10-Q 1 advancedid10q2q09.txt FORM 10-Q FOR QUARTER ENDED JUNE 30, 2009 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [x] Quarterly Report Pursuant to Section 13 or 15(d) Securities Exchange Act of 1934 for Quarterly Period Ended June 30, 2009 -OR- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities And Exchange Act of 1934 for the transaction period from _________ to________ Commission File Number 000-24965 ADVANCED ID CORPORATION -------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 46-0439668 --------------------------------------------------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization Identification Number) 4500 - 5th Street NE #200, Bay 6 Calgary, Alberta, Canada T2E 7C3 ---------------------------------------------------------------- (Address of principal executive offices, Zip Code) 403-264-6300 ------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [x] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [x] The number of outstanding shares of the registrant's common stock, September 14, 2009: Common Stock - 77,287,137 2 PART I -- FINANCIAL INFORMATION Advanced ID Corporation Item 1. Financial Statements Condensed Consolidated Balance Sheets, June 30, 2009(unaudited) and December 31, 2008 Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months and six months ended June 30, 2009 and 2008 (unaudited) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2009 and 2008 (unaudited) Notes to condensed consolidated financial statements (unaudited) 3 ADVANCED ID CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS As of June 30, 2009 and December 31, 2008 ASSETS June 30, 2009 December 31, 2008 (Unaudited) (Audited) ------------ ---------------- Current assets Cash $ 11,170 $ 165,072 Trade accounts receivable, net 9,569 135,156 Accounts Receivable - Related parties - 346,974 Inventories - finished goods 64,534 45,703 Prepaid expenses 2,204 13,859 ---------- ----------- Total current assets 87,477 706,764 ---------- ----------- Property and equipment, net 26,788 51,334 Promissory notes receivable 725,000 725,000 ---------- ----------- Total other assets 751,788 776,334 ---------- ----------- Total assets $ 839,265 $ 1,483,098 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 440,272 $ 315,666 Accounts payable - related parties - 138,444 Accrued liabilities 6,421 13,491 Loans Payable - related parties 80,000 106,761 Redemption put liability 32,253 32,253 Contingent consideration on acquisition of Pneu-Logic - 70,000 Total current liabilities 558,946 676,615 Debentures payable 1,194,580 1,219,249 ----------- ----------- Total Liabilities 1,753,526 1,895,864 ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY: Series A preferred stock, $0.01 par; 500,000 shares Authorized; none issued $ - $ - Common stock, $0.01 par value, 100,000,000 shares authorized, 75,687,905 and 75,990,271 shares issued and outstanding, respectively as of June 30, 2009 and December 31, 2008 756,879 759,904 Additional paid-in capital 10,513,678 10,802,481 Subscriptions receivable - (99,430) Accumulated deficit (12,170,993) (11,867,754) Accumulated other comprehensive loss (13,825) (7,967) ----------- ----------- Total stockholders' deficit (914,261) (412,766) ----------- ----------- Total liabilities and stockholders' deficit $ 839,265 $ 1,483,098

The accompanying notes are an integral part of these condensed consolidated financial statements. 4 ADVANCED ID CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the Three Months and Six Months Ended June 30, 2009 and 2008 (Unaudited) Three Months Ended Six Months Ended June 30, June 30, ------------------ ----------------- 2009 2008 2009 2008 ---- ---- ---- ---- Revenues $ 64,410 $ 363,637 $ 210,904 $ 712,021 Cost of revenues 38,289 200,861 112,244 402,376 ---------- ---------- ---------- ---------- Gross profit 26,121 162,776 98,660 309,645 Research and development expense 30,552 21,476 32,502 34,406 Selling and general and administrative expense 195,092 1,004,014 510,772 1,595,377 Impairment of property and equipment - - 21,702 - Accretion on debenture 2,680 - 5,331 - Gain on sale of PLCL (219,156) - (219,156) - Recovery of bad debt - - (4,040) - --------- ---------- ---------- ---------- Income (loss) from operations 16,953 (862,714) (248,451) (1,320,138) Interest expense 10,977 2,088 14,120 2,961 --------- ---------- ---------- ---------- Income (loss) before income taxes 5,976 (864,802) (262,571) (1,323,099) Provision for income taxes - - - - --------- ---------- ---------- ---------- Net income (loss) 5,976 (864,802) (262,571) (1,323,099) Deemed dividend on warrant modifications (11,734) (189,834) (40,668) (189,834) --------- ---------- ---------- ---------- Net loss applicable to common shareholders (5,758) (1,054,636) (303,239) (1,512,933) Other comprehensive loss: Foreign currency translation (14,112) (5,971) (5,858) (13,016) --------- ---------- ---------- ---------- Total comprehensive loss $ (19,870) $(1,060,607) $ (309,097) $(1,525,949) ========== =========== =========== =========== Net loss per share: Basic and diluted $ 0.00 $ (0.02) $ 0.00 $ (0.03) ========== =========== =========== =========== Weighted average shares outstanding: Basic and diluted 74,869,250 62,234,118 75,143,089 60,049,801 ========== ========== ========== ==========

The accompanying notes are an integral part of these condensed consolidated financial statements. 5 ADVANCED ID CORPORATION UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the Six Months Ended June 30, 2009 and 2008 (Unaudited) Six Months Ended June 30, ------------------------ 2009 2008 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (262,571) $(1,072,452) Adjustments to reconcile net loss to cash used in operating activities: Depreciation, amortization and impairment 29,292 43,217 Share based payments issued for services 6,500 361,071 Gain on sale of PLCL (219,156) - Stock options issued for services - 273,241 Bad debt on subscription receivable 14,430 - Accretion on debenture 5,331 - Changes in assets and liabilities: Accounts receivable 126,312 (94,997) Inventories - finished goods (18,775) 60,220 Prepaid expenses 11,655 (3,131) Accounts payable 251,141 63,966 Accounts payable - related parties (91,196) 5,221 Accrued liabilities (4,425) (18,544) ----------- ----------- CASH FLOWS USED IN OPERATING ACTIVITIES (151,462) (632,835) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (4,746) (13,989) ----------- ----------- CASH FLOWS USED IN INVESTING ACTIVITIES (4,746) (13,989) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from loans payable - related party 20,000 28,978 Deposits on shares to be issued - 50,000 Proceeds from sale of stock - 682,480 Payments on Pneu-Logic asset purchase payable - (60,000) ----------- ----------- CASH FLOWS GENERATED FROM FINANCING ACTIVITIES 20,000 701,458 ----------- ----------- EFFECT OF EXCHANGE RATE CHANGES (17,694) (12,480) NET INCREASE (DECREASE) IN CASH (153,902) 42,154 Cash, beginning of period 165,072 61,557 ----------- ----------- Cash, end of period $ 11,170 $ 103,711 =========== =========== CASH PAID FOR: Interest $ 3,333 $ 5,193 Taxes $ - $ - NON-CASH INVESTING AND FINANCING TRANSACTIONS: Reclassification of shares to be issued $ - $ 242,500 Deemed dividend on warrant modification $ 40,668 $ 189,834 Common shares issued for conversion of debenture $ 30,000 $ - Common shares issued for subscriptions receivable $ 85,000 $ -

The accompanying notes are an integral part of these condensed consolidated financial statements. 6 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Advanced ID Corporation ("Advanced ID" or "the Company") have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2008, as reported in the Form 10-K filed on April 14, 2009, have been omitted. Certain 2008 accounts have been reclassified to conform to 2009 presentation. NOTE 2 - FINANCIAL CONDITION AND GOING CONCERN Advanced ID has incurred net losses for the six months ended June 30, 2009 and the year ended December 31, 2008 of $262,571 and $2,516,131, respectively. Because of these losses, Advanced ID will require additional working capital to maintain its existence and to develop its business operations. Advanced ID intends to raise additional working capital through private placements, public offerings and/or bank financing. There are no assurances that Advanced ID will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support Advanced ID's working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, Advanced ID will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to Advanced ID. These conditions raise substantial doubt about Advanced ID's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should Advanced ID be unable to continue as a going concern. 7 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS In June 2008, the FASB issued EITF 08-4, "Transition Guidance for Conforming Changes to Issue No. 98-5." The objective of EITF 08-4 is to provide transition guidance for conforming changes made to EITF 98- 5, "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios", that result from EITF 00-27 "Application of Issue No. 98-5 to Certain Convertible Instruments", and SFAS 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Issue is effective for financial statements issued for fiscal years ending after December 15, 2008 and has no effect on the Company's financial statements. In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the Impairment Guidance of EITF Issue No. 99-20, and EITF Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets". FSP EITF 99-20-1 changes the impairment model included within EITF 99-20 to be more consistent with the impairment model of SFAS 115. FSP EITF 99-20-1 achieves this by amending the impairment model in EITF 99-20 to remove its exclusive reliance on "market participant" estimates of future cash flows used in determining fair value. Changing the cash flows used to analyze other-than-temporary impairment from the "market participant" view to a holder's estimate of whether there has been a "probable" adverse change in estimated cash flows allows companies to apply reasonable judgment in assessing whether an other-than-temporary impairment has occurred. The adoption of FSP EITF 99-20-1, which is effective for annual reporting periods ending after December 15, 2008, does not have a material impact on the Company's financial statements. In June 2009, the FASB issued SFAS No. 167, a revision to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, and will change how a company determines when an entity that is insufficiently capitalized or is not controlled through voting (or similar rights) should be consolidated. Under SFAS No. 167, determining whether a company is required to consolidate an entity will be based on, among other things, an entity's purpose and design and a company's ability to direct the activities of the entity that most significantly impact the entity's economic performance. SFAS 167 is effective at the start of a company's first fiscal year beginning after November 15, 2009, or January 1, 2010 for companies reporting earnings on a calendar-year basis. The adoption of this statement does not have a material impact on the Company's financial statements. In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting. SFAS 168 represents the last numbered standard to be issued by FASB under the old (pre-Codification) numbering system, and amends the GAAP hierarchy. On July 1, FASB will launch new FASB's Codification known as the FASB Accounting Standards Codification TM. The Codification will supersede existing GAAP for nongovernmental entities; governmental entities will continue to follow standards issued by FASB's sister organization, the Governmental Accounting Standards Board (GASB). This statement is effective for financial 8 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS statements issued for interim and annual period ending after September 15, 2009. The Company is in the process of evaluating the effect of the adoption of SFAS No. 168 will have on the Company's financial statements. NOTE 4 - COMMON STOCK During the six months ended June 30, 2009, a total of 2,279,432 common shares were returned and cancelled. Of these shares, three directors voluntarily returned a total of 1,494,432 that were received as compensation amounting to $283,995 in 2008 and 785,000 shares were returned to settle subscription receivables totaling $78,500. Pursuant to board resolutions, during the six months ended June 30, 2009 the following warrants were extended: - On January 12, 2009, the expiry date of 900,000 warrants exercisable at $0.40 was extended by one year to January 12, 2010. - On February 10, 2009, the expiry date of 200,000 warrants exercisable at $0.30 was extended by one year to February 10, 2010. - On February 14, 2009, the expiry date of 200,000 warrants exercisable at $0.30 was extended by one year to February 14, 2010. - On February 20, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to February 20, 2010. - On February 25, 2009, the expiry date of 1,000,000 warrants exercisable at $0.20 was extended by one year to February 25, 2010. - On March 2, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to March 2, 2010. - On March 6, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to March 6, 2010. - On March 23, 2009, the expiry date of 400,000 warrants exercisable at $0.30 was extended by one year to March 23, 2010. - On March 30, 2009, the expiry date of 84,998 warrants exercisable at $0.30 was extended by one year to March 30, 2010. - On May 21, 2009, the expiry date of 1,590,000 warrants exercisable at $0.40 was extended by one year to May 21, 2010. Given the permanent equity nature of the underlying instruments, the $40,668 fair market value calculated as a result of these extensions was recorded as a deemed dividend. 9 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 5 - RELATED PARTY TRANSACTIONS In addition to being a director of Advanced ID, Mr. Kazimirski provides consulting services to Advanced ID for the purposes of assisting with product and market development. Specifically, Mr. Kazimirski has been responsible for establishing distribution partners in countries located outside of North America, assisting the Company in finding and negotiating supplier partnership agreements, and other general business tasks as requested by the Company. There exists no written consulting agreement in place but it has been mutually agreed that Mr. Kazimirski will receive $175 per hour for his services for an undefined term, and which began January 3, 2003. During the quarter ended June 30, 2009 and June 30, 2008, consulting and director fees totaled $Nil and $105,023 for his services respectively. The services in 2008 were paid for via the issuance of shares however, as a result of the Company's financial position, in December 2008 Mr. Kazimirski issued a credit note for all 2008 charges for his services to the Company. The shares given to him were returned and canceled on February 18, 2009. On November 14, 2007, Mr. Kazimirski provided a $60,000 loan to the Company. In addition Mr. Kazimirski loaned the Company an additional $20,000 on May 1, 2009. The loans are unsecured, repayable on demand and bear interest at 10% per annum. The loans were still outstanding on June 30, 2009. During the period ended June 30, 2009, Mr. Sudeep Bhargava, Vice President Operations and Interim CFO, received $14,920 in salary. In the same period in 2008 he received $66,603 in fees and bonuses, some of which were paid via the issuance of shares. In December 2008, due to the financial condition of the Company, Mr. Bhargava agreed to issue a credit note for all share based payments made to him and returned the shares which were canceled in December 2008. In addition to being President & CEO, Mr. Dan Finch also performs a role of director of Advanced ID. Mr. Finch is compensated for his services as a director. During the period ending June 30, 2009 and June 30, 2008 a total of $54,610 and $82,632 respectively was paid or accrued for salary, bonuses, benefits and director fees. Some of these services were paid for via the issuance of shares in 2008. Mr. Finch issued a credit note for all of his share based compensation in 2008 and shares given to him for 2008 compensation were returned and canceled on March 12, 2009. Mr. Meier was a director of the Company until February 2009. Mr. Meier provided consulting services to Advanced ID for the purposes of assisting with product and supplier development. During the period ending June 30, 2009 and June 30, 2008 consulting fees and director fees totaled $26,675 and $8,875 for his services, respectively. These services were paid for via the issuance of shares. In addition to being a director of Advanced ID, Mr. Fields provides consulting services to Advanced ID for the purposes of assisting with investor relations and stock development. Specifically, Mr. Fields has been responsible for development of investor relations programs and company funding activities such as private placements. Mr. Fields 10 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 5 - RELATED PARTY TRANSACTIONS provided services based on his hourly rate until January 2009 after which time the Company agreed to pay him $3,500 per month. During the period ending June 30, 2009 and June 30, 2008 consulting and director fees totaled $21,000 and $34,550 for his services, respectively. In 2008 Mr. Fields' services were paid for via the issuance of shares, however, as a result of the Company's financial position, in December 2008 Mr. Fields issued a credit note for all 2008 charges for his services to the Company. The shares given to him were returned and canceled on April 2, 2009. NOTE 6 - COMMITMENTS The Company has agreed to pay each director $1,500 per month as part of their compensation. In addition, each director will be paid $175 per hour for their services rendered on behalf of the Company. In 2008, this compensation plan was suspended indefinitely based on the Company's financial position. Commencing January 2009, the Company agreed to pay Mr. Terry Fields $3,500 per month for his services. The Company has a number of lease commitments related to office space and equipment. Estimated future minimum lease payments under these leases are as follows: July to December 2009 $ 19,875 2010 32,148 2011 27,586 2012 18,391 2013 and thereafter - -------- $ 98,000 ======== NOTE 7 - DDCT ACQUISITION In February 2009, the Company decided that it would no longer be pursuing the acquisition of Shenzhen DDCT Technology, Co. ("DDCT"). As a result of the cancelation of the acquisition of DDCT, the Company was owed $149,815 on December 31, 2008. This amount was fully impaired at December 31, 2008 as a result of the low probability of collection. During the six months ended June 30, 2009 DDCT paid $4,040 of expenses on behalf of Advanced ID (Shenzhen) Co., Ltd. This amount was recorded as a recovery of bad debt. In addition, as a result of the decision not to pursue the acquisition, management decided to record an impairment charge of $21,702 representing the full value of the property and equipment of Advanced ID (Shenzhen) Co., Ltd. 11 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 8 - CONVERTIBLE DEBENTURES Pursuant to a Securities Purchase Agreement dated November 10, 2008, the Company issued to La Jolla Cove Investors Inc. ("La Jolla") a convertible debenture in the principal amount of $1,000,000. As consideration, the Company received $200,000 cash and a promissory note for $800,000. On the same day the Company received a prepayment on the promissory note for $75,000. The Company accounted for the debenture in accordance with Statement of Financial Accounting Standards ("FASB") No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". The debenture bears interest at 6% per annum and matures on November 30, 2011. In the event the Company's common stock is trading for $0.058 or lower at any time during the period from November 10, 2008 to May 10, 2009; the interest rate shall be increased to 9 3/4 % per annum and all the interest that would accrue on the debenture to maturity must be paid within 3 business days of such event. The interest rate adjustment has been identified as an embedded derivative and has been accounted for at fair value as at December 31, 2008 in accordance with FAS 133 "Accounting for Derivative Instruments and Hedging Activities"("FAS 133"). The principal and any unpaid interest on the debenture is convertible at the option of the holder, in whole or in part, into common shares of the Company at a conversion price equal to the lesser of: $0.50 and 80% of the average of the three lowest VWAP during the 20 trading days prior to the conversion date. The Company may increase the number of applicable trading days if it deems appropriate. The Company has determined that the conversion price will likely equal the 80% average of the three lowest VWAP during the 20 trading days prior to the conversion date and thus recorded an additional $250,000 expense. A debt discount of $32,253 was recorded upon valuation of the redemption put liability. This debt discount is being charged to operations as accretion expense and added to the debenture payable over the term of the debenture. Total debentures payable at periods end are as follows June 30 December 31 2009 2008 --------- ----------- Balance beginning of year $1,219,249 $ - Issue of debentures - 1,000,000 Finance charge - 250,000 Debt discount - (32,253) Conversion into shares (30,000) - Accretion of debt discount 5,331 1,502 ---------- --------- $1,194,580 $1,219,249 ========== ========= 12 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 9 - DISPOSITION OF PLCL On June 1, 2009, the Company disposed of its 100% owned shares in Pneu Logic Corporation Limited ("PLCL") for 1 British Pound to Pneu-Logic Limited ("PLL"), a company owned by one of the directors of PLCL. PLCL was incorporated after acquiring assets from PLL during year 2007. Due to the fact that acquisition payables and accounts payable due to PLL and loans payable due to one of the directors of PLCL were waived, a gain on disposition in the amount of $219,156 was recorded as a result of the disposition. NOTE 10 - SEGMENT REPORTING The Company operates in one industry segment - radio frequency identification microchip readers and tags. The Company operates primarily in one geographic area, being the North America. FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, establishes standards for reporting information about operating segments. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision maker is its Chief Executive Officer. The Company's Chief Executive Officer reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results and plans for products or components below the consolidated unit level. Accordingly, the Company reports as a single operating segment. NOTE 11 - SUBSEQUENT EVENTS Subsequent events were evaluated by the Company as of September 18, 2009, the date on which the financial statements for the six months ended June 30, 2009 were available to be issued. On June 24, 2009 the Company received a conversion notice from La Jolla requesting the conversion of $20,000 of the outstanding debenture into 1,599,232 shares of the Company. The shares were issued on July 8, 2009. On July 24, 2009 the Company received a conversion notice from La Jolla requesting the conversion of $22,000 of the outstanding debenture into 1,909,722 shares of the Company. These shares remain unissued. On July 17, 2009, the expiry date of 250,000 warrants exercisable at $0.30 was extended by one year to July 17, 2010. On August 24, 2009, the expiry date of 150,000 warrants exercisable at $0.22 was extended by one year to August 24, 2010. 13 ADVANCED ID CORPORATION NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 11 - SUBSEQUENT EVENTS (continued) On September 3, 2009, the expiry date of 750,000 warrants exercisable at $0.25 was extended by one year to September 3, 2010. On September 7, 2010, the expiry date of 2,000,000 warrants exercisable at $0.25 was extended by one year to September 7, 2010. As of the date of this report, Advanced ID does not have sufficient shares authorized to meet all of the various share issuance obligations as discussed throughout these footnotes and those discussed in the Company's audited consolidated financial statements for the year ended December 31, 2008, including stock options, stock warrants, stock committed for cash, stock committed for services, and the convertible debenture with La Jolla Cove Investors, Inc. Advanced ID may not be able to carry out its intended transactions due to a lack of sufficient authorized shares. The Company intends to seek approval at its next annual general meeting to increase its authorized share capital in order to be able to meet all of its share issuance obligations. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion is intended to assist in understanding the financial condition and results of operations of Advanced ID. You should read the following discussion along with our financial statements and related notes included in this Form 10-Q. The following discussion contains forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance and achievements in 2009 and beyond may differ materially from those expressed in, or implied by, these forward looking statements. Overview Advanced ID is a complete solutions provider in the Radio Frequency Identification business with a focus on the tire management industry. Advanced ID is also involved in the tire inspection business. Advanced ID is active in the pet recovery business through its AVID Canada subsidiary in Calgary, Alberta and has developed a UHF RFID reader product line for global supply chain applications. Recently Advanced ID has expanded to other countries in Europe, China and is currently evaluating setting up a minority owned subsidiary in Brazil to address the rapidly growing RFID market in South America. Results of Operations for the Six Months Ended June 30, 2009 and June 30, 2008. The net loss of $303,239 for the six months ended June 30, 2009 was lower by $1,209,694 compared to last year due to lower selling and general and administrative expenses during the six months ended June 30, 2009. Revenues Revenues of $210,904 during the six months ended June 30, 2009 decreased by $501,117 or 70.38% from last year. This decrease can be attributed to a general slow-down in the economy resulting in lower sales levels. As a result of the slumping sales levels, the Company retained Petidco Sales and Marketing Ltd., to market its companion animal products in North America. Petidco will purchase products from Avid Canada on a cost plus basis and is assuming all costs associated with the Avid Canada operation. We believe that this will help to increase the profitability of the Company. In addition, we can now focus on the larger opportunities in overseas markets with less competition. Cost of Revenues Cost of Revenues of $112,244 for the six months ended June 30, 2009 decreased by $290,132 or 72.10% over same period in the previous year. The decrease in Cost of Revenues is attributed to lower sales levels. Gross profit of $98,660 decreased by $210,985 from the corresponding six month period ended June 30, 2008. The gross profit margin increased from 43.49% for the period ended June 30, 2008 to 46.78% for the period ended June 30, 2009. The increase was attributable to the sale of higher margin products during the current period. Research and Development Research and development expenses of $32,502 for the six months ended June 30, 2009 decreased by $1,904 or 5.53% from last year's comparable period. During the quarter ended June 30, 2009 the Company invested some funds into further development of applications for its readers. 15 General, administrative and selling expense For the six months ended June 30, 2009, general and administrative and selling expenses of $510,772 were lower by $1,084,605 or 67.98% than last comparable period mainly due to cost cutting measures imposed by the Company. Interest income (expense) During the six months ended June 30, 2009 net interest expense was $14,120 as compared to $2,961 during the same period last year. The increase is due to the interest on the outstanding debentures which was partially offset by the interest earned on the Company's promissory note receivable. Impairment of property and equipment for the six months ended June 30, 2009 was $21,702 versus $Nil for the same period in 2008. In 2009, the Company recorded an impairment on its assets in China. During the six months ended June 30, 2009, the Company recorded a gain on the sale of Pneu-Logic Corporation Limited of $219,156. The reason is that acquisition payables and accounts payable due to PLL and loans payable due to one of the directors of PLCL were waived. Results of Operations for the Three Months Ended June 30, 2009 and June 30, 2008. The net loss of $5,758 for the three months ended June 30, 2009 was lower by $1,048,878 compared to last year, due to higher selling general and administration costs in 2008 and the gain on sale of PLCL in the amount of $219,156 in 2009. Revenues Revenues of $64,410 during the three months ended June 30, 2009 decreased by $299,227 or 82.29% from last year. This decrease can be attributed to the lower sales levels in general due to economic conditions. Cost of Revenues Cost of Revenues of $38,289 for the three months ended June 30, 2009 decreased by $162,572 or 80.94% over same period in the previous year. The decrease in Cost of Revenues is attributed to slight changes in the product sales mix, lower sales and the re-focus on the Company away from the companion animal business in Canada. Gross profit of $26,121 decreased by $136,655 from the corresponding three month period ending June 30, 2008. The gross profit margin decreased slightly from 44.76% to 40.55%, reflecting the change in product mix. Research and Development Research and development expenses of $30,552 for the three months ended June 30, 2009 increased by $9,076 or 42.26% from last year's comparable period. General, administrative and selling expense For the three months ended June 30, 2009, general and administrative and selling expenses of $195,092 were lower by $808,922 as compared to general and administrative and selling expenses of $1,004,014 for the three months ended June 30, 2008. The difference was mainly due to the cost cutting measures undertaken by the Company. 16 Other income (expense) During the three months ended June 30, 2009, interest expense was $10,977 as compared to $2,088 during the same period last year mainly due to the interest on the La Jolla Cove debentures. Liquidity and Capital Resources As at June 30, 2009, we had cash and cash equivalents of $11,170. During the six months ended June 30, 2009, net cash used in operating activities of $151,462 was lower by $481,373 or 76.07% as compared to the quarter ended June 30, 2008. The decrease in cash used by operating activities during 2009 resulted primarily from an overall decrease in general and administrative expenses as a result of cost cutting measures. During the six months ended June 30, 2009, net cash used in investing activities was $4,746 compared to cash used in investing activities of $13,989 for the six months ended June 30, 2008. The decrease of $9,243 was mainly due to the Company's financial position which restricted its investing ability. During the six months ended June 30, 2009, net cash provided by financing activities was $20,000 as compared to $701,458 for the six months ended June 30, 2008. The lower cash generated is a result of lower proceeds from sales of stock. Our internal and external sources of liquidity have included cash generated from the exercise of options and warrants, proceeds raised from subscription agreements and private placements, and advances from related parties. We are currently not aware of any trends that are reasonably likely to have a material impact on our liquidity. We are attempting to increase the sales to raise much needed cash for the remainder of the year, which will be supplemented by our efforts to raise cash through the issuance of equities securities. It is our intent to secure a market share in the livestock and inanimate identification industry which we feel will require additional capital over the long term to undertake sales and marketing initiatives, further our research and development, and to manage timing differences in cash flows from the time product is manufactured to the time it is sold and cash is collected from the sale. Our capital strategy is to increase our cash balance through financing transactions, including the issuance of debt and/or equity securities. OFF-BALANCE SHEET ARRANGEMENTS We have no off-balance sheet arrangements. CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION Certain information set forth in this report contains "forward-looking statements" within the meaning of federal securities laws. Forward looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, and financing needs and other information that is not historical information. When used in this report, the words "estimates," "expects," "anticipates," "forecasts," "plans," "intends," "believes" and variations of such words or similar expressions are intended to identify forward-looking statements. Additional forward- 17 looking statements may be made by us from time to time. All such subsequent forward-looking statements, whether written or oral and whether made by us or on our behalf, are also expressly qualified by these cautionary statements. Our forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitation, our examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that our expectations, beliefs and projections will result or be achieved or accomplished. Our forward-looking statements apply only as of the date made. We undertake no obligation to publicly update or revise forward- looking statements which may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events. There are a number of risks and uncertainties that could cause actual results to differ materially from those set forth in, contemplated by or underlying the forward-looking statements contained in this report. Those risks and uncertainties include, but are not limited to, our history of operating losses, lack of liquidity in our common stock, our dependence on key personnel, the expression by our auditors of uncertainty as to our ability to continue as a going concern, and the fact that we face substantial competition. Those risks and certain other uncertainties are discussed in more detail in our 2008 Annual Report on Form 10-K and our subsequent filings with the SEC. There may also be other factors, including those discussed elsewhere in this report that may cause our actual results to differ from the forward- looking statements. Any forward-looking statements made by us or on our behalf should be considered in light of these factors. Item 3. Quantitative and Qualitative Disclosures about Market Risk We do not consider the effects of interest rate movements to be a material risk to our financial condition. We do not hold any derivative instruments and do not engage in any hedging activities. Item 4T. Controls and Procedures. Evaluation of Disclosure Controls and Procedures: We maintain disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act that are designed to insure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or the persons performing similar functions, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of our CEO and CFO, or the persons performing similar functions, our management has evaluated the effectiveness of our disclosure controls and procedures as of the 18 end of the period covered by this annual report. Based on that evaluation, our CEO and CFO, or the persons performing similar functions, concluded that our disclosure controls and procedures were not effective as of June 30, 2009. In the course of making our assessment of the effectiveness of internal controls over financial reporting, we have identified a significant deficiency in our internal control over our disclosure controls and procedures. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the registrant's financial reporting. Therefore, it is our conclusion that the registrant's internal controls over disclosure controls and procedures were not effective as of March 31, 2009. Information from the books and records of PLCL were inadvertently combined with those of PLL resulting in additional cost and time to separate the information. Management has implemented additional internal controls to ensure that similar situations do not occur in the future. Evaluation of Changes in Internal Control over Financial Reporting: During the three months ended June 30, 2009, there were no changes in our internal controls over financial reporting (as defined in Rule 13a- 15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Unregistered Sale of Securities and Use of Proceeds. Pursuant to board resolutions, during the three months ended March 31, 2009 the following warrants were extended: - On January 12, 2009, the expiry date of 900,000 warrants exercisable at $0.40 was extended by one year to January 12, 2010. - On February 10, 2009, the expiry date of 200,000 warrants exercisable at $0.30 was extended by one year to February 10, 2010. - On February 14, 2009, the expiry date of 200,000 warrants exercisable at $0.30 was extended by one year to February 14, 2010. - On February 20, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to February 20, 2010. - On February 25, 2009, the expiry date of 1,000,000 warrants exercisable at $0.20 was extended by one year to February 25, 2010. - On March 2, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to March 2, 2010. - On March 6, 2009, the expiry date of 100,000 warrants exercisable at $0.30 was extended by one year to March 6, 2010. - On March 23, 2009, the expiry date of 400,000 warrants exercisable at $0.30 was extended by one year to March 23, 2010. - On March 30, 2009, the expiry date of 84,998 warrants exercisable at $0.30 was extended by one year to March 30, 2010. - On May 21, 2009, the expiry date of 1,590,000 warrants exercisable at $0.40 was extended by one year to May 21, 2010. On September 3, 2009 the company reached an agreement for the cancellation of the debentures with La Jolla Cove Investors (LJCI) subject to the following terms and conditions: 1. Advanced ID (AID) agrees to pay LJCI the aggregate sum of $203,000,000 with $10,000 payable upon execution and $50,000 payable every two weeks starting October 3, 2009. 2. If AID is not in default, LJCI will not submit any conversion notice or otherwise attempt to convert the debenture into common stock. 3. If AID is not in default, AID shall not be required to make any monthly or otherwise scheduled payments under the debenture and LJCI shall not be required to make any payments under the note. 4. If AID defaults (two days late on a payment or other breach of the covenants made by the parties) the debenture shall have an outstanding principal amount of $928,000 less 50% of any payments made toward the settlement amount. The note shall have an outstanding balance of $725,000. 20 5. Upon the receipt of the entire settlement amount, LJCI fully releases and forever discharges AID from any and all claims of any kind. The settlement agreement included a last debenture conversion agreement of up to $15,000 converted to AID stock at a floor of $0.015. The conversion has not been requested by La Jolla Cove as of September 14, 2009. Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits. Exhibit 31 - Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32 - Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: September 18, 2009 Advanced ID Corporation By /s/Dan Finch ------------------------ Dan Finch President and Director

ADVANCED ID CORP 10-Q