Attached files
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 September 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,
November 18, 2009: Common Stock - 79,996,987
2
PART I -- FINANCIAL INFORMATION
Advanced ID Corporation
Item 1. Financial Statements
Condensed Consolidated Balance Sheets, September 30, 2009(unaudited)
and December 31, 2008
Condensed Consolidated Statements of Operations and Comprehensive Loss
for the three months and nine months ended September 30, 2009 and 2008
(unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months
ended September 30, 2009 and 2008 (unaudited)
Notes to condensed consolidated financial statements (unaudited)
3
ADVANCED ID CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
As of September 30, 2009 and December 31, 2008
ASSETS September 30, December 31,
2009 2008
------------ -----------
(Unaudited) (Audited)
Current assets
Cash $ 5,997 $ 165,072
Trade accounts receivable, net 8,217 135,156
Accounts Receivable - Related parties - 346,974
Inventories - finished goods 53,885 45,703
Prepaid expenses 2,204 13,859
---------- -----------
Total current assets 70,303 706,764
---------- -----------
Property and equipment, net 23,570 51,334
Promissory notes receivable 725,000 725,000
Total other assets 748,570 776,334
---------- -----------
Total assets $ 818,873 $ 1,483,098
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 422,776 $ 315,666
Accounts payable - related parties 46,588 138,444
Accrued liabilities 7,411 13,491
Loans Payable - related parties 85,000 106,761
Short term loans 52,500 -
Redemption put liability 29,930 32,253
Contingent consideration on acquisition
of Pneu-Logic - 70,000
---------- -----------
Total current liabilities 644,205 676,615
Debentures payable 1,137,903 1,219,249
---------- -----------
Total Liabilities 1,782,108 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,
79,196,859 and 75,990,271 shares issued
and outstanding, respectively as of Sept.
30, 2009 and December 31, 2008 791,965 759,904
Additional paid-in capital 10,585,213 10,802,481
Subscriptions receivable - (99,430)
Accumulated deficit (12,325,584) (11,867,754)
Accumulated other comprehensive loss (14,829) (7,967)
---------- ----------
Total stockholders' deficit (963,235) (412,766)
---------- ----------
Total liabilities and stockholders' deficit $ 818,873 $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 Nine Months Ended September 30, 2009 and 2008
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
---- ---- ---- ----
Revenues $ 59,997 $222,229 $270,901 $ 934,250
Cost of revenues 23,784 115,613 136,028 517,989
--------- -------- -------- ---------
Gross profit 36,213 106,616 134,873 416,261
Research and development expense 5,000 224 37,502 34,630
Selling and general and
administrative expense 133,752 508,796 644,524 2,104,173
Impairment of property and equipment - 122,468 21,702 122,468
Accretion on debenture 3,431 - 8,762 -
Gain on sale of PLCL - - (219,156) -
Recovery of bad debt - - (4,040) -
-------- -------- -------- ---------
Loss from operations (105,970) (524,872) (354,421) (1,845,010)
Interest expense (4,427) (8,383) (18,547) (11,344)
-------- -------- -------- ---------
Loss before income taxes (110,397) (533,255) (372,968) (1,856,354)
Provision for income taxes - - - -
-------- -------- -------- ---------
Net loss (110,397) (533,255) (372,968) (1,856,354)
Deemed dividend on warrant modifications (44,194) - (84,862) (189,834)
-------- -------- -------- ---------
Net loss applicable to common
shareholders (154,591) (533,255) (457,830) (2,046,188)
Other comprehensive income(loss):
Foreign currency translation (1,004) 6,474 (6,862) (6,542)
-------- -------- -------- ---------
Total comprehensive loss $(155,595) $(526,781) $(464,692) $(2,052,730)
========= ========= ========= ===========
Net loss per share:
Basic and diluted $ 0.00 $ (0.01) $ 0.01 $ (0.03)
========= ========= ========= ===========
Weighted average shares outstanding:
Basic and diluted 78,663,905 67,141,760 76,329,591 62,437,240
========= ========= ========= ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
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ADVANCED ID CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 2009 and 2008
(Unaudited)
Nine Months Ended September 30,
2009 2008
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (372,968) $(1,856,354)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation, amortization and impairment 32,509 177,251
Share based payments issued for services 6,500 594,498
Gain on sale of PLCL (219,156) -
Stock options issued for services - 273,241
Bad debt on subscription receivable 14,430 2,000
Accretion on debenture 8,762 -
Changes in assets and liabilities:
Accounts receivable 124,943 (62,610)
Inventories - finished goods (9,297) 47,478
Prepaid expenses 11,661 (1,185)
Accounts payable 236,720 (36,216)
Accounts payable - related parties (44,608) (21,291)
Accrued liabilities (3,156) (34,181)
---------- ----------
CASH FLOWS USED IN OPERATING ACTIVITIES (213,660) (917,369)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (4,746) (13,989)
Advances to DDCT - (80,000)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES (4,746) (93,989)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loans payable - related party 25,000 55,008
Deposits on shares to be issued - 125,000
Short term loans 52,500 -
Proceeds from sale of stock - 1,128,011
Payments on Pneu-Logic asset purchase payable - (170,000)
---------- ----------
CASH FLOWS GENERATED FROM FINANCING ACTIVITIES 77,500 1,138,019
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES (18,169) (6,001)
NET INCREASE (DECREASE) IN CASH (159,075) 120,660
Cash, beginning of period 165,072 61,557
---------- ----------
Cash, end of period $ 5,997 $ 182,217
========== ==========
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CASH PAID FOR:
Interest $ 5,379 $ 8,766
Taxes $ - $ -
NON-CASH INVESTING AND FINANCING TRANSACTIONS:
Common stock issued to settle deposit on shares
to be issued $ - $ 192,500
Deemed dividend on warrant modification $ 84,862 $ 189,834
Common shares issued for conversion of debenture $ 72,000 $ -
Common shares issued for subscriptions receivable $ 85,000 $ 115,892
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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ADVANCED ID CORPORATION
NOTES TO CONDENSED 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/A. 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/A filed on October 1, 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 nine months ended September
30, 2009 and the year ended December 31, 2008 of $457,830 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.
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Note 3 - Recent Accounting Pronouncements
In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers
of Financial Assets - an amendment of FASB Statement No. 140," (not yet
reflected in FASB ASC). SFAS No. 166 limits the circumstances in which
a financial asset should be derecognized when the transferor has not
transferred the entire financial asset by taking into consideration the
transferor's continuing involvement. The standard requires that a
transferor recognize and initially measure at fair value all assets
obtained (including a transferor's beneficial interest) and liabilities
incurred as a result of a transfer of financial assets accounted for as
a sale. The concept of a qualifying special-purpose entity is removed
from SFAS No. 140, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities," along with the exception
from applying FIN 46(R), "Consolidation of Variable Interest Entities."
The standard is effective for the first annual reporting period that
begins after November 15, 2009 (i.e. the Company's fiscal year
beginning January 1, 2010), for interim periods within the first annual
reporting period, and for interim and annual reporting periods
thereafter. Earlier application is prohibited. It is expected the
adoption of this Statement will have no material effect on the
Company's Consolidated Financial Statements.
In June 2009, the FASB issued SFAS No. 167 (not yet reflected in FASB
Accounting Standards Codification (ASC)), 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 FASB 105-10 (formerly 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 launched new FASB's
Codification known as the FASB Accounting Standards CodificationTM. 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 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.
In August, 2009, the FASB issued Accounting Standard Update No. 2009-05
("ASU 2009-05") to provide guidance on measuring the fair value of
liabilities under FASB ASC 820 (formerly SFAS 157, "Fair Value
Measurements"). The Company is required to adopt ASU 2009-05 in the
fourth quarter of 2009. It is expected the adoption of this Update will
have no material effect on the Company's Consolidated Financial
Statements.
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In October 2009, the FASB concurrently issued the following ASC
Updates:
*??ASU No. 2009-14 - Software (ASC Topic 985): Certain Revenue
Arrangements That Include Software Elements (formerly EITF Issue No.
09-3). This standard removes tangible products from the scope of
software revenue recognition guidance and also provides guidance on
determining whether software deliverables in an arrangement that
includes a tangible product, such as embedded software, are within the
scope of the software revenue guidance.
*??ASU No. 2009-13 - Revenue Recognition (ASC Topic 605): Multiple-
Deliverable Revenue Arrangements (formerly EITF Issue No. 08-1). This
standard modifies the revenue recognition guidance for arrangements
that involve the delivery of multiple elements, such as product,
software, services or support, to a customer at different times as part
of a single revenue generating transaction. This standard provides
principles and application guidance to determine whether multiple
deliverables exist, how the individual deliverables should be separated
and how to allocate the revenue in the arrangement among those separate
deliverables. The standard also expands the disclosure requirements for
multiple deliverable revenue arrangements.
These Accounting Standards Updates should be applied on a prospective
basis for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010, with earlier
application permitted. Alternatively, an entity can elect to adopt
these standards on a retrospective basis, but both these standards must
be adopted in the same period using the same transition method. The
Company expects to apply this standard on a prospective basis for
revenue arrangements entered into or materially modified beginning
January 1, 2011. The Company is currently evaluating the potential
impact these standards may have on its financial position and results
of operations.
Other accounting standards that have been issued or proposed by the
FASB or other standards-setting bodies that do not require adoption
until a future date are not expected to have a material impact on the
Company's Consolidated Financial Statements upon adoption.
NOTE 4 - COMMON STOCK
During the nine months ended September 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. La Jolla
Cove Investors also converted a total of $72,000 of outstanding
debentures into 5,486,020 common shares.
Pursuant to board resolutions, during the nine months ended September
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.
10
- 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 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.
- 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, 2009, the expiry date of 2,000,000 warrants
exercisable at $0.25 was extended by one year to September 7, 2010.
- On September 29, 2009, the expiry date of 246,667 warrants
exercisable at $0.30 was extended by one year to September 29, 2010.
Given the permanent equity nature of the underlying instruments, the
$84,862 fair market value calculated as a result of these extensions
was recorded as a deemed dividend.
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 nine month period ended
September 30, 2009 and September 30, 2008, consulting and director fees
11
totaled $Nil and $162,163 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 and $5,000 on September 8, 2009. The loans are
unsecured, repayable on demand and bear interest at 10% per annum. The
loans were still outstanding on September 30, 2009.
During the nine month period ended September 30, 2009, Mr. Sudeep
Bhargava, Vice President Operations and Interim CFO, received $14,920
in salary. In the same period in 2008 he received $89,984 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 nine month period ending September
30, 2009 and September 30, 2008 a total of $80,515 and $109,265
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 nine month
period ending September 30, 2009 and September 30, 2008 consulting fees
and director fees totaled $Nil and $23,680 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
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
nine month period ending September 30, 2009 and September 30, 2008
consulting and director fees totaled $31,500 and $57,325 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.
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NOTE 6 - COMMITMENTS
The Company had agreed to pay each director $1,500 per month as part of
their compensation. In addition, each director was to 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:
September to December 2009 $ 9,575
2010 36,570
2011 31,381
2012 20,921
2013 and thereafter -
--------
$ 98,447
========
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 nine months ended September 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.
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 FASB ASC 480-10 (formerly SFAS 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
13
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
September 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 (72,000) -
Accretion of debt discount 8,762 1,502
Allocation of finance charge to equity (18,108) -
---------- ---------
$1,137,903 $1,219,249
========== =========
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
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.
5. Upon the receipt of the entire settlement amount, LJCI fully
releases and forever discharges AID from any and all claims of any
kind.
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The settlement agreement included a last debenture conversion agreement
of up to $15,000 converted to AID stock at a floor of $0.015. On
October 15, 2009 La Jolla Cove Investors converted $15,000 of the
outstanding debenture in 800,128 common shares of the Company and on
November 16, 2009, the Company completed making all payments under the
settlement agreement.
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 as
part of the sale, 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 November 20,
2009, the date on which the financial statements for the nine months
ended September 30, 2009 were available to be issued.
On October 17, 2009, the expiry date of 166,667 warrants exercisable at
$0.30 was extended by one year to October 17, 2010.
On October 27, 2009, the expiry date of 286,667 warrants exercisable at
$0.30 was extended by one year to October 27, 2010.
On November 2, 2009, the expiry date of 100,000 warrants exercisable at
$0.30 was extended by one year to November 2, 2010.
On November 17, 2009, the expiry date of 694,584 warrants exercisable
at $0.30 was extended by one year to November 17, 2010.
15
On November 18, 2009, the expiry date of 100,000 warrants exercisable
at $0.30 was extended by one year to November 18, 2010.
On October 15, 2009, La Jolla Cove Investors converted $15,000 of the
outstanding debenture in 800,128 common shares of the Company.
On November 16, 2009, the Company completed payments to La Jolla Cove
Investors Inc. pursuant to the agreement to cancel the debentures and
the debentures were cancelled along with the promissory note receivable
from La Jolla Cove Investors Inc.
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.
16
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 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 Nine Months Ended September 30, 2009 and
September 30, 2008.
The net loss of $372,968 for the nine months ended September 30, 2009
was lower by $1,483,386 compared to last year due to lower selling and
general and administrative expenses during the nine months ended
September 30, 2009.
Revenues
Revenues of $270,901 during the nine months ended September 30, 2009
decreased by $663,349 or 71.00% 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 $136,028 for the nine months ended September 30,
2009 decreased by $381,961 or 73.74% over same period in the previous
year. The decrease in Cost of Revenues is attributed to lower sales
levels. Gross profit of $134,873 decreased by $281,388 from the
corresponding nine month period ended September 30, 2008. The gross
profit margin increased from 44.56% for the period ended September 30,
2008 to 49.79% for the period ended September 30, 2009. The increase
was attributable to the sale of higher margin products during the
current period.
17
Research and Development
Research and development expenses of $37,502 for the nine months ended
September 30, 2009 increased by $2,872 or 8.29% over last year's
comparable period. During the quarter ended September 30, 2009 the
Company invested some funds into further development of applications
for its readers.
General, administrative and selling expense
For the nine months ended September 30, 2009, general and
administrative and selling expenses of $644,524 were lower by
$1,459,649 or 69.37% than last comparable period mainly due to cost
cutting measures imposed by the Company.
Interest income (expense)
During the nine months ended September 30, 2009 net interest expense
was $18,547 as compared to $11,344 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 nine months ended
September 30, 2009 was $21,702 versus $122,468 for the same period in
2008. In 2009, the Company recorded an impairment on its assets in
China while in 2008, a goodwill impairment was recognized.
During the nine months ended September 30, 2009, the Company recorded a
gain on the sale of Pneu-Logic Corporation Limited of $219,156. The
reason is that as part of the acquisition, payables and accounts
payable due to PLL and loans payable due to one of the directors of
PLCL were included as part of the purchase price.
Results of Operations for the Three Months Ended September 30, 2009 and
September 30, 2008.
The net loss of $110,397 for the three months ended September 30, 2009
was lower by $422,858 compared to last year, due to higher selling
general and administration costs in 2008.
Revenues
Revenues of $59,997 during the three months ended September 30, 2009
decreased by $162,232 or 73.00% 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 $23,784 for the three months ended September 30,
2009 decreased by $91,829 or 79.43% 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
$36,213 decreased by $70,403 from the corresponding three month period
ending September 30, 2008. The gross profit margin increased from
47.98% to 60.36%, reflecting the change in product mix.
Research and Development
Research and development expenses of $5,000 for the three months ended
September 30, 2009 increased by $4,776 over last year's comparable
period.
18
General, administrative and selling expense
For the three months ended September 30, 2009, general and
administrative and selling expenses of $133,752 were lower by $375,044
as compared to general and administrative and selling expenses of
$508,796 for the three months ended September 30, 2008. The difference
was mainly due to the cost cutting measures undertaken by the Company.
Interest income (expense)
During the three months ended September 30, 2009, interest expense was
$4,427 as compared to $8,383 during the same period last year mainly
due to the interest on the La Jolla Cove debentures.
Liquidity and Capital Resources
As at September 30, 2009, we had cash and cash equivalents of $5,997.
During the nine months ended September 30, 2009, net cash used in
operating activities of $213,660 was lower by $703,709 or 76.71% as
compared to the period ended September 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 nine months ended September 30, 2009, net cash used in
investing activities was $4,746 compared to cash used in investing
activities of $93,989 for the nine months ended September 30, 2008.
The decrease of $89,243 was mainly due to the Company's financial
position which restricted its investing ability and its 2008 advance
paid to DDCT.
During the nine months ended September 30, 2009, net cash provided by
financing activities was $77,500 as compared to $1,138,019 for the nine
months ended September 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.
19
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-
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-KSB 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:
In connection with the preparation of this quarterly report, an
evaluation was carried out by our management, with the participation of
the chief executive officer and the chief financial officer, of the
20
effectiveness of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act as of
September 30, 2009. Disclosure controls and procedures are designed to
ensure that information required to be disclosed in the reports filed
or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the Commission's
rules and forms and that such information is accumulated and
communicated to management, including the chief executive officer and
chief financial officer, to allow timely decisions regarding required
disclosures.
In the course of making our assessment of the effectiveness of
disclosure controls and procedures for the three months ended
September 30, 2009, we have not identified any significant deficiency
in our disclosure controls and procedures.
Evaluation of Changes in Internal Control over Financial Reporting:
During the three months ended September 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.
21
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 nine months ended September
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.
- 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.
- 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, 2009, the expiry date of 2,000,000 warrants
exercisable at $0.25 was extended by one year to September 7, 2010.
- On September 29, 2009, the expiry date of 246,667 warrants
exercisable at $0.30 was extended by one year to September 29, 2010.
On September 3, 2009, Advanced ID reached an agreement for the
cancellation of the debentures with La Jolla Cove Investors (LJCI)
subject to the following terms and conditions:
22
1. Advanced ID agrees to pay LJCI the aggregate sum of $203,000 with
$10,000 payable upon execution and $50,000 payable every two weeks
starting October 3, 2009.
2. If Advanced ID is not in default, LJCI will not submit any
conversion notice or otherwise attempt to convert the debenture into
common stock.
3. If Advanced ID 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 Advanced ID 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.
5. Upon the receipt of the entire settlement amount, LJCI fully
releases and forever discharges Advanced ID from any and all claims of
any kind.
The settlement agreement included a last debenture conversion agreement
of up to $15,000 converted to Advanced ID stock at a floor of $0.015.
On October 15, 2009, La Jolla Cove Investors converted $15,000 of the
outstanding debenture in 800,128 common shares of Advanced ID and on
November 16, 2009, Advanced ID completed making all payments under the
settlement agreement.
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: November 20, 2009
Advanced ID Corporation
By /s/Dan Finch
------------------------
Dan Finch
President and Directo