

Driver Display

      A driver  display unit will be able to provide the operator  with feedback
about any unsafe  condition on a LCD display  with an audio and visual  warning.
The driver  display  provides a warning to the driver for each of the  following
conditions:

a)  Excessive speed ("Speed");
b)  Excessive safety distance ("Safety Distance");
c)  Faulty brakes ("Brake Fail");
d)  Excessive temperature ("Overtemperature")'
e)  Seat-belts ("Seat Belts");  and
f)  Off route ("Route Error")

      The fixed,  in-vehicle  units can be equipped  with a battery as an option
for backup and a belt clip  mounting  cradle is available for a portable unit to
allow personal use as well.

                                      -7-
<PAGE>

      Paradigm   will   also   market    communications   server   and   graphic
workstation/commercial software to consumer, industrial and governmental users.

      The R2 vehicle safety system product line currently provides the following
additional applications:

Vehicle Theft Protection. Upon receipt of an alarm from a vehicle installed with
the system, the monitoring station receives a signal that automatically displays
the precise position and  identification of the vehicle.  This data is displayed
on a  computer-generated  map  of the  area  which  is  used  by the  monitoring
personnel  to advise the  police,  or the  appropriate  authority,  of the exact
vehicle position, direction of travel and approximate speed.

Personal Security. The R2 vehicle safety system incorporates a driver accessible
panic  button,  which allows the driver to discreetly  communicate  an emergency
message  to the  monitoring  station  in the  event of a  crisis.  As a  result,
assistance  can be  summoned  in a short  period of time.  The  display  mapping
software allows the  presentation of all the unsafe  conditions  superimposed on
street or rural road maps, as appropriate. If the monitoring station receives an
unsafe condition  report,  the position of the user is displayed on the relevant
map. If the  appropriate  map is not currently  displayed,  a new window will be
opened showing the correct map with the new user centered in the map window.  If
the user  moves,  the map  display  will  automatically  pan so that the user is
always visible in the map window.  In the event of an emergency,  the monitoring
station  operator  can  access an unsafe  condition  and  pop-up a window  which
displays from the database all of the information  relation to that vehicle. The
monitoring  station  operator  can zoom in and out on the map to display more or
less  detail.  In  addition,  the map window can be resized to show more or less
area at the same detail level. Print and/or fast fax capabilities are provided.

Medical  Emergency.  The R2 vehicle  safety  system has the  ability to report a
drivers  physical  emergencies to the monitoring  service so that immediate help
can be sent to the driver of the vehicle.

Roadside Assistance.  Less dramatic but equally important is the ability of
summoning roadside assistance in the event of a mechanical breakdown.

Competing Products. Paradigm has reviewed published reports concerning competing
products   developed  by  companies  such  as  Ford  Motor   Company,   Rockwell
International,  ATX Research,  Prince-Sky  Tel AutoLink and General  Motors.  It
appears from data collected on these products, that the systems are larger, less
flexible and more  expensive than  Paradigm's  products.  Paradigm  monitors the
competitive products on a regular basis and is continuously being updated.

Personal Tracking - Portable Unit

      The R2 vehicle  safety  system is a system that has been  designed  with a
powerful communications  platform. This platform has the ability to monitor over
120 features, which will be available to consumers,  industrial and governmental
users on a custom  basis.  The add-on  service  area will  provide the  greatest
potential for growth of the R2 vehicle safety system's  product lines because it
can be configured to the need of the user. The add-on services are covered in an
appendix. As an example of these services,  the R2 vehicle safety system has the
platform to support a medical  patient  cardiovascular  monitor  for  biomedical
analysis.

                                      -8-
<PAGE>

      There is a vast market potentially  available for this product.  Between 2
and 3  million  Americans  have  heart  conditions,  and  400,000  new cases are
diagnosed each year.  Heart failure causes more than 38,000 deaths a year and is
a contributing  factor in another 225,000  deaths.  The death rate attributed to
heart  failure has doubled  since 1968, in contrast to a greater than 50 percent
decrease in coronary disease  mortality during the same period.  More people are
living longer. People aged 65 and older represent the fastest growing segment of
the population, and the risk of heart failure increases with age.

      The need for  portability  and the  capability  of  supporting  biomedical
communication  will make the R2 personal  system's  platform a powerful  tool in
saving lives.


GPS Patent and Licensing Rights

      Paradigm  plans to be the  first  company  to be  licensed  under a unique
broad-based  patent,  which  covers  transmission  of GPS  coordinates  via  any
cellular  network.  The  patent  which has been  issued and upheld in the United
States  and  Australia  is  pending  in Canada  and  Japan.  The  patent is very
significant  since over 50 companies are currently using the technology  covered
under the patent.

      Paradigm has also entered into a joint  venture with the patent  holder as
the  exclusive  worldwide  licensing  agent  for the  patent.  Revenues  will be
generated by licensing existing companies presently  infringing on the patent as
well as those who are just entering the market.


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.


Employees

      There was only one full time  employee,  David  Kerzner,  at December  31,
1997.  David  Kerzner was paid a consulting  fee. In addition to David  Kerzner,
there  were  two   consultants   at  December  31,  1997,   who  were  providing
administrative  and  financial  services to the Company.  None of the  Company's
employees  is  represented  by a  labor  union  or is  subject  to a  collective
bargaining  agreement.   The  Company  has  a  positive  relationship  with  its
employees.

Major Suppliers and Customers

      The  Company's  major  supplier is ADASTRA  Technology,  Inc.,  located in
Montreal, Canada. The Company does not have any major customers.

Research and Development

      A  significant  amount  of time and  effort  was  placed on  research  and
development at the Company's inception and such effort has continued  throughout
its existence.

                                      -9-
<PAGE>



ITEM 2. Description of Properties

      The Company's executive offices are located in 1,200 square feet of office
space in Toronto,  Ontario,  Canada, which is leased by the Company on a monthly
basis at a rental rate of $2000 (Canadian).  The Company maintained an office in
California  pursuant to a lease which expired in February 1998. The leased space
was used for technical support, distribution and marketing measured 1,560 square
feet and the monthly  rental rate was $1,482.  The Company  abandoned  the lease
when it closed the California  office in September 1997. The Company also rented
approximately  1000  square  feet of office  space in North  York,  Ontario on a
monthly  basis.  The monthly rate for the office  space and office  services was
$1,391.  The Company vacated the North York office in November 1997. The Company
believes that its facilities are adequate for its needs and that  alternative or
additional space will be available as required.

ITEM 3. Legal Proceedings

      As of December 31, 1997, 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.

                                      -10-
<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." Prior to
that date, there was no public market for the Company's  Common Stock.  From the
time of listing  through  December 31, 1997,  the high bid price was $0.7500 and
the low bid price was $0.0545.  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,  1997 (as  reported  by  NASDAQ),  which
represent inter-dealer prices,  without retail mark-up,  mark-down or commission
and may not reflect actual transactions:

Fiscal Year Ended December 31, 1996                 High Bid     Low Bid
-----------------------------------                 --------     -------
   Second Quarter Ended June 30, 1996 
     (from April 12, 1996)                          $0.1845      $0.1562
   Third Quarter Ended September 30, 1996           $0.2915      $0.1710
   Fourth Quarter Ended December 31, 1996           $0.4375      $0.125

Fiscal Year Ended December 31, 1997
-----------------------------------
   First Quarter Ended March 31, 1997               $0.375       $0.125
   Second Quarter Ended June 30, 1997               $0.25        $0.0625
   Third Quarter Ended September 30, 1997           $0.40625     $0.125
   Fourth Quarter Ended December 31, 1997           $0.22        $0.11

      As of October 23, 1998,  there were 56 holders of record of the  Company's
Common  Stock.  The  Company has never  declared or paid a cash  dividend on its
capital  stock and does not expect to pay cash  dividends on its Common Stock in
the foreseeable future. The Company currently intends to retain its earnings, if
any, for use in its business.  Any  dividends  declared in the future will be at
the discretion of the Board of Directors and subject to restrictions that may be
imposed by the Company's lenders.

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

     All of the  following  sales were  exempt  from  registration  pursuant  to
Sections  3(b) and 4(2) of the  Securities  Act of 1933  (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.

                                      -11-
<PAGE>

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

March 12, 1997, Common  PTI Financial     1,316,676        $395,000
Stock                   Corp.

September 19, 1997,     Private             210,000         $52,500
Common Stock            Placement
                        Investors

December 19, 1997,      Private             300,000          $7,910
Common Stock            Placement
                        Investors

Note: The PTI issue on
March 12, 1997 was
conversion of a loan.


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

Results of Operations

      The  following   discussion   contains   forward-looking   statements  and
projections.  Because these forward-looking statements and projections are based
on a number of  assumptions  and are subject to  significant  uncertainties  and
contingencies,  many of which are  beyond  the  Company's  control,  there is no
assurance that they will be realized,  and actual results may vary significantly
from those shown.

Liquidity and Capital Resources

      The Company had no cash on hand at December 31, 1997.  In order to finance
future operations, the Company needs to raise additional funds through the issue
of additional shares and debt.

Plan of Operation

      The  Company is a  development  stage  company  with a limited  history of
operations.  It was  incorporated  on January 12, 1996.  The  Company's  efforts
during its first twenty-four months have centered and will continue to center on
the development and distribution of its Global  Positioning  Satellite  tracking
devices and VideoBank and  VideoBank-Remote  video  surveillance  products.  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  plans to

                                      -12-
<PAGE>

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 as the Company's  warehouse and production  facility
requirements  are minimal.  The Company may increase the number of its employees
as it continues to grow and further solidifies and consolidates its distribution
networks.

      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, the sale of new products and assumption of additional debt.

Three Months Ended December 31, 1997

      The  Company is a  development  stage  company  with a limited  history of
operations. It was incorporated on January 12, 1996.

      Revenue for three months  ended  December  31, 1997 was  ($486,499)  which
compares with $55,689 for the three months ended December 31, 1996. The negative
sales for the fourth  quarter of 1997 resulted from the reversal of the one time
barter sale of $450,000 and other sales which proved to be irrecoverable.

      Gross  profit for the three months  ended  December 31, 1997  reflects the
write-off of all  inventories on hand. As result of the closing of the office in
California and changes in technology as well as the low sales level,  management
decided  to write  off these  inventories  as they  were  considered  to have no
realizable value.

      Selling,  General and  Administrative  Expenses for the three months ended
December  31, 1997 were  $155,775 as compared to $413,206  for the three  months
ended  December 31, 1996.  This decrease is due to the closing of the California
office in  September  1997 and a reduction  in staff due to the  outsourcing  of
research and development activities.

      The net loss for the three  months  ended  December  31, 1997 was $855,959
compared to $457,537 for the three months  ended  December 31, 1996.  The losses
are  mainly  attributable  to the write  off of  irrecoverable  receivables  and
inventories in the fourth quarter of 1997 and product  development  and start-up
expenses incurred in the corresponding period for the prior year.

Year Ended December 31, 1997

      During the year ended  December  31, 1997,  the  Company's  sales  totaled
$47,468 as compared to $55,689 for the year ended December 31, 1996. Most of the
sales are attributable to sale of VideoBank and individual  hardware items. As a
result of a shortage of funds,  the Company  closed its office in  California in
September 1997 and significantly reduced all its operations.

      The Company  recorded a gross loss of $306,470 for the year ended December
31, 1997 as compared to gross  profit of $7,806 for the year ended  December 31,
1996.  The gross  loss is due to the write off of all  inventories  as they were
considered to have no realizable value.

      The Company had a net loss of $1,512,215  for the year ended  December 31,
1997 as compared to a loss of $1,435,387  for the year ended  December 31, 1996.
The losses are  attributable to the write off of  irrecoverable  receivables and
inventories  in the fourth  quarter of 1997 and  product  development,  start-up

                                      -13-
<PAGE>

expenses and  marketing  expenses  incurred in 1996 and the first nine months of
1997. It is anticipated,  however, that there will be a steady decline in losses
in future quarters.

Subsequent Events

      In February 1998, the Company  acquired all the shares of 1280884  Ontario
Inc. and its wholly owned  subsidiary,  North York Leasing Limited.  The Company
issued  3,720,000  Common Shares to the vendors of these companies at a price of
25 cents per share  representing  a cost of  $930,000  and is  required to issue
additional  shares to these vendors if during any one consecutive 60 day trading
period between April 1998 and February  1999,  the average  closing price of the
Company's  shares is less than 25 cents, so that the total  consideration is the
equivalent of $930,000.  The Company has  instituted a legal action  against the
legal firm that  represented  all the parties in the above  transaction and that
acted as escrow agent for the above shares and is claiming  that these shares be
canceled and that damages be paid to the Company. No provision has been made for
the issue of any additional shares to the vendors of these companies.

      The Company wrote off its investment in the above companies in March 1998,
as there were insufficient  funds to finance their operations,  and the value of
the investment had materially declined.

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-I.

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

None.

                           PART III

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

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


       Name            Age            Position, Term in Office
       ----            ---            -------------------------

Jack Y. L. Lee        47              Chief    Executive     Officer,
                                      Secretary-Treasurer,        and
                                      Director     (all     positions
                                      January 12,  1996,  to December
                                      29, 1997)

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

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


                                      -14-
<PAGE>

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:  resigned as CEO,  CFO and  Secretary on December 29, 1997.
Mr.  Lee has served as the Chief  Executive  Officer,  Treasury-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 Charted  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  and will take over as CEO in January 1998 from
Mr. Jack Lee who resigned on December 29, 1997.  From 1990 to 1994,  Mr. Kerzner
was employed by ISTI  Corporation/Intertec  Security, most recently as President
of ISTI  Corporation  and as the 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.

     Based  solely on review of the  copies  of such  reports  furnished  to the
Company during or with respect to fiscal 1997, or written  representations  that
no Forms 5s were  required,  the  Company  believes  that during the fiscal year
ended December 31, 1997, all Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with.

Item 10.  Executive Compensation

Summary Compensation Table

     The  following  table sets forth the  compensation  earned by the Company's
Chief  Executive  Officer  and the  registrant's  four most  highly  compensated
executive  officers other than the Chief Executive  Officer,  whose total annual
salary and bonus  exceeded  $100,000  during the fiscal year ended  December 31,
1997:

                                      -15-
<PAGE>


                                                       
                                                       
                                                       Shares
                                   Annual              of Common
                                   compensation         Stock
Name and                          ------------         Underlying
principal position       Year    Salary    Bonus       options/SARS
------------------       ----    ------    -----       ------------

Jack Y. L. Lee           1997   $66,600      $0           0
Chief Executive          1996   $66,000      $0        1,875,000
Officer and
Secretary-Treasurer of
the Company

David Kerzner            1997   $100,000     $0           0
President                1996   $ 75,000     $0        3,187,500

Note:  Jack Lee
resigned as CEO, CFO
and Secretary on
December 29, 1997

Directors' Compensation

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

Employment Contracts

      In  February  1996,  the  Company  entered  into  a  ten-year   consulting
agreement,  with  David  Kerzner,  President  of  the  Company.  The  consulting
agreement  provided  for a fee of  $75,000  in  1997,  but Mr.  Kerzner  was due
$100,000  total.  The  additional  $25,000  was  accrued  at the  end  of  1997,
therefore,  the  total  consulting  fee  payable  to Mr.  Kerzner  for  1997 was
$100,000.  Mr.  Kerzner  was paid a  consulting  fee and was not on the  Company
payroll. The consulting agreements may be terminated early by the Company in the
event  of the  resignation,  death or  disability  or  other  incapacity  of Mr.
Kerzner,  as the case may be. The consulting  agreements also contain provisions
regarding  confidentiality of information,  ownership of inventions and patents,
non-competition and non-solicitation. Mr. Kerzner is eligible to receive a bonus
upon the approval of the Company's board of directors.

      The Company  entered  into an  employment  agreement  with Mr. Jack Lee in
February 1996, which was a consulting agreement in terms of which Mr. Lee was to
be paid an annual fee of $66,600.  Mr. Lee resigned as CEO,  Secretary-Treasurer
and director of the Company on December  29, 1997,  There are no fees payable to
Mr. Lee for any period subsequent to the date of his resignation.

      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.


                                      -16-
<PAGE>


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:



                                   Amount and      
Name   and   Address   of          Nature of    
Name and Address of                Beneficial      Percent
Beneficial Owner                   Owner (1)      of Class (2)
-------------------------          ----------     ------------

Jack Y. L. Lee
 28 Old Park Lane                  3,416,668(3)      18.88%
 Richmond Hill, Ontario L4B 2L4

David Kerzner, President
and CEO                            3,525,000(4)      18.24%
 663 Glencairn Avenue             
 Toronto, Ontario M6B 1Z8

Jacob Kerzner, Director
 148 Faywood Blvd.                 562,500 (5)       3.37%
 Downsview, Ontario M3H 2W7

Sarah Casse
  63 Otter Crescent                3,350,000(6)      18.60%
  North York Ontario M5N 2W7

Mendel Raksin
  338 Crown Street                 3,333,360(7)      18.72%
  New York, NY 11225               

All directors and
executive officers as a            7,504,168         34.35%
group (3 persons):

-----------------------
     (1) Under Securities and Exchange  Commission rules,  beneficial  ownership
includes any shares as to which an individual has sole or shared voting power or
investment  power.  Unless  otherwise  indicated,  the Company believes that all
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock  beneficially  owned by them. A person is also deemed
to be the  beneficial  owner of  securities  that can be acquired by such person
within 60 days from the date  hereof  upon the  exercise of warrants or options.
Each  beneficial  owner's  percentage  ownership is  determined by assuming that
options  or  warrants  that are held by such  person  and which are  exercisable
within 60 days from the date hereof have been exercised.

     (2) Based on 16,140,445 shares of Common Stock issued and outstanding as of
December 31, 1997.

     (3) Includes 1,958,334 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.

     (4) Includes 3,187,500 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.

     (5) Includes  562,500  shares of Common Stock issuable upon the exercise of
presently exercisable stock options.

     (6) Includes 1,875,000 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.

     (7) Includes 1,666,680 shares of Common Stock issuable upon the exercise of
presently exercisable stock options.


                                      -17-
<PAGE>


Item 12.  Certain Relationships and Related Transactions

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

     In  December  29,  1997,  Mr. Jack Y. L. Lee  resigned  as Chief  Executive
Officer of the Company and was replaced by Mr. David Kerzner who was  President.
The Company has entered into a Consulting  Agreement  with David  Kerzner  under
which he receives an annual salary of $100,000.

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

(a) Index to Financial Statements
    Report of Independent Auditors
    Financial Statements

    Balance  Sheets - December 31, 1997 
    Statement of Income for the year ended  December  31, 1997 
    (from  inception)  and the year  ended   December  31, 1996 
    Statement  of  Changes  in  Shareholder's  Equity  for the  Year
    Ended  December  31,  1997
    Statement  of  Deficit  for the Year  Ended  December  31,  1997
    Statements  of Cash Flows for the year ended  December  31, 1997
    Notes to Financial Statements

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.


                                      -18-
<PAGE>

24     Power of Attorney  (included in the  signature  page to
       this report).

27     Financial Data Schedule.

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

   *  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.



      (b)  No reports on Form 8-K were filed during the fiscal year 1997.
     
 

                                      -19-


<PAGE>




                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                          (A Development Stage Company)

                         INDEX TO FINANCIAL STATEMENTS

                                                                 Page
                                                                 ----

Report of Independent Auditors . . . . . . . . . . .             F-2
Balance Sheet at December 31, 1996 and 1997 . . . .              F-3
Statement of Income for year ended December 31, 1997 . .         F-4
Statement of Deficit for the year ended December 31, 1997        F-5
Statement of Cash Flow for the year ended December 31, 1997. . . F-6
Statement of Changes in Shareholders Equity for the Year Ended
      December 31, 1997 . . . . . . . . . . . . . . . . . . . .  F-7
Notes to Financial Statements. . . . . . . . . . . . . . . . .   F-8



                                      F-1
<PAGE>



     BROMBERG & ASSOCIATE        1177 Finch Avenue West Suite 21
----------------------------          Downsview, Ontario M3J 2E9
     CHARTERED ACCOUNTANTS                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,  1997 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,
1997 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
      August 14, 1998


                                      F-2
<PAGE>


                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                          (A Development Stage Company)
                               Balance Sheet as at


                           December 31, 1997      December 31, 1996
                           -----------------      -----------------  
ASSETS

CURRENT ASSETS
     Bank                            $0                $154,702
     Accounts Receivable             $0                $69,162
     Share Subscription              
       Receivable                    $0                $202,500
     Inventories                     $0                $286,593
     MiscellaneousReceivable    $35,515                $19,915
                                -------                -------
                                $35,515                $732,872

LONG TERM:
Capital  Assets (Notes 1, 3)    $13,982                $49,000
                                -------                -------

TOTAL ASSETS                    $49,497                $781,872
                                =======                ========



LIABILITIES

CURRENT
     Bank Indebtedness               $139                   $0
     Accounts Payable            $422,008              $68,989
     Loans  Payable (Note 4)     $356,772              $395,000
                                 --------              --------

TOTAL LIABILITIES                $778,919              $463,989
                                 --------              --------




SHAREHOLDERS' EQUITY
Share Capital (Note 5)
Authorized 30,000,000 Common
Stock at $0.0001 par
   value per share
Issued and outstanding:
16,140,445 as of
   December 31, 1997          
14,123,769 as of
   December 31, 1996          $2,218,180               $1,753,270         
Deficit                      ($2,947,602)             ($1,435,387)
                              ----------               ----------      
Total Shareholders' Equity     ($729,422)                $317,883
Total Liabilities &            ---------                 --------
   Shareholders' Equity          $49,497                 $781,872
                                 =======                 ========





                                      F-3
<PAGE>




                      PARADIGM ADVANCED TECHNOLOGIES, INC.


                          (A Development Stage Company)


                               Statement of Income


                      For the Year Ended December 31, 1997

                              1997           1996
                              ----           ----


REVENUES
Sales Revenue (Note 1)       $47,468        $55,689
                             -------        -------

Cost of Sales
Inventory - Beginning       
  of Period                 $354,762             $0
Purchases                     ($824)       $402,645
                              ------       --------
                            $353,938       $402,645
Inventory
   - End of Period                $0       $354,762
                                  --       --------
Cost Of Sales               $353,938        $47,883
                            --------        -------
Gross Profit/(Loss)       ($306,470)         $7,806
                          ----------         ------


OPERATING EXPENSES:
Selling, General &        
  Administrative          $1,109,064     $1,377,028
Research & Development       $48,909        $55,188
Depreciation and              
  Amortization                $4,213        $10,977
Interest Expense             $12,500             $0
Capital  Assets  Written     $31,059             $0
 Off                         -------             --
TOTAL EXPENSES            $1,205,745     $1,443,193
                          ----------     ----------

NET (LOSS) FOR THE       
  PERIOD                 ($1,512,215)   ($1,435,387) 
                          ==========     ==========
Earnings Per Share            (0.10)         (0.15)
                              ======         ======
Average common shares
  outstanding during      15,355,914      9,505,170
  period                  ==========      =========



                                      F-4
<PAGE>


                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                          (A Development Stage Company)
                              STATEMENT OF DEFICIT
                      For the Year Ended December 31, 1997


                                1997            1996
                                ----            ----
Deficit  -  Beginning  of   
     the Period             ($1,435,387)         $0
Net Loss - Current Period   ($1,512,215)    ($1,435,387)
                            ------------    ------------
Deficit - End of Period     ($2,947,602)    ($1,435,387)
                            ============    ============



                                      F-5

<PAGE>


                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                          (A Development Stage Company)
                             STATEMENT OF CASH FLOW
                      For the Year Ended December 31, 1997

                               1997            1996
                               ----            ----
CASH FLOWS FROM
OPERATING ACTIVITIES
Net gain  (loss)  for the 
  period                   ($1,512,215)    ($1,435,387)
Items  not  requiring  an
  outlay of Cash:
  Amortization  of  Fixed       
    Assets                      $4,213        $10,977
  Capital  Assets Written      
    Off                        $31,059             $0
Net Changes in non-cash 
 working capital items 
 related to operations:
Inventory                     $286,593      ($286,593)
Accounts Receivable            $69,162       ($69,162)
Miscellaneous Receivable      ($15,600)      ($19,915)
Share Subscriber Receivable   $202,500      ($202,500)
Accounts Payable              $353,019        $68,989
                              --------        -------
Total Cash Flow Used in     
  Operations                 ($581,269)    ($1,933,591)               
                              ========      ==========


CASH    FROM    FINANCING
ACTIVITIES
Loan Payable                 ($38,228)       $395,000
Proceeds of Common  Stock     
  Issuance                    $464,910     $1,753,270                
                              --------     ----------
Net Cash Used in              
  Financing Activities        $426,682     $2,148,270        
                              ========     ==========
  

CASH  USED  IN  INVESTING
ACTIVITIES
Acquisition of Fixed Assets     ($254)      ($59,977)
                                ------      ---------
Net Cash Used in               
 Investing Activities           ($254)       (59,977)           
                                ======       ========
  
NET  INCREASE  (DECREASE)   
IN CASH FOR THE PERIOD      ($154,841)       $154,702
Cash - Beginning of period   $154,702             $0
                              --------       --------
Cash/(Bank  Indebtedness)       
  - End of period               ($139)       $154,702          
                                 =====        ========




                                      F-6
<PAGE>




                      PARADIGM ADVANCED TECHNOLOGIES, INC.
                         (A Development Stage Company)

                 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY


                      For the Year Ended December 31, 1997
                                Shares      Par Value     Additional
                                                        Paid-Up Capital
                             -------------------------------------------
Opening Balance - December      14,123,769       $1,412      $1,751,858
31, 1996

Issuance of Common Shares        1,316,676         $132        $394,868
on March 12, 1997 on the
Conversion of PTI Financial
Corp. Loan outstanding at a
rate of $0.30 per share

Issuance  of  Common  Shares       140,000          $14          $6,986
on  May 5,  1997  due to the
exercise  of  Stock  Options
at $0.05 per share

Issuance  of  Common  Shares       210,000          $21         $52,479
on   September    19,   1997
through First Liberty Mutual

Issuance  of  Common  Shares        50,000          $50          $2,450
on October  16,  1997 due to
the    Exercise   of   Stock
Options at $0.05 per share

Issuance  of  Common  Shares       300,000         $300          $7,610
on December 19, 1997               -------         ----          ------


Balance as at  December  31,    16,140,445       $1,929      $2,216,251
1997                            ==========       ======      ==========




                                      F-7
<PAGE>




                       PARADIGM ADVANCED TECHNOLOGIES INC.
                         (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 1997


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      a)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%.

      b)METHOD OF ACCOUNTING

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

         ii) There  are no  material  differences  in the  determination  of Net
         Earnings and per share calculations between Canadian and U.S GAAP.

2.    INCORPORATION

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

3.    CAPITAL ASSETS


                           Accumulated    Net Book     Net Book
               Cost 1997  Depreciation   Value 1997   Value 1996
               ---------      1997       ----------   ----------
                              ----

Furniture and
fixtures,       
Dec. 31, 1997  $ 21,847    $  7,865      $ 13,982     $49,000

4.    LOANS PAYABLE

      Loans payable  include loans  amounting to $258,842 which are secured by a
      pledge  over all the assets of the  Company.  Interest is payable on these
      secured loans at a rate of prime plus 4%.

5.    STOCK OPTIONS AND WARRANTS

      a) Options to purchase  Common Shares have been issued under the Company's
      stock option plan to directors, officers, employees and consultants of the
      Company. Options outstanding at December 31,1997 are as follows:


                                      F-8
<PAGE>
                       PARADIGM ADVANCED TECHNOLOGIES INC.
                         (A Development Stage Company)
                          NOTES TO FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 1997


Year Granted     Expiration Date  Price Range        No. of Shares
------------     ---------------  -----------        -------------

1996             January 2001     $0.05              7,933,334

1997             November 2000    $0.12              45,000

1997             November 2000    $0.125             125,000

1997             October 2000     $0.15              40,000

1997             November 2000    $0.20              50,000

1997             December 2000    $0.25              100,000

1997             December 2000    $0.40              200,000
---------------------------------------------------------------
                                  Total Stock
                                  Options           
                                  Outstanding       8,493,334    
                                                    ---------

      b) As at December 31, 1997, 3,607,111 warrants were issued, exercisable at
      a price of $0.30 per share for each  warrant  owned.  These  warrants  are
      exercisable  over a 3 year  period and expire in three years from the date
      of issue.

6.    SUBSEQUENT EVENT

      In  February  1998,  the  Company  acquired  all the  shares of 1280884
      Ontario Inc. and its wholly owned subsidiary,  North York Leasing Limited.
      The  Company  issued  3,720,000  Common  Shares  to the  vendors  of these
      companies at a price of 25 cents per share representing a cost of $930,000
      and is required to issue additional  shares to these vendors if during any
      one  consecutive  60 day trading  period  between  April 1998 and February
      1999,  the average  closing price of the Company's  shares is less than 25
      cents, so that the total consideration is the equivalent of $930,000.  The
      Company  has  instituted  a legal  action  against  the  legal  firm  that
      represented  all the  parties in the above  transaction  and that acted as
      escrow  agent for the above  shares and is claiming  that these  shares be
      canceled and that damages be paid to the  Company.  No provision  has been
      made for the  issue  of any  additional  shares  to the  vendors  of these
      companies.

      The Company wrote off its investment in the above companies in March 1998,
      as there were  insufficient  funds to finance  their  operations,  and the
      value of the investment had materially declined.


                                      F-9



<PAGE>

                                   SIGNATURES

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

                      PARADIGM ADVANCED TECHNOLOGIES, INC.


                     By: /s/ David Kerzner
                         ----------------------------------
                          David Kerzner
                          President, Chief Executive Officer
                          and Director

      Each person whose signature appears below hereby  constitutes and appoints
David Kerzner his true and lawful attorney-in-fact and agent, with full power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  to sign any and all amendments to this Report,  and to
file  the  same,  with  exhibits  thereto  and  other  documents  in  connection
therewith,  with the Securities and Exchange  Commission,  hereby  ratifying all
that said attorney-in-fact and agent or his substitute or substitutes, or any of
them, may lawfully do or cause to be done by virtue hereof.

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

Signature                 Title                             Date
---------                 -----                             ----

/s/ David Kerzner         President, Chief Executive       November 4, 1998
-----------------         Officer (Principal Executive
David Kerzner             Officer) and Director


/s/ Selwyn Wener          Chief Financial Officer          November 4, 1998
----------------          (Principal Financial Officer)
Selwyn Wener

/s/ Jacob Kerzner          Director                        November 4, 1998
-----------------
Jacob Kerzner